Interview with Alex Wright-Gladstein of Sphere on What Motivated Her to Start Her Company

Hello and welcome to this episode of Conscious Design. I'm Ian Peterman, your host, author of Conscious Design book. And today I'm really excited to have Alex here, founder of Sphere, helping to divest us and our 401s from the oil industry. Welcome to the show.

Thanks so much for having me.

Yeah, so we've talked a little bit before. It hasn't been a straight route to this idea. It's taken a bit of a journey, and it's been a lifelong, or mostly lifelong journey of sustainability. I'm pretty sure us at 3, we don't really think about these things, but as you've gone through that journey, share about how you've how you arrived here and what kind of sparked the idea of Sphere?

Sure. Yeah, I, um, I've cared about the environment and climate change ever since I was a kid. And when I was in college, I ended up deciding that if I could help get some technologies out of labs that would have an impact on climate change that otherwise wouldn't make it out, that would be a worthwhile thing to do. Because you could read about amazing inventions all the time that are supposed to save the world, and oftentimes you don't end up being able to get your hands on those things. So I thought, okay, if I could help bridge that gap, that seems worthwhile.

It's a good bridge to get.

Yeah. So after working in, you know, I worked at a clean tech company for a few years out of college to get some business experience, and then I went to get an MBA at MIT. really with the hope that I would be able to meet people inventing things across campus out of engineering schools while I was there. And it was an amazing experience. There are so many brilliant people there inventing incredible things. And that's where I met my co-founders for my first startup, which is called IR Labs, which makes data centers and supercomputers more energy efficient by using light to move data between chips. So Efficiency and cutting down on the energy used in data centers was at the core of what we were doing. And so it was natural to me when we started setting up a 401 plan for our employees to ask our providers to have a climate-friendly option in that lineup. And I thought it was a simple request at the time, but it ended up taking over 3 years to get a single fossil-free fund in our 401 lineup for our employees at IR Labs. And I was just shocked at how long it took and how hard it was. And that's what started me down this rabbit hole of trying to figure out why is it so hard to avoid investing in fossil fuel companies in a 401? You know, endowments are doing it all over the place, pension funds, people who are managing large amounts of money are starting to say, hey, we want to avoid the risk of investing in this sector and we care about climate change, so we don't want to invest in the biggest polluters in the world. So why can't regular people make that decision too? And I ended up learning that there are some real structural issues that make it hard to avoid investing in fossil fuel companies in 401s, but none of those are insurmountable. It just seemed like no one had tried to make it easy before. And I realized I could do that. So that's what we're doing with Sphere.

Awesome. And so on this, you've identified some hurdles, right? Can you share a little bit about what, what are these hurdles that nobody wanted to try to, try to solve that were really stopping this? And what has it, has it enabled you to be able to, you know, create a better solution by looking at kind of those, those behind-the-scenes mechanisms that we don't really think about that are in place for things like investing? You know, I certainly don't check the mechanics behind Behind the system.

Yeah, it took a lot of digging. And when it comes down to it, I think that the reason those hurdles exist is because the people who are creating mutual fund products or ETF products speak a different language, honestly, than the people who are investing in those products and who care about climate change. And so there's so much talking past each other that happens. And it's interesting because It's actually a similar challenge to what I came across in trying to help spin a technology out of a lab while I was at MIT. I spoke a very different language as someone with a business background getting an MBA than people in labs who were getting PhDs and who were engineers spoke. And so just understanding what we were saying to each other was the first hurdle to get over, learning how to speak each other's language. And it turns out there's something similar going on in, you know, between the financial industry and then customers of the financial industry. There's so many terms and acronyms and things that are hard for people to navigate and understand. And it's very intimidating, I think, for the regular person to try to understand what they're investing in. And what I found when I was asking our providers for a climate-friendly option is the response would typically be, oh, okay, let me look into ESG options. And then I would say, yes, what? Like that was not a term I knew. And I think that's true for the average person, right? It's a finance industry term, ESG. And it's the term that they assign to anything that involves taking a lens that isn't purely financial return to decide what to invest in, you know, take— taking into account other things. And ESG stands for environment, social, and governance. And so it isn't even just about the environment. There's also the social piece and the governance piece, and they lump it all into one. And then everyone has a different definition of how you actually create an ESG product.

