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Practical Magic

How BCG helps corporations invest in climate tech

Open SC

OpenSC is a platform created by BCG and WWF to trace the origin, the production and the product journey of commodities along the supply chain. Here's a sensor is being installed on a palm oil truck.

BCG Digital Ventures

There has been much pontification of late (including here) about the coffers of mainstream money tipping into climate tech.

This mid-year update from the excellent Climate Tech VC newsletter suggests there were roughly 250 deals this year as of June 30, representing about $16 billion in funding. One data point you’ll appreciate: There were 50 percent more contracts disclosed during the second quarter, compared with a year earlier; although last year many investors held on to their money during the COVID-19 uncertainty, so consider that stat with caution.

Still, that amount is just what has already been specifically dedicated to startups and ventures. There’s beaucoup more moolah waiting in the wings — swelling private equity funds such as Brookfield’s Global Transition Fund (with $7 billion to start) and the TPG Rise Climate Fund (with $5.4 billion).

CTVC Chart

Investors who participated in the cleantech movement observe one big thing that makes the current spending spree different: the participation of traditional investors who have become interested in the economic opportunity linked to addressing climate change.

"Climate tech is much broader and includes things that cleantech would not have counted," said Valerie Shen, partner and COO of G2 Venture Partners, which recently closed its second $500 million fund dedicated to climate tech. At least half the firm’s limited partners are actively engaged in "searching for the sustainability piece," and the fund tracks the carbon emissions impact of its portfolio on an annual basis. Shen added: "There is a realization that so many things are heavily impactful for climate."

Over the past year, the "extreme politicization" of climate discussions has started to shift, another reason for the mainstream shift, noted Andrew Beebe, managing director of Obvious Ventures. "All sides are recognizing that this is a non-partisan issue in the problem statement," he told me. "When those things happen, investors start to recognize the foundation. When there is massive upheaval, there’s usually massive amounts of money to be made."

One more reason for the shift in perspective, Beebe suggests, is the increasingly "world positive" perspective of Generation Z. A growing number of entrepreneurs and founders are considering climate change and the decarbonization of the economy as part of their core value proposition. "This could change every single aspect of the way that we move goods and people," he observed. 

The businesses we build will tackle both the operational decarbonization side of the equation, addressing both Scope 1, 2 and 3 emissions, and the opportunity angle, supporting corporates through the inception and growth of new, green revenue streams.
 

Naturally, the monetary support flowing into climate tech startups is coming in many shapes, reflecting the increasingly diverse and mainstream nature of the opportunity. 

One intriguing model that came to my attention earlier this month is embraced by BCG Green Ventures, a newly created climate tech incubation program that’s part of Boston Consulting Group’s digital ventures arm. The mandate: Partner with corporations to help them identify business opportunities related to climate tech, then jointly incubate and invest in those ventures. The effort evolved out of inquiries to BCG’s broader venture arm, which has helped build close to 160 businesses ranging from an artificial intelligence-power lab assistant to an online used car platform (which it created in collaboration with Volkswagen). 

"The businesses we build will tackle both the operational decarbonization side of the equation, addressing both Scope 1, 2 and 3 emissions, and the opportunity angle, supporting corporates through the inception and growth of new, green revenue streams," wrote Stefan Gross-Selbeck, global managing director and senior partners of BCG Digital Ventures, in a blog announcing the BCG Green Ventures initiative.

When I spoke with Gross-Selbeck, he said the idea is to "combine the speed and agility of a startup with the traditional assets of a much larger corporation." Typically BCG is responsible for recruiting talent, and helping teams manage project and development cycles. Most of the funding comes from the corporate partner, and the BCG ventures team is compensated for meeting certain key performance indicators.

Several projects are already under way. Utopus Insights, a partnership with IBM, is a software company that uses energy analytics to help integrate renewable power into the grid. OpenSC is a supply chain traceability platform that BCG developed in collaboration with WWF. Another example is SiFAB, which is working on silicon anode materials technologies that could result in denser batteries and charge more quickly and have a longer life. The corporate partner is Unifrax, a specialty materials company. Many of these companies will have access to BCG CO2, a software tool built by BCG that helps organizations track greenhouse gas emissions along their entire value chain.

While BCG’s new initiative has a broad purview, Gross-Selbeck said that many initial projects will center on using artificial intelligence and other digital technologies to help more quickly identify and optimize breakthroughs for mobility and materials. "Generally speaking, we believe that 70 percent to 80 percent of what needs to be achieved can be achieved by scaling up existing technology," he said. 

Gross-Selbeck believes you can think of these things as falling into Scope 4 (what?) on the GHG spectrum, representing developments that help companies begin to more credibly build their stories around the "avoided emissions" associated with their products and services. But that, dear readers, is a topic that requires much more research.

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