The NatureBacked Podcast

Urgency of Tackling Climate Change with Balderton's Shikha Ahluwalia

March 28, 2022 Single.Earth Season 1 Episode 5
The NatureBacked Podcast
Urgency of Tackling Climate Change with Balderton's Shikha Ahluwalia
Show Notes Transcript

We spoke with Shikha Ahluwalia about the climate's role in all investment decisions, Balderton's own green strategy, and how to invest in climate-friendly companies across the sectors. 
London-headquartered Balderton has raised around 5 billion US dollars for its funds, and is known for investments in startups including Revolut and Betfair.
A few key takeaways from Shikha Ahluwalia:
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"We're definitely not doing enough to tackle climate change.  As investors, and the investing scene in general, we have a unique responsibility to address the issues of the next well, not even 50 years, the next eight years until 2030."
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"Ultimately, we all need to learn to be less greedy and think about the world we're building for generations to come. And that's not five generations down the line. I'm talking about our children: my children, your children, and it's very, very near. So I think that the idea that investors need to be doing much, much more is super important. Returns in terms of impact on the planet, in terms of impact on the climate, need to be measured alongside financial returns."
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"We should be asking, how do we set up a process in a way that it becomes top of the agenda to invest into climate-friendly companies as part of investment decision making?"

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 five, I'm talking with Shikha Ahluwalia from Balderton about how one of the top venture capital firms is going green and changing the world. Enjoy the show.
The question everybody's asking these days is, after the Glasgow City COP 26 meeting, that climate change is becoming a bigger and bigger issue for the world, and it seems that we are not really doing as much as we could or should we the climate change. At the same time, we have a number of startups coming into this sector. How do you see this kind of thing, the climate change challenge playing at the moment?

Shikha Ahluwalia  
That's a really, really good question. To answer the first half of your question, or what you were alluding to, I think we're definitely not doing enough to tackle climate change. And I believe that we as investors, and the investing scene in general, has a unique responsibility to address the issues of the next, well, not even 50 years, the next eight years until 2030. I'd like to mention something that one of my colleagues said to me upon joining. I'd asked that colleague what unique thought you would give as a piece of advice to the next generation of investors. And he said, Well, you know Shikha, yes, its venture capital. But ultimately, we all need to learn to be less greedy and think about the world we're building for generations to come. And that's not five generations down the line. I'm talking about our children: my children, your children, it's very, very near. So I think that the idea that investors need to be doing much, much more is super important. I believe that returns in terms of impact on the planet in terms of impact on the climate are returns that need to be measured alongside financial returns to give a holistic view of the world. 

Tarmo Virki  
It really makes sense. Is there good metrics to measure those, you know, returns on the sustainability?

Shikha Ahluwalia  
Look, I think there are two layers here. Number one is, of course, how investors have, or I can only talk about how we do that Balderton. I think that would be very much easier for me to speak about because that's what we've been seeing and what I've been working with. And so I think that there are multiple layers, how you can measure an impact, a climate impact, or a sustainability impact more broadly, of an investment. And I think that number one, before we start about talking and talking around how can you measure that social impact that's the sustainable impact that climate impact of an investment, the very first thing that you need to do is anchor into your investment decision-making who are the companies you're picking to invest in? And I think this is step zero. I think we always talk about returns and how to measure the returns, or as we should be asking, how do we set up a process in a way that it becomes top of the agenda to invest in climate-friendly companies as part of investment decision making. 

I think this is far more important than impact than measuring the impact because the ultimate question is, how do you really measure impact? And it's not a straightforward piece, right, and sort of putting it into LP reporting is One. But I think step zero is really showing that you consistently, you know, are serious about investing into the right companies and the right companies or companies for whom it is top of the agenda to have an impact, a positive impact on climate. So what we have at Balderton, for example, there is a part of our investment memorandum that you write for each and every company that we're looking at more closely. Part of that investment memorandum is always to what extent that company meets or fulfills our goals regarding a sustainable future. So, Tarmo, you may not know this. Still, I think what might be interesting for the listeners, as well, at some point is that we have launched the sustainable future goals at Balderton. Almost, I'd say, a year and a half ago, that was late 2020. I just pasted the link for your reference. 
(the link: https://www.balderton.com/news/introducing-baldertons-sustainable-future-goals/)
And this is essentially our own framework of 10 different sustainable future goals that are inspired by the ESG framework of the EU. And that doesn't really only talk about how we can impact the environment, but it's sort of looks at multiple axes of implementation of how we see sustainable future goals, and how, what is the impact that we can make as investors. And so the three layers that these 10 sustainable future goals can really be taken into action. And number one is sort of what can we do in our own company, because we're also a company at the end of the day, what can we do in the fund. So, for example, reducing or not having single-use plastic is an example. The second would be what can our existing portfolio companies do to further the agenda of a sustainable future? 

