🌍 Marking up dirty assets #68
Inside the ‘brown-spinning’ of dirty assets from public to private
It’s so dry in the Colorado River that the federal government officially declared a water shortage, meanwhile it’s raining for the first time on Greenland’s summit.
NYC’s ‘back to normal’ concert was cancelled due to record rainfall so instead we curled up this weekend with Tariq Fancy’s The Secret Diary of a ‘Sustainable Investor’ - the BlackRock sustainable investing ex CIO’s hot take: ‘we can no longer afford to answer inconvenient truths with convenient fantasies.’
In this week’s deals, Katy Perry backs plant-coating startup Apeel and Kairos Aerospace’s methane-watching eyes in the sky get a capital boost. We’ve also got a smattering of ways to work on climate, including lots of investing roles at top climate shops.
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Is “brown-spinning” the new “green washing”?
Where some reinvent, others resell. Public companies under the gun to commit to net zero have begun playing a game of hot potato with their dirty assets. When decarbonization is too costly or complex, some companies “brown-spin” - or sell off the highest-emitting components of their businesses to PE and hedge funds at a discount. Companies avoid complete write-downs, while willing private buyers snap up a deal to wring a few more years of profit from high-emitting assets out of the spotlight of public markets. Private co’s can continue to operate dirty assets with much less scrutiny – reducing disclosure, shielding polluters, and marginalizing the voice of the investor.
Ironically, some of these brown-spinning buyers are also newly proclaimed big climate investors. Brookfield Asset Management announced their $7b climate transition fund in the same month that they took over an oil sands pipeline company (Inter Pipeline) for $6.7b. Similarly, a month before KKR announced their $1b commitment to acquire renewables projects, KKR’s Independence Energy merged with Contango to create a $5.7b shale hunting behemoth.
We don’t expect capitalism to ever leave value on the table. So where do solutions fit in this game of stranded assets?
Asset emissions monitoring. While fossil fuels still play a role in satisfying the world’s energy demand, innovators are deploying new sensors and satellite technologies for rigorous methane monitoring and prevention to operate these dirty assets as cleanly as possible. Companies like Project Canary offer third-party continuous monitoring and certification to verify responsible operators.
Financial portfolio accountability. Despite the challenges of material ESG reporting for public companies, private investors are doing even worse. As Private Equity International puts it, “the current state of affairs allows flexibility for GPs to choose how much to report and how often to do it.” The lack of data collection and standardization of reporting across asset classes means that GPs can get away with cherry-picking favorable ESG examples rather than aggregating portfolio level performance. ESG ratings providers like MSCI or SP Global could do more to hold private firms accountable for acquiring dirty assets. Tools like PE stakeholder help track offloaded assets, while YvesBlue is building a view of private investor’s portfolio climate impact.
Retirement vs divestment. In what seems like perverse irony, forced divestment actually drives down prices and makes acquisition of stranded assets a ‘win’ for the eventual less ESG-discerning buyer. Divestment advocates could instead shift the discourse from offloading dirty assets (into the hands of shrouded buyers) to rewarding direct retirement and decommissioning of emissions-intensive projects.
Shifting energy demands. The only way to truly retire dirty assets comes down to demand math. If there’s underlying ROI left on the table, someone will always step in at the right price. Yet the acceleration down the cost curve of clean energy tech like solar, wind, and storage is rewriting the demand equation ever more in favor of cheaper clean assets.
Deals of the Week (8/16-8/22)
🍎 Apeel, a Santa Barbara, CA-based maker of a life-extending casing for fruits and vegetables to combat food waste, raised $250m in Series E funding from Mirae, GIC, Viking Global, Disruptive Innovation Fund, Tenere Capital, Sweetwater, Tao Capital, K3, Katy Perry, and others.
⚡ Ample, a San Francisco, CA-based EV battery-swapping startup, raised $160m in Series C funding from Moore Strategic Ventures, PTT, Disruptive Innovation Fund, Eneos, and SMRT.
💨 Kairos Aerospace, a Mountain View, CA-based identifier of oilfield methane leaks and emissions, raised $26m in Series C-1 funding from DCVC, OGCI Climate Investments, and Energy Innovation Capital.
💨 Regrow, a Durham, NH-based agtech startup with a monitoring, reporting, and verification (MRV) tool for carbon sequestration and monetization, raised $17m in Series A funding from Ajax Strategies, Tenacious Ventures, Cargill, M12, AirTree Ventures, Main Sequence, and the Grantham Environmental Trust.
