Sustainable Views: Raising ‘quality’ green capital in Europe

At the end of February, I had a chat with Lubomila Jordanova, the founder and CEO of Plan A, a startup that has created a carbon accounting and reporting platform. But a lot has happened in the world of climate tech and finance since then.

Now, our other top story tonight, the collapse of Silicon Valley Bank. We just learned in the last—

Silicon Valley Bank collapsed. It had been serving 1,500 or so green tech companies, and its demise has raised questions about the ability of those companies to access finance in the future. In the US, which is still considered the center of business innovation in the world and elsewhere. We wrote about this in Sustainable Views. I will add links in the show notes. Lubomila, though, has a different view on what is the best market for greentech funding. Europe, she says, is a far better place than the US. So let's start the show there. How is raising funds in Europe? This is Sustainable Views. The podcast, and I am Silvia Pavoni, your host. Right, fundraising in Europe. Traditionally, Europe has been lagging behind the US in terms of availability of capital as well as enthusiasm for startups. But Europe also seems to be more receptive to green policy. Does this improve green startups' chances there?

If you would have asked me this question 12 months ago, the answer would have been one versus what I would tell you today. The reality of companies raising funds at the moment is really uncomfortable because the economic situation, or at least the fears of a worsening economic situation, have resulted in a lot of concern on the investor side for the likelihood of short-term returns, uh, or not so long-term returns, uh, related to, uh, companies that are high risk within the climate space. Um, the Truth is, is that a year back there was a lot of momentum. Investors were educating themselves on the topic. But of course, as some events unfolded last year, especially when it comes to the energy crisis, many investors started fearing that they need to look at the public markets as a reference point for what is ahead of them. And obviously, if you're talking about venture capital, that comes significantly down the line of the funds and the distribution of funds. So they consider these signals as signifier for the upcoming months that they will have.

Even before the SVB collapse, there was quite a lot of uncertainty in the markets. Do the broader challenges point to a new trend and how do they affect climate entrepreneurs?

My feeling is that it's a problem of education, because if you're informed enough about sustainability and about climate change, you understand that CO2 equals money, climate risk equals financial risk. And if you're not prepared for the future, and you don't understand the value of your assets in the context of climate change, then you are sitting on money that will disappear. It is really no sign of success that oil companies have been able to make so much money in the last year. It's rather been a signal of a system that has not been prepared for the shocks of reliance on centralized energy. Grids. And when you look in these kinds of networks, the only way to protect yourself from such disbalances— and they don't necessarily need to be geopolitical, but also simply access to resources due to maybe some natural resources becoming unavailable— the decentralized model is the one that will be the only one sustainable and the only one going forward to be available. So, When you're dealing with finite resources such as fossil fuels, you cannot assume that there's anything related to sustainability there. The educational bit is not necessarily a challenge for all investors. Many investors have spent time to learn about the problem, to understand concepts like the carbon bubble, concepts related to unaccounted-for climate risk-related costs that only last year were over half a trillion. And that means that our financial model, our economic model is really not accounting for those. So they're just somewhere flying around, but then at some point they get to be paid for. But we still have a long way to go until the whole value chain is fully aligned on short-termism versus what long-term needs to be taken care of, which is not only the planet, but mainly humanity.

Education does play a big role. Investors need to feel comfortable about the economic potential of the technology or the other climate solutions they'd be funding. That potential, arguably, is clearer in Europe, where there are growing numbers of regulations supporting the transition. This, Lubomila says, is helping fundraising, particularly when it comes to quality capital.

