The Intersection of Technology and ESG
Sitting next to me are three people focused on making long term bets to solve some of the world's most difficult challenges. And fields like climate tech, renewables, quantum quantum computing and smart materials. But when we were chatting before this panel, all of them had quite different views of the term ESG, which is a framework used to measure a company's non-financial performance from an environmental, social and governance perspective. Now, you might think that companies with good ESG ratings are good corporate citizens driving a green revolution, but in some cases it's been little more than a box ticking exercise. And even if we focus on the companies in the clean and green energy space, those stocks have in recent years typically lagged behind the broader market. And hedge funds are shorting those stocks, according to Bloomberg analysis published this week.
Compounding these issues is a growing movement, particularly in the U.S., to label ESG investments as woke capitalism. And with companies even scrubbing the term from their websites in acts of so-called green hushing. So against this backdrop, I'd like to start by inviting all of my panelists to answer the following question. How do you think about the term ESG and how does it relate to your investment strategies? Let's start with that. So the way we define it is ESG is the how.
It is the process. It's the input, but it's not enough. What also matters from our point of view is the impact. And the impact is the the impact that you have on society, on the environment, is the outcome. So that's how we define our terms internally.
And for us, the two things go hand in hand. Okay. Impact being the most important. Okay. Mohsin. But at the Capital Investment Authority, we are custodians of capital for future generations. So that gives us a long time frame to help navigate and provide opinions to our investments that we commit to through both public and private and through our fund investments.
So I help oversee for our CSG today. It's called ESG. When I kickstarted several years ago, it was always part of our DNA to ensure that the best outcomes are delivered through our returns. That cover all three aspects and to tomorrow it maybe called something else, but having that back bench of sustainable investing and delivering the maximum return and deliver, it's delivering a positive impact through our investments, both whether that be in Qatar or through our international partners that we commit to is is as true today and equally as important as other parts of diligence that we undertake with that investment operational. And so for us, this is a continuation of what we have built on over the last 20 years at the Cancer Investment Authority. And let's take Daria.
Well, you know, I'm a venture capitalist, so when somebody calls World Fund in the East Fund, I said, I know that's crap. How is it like what is ESG as an investment thesis? Right? It's an internal management framework. How to steer companies, which is well meant, but very flawed.
And I think especially as a like from my venture capitalist perspective, using ESG as a stamp on your pitch deck as a fund for fundraising makes a lot of things confusing. And actually it doesn't really help you to measure the impact, as you just mentioned, of what you're investing in. I have a good anecdote to that, and I think and this really shows how the confusion of terms actually can lead to maybe good investments, but not consider come and take. In our opinion, one day I was called out by a fellow investor who asked me if I'm interested in looking at in a pitch deck of a company he was looking at, and it was about sustainable pizza. Yeah. And then I said, What's the sustainable pizza? Like everyone, I love pizza, right? Like, I would love to invest in a pizza company. So the sustainability part of it was
just it was a little bit more healthy than others. Same value chain. So supply chain, actually same, same, healthier. And then I said, Look. You know, we kind of we invest in decarbonization at scale. This is how we measure that. And this person came back to me and said, like, I think you're taking it too seriously.
And this is the problem of ESG as a system or many other terms we have out there, I think we have clear we need clear names, clear measurements and clear accountability to what we measure towards. So with that in mind, I mean, when pizza companies are claiming to be ESG, would you say there's been an ESG bubble? And isn't isn't the money all now flowing to Asia anyway? It is already flowing in anyway. Good news. You can use the AI to build fantastic climate solutions. I don't think I'd almost rather not talk
about ESG because it's the process. I'd rather talk about impact. And yeah, I think there are going to be some micro movements in views around what's the right term, Long term is this work, not work. But fundamentally, we believe that businesses that are having a positive impact on the planet are the ones that will be future proofed, whether they're in AI or in climate or in food security. So we feel very strongly that that that is a long term sustainable investment strategy. And so we only invest in companies and build companies that are going to have a positive impact. And we think that's the macro trend over the next ten years. Yeah, I mean, I would echo that.
I think it's not an afterthought. It certainly isn't an afterthought from QE. It's part of our investment process that is implemented across the organization. I do think there needs to be a democratization of how we look at ESG. So if you rely on rating agency to different rating agencies and give two very different scores on approving whether an investment is complying or not, and there needs to be a fine balance between how much regulation is being implemented, because I think that in part has added to the problem of greenwashing, where limited resources and afterthought around ESG has resulted in. It's taken the box to make sure that
you're compliant, which is a missed opportunity to actually showcase what impact your investments are delivering. And so going back, putting that onus back onto the clients, the investors, Yelp's, what part of the ESG is most important is it different is a different answer for a different investor. And I think that that needs to be communicated more widely. And so does that mean different kind of accountability metrics? I mean, what kind of feedback are you asking from your LPs? You invest in your fund of funds. So what kind of what kind of accountability do demand of of the funds that you're you're giving money to at the very high level? We are looking to diversify, diversify away from our natural resource, which is gas. And so we are obviously through our fund commitments around direct through the fund, the funds program, which is targets in venture and and and helping to address problems around food security, around climate tech, around renewables, edtech, health tech.