Of course.

But most of those people are not thinking about it in terms of climate change. They're thinking about it in terms of environment, social issues, and governance. And—

All right. Okay.

More often than not, climate change is even overlooked. And, you know, oftentimes there will be some kind of looking at carbon footprint of companies type of assessment that's going on, but For the regular investor, I think the most prevalent issue or values-aligned issue that people want to be able to invest aligned with their values is climate change, because we're at a point right now where 82% of Americans are worried about climate change. It's incredible how united we are across this country on this one topic.

Finally found one thing.

Yeah, it's hard to get more than 50% agreeing on anything, right? 82% is an astonishing number. And the investment products haven't caught up. So that's one thing. There are a lot of ESG products out there, but they're not actually climate-friendly. Another issue is that these ESG products that exist, which might have some degree of climate friendliness to them, some type of carbon accounting that goes into the assessment, they typically are actively managed. And that's because they're taking a very proactive approach to figuring out what are the better companies for the environment and for social good and in governance. And it just takes a lot of effort, manpower to make those assessments and then decide what companies go into a portfolio that makes up a mutual fund or an ETF. And that means because it's taking so much manpower, it's expensive. They tend to charge really high fees. And in the 401 world, that's a no-go because employers can actually be be sued by employees for having funds that are too expensive in their 401s. And those types of lawsuits happen all the time. It's a specific type of class action lawsuit, and there are law firms that specialize in that type of lawsuit. So it happens all the time. So there's a very— oh, go ahead.

I didn't know it's common. If there's specialized law firms just for this class action, that's serious.

Exactly. So it's a very legitimate fear that employers have of getting sued if they put funds in their lineups that are too expensive. And given that pretty much all the environmentally friendly funds are expensive, it means that most of them just won't end up in 401s for that reason. So that's, that's just a sampling of the different issues that have kind of structurally made it hard to have climate-friendly investing in 401s until now.

Right. Well, I mean, taking 3 years to be able to offer it, that's a, that's a lot of time and effort to be able to make something happen. So And when you're looking at, you know, what you guys are doing, then you're— and you talked about it— you aren't actually offering, you know, the 401 necessarily. You're helping to be the infrastructure behind it that allows somebody to offer it. So what, you know, without giving away your magic sauce, but how, if it's so expensive to do this kind of thing, like other funds, Like you said, they're super expensive. Kind of what, what is your approach? And what are you doing to be able to fit into the category where you won't be sued for offering this as a 401 option? Like, how are, how are you tackling that? And what's your goal going forward with it?

Yeah, so you're right. So it's 2 things here, you know, like, what are we actually offering? We're not a 401 provider. That's right. And the reason for that is I realized The 401 providers are not the issue. It's really the products, the funds that are the issue. So it's also a nice thing for people who want to offer a climate-friendly option in their company because it's a big ask to switch who your 401 provider is. Typically there's only one time per year you can do it. It's got to match up with the calendar year and it's just a huge effort to switch 401 providers.

Right.

