The CleanTech, ClimateTech, and EnergyTech industries have been booming, with record rates of startup investment. There are 160 ClimateTech unicorns in the world, and climate tech investments made up 5 of the 10 biggest VC deals in Q3 of 2022.
Inven Capital is part of that movement. As a VC specializing in sustainability and ClimateTech investments, they have 16 investments in their portfolio, with an impressive 4 exits under their belt since 2015. Meanwhile, on the corporate side of things, P&G has launched an open innovation laboratory in Brussels to invite startups and SMEs to collaborate on various challenges related to their goals – a major goal of P&G is to reach full decarbonization by 2040 and they are looking at scale-ups to help. We spoke to both about the obstacles to sustainability they're seeing and potential solutions through collaboration.
Inven Capital and P&G were both at the international VC & sourcing event The Big Score this past November 15-17 to discuss sustainable innovation.
Supply chains as a fundamental obstacle
When asked about the future of ClimateTech and sustainability in Europe, Inven Capital's Managing Director, Petr Mikovec, illustrates that it's not an innovation issue, but rather a supply chain issue:
“Europe has big goals to achieve. In order to reach the recommended limit of 1.5 degree climate warming, it's looking to increase its solar power capacity, which in turn means dramatically increasing solar (PV) installation rates. To do that, we need a lot more components. We’re running into a decade of huge bottlenecks on the side of supply – if you look at the sources, 70-95% of global supply capacity comes from China. Now we see more clearly than ever that it's not a good idea to put all of your energy resource eggs in one basket – if you do that, you can land yourself in big trouble.”
If we hope to increase the amount of clean energy tech in Europe, we inevitably have to think down the line – where are we going to get all of the hardware? Not only does sourcing the majority of your components from one country across the world increase risk due to potential political developments, but it is not in line with other ESG guidelines – the long distance from Europe means transportation will yield a higher carbon footprint and manufacturers from autocratic countries not always can be relied upon to ensure fair wages and working conditions.
In the short term, Petr Mikovec says there isn't much that can be done. But there is light at the end of the tunnel: “in the medium term, I’ve seen calculations that on a full-cost basis, PV solar panels produced in Europe can be competitive, when taking transportation and other costs into consideration.”
P&G shares a similar view when considering supply chains. While they've made significant strides in reducing their carbon footprint in areas that they can directly impact (for example, they've already reached 97% of their goal to purchase 100% green electrical energy), Stuart Askew, Senior Director Fabric & Home Care Open Innovation, says they've found that the bigger challenge lies in ensuring sustainability upstream and downstream of their own operations (“scope 3” emissions). Working with their raw material and packaging suppliers (upstream) and end customers (consumers at home) and end of life of their products (downstream) are key focus areas.
“Consumer use of P&G’s products makes up 83% of all carbon emissions and P&G is tackling these via initiatives like promoting cold water washing on Ariel/Tide, as use of hot water has a big impact on carbon emissions. Work on the upstream supply chain and end-of-life are the next key focus areas that have the potential to be fully addressed in the medium term,” says Askew.
While they are working on ensuring that their raw materials and packaging suppliers place sustainability at the heart of their operations, a major impetus is that the technologies required in the renewable carbon space (such as in the biosphere, atmosphere, and technosphere) are still at an early stage in their development. While available in small batches, it has not yet scaled to a rate to make it financially viable or to perform at the required level for energy consumption efficiency. They do feel, however, that the tech will really start to pick up from around 2030, just in time for them to double down on their goals of reaching 100% decarbonization by 2040.
Corporate-startup collaboration as a key to climate success
Regardless of the challenges, the answers seem to lie in collaboration.
When it comes to the supply chain problem outlined by Inven Capital, Petr Mikovec sees an opportunity in collaboration:
“Every startup needs to prioritize the security of supply to deliver on their production plans. Entering into joint purchasing consortia could make sense – startups coming together and aggregating orders to meet volumes to make orders from Asia a good deal to sustain growth. Meanwhile, investors who are seeing the power in aggregated purchasing may in turn be more motivated to invest in capacity here in Europe. That way, step by step, we can slowly shift some part of the demand.”
Meanwhile, P&G is doing everything it can to drive open innovation that can both benefit themselves, as well as any other companies. They've done this by opening the InQbet innovation laboratory in Belgium to connect with the outside world and develop solutions. That can range from prototyping, piloting, and supporting through finding funding.
Some successful collaborations P&G has been involved in include Purecycle Group – a polypropylene recycling technology that has been out-licenced by P&G. Another is Holy Grail – digital watermarking technology that improves the accuracy and ease of sorting plastics. While they themselves are looking for innovations that improve their business and support their decarbonization goals, they don't want to keep potentially dial-moving tech to themselves. At the same time, they're eager to work with startups, as Stuart Askew emphasizes:
“We’re always open for business. We have a unique capability in P&G to connect – it’s a two-way relationship. With the innovation campus, we now have a more proactive means for collaboration, and it also means it’s easier for startups to navigate P&G, and quickly understand if there’s a collaboration opportunity.”