Plan A is indeed based in Europe. We're based in London, Munich, Berlin, and Paris. And we have been serendipitously choosing these locations without knowing that this will be also the mecca of climate legislation. When I was starting Plan A in 2016, there certainly was on that much momentum as we see at the moment. It has been incredible to see the value of legislation in the wake of all these different frameworks. A lot of businesses, regardless if they were immediately impacted by those, found out about the topic of sustainability and decided to take an action, be it an initiative, be it an educational program for the employees, be it a proper setup of a team that can deliver on developing and implementing a sustainability agenda. And although for many it might seem a little bit messy, unclear, because there's just so much movement, there's so many novelties, so much announcements, so much unclarities as well related to certain KPIs, we do see this as a really positive choice of the European Union. And I would say also of the UK, because the UK has also had some fantastic initiative, so All Together Europe. And we do believe that this will be the continent that will define the sustainability agenda of the world. Starting a company in Europe is tremendously advantageous when it comes to climate topics because of the regulatory framework, but also because of the resulting investment vehicles that have popped up in the last 2 years. There is a lot of capital, and it's capital that is not necessarily only quantity but also quality, in the sense that investment vehicles such as VCs or private equities have developed a thesis that is a lot more elaborate around hardware, also materials, also alternative protein. If you look at other parts of the world, actually, the approach is a little bit more quality Not necessarily immediately quantity deployment is important, but as someone that has built a company heavily focused on following science, I'm always with the preference of less means more, as long as it really is aligned to science, as long as it really is focused on the actual impact. So better do decarbonization rather than offsetting, better be using biodegradable materials rather than alternative plastics. So this kind of mindset, I think I've seen by now quite a lot in Europe, and I think this makes it really easy or at least more comfortable to build a company in this continent.

Other climate entrepreneurs continue to look at the US, however, particularly after the creation of generous green subsidies, part of the Inflation Reduction Act. But Lubomila is adamant that Europe will lead in this space, certainly for businesses like hers, which focus on companies' ESG disclosures.

I would say if you look at the amount of capital that has been deployed over the last 2 years, both by public and private actors, there's not necessarily full, I would say, drive that is coming from the US only. Asia is doing a fantastic job. Geographies like Singapore, Hong Kong, they're kicking off a lot of exciting initiatives following also frameworks like TCFD. So what I really mean is that if you look at the whole world, definitely Europe has kicked off a lot of work on the policy side, has done a lot of work also on becoming a mecca for diverse solutions for actual local problems related to sustainability. And finally, I definitely see the more recent deadlines related to reporting on sustainability to have pushed businesses to act faster. If you compare them to other corporates or large-scale businesses in other geographies, the momentum is definitely not there. And US is a great example for a bit more of a delayed approach to implementing sustainability goals and working towards decarbonization. We work with a lot of large-scale companies, including automotive, fashion, utilities, electronics, transportation, logistics, and we definitely see that, for example, if we take a company like BMW, that is really a phenomenal example of sustainability progress because the way that they've taken on board the fact that they need to change, but not only change, but really transform their business has resulted in a lot of initiative, but also a lot of actual investments in decarbonization. And we're lucky to observe and also participate in these initiatives. They have given a deadline to their suppliers for the next few years to not only contribute to the data collection for Scope 3 emissions, but also to set out an agenda to decarbonize by 50%. And if they don't have the capacity to deliver an elaborate plan for decarbonization and then cannot act on it within the years after, they essentially get to be disqualified as a likely partner. So this is one example. When it comes to others that may be could be used as a good member of a certain industry that is taking action. I would also use fashion. In the fashion sector, there's a lot of legislative push, which has also made a lot of companies rethink the whole concept of produce more to make more money, but to try to focus on reduce less, but then maybe at a higher price and then better quality, but really with the focus on longevity in mind. There, the actual push has not only been legislation, but even certain initiatives set out by the UN. The UN Fashion Charter has been there for quite a few years now, but the momentum came a few years back where they set out KPIs for fashion companies, and you needed to go through a rigorous process to be able to be part of this, which gave you advantage on networking, but also getting access to some of the funds even that they can tap into on the local levels, which usually the ones where the suppliers are based for many fashion companies.

Ljubomila has some advice for entrepreneurs looking at climate solutions. 3 years ago, in addition to leading Plan A, she also set up the Greentech Alliance, an organization that supports and connects founders.