It's not at all a big effort to add one additional fund to your lineup. So that's what we're helping people do. We're saying, stick with your existing 401 provider. Don't worry about that. Just send them an email and ask them to add this fund to the lineup as one additional option for employees. And so our first product is a mutual fund and it has low fees. And to answer your question on, you know, how do we pull that off when everyone else has high fees? It's a very, very simple product. So we're not doing any type of active management. It's a passive index fund. And what that means is we're just taking the top 500 US companies. So if you've ever heard of the S&P 500, you know, it's the most popular index fund that exists in the US and it's made up of the top 500 companies in the US. So we take that list and we just remove the fossil fuel companies from it. So rather than trying to say, oh, is this company good or bad? Like, oh, FedEx, it's not a fossil fuel company, but it has a lot of trucks which have a lot of emissions. So how do we weigh that? We're not doing any of that analysis. We're just saying, is your core business extracting or refining fossil fuels or something core to the fossil fuel industry? If so, you're out. If not, you're in. And that's it. We remove about 40 companies from the top 500 list. It's about 5% of the market cap of that top 500 list. So it's actually pretty minimal, but you have a huge impact in terms of climate because they are the biggest polluters in the world. Fossil fuel companies make up 74% of the CO2 equivalent emissions in the world. If we didn't burn fossil fuels, we wouldn't have climate change. And the fossil fuel companies know that. So they're doing everything they can to prevent legislation from being put into place by our governments that would keep us safe. So, you know, really the core of the problem is that we're giving our money to these companies right now, even though we're worried about climate change.

Wow.

So we're making it easy for people to stop giving their money to those companies the same way that the Harvard Endowment has stopped giving its money to these companies. And the New York State Pension Fund has stopped giving its money to these companies. It's both to send a message and say, we don't agree with what you're doing. We need a change. It's not business as usual anymore. And it's also to protect our assets, because if a law does get passed that says, hey, fossil fuel companies, you're going to have to keep some of that oil in the ground, you're not going to be able to extract it, we're going to legislate for you to keep it underground. If that type of law gets passed, the stock prices of these companies are going to tank. And that is bad for all of our savings. So the Harvard endowment people know that, the New York State and New York City pension fund managers know that. That's why they've made this decision in addition to just making a statement on climate. We should be able to do that too. So all our fund does is remove the fossil fuel companies. It's actually a tiny portion of the S&P 500 and it decreases every year because they actually have been underperforming compared to the rest of the S&P 500 every year. And so you actually save more money for retirement by removing them over the long term. Because you don't get your returns dragged down by these companies anymore.

Wow.

So that's what our product is. And just to close the loop on that, the reason that we can make it so affordable is A, because it's a simple strategy. It's based on rules. We don't have any active fund manager on our payroll. And B, because we actually were able to get partnerships with some key entities like US Bank, Reflection Asset Management. These are partners in the financial world we could partner with who agree with our vision. They care about climate change and they wanted to help make a difference, so they agreed to, to do something quite unusual really and, and offer their services at lower fees than they normally would.

Well, that's awesome. That's always nice when you have, have support that can, that can make something like this happen. And it— that's a Interesting thing to think about. You're talking about these privately held funds, right? What the reasons why they're divesting out of oil in half, right? They've moved their funds over, that it's not just sustainability or climate change, right? It also has a true financial risk-reward part of it that, you know, I wasn't aware that oil companies were dropping off the S&P 500. I don't track that very much. So that's an interesting kind of look at it from just even the financial side of saying, well, what's the category of businesses dropping off the 500 list? It happens to be this category that's also bad for the environment. So why don't we just chop it out and protect savings, which is— Which is a great— I mean, nobody can really argue with that from any standpoint.

Exactly, it's such a win-win. Yeah, right.

So it makes it— I wasn't aware of how much of a win-win it would be to drop those off. So it's great that you've found, you know, this area that's beneficial for, you know, environmental— people can choose it to send a message if they want to, and they're also being smart money-wise. And protecting their future funds and making it through. So yeah, that's a unique combo that a lot of, you know, it's not every time, I'd say more and more we're finding these win-win situations. So it's nice to see the investment end of things is starting to also be in that category because for a long time, I feel like it's been skewed so heavily the other way where those kinds of things made so much. profit that it would be hard, hard to?

It's the narrative that people try to tell us, but it actually hasn't been true. There are studies showing going back 40 years, if you had cut out fossil fuel companies, you would have done just as well, or in most cases better with your investment returns. Yeah, well, that's awesome. Yeah, it's pretty amazing.

