The NatureBacked Podcast

Looking into Climate Fintech World with Octopus Ventures' Natasha Jones

February 21, 2022 Tarmo Season 1 Episode 3
The NatureBacked Podcast
Looking into Climate Fintech World with Octopus Ventures' Natasha Jones
Show Notes Transcript

We spoke with Natasha Jones from London headquartered Octopus Ventures about the intersection of climate change and fintech startups, the booming collaboration in climate tech, and the challenges of  ESG investing.
Here are some of the key takeaways from Natasha Jones:
**
"The data is really clear - if you can move your pension to a green and sustainable pension, it's 27 times more effective than going vegan, which, as someone who tried to go vegan and failed, it seems a lot easier to just select a green pension provider."
**
"I think what's super interesting is now the regulatory push to clamp down on greenwashing. And that's tied to consumer distrust as well. I think in France a survey said 60% of consumers distrust green labeling from banks. I think for our space, that creates a kind of an opportunity."
**
"I think the first thing to note ... just a huge amount of collaboration. I think other sectors tend to be a bit more cagey on sharing IP, on collaborating between different stakeholders, from entrepreneurs all the way to policymakers and investors in between. Climate tech is really different in that sense. Everyone's very keen to collaborate to find different solutions. And I think that's what makes it really optimistic space to be in."

Tarmo Virki  
Welcome to the NatureBacked podcast of Single.Earth. In this series, we are talking with investors about their vision of the new green world. My name is Tarmo Virki. And in this episode three, I sat down with Natasha Jones from Octopus Ventures to discuss how her company is seeing climate tech investments developing. Enjoy the show. 
Natasha could you say a few words about what is Octopus Ventures?

Natasha Jones  
Happy to. Thanks so much for having me, Tarmo, on the show. Octopus Ventures is a venture capital fund. Headquartered in London, we specialize in early-stage investments and back companies and founders pioneering new and category-defining businesses. 
In terms of where we invest, it's really sector agnostic. But we've decided to split ourselves into these sector-focused teams. So we have a healthcare team that does everything from digital health all the way to biotech. We have a consumer team that does consumer products, all the way to Future of Work software. We have deep tech, and they do kind of cool stuff. I think like drones and quantum computing. We have a b2b enterprise software team, and I sit in the FinTech team. So we really do quite the spectrum of early-stage investments.

Tarmo Virki  
And early-stage for you guys means what exactly?

Natasha Jones  
That's also a good question because it's a bit of a slippery term nowadays. So really, will seek to invest when a kind of MVP product is on the market. And the company or the founders are really looking to expand their team and commercial presence. And that's when we'll come in and really throw fuel onto the fire and help with kind of those fast key hires and professionalizing the senior management team, as well. As you know, we've got a really great talent team here at Octopus as well, that is really hands-on, and then obviously, everything to do with sales as well. So yeah, really, when it's like fast green shoots of a great product. And that's when we tend to get really excited

Tarmo Virki  
The show was called NatureBacked podcast. What comes to your mind when nature-backed investing or nature-backed finances are mentioned?

Natasha Jones  
It's really interesting because I think a lot of this discussion will be about climate topics, but actually, for me, nature-backed doesn't necessarily mean the umbrella of climate tech; it's quite specific. I'm seeing more and more technology catered specifically to things like nature regeneration, reforestation, adaptation of natural climates. And the whole spectrum of technologies that can help enable that from drones. It automates replanting trees, which I've seen, which is absolutely incredible, all the way to satellite imagery, data processing in order to assess where the best reforestation projects should go. So, for me, nature-backed investing is very similar to nature-based investing, but caters more to the various tools and data providers, and services required to make that more efficient.

Tarmo Virki  
You're sitting in a FinTech team, but what kind of green investments have you guys made? Or have you personally been involved?