We did build the Greentech Alliance a few years back. Now this is a community of thousands of businesses building solutions using technology to address climate change. We select these businesses through an interview process and an application process that checks their alignment to science and their commitment to science and also understanding of greenwashing, because we want to make sure that there's no solutions that do not put longevity and externalities in their mind when they're building their business. The tip that I would give for anyone that is building a company within the space is really spend time on educating yourself about the actual problem, which climate change. It is unfortunately a collection of a lot of different issues, which means that you need to understand more integral perspective of what the story is, where we headed. But this foundation really acts as a pillar for any decision that you make down the line because you even, I would say, reduce your scope 3 immediately just by knowing that certain materials or certain processes are not so good for the planet. This also, I would say from a personal perspective, has allowed me to be able to feel comfortable with embedding emotion also in what I do. We're not simply selling a software. We truly believe in the problem that we're addressing, and we're doing this with the heart for understanding that for businesses, it's not easy to transform. It takes time. It has taken them time, sometimes decades, sometimes hundreds of years. To get to that level of success. And now being told that they need to reduce by half the emissions that they create, which for them at this point, if they're not educated, means growth, they still need to wrap their heads around that. So having the foundation gives you the good view on how to talk about topics with a lot of depth and then having, I would say, the soul or the emotion to it allows you also to be sympathetic, to be conscious of the fact that it's not an easy process to embed sustainability overnight in a company, in an individual's life, in any kind of process, because we've been doing things for a long time in the not necessarily best way.

Loba Miller talks about emotion and its power in presenting a climate venture to investors and potential clients. But showing emotion particularly as a female founder, isn't usually considered a desirable quality. Or are things really changing here too?

I've been on numerous phone calls and meetings with chief sustainability officers that have told me that they've gotten into the job because of their children. The same thing has happened with some of the team members of Plan A. We have high-level executives that have been working on million-dollar salaries and they've gone to work into a startup like us because they see a moral impediment if they continue to work in a company that is not committed to sustainability. So they want to be able to do their bit. Another element is that at the end of the day, as much as we might want to hide our emotions in business and we're just doing deals and we're signing contracts, we often choose to work with the people that we like. And I do think that having empathy for the lack of understanding, sometimes the lack of knowledge, or just even the unclarity on where the world is headed because it just feels too messy at the moment. It makes us a better partner to these companies because we understand that they're dealing with a new type of risk that they've not been able to learn about, let alone know how to navigate. So we are more trustworthy for the fact that This insecurity is something that we've been able to turn into a software, but also in a team that cares and is able to respond in the most professional and educated manner, but knows that this is not a topic where you're simply optimizing marketing. Like, this is not a straightforward challenge that we're dealing with because it's related to people, it's related to our world, it's related to our security.

Are these also the reasons why Lubomila created Plan A?

I had a bit of a mad 2016, so I think I would not be able to name all of them as conscious decision-making process steps. But I would definitely say that as a person that spent the whole year in 2016 learning about climate change and someone that has been historically and in my whole life passionate about wildlife and always spending a lot of time in nature because I've been skiing professionally, it made me feel additional level responsible for what was happening. And I had some sort of a response based on all of this knowledge that was, I need to do something about it. And it felt like my background in finance, which was in investment banking, then fintech, venture capital, was really a fantastic a good stepping stone for me to get into translating this message that I had learned in 2016 to the world of business, where there's definitely been a lot of maybe sometimes conflicting messages about sustainability, sometimes telling people that sustainability is only like a tree hugger's job, or it's nothing that will do anything different than drain the bank account of a business. I know through data that this is the total opposite. And I think businesses that want to be competitive tomorrow need to use that for their own advantage.

Nothing like personal conviction to drive a business then. This seems to be working rather well for Plan A. Is this something that is driving your business too? Do get in touch. I'm keen to hear from entrepreneurs and investors out there looking at climate and at the green transition. You will find me on social media. You will also find me and my producer John Rogers in 2 weeks for the next episode of Sustainable Views, the podcast. Until then.