⚡ Reactive Technologies, a London, UK-based grid technology company, raised $15m in funding from Eaton Corporation, Breakthrough Energy Ventures, and Business Growth Fund.
🐛 Beta Hatch, a Cashmere, WA-based mealworm producer for animal feed, raised $10m in funding from Lewis & Clark AgriFood, Cavallo Ventures, and Innova Memphis.
⚡ AmpUp, a Cupertino, CA-based EV charging company, raised an undisclosed amount of funding from Goodyear, Foothill Ventures, and TechNexus Venture Collaborative. [CEO Tom Sun was one of our very first CTVC spotlights!]
Exits & New Funds:
Aspiration, a Marina Del Rey, CA-based financial business for eco-conscious consumers, is going public via merger with SPAC Interprivate III Financial Partners in a deal valued at about $2.3b.
In the News
The UN’s Climate Change Conference, COP26, will convene in Glasgow in November this year but poor countries - without vaccines and most vulnerable to major polluters - might not make it to the negotiating table.
The federal government has officially declared a water shortage on the once-reliable Colorado River. Arizona farmers’ fields will go thirsty first, but the continued drought could affect up to 40m people in Nevada and Arizona.
California accelerated their electric-sector GHG reduction goals from 46MMT to 38MMT by 2030, adding more than 35GWs of new renewables and storage. Solar and batteries dominated the public commission's recommendations, though energy consultants see potential for emerging technologies like long duration storage and hydrogen.
The UK outlined a hydrogen economy plan, pledging to develop subsidy schemes that would incentivize $5b of H2 investment by 2030. The government projects that the British domestic hydrogen industry could generate $18b, create 100,000 new jobs, and power 35% of the UK’s energy consumption by 2050.
Texas requires oil producers to seek permits before flaring off unwanted methane, but a new study found that ~80% of flares are unpermitted - increasing certainty that methane leakage emissions are greater than reported.
We hopped on air to jam about CTVC’s origin story, stats on climate tech deals and funds, and resources for hiring climate candidates with Cody Simms at the Techstars Sustainability Roundtable. ICYMI live, catch the recording here.
David Roberts of Volts fame tackles the incredibly wonky but existentially important topic of the economic risks of climate tipping points. These perverse positive feedback loops could send the Earth into a tailspin, but they’re not all created equal.
It just rained on the snowy summit of Greenland for the first recorded time.
The story becomes personal for a photographer who spent 20 years braving blazes, only to find himself on the other side of the camera in his own backyard evacuating the Caldor fire.
Letters from the BlackRock Underground. Tariq Fancy’s The Secret Diary of a ‘Sustainable Investor’.
A mesmerizing real-time and crazy-detailed interactive map of the carbon intensity of power grids around the globe.
Two turtle doves, three french hens, and 35 rank-ordered use cases of hydrogen from Michael Liebriech’s clean hydrogen ladder.
Opportunities & Events:
💡 IndieBio: Rolling applications are open for IndieBio San Francisco’s 12th cohort of deep tech companies across food, ag, materials, chemicals, water, and more. Apply for $200k cash and $75k in-kind, accessible virtually and open to companies globally with free access to labs, co-working space, and hardware space for those in SF.
💡 Scale for ClimateTech: Startups with a climate focused hardware product should apply by September 13th to Cohort 4 of this free, manufacturing-focused accelerator.
💡 Exelon Foundation: Apply by September 17th to Exelon’s Climate Change Investment Initiative supporting startups catalyzing solutions to climate change.
🗓️ Energy, AI and Climate Change: Tune in on September 20th as Noam Chomsky shares his views on advances in technology including AI in the fight against climate change.
We’re privileged to be able to support the growth of top climate tech companies.
👨💼 Want in on some of that top climate talent? It’s free to post open climate tech roles through the end of the month. 🙋♂️ Want in on the top climate jobs? Be sure to bookmark and subscribe to the Pallet directly for updates. For your immediate viewing pleasure, here’s a smattering of some of the most popular and Featured roles:
Chief of Staff @ReGen Ventures
Investment Manager @Avesta Fund
Head of Finance @Farm
Head of Project Finance & Expansion @Carbo Culture
Product Design Lead @Sustain.Life
Sector Lead, Energy & Cities @Wellington Management
Climate Strategy Manager @Watershed
Feel free to 📩 send us new ideas, recent fundings, or general curiosities. Have a great week ahead!