Well, it's good. Now you can tell even more people.

Yeah.

Make sure people know that. So with what you're doing with 401s, right, you've created this low-cost solution so you can offer it in a 401. Is it— is this kind of a one and done where this is a service, this is the focus, you've kind of completed your product, so to speak? Or do you have— is there places where this can go to expand to enter different types of monetary vehicles? I mean, there's all kinds of retirement plans. We have so many, many options these days, I think. Is there a place for this to expand into and offer, I don't know, IRA or something else that also could use this kind of change?

Yeah, so the way we set up this mutual fund, anyone can actually invest in it. So it doesn't have to just be accessed through a 401. So if you have an IRA you've rolled over from a former 401, or if you just have an IRA on your own, you can invest in this mutual fund as well. Or if you just invest in ETFs or stocks on the side, you can also just invest in this mutual fund. So it's available to anybody.

Okay.

But it's not one and done. We'll definitely be creating more products once this one is successful. This one was really designed to show 401— to show the 401 community that there's demand for this type of product and that it's possible to have this type of product that doesn't have to be super expensive. And, you know, once we've shown that and gotten some success in getting lots of people investing in this fund, we'll start offering other funds. One thing that we'll probably explore doing is offering what's called a target date fund. So this is something that is oftentimes the default option in 401 plans where you could say, hey, I'm planning to retire in 2050. So let me just put my money in this fund. And in the short term, you'll invest it in more risky things. The stock market is thought of as more risky. And not much in bonds, which are considered to be less risky. And over time, as I get closer to retirement, you'll increase the percentage that's in bonds, decrease the percentage that's in the stock market so that if there's a big stock market crash right before I'm about to retire, I don't lose all my money.

Right.

So it's kind of a set it and forget it type of easy choice to make in a retirement plan is this type of target date fund. And so there, there aren't any fossil-free target date funds out there. So we'll definitely explore making something like that. And then there are also, there are quite a few different issues that people should be able to invest aligned with their values on those issues. And so we'll be really looking to our customers to see what they want. Because we're not going to stop with climate. You know, we're all by default in our retirement funds invested in the prison industrial complex. If you want an option to not invest in prisons, you know, maybe we should offer an option for that.

Right.

There, there are so many different issues that we could look at. And so we'll really be looking to our customers to see what they want as follow-on products.

I love that idea of being able to pick and choose, you know, things that you want to support and not, you know, having, having a menu of options would be great. Like, yeah, I'm cool supporting these or not, you know, uncheck the box and like, nope, I don't want money going to these.

Yeah.

Um, that's a great, that's a great thing. So hopefully, hopefully you guys grow really quickly and start, start being able to offer those things. Uh, what has You've been rolling this out, you've been showing that there is demand, right? You've gotten some response. But how has that been? Like, what, how, I guess, how good has the response been? Like, is it overwhelming? Is it, you mentioned you have big banks partnering with you even. So it sounds like it's pretty good. But how has that journey been as far as like responsiveness and kind of community behind something like this?

What's been amazing starting this company has been realizing that I haven't been alone in looking for this type of product. It turns out there already has been a community looking for this all over the place.

Really?

I'm now, you know, talking to people at pretty much all of the big tech companies, you know, Apple, Microsoft, Google, you name it. There are groups of people who've been asking for years for climate-friendly investment options at those companies in their 401s. And I think that's especially exciting, these big companies, because each company individually has $10, $20, $30 billion in assets under management in a single company's 401 plan.

Right.