These are all impactful investments. And so in terms of measuring that impact score, we have formulated quite a comprehensive development scorecard, which is assessing KPIs are important to us. And so these won't appear on the S&P, but nonetheless saw a measure of success on how we are allocating capital through our fund formats program. Yeah, there are. You also have an interesting way of measuring the impact of companies. Can you tell us a bit about that? Yeah. So we look at the world through the lens
of climate performance potential and you already when we started, I also said no ESG, no impact is the word because that's confusing. We need something positive and financially inspiring, right? So we looked into companies. And assess what is the potential overall carbon emissions reduction, potential by one specific technology under consideration, taking into consideration the adoption rates of competing technologies per year by 2040, and we only invest in tech which can provide ACP economic performance potential of at least 100 megatonnes per year by 2040. It's like one fourth of UK emissions a year, but 2040. Looking What else is happening? It's quite a high bar. Yeah, we do that for every investment we take, we look into it.
We actually are very thesis driven, so we look into different sectors, build our SEISS are on it and first we say, okay, is it the CPRS? Yes. No, we see it as a financial KPI, but we also believe we just talk about it, that the higher the BP, the higher the potential of the financial performance for the company and for us and our LPC. Yeah. Now as you know, you're investing in, in deep tech and nobody wants to have another furnace on their hands. For many, I know you don't technically count yourself as a venture capitalist, but most venture capitalists or, you know, perhaps more used to investing in software or at least tech techniques, How do you wrap your head around what might be someone's entire academic career or their PhD thesis? Like, how do you how do you scrutinize these technologies when you're making investments? We have an in-house team and it starts in the very first conversation. So we're talking to the academic before we even put in money for a proof of concept.
So we're building the business with the academics, or technically we're a venture builder as well as an investor. But yeah, one of the things we're looking for is the mindset. It's a qualitative assessment of of, of the academic or the academic team and then understanding with them in terms of where we might take the business. What's going to be the environmental impact on diversity, inclusion. We'll look at all of our different metrics and we build that conversation. So for us, know, we talk a lot about
progression rather than perfection. We understand that at the beginning it's in practice. It's quite difficult to to assess some of these things in a quantitative way. But we want to we want to start a dialogue from day one with workshops, and then we're training and building, building that assessment as we go all the way through the journey of building the company. But yes, right at the beginning, when it's a concept, it can be very, very difficult. But we'll be looking for the obvious things.
And there are some things which are clear no's, sort, weapons and gambling and so on, but we wouldn't start there. But if we can see a pathway, we'll be looking to map it out with the academic, even if weapons are more accurate and therefore creating less collateral damage. Well, you've touched on a very hot topic, so there's a big debate, as I'm sure we're all aware, around, you know, defence and ESG. We have a number of companies which are in the dual use space. We wouldn't back a single use application from a defence perspective. We've got ten or 15 companies that are in the dual use space and we wouldn't do anything that's kinetic. But yes, I think if it's the defence
underlines then that word that would meet our criteria as well. Okay. Do either of you want to add to that? I think to be honest, every like groundbreaking technology you can find a dual use in it. Like there's always the side. And I think in Europe you've been very for many different cultures, historical structural reasons, very hands off investing or seeing that or kind of.
And not acknowledging this fact. But I think that just in the core and I think what we what we have to do, it's also not the best thing for me. We also would not invest in weapons, obviously.
But I think in context of climate and planet resilience, you cannot. Not think about a dual use application or how that would actually like energy resilience, write energy consistent, provide kind of access to energy can also be used in in against one in the world. Right. So I think we just have to. Let's start this conversation and be aware that, you know, if Europe doesn't do anything, it doesn't mean that things are not developing elsewhere. Okay. Going back to screening investments, most in your typically investing in funds, but you have a Ph.D. in nuclear physics. How has that informed your investment approach? I mean, I think it's a it's a transferable skill set and not only in terms of providing at times out of the box.
Yes, And it's true. I think across the I so we have 600 nationalities are based in Doha having backgrounds from not just finance but across many different disciplines, brings a nice collection of skills that makes us, I think, better investors. And so we can apply our learnings and our collective experience in driving our investments forward.