And number three, which I think is most important, because it's forward-looking, you know, there's only so much damage control you can do with what you've already done. But I think forward-looking is super exciting because so number three is essential: to what extent do potentially new portfolio companies fulfill sustainable future goals? Or to what extent is that important for them. And I mean, I'm super happy to walk you through the sustainable future goals in general, or you can just probably link it out later on. But essentially, we've stipulated 10 different goals for us, that is along the environmental axes. It includes climate action, responsible consumption, the rise of green cities and renewable energy. On the social side, it's it's around fairness and equal opportunities, gender equality, diversity and inclusion. I love that we at Balderton have gender-blind paternity or maternity leave policy. That's amazing. I think everyone should have that. And then we're also including good health and well being, especially mental well being, as part of socially sustainable future goals, lifelong learning on the governance side, because I believe, you know, we live in a world that has more and more and more data, and more and more things are happening around. So I think governance and compliance have become a really, really huge topic for humanity and mankind in general. How does the human really want to interact with data going forward? So two of our sustainable future goals are around maintaining the highest ethical and governance standards. And our final sustainable future goal number 10 is around data rights. Because we believe that data rights are human rights. I could talk for hours around this. And we've also done a tonne of measuring around sustainable future goals. Let me know if you have any specific questions here.

Tarmo Virki  
I think it's kind of crucial part is to have not only climate in those goals, of course. 

Shikha Ahluwalia  
100% 

Tarmo Virki  
Climate is needed for us to exist in the future also. But at the same time, if you just picked the climate, there is so much more lost. You said that you talked about how from early in the process, it is important to get things right. When you invest in new companies, you look at their environmental agenda or their views on their sustainability going forward. Maybe you could draw some examples of your recent investments, some kind of concrete examples?

Shikha Ahluwalia  
Here's the thing, I'm a bit in limbo here because some of these investments they've not been announced yet. They're not public. So I'm super happy to reveal the spaces and why we think those spaces are important. And also, you know, super happy to reveal some early companies that we've invested in, in that space. 
So I mean, starting from from a more, I'd say, Green Tech, I call it green tech in general, that that sort of, you know, this describes all of the areas of climate, consumption, food, all of these things, I think an investment that we did quite early on, is an investment into Infarm that's that's a sort of modern-day vertical farming company, originally based out of Berlin, but now moving to Amsterdam. What I really love about the Infarm model ... you can usually see if you're a consumer, for example, that in Central Europe or specifically in Germany, if you go to any supermarket, REWE or Edeca, you will find that you have these vertical farms placed within the supermarkets and essentially growing herbs and salads on side, rather than having them grow, you know, in remote places or even in glass houses far off, and then transporting them every single time back and forth to the supermarket. That's a huge amount of carbon emission that happens there. So they sort of essentially shortened the supply chain and massively reduced the carbon impact by farming herbs and selling them in the supermarkets. And of course, it's also possible with so many more different categories and so many more different types of groceries. This is what I find really exciting because it's, it's not this far away idea of I'm working on calculating emissions, and then mitigating them and then reducing them. Because I feel that that's a layer that's maybe great for companies. And that's coming now more and more. But what is, I guess, even more important is how you make these solutions actionable and viable for the consumer? And I think this is a really Infarm comes in, and we've quite early on invested into Infarm. And I think that's really one of the landmark investments in that space. 

To discuss something more recent. We've also recently invested in Sweep, that's a French company in the carbon space. And that's also recently really, really excited about, so this is more along the lines of, you know, it's a b2b solution, going in with carbon tracking with carbon mitigation. And that's also that that's quite exciting and working on an API first method here. I think these are sort of one of the more recent investments; we've also invested in a company that is in the alternative food space and replacing meat because obviously, beef is one of the highest carbon emissions drivers out of consumption. So that's, it's definitely something we're aware of. I mean, these are three companies that I can disclose, and two of them very, very recently that they're more in the pipe. 

Tarmo Virki  
You mentioned carbon. I probably got deeper into this sector at the end of last year at the NOAH conference. It seemed there were dozens and dozens of carbon companies on stage, talking about what is going on in the sector. Is carbon somehow the red hot, the burning topic of this industry? In a way, it's the most easily measurable part; it's the one where the governments have done something to limit it. But at the same time, it's only part of the game, right?

Shikha Ahluwalia  
Agree it's part of the game, but at the same time, you've got regulatory winds that require you to reduce and commit to carbon reduction targets. So I think the need now versus 10 years ago, for companies, is much more stuck, which is giving rise to all of these startups to try and understand, you know, to try and help and understand companies, how can we sort of, you know, measure, mitigate and improve have a carbon footprint? And, you know, it's not like it wasn't possible 10 years ago. I mean, there have always been free tools out there, that that's not new. Right. But I think what's new is that maybe 10 years ago, only a fraction of companies cared. But you know, in 2022, a lot more companies care and have to care. And so this gives rise to solutions that are more user friendly, that are more sort of integrated into tech, and that beautifully, you know, also stack up with your own infrastructure. I believe, to be honest, Tarmo, this has not just been a recent hype. I think this has been a hype of the last, I'd say 14,15 months, and I've been observing this, but I think it's really important to tell and see here. And I'm always a big fan of mission-driven founders. I think for this topic in particular it really requires a founding team and a set of principles - that this is a team that is really in it to build it for the impact and build it for the long term. And not because it's a new hot topic, because the truth is, it should have been a hot topic for the last 20 years where it wasn't.