So that's a lot of money. You can— and on average, about 5% of any portfolio is invested in fossil fuel companies. So if you apply that 5% to Microsoft's $30 billion plan, that's $1.5 billion you can take out of the fossil fuel industry just by making this option available to Microsoft employees. So if you talk about the impact that one employee can have on the world just by sending an email to HR and saying, hey, I want to have a fossil-free option in our 401 plan. And, you know, there are already employees who've been doing that, but if If they can get their colleagues to email HR too, just like really build a coalition asking for this and make it top of mind for HR now that there is actually an option. You know, in the past, for the past few years, there was no good option for HR to adopt, right, without having all these legal risks. We're now offering that option. So now is the time when employees can really start amplifying their voices, getting colleagues on board, emailing HR again, saying, hey, look, here's a good option now. Make this available to us. And then it's not just your own money that you're taking out of fossil fuel companies, it's potentially billions of dollars that you're helping get out of fossil fuel companies. And I find that especially exciting because climate change is an issue where so many people feel like, this is such a huge issue and I'm just one little person and how can I possibly make a difference on this massive issue?

Right.

Well, here's one way you can actually make a huge difference just within your own sphere of influence. So it's been fun to get plugged into that community and we're really nascent right now. We're brand new. We just launched the fund, but I think the message behind what we're doing is powerful. And that's why we've been able to get US Bank on board and Reflection Asset Management. And that's why we've been discovering all these communities, people who've been asking for this because people want this. People are worried about climate change. They want to know how to make a difference. And it turns out you can make a really big difference by just paying attention to where you invest your money.

Yeah, it's great that you've created something and then you found out it's actually a need. There's a lot of people who've been wanting this, which makes perfect sense. And it's something, it seems like you said, it sounded like a simple question. Can we have a fund that's divested of oil or anything like that? And And it being no, it seems like it shouldn't have been the answer before. So it's great that there's people here that are looking for it and you guys are being able to create that platform. With what you're doing, you have big companies that are potentially looking at switching over. Have you looked at like what those impacts are as part of your, you know, what would happen if you divested $1.5 billion from the oil industry in the matter of one calendar year? Maybe have you thought about that? Because I feel like that would be a large impact if that were to happen at one go in any industry. It's kind of crazy to think about what that would mean.

Yeah, this is actually something I spent a lot of time thinking about when I was just thinking about starting this company, because I thought of myself as the entrepreneur who goes to labs and spins technologies out of labs. So I didn't have in my plan to start a financial company that has nothing to do with like a deep tech developed in a lab.

Right.

And even though I'd gone down this rabbit hole before, 401s, and I was frustrated by it. And I knew this issue existed. I wasn't initially convinced that divestment could make a big difference on climate change because I thought, okay, best case scenario, you take billions of dollars away from the fossil fuel companies, which then best case scenario brings down the stock price of fossil fuel companies. But then what?

Right.

Maybe it's harder for them to raise capital to do further oil exploration. Okay. But fossil fuel companies already have enough known fossil fuel reserves in the ground to screw the planet over multiple times. So it just didn't seem like that big of an impact on climate change as an issue to drag down the stock price potentially a bit.

Right, right.

And so I actually was trying to ignore this whole topic and not start this company. I was trying to focus on technologies in labs which there were some really exciting ones I was looking at. But it kept nagging at me, just the fact that this problem exists, that over 80% of Americans are worried about climate change, but 99% of us are invested in fossil fuel companies. I hated that structural misalignment of our values with our actions, right? Like, that shouldn't exist. We should be able to take a different action. And so I think because it kept nagging at me, I eventually Realized, you know what, it doesn't have to be simple divestment. We can pair divestment with sending a message to the fossil fuel companies and telling them what they can do to become investible again. And once I realized that, I— it took me a while to come up with, you know, what could they possibly do to make me want to invest in them again? Because they're all already doing good things, right? They've been investing in—

They've been investing in solar for decades.

Algae, you know, you see these ads all the time. time on like Super Bowl Sunday, right? And it's just that it's not enough, right? We're still on track to blast through that 1.5 degrees Celsius threshold beyond which scientists tell us is a really scary place to go.

Right.