Natasha Jones  
For me, climate fintech is really important. Now, what do I mean by climate fintech? It's really, how can we use data and transactions and use that as a nexus of essentially human activity to bring us to a low carbon world. Thinking about how we can footprint people's activities and businesses activities as precisely as possible that becomes a really valuable data source to nudge behaviour in the right ways and align incentives, financial incentives with environmental advantages and that fast and that kind of fast investments, in that space we made was called Minimum. They do carbon accounting. So they trained the carbon accounting models on consumer data. And that's enabled them to build a really powerful algorithm to measure business emissions. And so that's what they're doing, and they're helping businesses go carbon neutral. This is really key not only to assess your carbon footprint and provide a number on that but also to tell you what the biggest areas are for improvement because I think decarbonizing is key. It's great to know, but it's also better to know how to move the needle on your emissions. And then the final step, decarbonizing and offsetting, of course, offsetting what you can't decarbonize at this stage. So that was our first investment in climate fintech. And we're looking pretty closely at the kind of the whole suite where there's one we can't quite announce just yet. But thinking about where those data providers can come from, for example, specialist data providers, I think will become really important in the future. I'm also looking very closely at Green financial products. So again, how to use different data sources and build those in new financial products, thinking about green mortgages, for example, and more green investment products. 
And then I think it's also important to note that Octopus also invests across all of its teams; they will have climate investments. So the consumer team does a lot in the circular economy, such as Depop, which is one of our unicorn exits, as well as Whirli, which is helping kids become more environmental by having this kind of circular toy subscription model. So lots and lots to be getting on with,

Tarmo Virki  
I think the links to the startups who liked the show notes, but the green, green financial products were the things that really kind of tickled my mind. Do you see some kind of a wave of green financial products? And if the big banks come out with green financial products, my suspicious mind always says that this must be greenwashing? I mean, what on earth are they doing?

Natasha Jones  
Yeah, there's such a distrust of big banks providing green financial products.

Tarmo Virki  
Obviously

Natasha Jones  
The data is clear - if you can move your pension to a green and sustainable one, it's 27 times more effective than going vegan. It seems a lot easier for someone who tried to go vegan and failed to just select a green pension provider. In terms of, you know, I think what's super interesting is now the regulatory push to clamp down on greenwashing. And that's tied to consumer distrust as well. In France was, a survey, 60% of consumers distrust green labeling from banks. For our space, that creates a kind of opportunity. So you're seeing a lot of green fintech saying, Well, we know that the big banks, no one trusts them. So we're building a brand from scratch that consumers could trust, and baked into that is a huge amount of transparency: being very open about what you're investing in, and what's how you're assessing whether something is green or not. 
I did a lot of ESG work in my old job, is to work at a bank. And there are so many different investment strategies for ESG. That, of course, the term is very, very slippery. It's everything from work, schooling, weapons, and tobacco, to we're only investing in renewable energy companies. And within that, there's a whole swathe of different ways you can slice the baby, essentially. So I think consumers are right to distrust banks. But perhaps, within that, there needs to be greater clarity around ESG. And I think that's what the taxonomy, for example, was really striving to do.

Tarmo Virki  
And for the listeners who are not very familiar with the vocabulary, ESG stands for environmental .... 

Natasha Jones  
Social, governance. So it's a way of assessing. When people talk about ESG, they often think it's associated with the environment because that's the way that banks present. They say: try this new ESG green portfolio when in fact, ESG doesn't necessarily mean green. There are environmental considerations, but there are also social considerations such as whether you're paying workers a fair wage will be baked into those calculations, and G governance will take into account accounting transparency, for example. So it's a very, I think there are over 50 metrics that it could incorporate, if not, and within that, there'll be different datasets as well that can be used. So it's, yes, very much a slippery world.

Tarmo Virki  
I read one of your blog posts about this and probably will always remember that the amount of ESG investing has grown massively, but the challenge is that, who defines ESG, exactly how and what's included and what's not included? And probably from the big banks' view, it's always better to include as much as possible, because then their portfolio looks much more, you know, kind of new generation friendly.