Hmm. Daria, I know you evaluate the environmental credentials of your investments, but what about where the funds come from and how they might be reinvested at work from where? Quite, I would say, balance. So when we started and we were sat in the middle of pandemics and we did one to raise at least three or bigger fund to be able to invest in deep tech technologies, solving the climate problems. So we kind of went out to our interview neural network first, and we got fantastic commitment there and then built on top of that by approaching, you know, institutional investors, banks, family offices, fund of funds. Okay. Sovereign funds, I think. Yeah, but it's always, I think, especially in the context of climate. Of course, one can ask itself like,
where does it make a difference where the money comes from, where the capital comes from? If it's an oil corporation and it's. Yeah, and I think for us, we don't really have any corporates, investors and RAF Shell came to tomorrow and said, We want to give you €300 million. What would you say? Look, don't quote me on that. I would say yes, because then I know I
could actually invest the 300 million in fantastic technology and multiply our ecosystem. But within our team there would be a very strict no as well. So we we kind of said, okay, let's not fight about that. There is a red line we just don't want to cross. We always look what happens then with the profits, with the returns for the respective investor, if it would be Shell and then decide case by case. But we'd done when we didn't have to decide because we we were a focus of institutional investors. Let's talk about the UK and Europe and
what's the what are the sort of most exciting technological developments in Europe and the UK in terms of like deep tech opportunities? And you're obviously looking around at the moment for VC funds to invest in. I think you're spending a lot of time, well, you're getting a lot of applications for the fund of funds. Tell me, what are you seeing in Europe and what are you trying to attract to Qatar? Yeah, I mean, the programme was announced by our Prime Minister earlier in the year, so it's a $1 billion has been allocated open to venture entrepreneurs internationally, regionally, domestically to come to Davos and help contribute towards the ecosystem in Qatar and broadly in the Middle East. Europe has always been a centre of activity. It's the third largest venture capital market trailing behind the US and China in terms of climate related technologies, I think is it's one of the leading innovators when it comes to smart materials, carbon capture technologies.
And so for us, it's an exciting prospect of tapping into the IQ that Europe has to offer and seeing what playbooks can be applied to the Middle East more generally and good So specifically. So we are inviting applications outside of deep tech, artificial intelligence, machine learning, cyber security and tech, health tech. And again, each in its own right, we think has a long term trajectory to deliver that impact and and and use that as a bounce and a springboard for investing both internationally, domestically and regionally. So I'd encourage any potential applicants to go to our Web web page. And. And good luck with that process.
Ed, when we thought we had a call before this panel, we were talking about some types of businesses that you've invested in that maybe on the face of it, might not seem like the most environmentally friendly businesses, but in the long term could have a great impact in terms of the energy transition. Can you talk a bit a little bit about those companies and how you think how you evaluate those companies? Yeah. So by the way, we're also very lucky to have QR as one of our shareholders who share our sort of mission on on impacts. Yeah, a couple of companies come to mind. I think the first one would be we're backing one of Europe's leading fusion companies, a company called First Light Fusion.
And this is a very ambitious project. So I remember when I first looked at their one of their investment partners, the total addressable market was 1.7 trillion. So it's a huge prize if they can get it right. So it's a high risk, high capital business. And with that in mind, it's a it's a huge endeavor and it's going to take time.
And that will require energy and power and a significant amount of resources to get first light fusion to to where we believe we can get it to. So there's a tradeoff there. I guess that's one example. Now we have another company called Snow. Fox is an incredible business that has worked out how to identify areas of natural hydrogen, sort of subsurface and how to extract it. But it's an extractive company.
And then how do you manage something that we know is absolutely critical and fundamental to meeting that zero targets? But how do you deliver that in a way that doesn't have an adverse effect on the environments around it? So these are sort of trade offs, some sort of short term trade offs to achieve what we we believe is going to be a big a positive outcome. Yeah. So we have one minute left. So I'm going to do a quick fire question. So in just one sentence, I'd like to ask
each of you if you could place a single bet on a company or technology that you believe will make the most positive impact on the world in the next decade? What would that be? Dario. And that's hard to put it in one. We have 18 portfolio. Just one. No, I am I would say maybe it's somewhere outside of the box and I'm very I would put my bad on the board for a company of ours where I'm also on the board called IQ M IQ is a quantum computers manufacturer but also very strong on the algorithmic part. And it's the European answer to IBM.
So they're using superconducting technology. And when we measured 2020, it was not always clear. We were asked many times in like, how is that climate? But if I think today we don't have to ask this question anymore, both on the hardware part in the paradigm shift, but also on the applications they can actually solve and the problems and the climate related problems. That was very long ones and oh, sorry, I wasn't alone in this slightly odd way. Well, I hope the next technology to come out will really be to save the planet is around carbon capture. So most net zero targets are assuming 10 billion tonnes of carbon dioxide will be removed from the atmosphere when we pump 40 billion each year.
Current technology is several magnitudes below that requirement, and so most projections around that zero will fall dramatically if that technology is not made commercially available. And so hopefully through our Fund of Funds program, we'll add in capital and resource to help address these important climate requirements. And I'm not allowed to have a favourite child.
So in the portfolio, I guess we're building companies that are trying to develop vaccines for cancer and 120 companies in the portfolio. So it's very difficult to pick. I think the way I'd probably think about answering the question in one sentence, how would we multiply the effects of every company in the portfolio to to, to maximum value in, in impact terms? And I would agree with Daria, if I look at what we have five quantum companies and frankly, if one of those companies and this is not make believe this is here now, it's going to be coming on stream in 4 to 5 years time, companies that can collapse computer processing speed from a human lifetime down to 4 minutes. And then you apply that to drug
discovery to to all these different areas. You can see that this is where the force multiplier is. So I would probably pick Quantum as well, if that's possible.
Yeah, that's great. I also really like the chapter on the carbon capture part. We have another company there. We can talk about it. Let's let's talk about this off line. So quantum computing and carbon capture. Thank you very much, my panelists.
2024-10-26 09:19