In 7 years. In 7 years, we're going to blast through that, which is a terrifying thing. So all these little things on the margins are not close to enough. from the fossil fuel companies. So what could they actually do? And I realized, you know what, 1.5 degrees Celsius, that's all that matters. We want to not go past 1.5 degrees Celsius of warming, because then it ends up being a very scary world we're living in. And why are we having trouble preventing that? Well, it's because we can't get policies passed that would keep us safe. We have the technologies. It turns out we know Actually, how to limit warming to 1.5 degrees Celsius. But we can't get our act together to get the policies passed that would create the structures in society to do that. We need to do some serious transformation of how we structure society. And honestly, I think when we do that, the world will be a really beautiful place to live in, right? It means planting more trees. It means having more public transit. It's all these things that like— That can make quality of life wonderful, right? But we just have to prioritize it and get the policies in place so we can do it. Why aren't we passing those policies? Well, it's because the fossil fuel companies fund the most powerful lobbyists in the world who are fighting tooth and nail against those policies. A majority of Democrats and a majority of Republicans actually want climate legislation in place that would keep us safe.

Right.

The only people who don't is the fossil fuel lobbyists. So what I realized was, let's send a message to those lobbyists. Let's tell them we're not going to give them our money until they come to the table and they stop fighting against legislation that would keep us safe and start participating in the conversation of what does the world look like that limits warming to 1.5 degrees. I don't think honestly we'll be able to come up with good legislation unless the fossil fuel companies are at the table having a real earnest conversation about what That legislation should look like. And so this really is a way for us as investors to send a message to fossil fuel companies to say, come to the right side of the table, participate in the conversation, help us create this world that we want to create. And once legislation is in place that keeps us safe, then we'll invest in you again. Which might seem crazy. How could you possibly get fossil fuel lobbyists to start doing the opposite of what they've been doing for decades. But it's happened before. We have a few examples in history where this has been successful. One doesn't have to do with lobbyists, but divesting— a divesting movement had a huge impact when it came to apartheid in South Africa. So that's an example of divestment working. And then more recently, there is an example of lobbyists Coming to the other side of the table. And that's in the automobile industry, where originally they were fighting against emissions regulations, but then they started realizing that it was inevitable that their emissions would start getting regulated. And they decided they'd rather be part of that conversation about what the regulations would look like and create some certainty in the timeline and when those regulations would get rolled out rather than be fighting against it. And not have any control over those things. So they started actually lobbying for emissions regulations, which was a huge turnaround. And I think we can create that sense of inevitability with the fossil fuel industry as well.

That's a really good point. And I, I didn't know about the apartheid one, but the, the automotive one, I, I did know that there was a change. There was a, there was a swap where suddenly— well, not really suddenly, but It seemed rather sudden. It was, now we're for it and we have— we're going for it and we're putting engineering resources and investment into making those dates possible. And it's amazing what you can do when you throw a few billion dollars at a problem and have a shared goal. So yeah, I don't think it's too crazy of an idea. To have that happen. And hopefully you guys are able to help push that message. And because I feel like it is inevitable at some point, someone's going to end up either paying for the damages that they've caused or helping to fix it. And it would seem logical at this point to make the jump. So maybe this is just the final little nudge. Need to push them to go, okay, well, we'll start helping.

Money talks, you know, like if you want to get people to listen, talk with your money. And that's where we can all do that with our money, even if we don't invest that much money, just by being part of that movement, we can send a really big message.

Right. Well, this is super exciting. I'm very happy you guys exist. You've created this product and it's available and And I want to thank you for being on the show. This has been, this has been great. And hopefully everyone listening and watching has learned, learned about this. And for anyone who wants to start offering it, if you're an HR person, you want to start offering this willingly, I'm sure there's lots of green-focused companies that would love to know that this is even an option, right? As you said, it's been years of not even being possible. What's the best way to find you guys, get a hold of you, reach out and connect?

Come to our website. It's oursphere.org.

Perfect. Well, there'll be a link in the description for everyone who wants to just click on something. So awesome. Well, thank you so much for your time being on the show. It's been great having you.

It's been a pleasure. Thanks so much for having me.