Natasha Jones  
I think, if I'm honest, a lot of it's driven by consumer demand for new, people and planet sustainable investing products. I've got to say that I think there is a lot of will within banks to change and to provide these new portfolios, green portfolios. I think the tooling isn't quite there. For example, the data is not there. Many companies still don't report on many of the factors that are really important or show these calculations and provide difficulty. There's also difficulty around exclusion. That's really getting into the weeds, but thinking, Okay, what do we exclude, you know, all oil, fossil fuel producers ... from the S&P 500, that would exclude most energy companies. So there's a bit of a challenge around exclusion of whole sectors because that leaves you really exposed. But I generally think this is really where green FinTech becomes super exciting because consumers can see that this digital platform provides transparency. It provides real-time performance data on your assets and real-time performance data on the environmental metrics. And so I think I'm seeing some really exciting things happening in that space. And I think consumers are actually really snatching these products out of the hands of these green fintech because everyone wants to do better, they're not really sure how, and these provide quite an easy, low hanging, fruit way of doing

Tarmo Virki  
The data collection opportunity, of course, is something which is very, very natural for many startup founders and many startups because they've been doing this or something like this across sectors. It's just about the time this was coming to the financial industry.

Natasha Jones  
I think the data collection piece still feels like the hardest piece, actually, in this to solve. As I said, a lot of companies don't report or report with unclear methodology. And that makes it hard to calculate to create green financial products. 
Even in terms of carbon accounting, a can of chickpeas from the UK from a particular farm will have a very different carbon footprint from a can of chickpeas in France, for example, for so many different reasons. 
I mean, just the complexities involved in creating one clean, understandable number, it is very, very difficult. There are two separate ways of doing this data gathering piece that's estimation-based data collection. So saying, people taking a top-down approach, this sector tends to produce x amount; it's all about plugging in the gaps using existing datasets. And then there's another approach of getting incredibly granular and tracing the step-by-step carbon emission supply chain as such. That creates a huge amount of manual work, and that's why consultancies ... I think where tech can play a really essential role is in automating a lot of these processes. To get closer and closer to accuracy because, without accuracy, you can't create objective and reliable decarbonization targets. Because you might be doing more harm than good in some ways. I think it's just really complicated. In accuracy piece, I've seen some really great stuff in things obviously, with machine learning, with satellites, and also, just fundamentally engaging with stakeholders. The environmental kind of fintech or environmental data startups have tried to crack this, trying to get all these different nodes in a supply chain to talk to each other through automation and intelligent UI design. So that's also quite interesting.

Tarmo Virki  
Have you seen a timeline challenge? I can see the importance of getting these details of the CO2 emission calculations right, but it could probably take decades before all this information is together. At the same time, we are seeing, looking out the window here, in the middle of winter, it's plus five in Estonia; it was minus 20 just a week ago, the climate is changing around us, and it often feels that we're kind of late doing the math or working on Excel.

Natasha Jones  
Yeah, the timing point is really interesting. A few thoughts on that. When I first started in finance, people weren't taking ESG seriously. There was demand from certain quite avant-garde clients, but nowhere near the level of demand now. I think there's been a noticeable shift in interest for ESG and climate tech more generally. Actually, for a huge amount of interest, a huge amount of more interest is going into things that previously were seen as quite un-investable, such as hardware. And I think that is a testament to the fact that there's this renewed sense of urgency.
Another thing that is really key is that, a number of corporates, 45% of the FTSE 100, have made some form of net-zero target. A lot of those will be in 2030. In 2029 I hope that there isn't this huge demand for offsets as these companies realize that, that they're nowhere near close to hitting targets. I think there's a lot of work and strategic work being put in place now to make those targets a reality. So I think things are changing. I think as an investor, we are looking at carbon accounting. We're looking a lot at things like offsetting, which previously had been disregarded as forms of paid-for indulgences to make yourself feel better, but now are seen as really important to get us to net zero. I think attitudes are definitely changing towards those sorts of offerings, and I think that's gonna continue. From my perspective, there's a lot of optimism in terms of timing but also forward-looking investments in terms of risk. And that's another thing that I look at in the FinTech space is climate risks. So how can we model climate events more and more precisely because they are happening. As you said, things are changing. And we have probably passed the point where things aren't going to change. And so, again, the supply chain or insurance need to start taking these things into account.