Tarmo Virki  
Absolutely true. As a journalist, I started to really get into this field already during the Kyoto negotiations. So I've been reading my stories from 25 years ago, 20 years ago, which read pretty much the same, the challenge was pretty much there and, you know, known at the time, but on a global scale, not much has happened. Your first target on the action list was urgent climate and climate action. If you try to dwell a little bit deeper into that one, what are you guys doing?

Shikha Ahluwalia  
The first thing that is super important is that you need to at least practice what you preach. And I think that's, that really is step Zero. I mean, what what we've been doing at Balderton, we've been offsetting our own footprint. To be honest, in 2020, and 2021 ... Sorry, I have a I have this dog am dog sitting today. And she is just sorry, she is growling at me because she wants to be part of the conversation. So sorry, that's, that's from other portfolio companies shout out to arrive, taking care of their dog today, because, you know, we're nice investors. 

So what you were saying, I think it's super important to practice what you preach and what you're doing at Balderton; we're offsetting our own carbon footprint. And I guess I could mention a couple of metrics here. So from the tonnes of carbon that we offset, the average price for the offset for us was 54.4 euros. And that's for 2020. But also just want to be mindful here that, of course, in 2020, carbon impact has not been great. Because simply because, you know, it's not been massive, simply because of COVID. So people stop traveling. And I think that the most significant driver for carbon footprint for your own company would most likely be the traveling that we do within Europe. And so obviously, this has been a lot better, but I'm keen to see, you know, how the figures look for 2021 and 2022 when things start getting more to normal. 
What we're doing, I think it's a requirement of people's attitudes and just consciousness in general. So, for example, today, I'm going to Munich. I'm living in Berlin. And I've made it a habit to take that four and a half hour train, from Berlin to Munich, versus flying from Berlin to Munich, simply because it's so much more eco-friendly. And you know, I don't mind if it's a minor inconvenience of an extra hour or so that you spend on the train actually much welcome it. Because you really need to weigh what you can achieve with your own micro-actions day by day versus going ahead and preaching to change the world if you're not willing to give your own part.

Tarmo Virki  
Slowly starting to those wrapping it up. What kind of companies you are investing in?

Shikha Ahluwalia  
That's a super interesting question. And I think this, this could be a whole separate podcast on its own, a whole different episode. But I think to cut it short, I mean, I always like to say in a German that there are European VC . And that basically means that we're that old ancient rock in European venture capital space because we've been around since the year 2000. And now, sort of having completed 21 years, and this year, 22 years, we're at the eighth fund lifecycle. For early stage, that's investments up to 600 million euros. Out of that early-stage fund, we invest into seed and Series A  up to 20 to 25 million euros tops, signing out the tickets as 1 million years. But we've also raised the growth fund last year, which we've announced mid-year, and out of that growth fund, which is roughly a $700 million fund. We invest in Series C and beyond. And those would typically be ticket sizes, starting from 25-30 million and going up to 70-75 million. And that's sort of the range that we invest in. So, in short, we invest in companies and across stages. 
We've become sort of from an early-stage VC to more of a multi-stage VC. And in terms of areas that we invest in. We're quite generalists, per se, I think technology is at the core of what we do. So we're not investing much into companies that are low in technology. So always high in technology. And, of course, everyone has their spikes. 
And what I'm more recently looking at, I mean, my personal background is actually that I'm founder, so I founded a business before for six years in India in the E-commerce space, which was quite exciting to do. I've seen sort of the good and the bad of entrepreneurship, but that's again a whole different story. So what I'm really excited about right now are definitely companies in the food space. And in the carbon tracking and impact space, though we've done investments already in both for years, but we continue to be excited about the space. And apart from that, of course, looking more closely at solutions that are exciting for the b2b world, but at the same time, looking at consumer companies as well in the quick commerce space. So one of the companies that we've invested in last year, we also left the series A is arrived out of Germany. But yeah, I guess, at Balderton, because we are quite a strong and large team, with over 25 people working on the investment side and over 35 people working to support our portfolio. Everyone has their spikes, the areas that they really really love.

Tarmo Virki  
Cool. Looking into this year, what would be your biggest ambition or target to reach?

Shikha Ahluwalia  
My biggest ambition and target to reach is that every company that we look at more closely as a company and a founding team, for reaching their own set of sustainable future goals is top of the agenda, despite what they do -- be the FinTech company, be it a consumer company, be it a b2b software company, I think it's important that everyone starts owning the conversation and driving the conversation on their own.

Tarmo Virki  
I think that's a very good point to wrap it up. Thank you so much. 

Transcribed by https://otter.ai