Tarmo Virki  
As it really has an impact on insurance. I think in general, the global insurance industry has probably been one of the early ones to at least acknowledge the risks and do the math on the background. How does it impact the economies. I've been reading lately the GDP impact studies from the biggest reinsurers, and they look rather bleak.

Natasha Jones  
Totally agree. I'm always really interested to hear how people first get into climate tech or in general, start to have an interest in climate change. And usually, it is by starting to read a report. And just realizing the magnitude and the scale of some of these effects. For me, that penny really dropped a few years ago when I read an IPCC report. I was like, Oh, my God. If this is the statistical average of all these scientists, you're going to be seeing a lot of evidence that's going to be even more extreme than what's in this paper. So and what's in the paper is pretty alarming. So it's pretty shocking. And I think, as a result, we are seeing a lot of insurers reach out to us investors and say: We need new tools, new solutions, new models, new datasets because the way of calculating insurance premiums is not suited to climate change. Because the risks aren't static. They're dynamic for climate-related risks, and they're nonlinear, right? A flood, which breaks a bridge that's suddenly a billion-dollar loss, it's not a gradual thing that can be tracked as to kind of time series data.

Tarmo Virki  
With this urgency, and with the kind of amount of companies popping up in the sector, in December, I followed the NOAH conference in Zürich, there's so much going on in this sector. I mean, how would you describe the kind of current climate of the climate tech world?

Natasha Jones  
I think the first thing to note, and I don't know if you felt this at the NOAH conference, but just a huge amount of collaboration. I think other sectors tend to be a bit more cagey on sharing IP, on collaborating between different stakeholders, from entrepreneurs all the way to policymakers and investors in between. Climate tech is really different in that sense. Everyone's very keen to collaborate to find different solutions. And I think that's what makes it a really optimistic space to be in. I think the other point to note is that people are starting to think much more holistically about what climate tech can mean. So for us to really hit these net-zero targets by 2050, we're not just going to need one sector to decarbonize; we're going to need a whole ecosystem of change. So I think some funds and even some founders have said, well, we're not climate-focused, but I still want to be best in class for the climate. And that's really been a step-change. Thinking about it, for example, we have a large focus on climate change, and climate tech, partly because the other half of our business used to be Octopus Energy, which is the UK's biggest renewable energy provider for people who aren't into the UK energy landscape. 
The consumer team, they're not specialized in climate change, but circular business models have started to make a lot of business sense now and have a lot of traction from climate-conscious users. So climate tech or best in class kind of sustainability is also seen as good business. And I think that's massively changed. On the other side of the spectrum, you are seeing an increasing amount of climate specialist funds being started up to support really deep-tech innovation and climate tech. And that's everywhere. That's everywhere, from hardware all the way to satellites. And that, again, really veers off the typical VC model of favoring software. And being prepared to deploy very, very patient capital into quite high-risk technology. And I think, again, that's due to the sense of urgency. I'd say there's kind of two notable shifts.

Tarmo Virki  
I mean, that's the kind of the big picture thinking and the big picture, also the positive side of the big picture. But what about on the ground thinking - when you're competing for the investment deal into a company is or just, you know, sometimes too much interest from the investors and not enough projects? Or is it vice versa?

Natasha Jones  
I think there will never be enough projects tackling this problem. There are an infinite number of approaches to climate change. And I think if I was a climate tech founder, it's important not to be scared or wary of competition because the more players you have in your space, the more it starts to validate that category. From my perspective, the more projects, the better. And I also think founders being selective about what investors they get, they're definitely starting to see more attention. I think that's a good thing because investors should be scrutinized on their climate credentials and knowledge of the space. So yes, definitely more competitive, but I think it's a good thing.

Tarmo Virki  
Thanks, Natasha. We'll wrap it up here this show. And join us again for the next episode. We will be back next week. Turn on to NatureBacked podcast.

Transcribed by https://otter.ai