ESG Matters episode 11: transcript

Transcript

Anna-Marie Slot:
Welcome to ESG Matters at Ashurst. I'm Anna-Marie Slot, Global Sustainability Partner at Ashurst, and thank you for joining me for the latest episode of our 30 for Net Zero 30 podcast series. In this series, I've been speaking with champions across the globe around real steps to take now to achieve 2030 goals. Today, we're joined by Matthew Le Merle, co-founder and managing partner of Blockchain Coinvestors, the world's leading blockchain venture funds of funds and co-investment program. Thank you, Matthew, for joining us today. Could you give us a little bit of your background and where you're spending your time, to start us off?

Matthew Le Merle:
Well, thanks a lot, Anna-Marie, and it's great to be here. This is something that for Alison and I, who are the general partners of Blockchain Coinvestors, this is something we've been doing for most of our careers, it's more than 20 years now, internet and FinTech investing. And for us, blockchain is a continuation of that focus. So that's really where we spend our time. We are primarily full-time internet, FinTech and blockchain investors.

Anna-Marie:
Great. And so internet and FinTech blockchain investors, and are you seeing any shifts then when it comes to sustainability? I mean, we've been talking with various people around the globe and this has moved in the dial of the conversation with lots of people, but interested to see how it's intersecting with FinTech and internet.

Matthew:
Well, it's a great question, Anna-Marie, and I would say in our lifetimes, this has been a topic that we've always been aware of, and yet the reality is most of the world has done very little about it. So the first world climate conference was more than 40 years ago, and if you look what we've accomplished since, despite the very hard work of many, many people, to be honest, we haven't done very much. Most businesses, most industries really haven't moved to sustainable energy yet, and that's an issue. That's an issue, and I think we understand that. I think that there are some people that would still like to believe that humans are not the ones impacting the climate, but I think it's fair to say that most of us and most scientists no longer believe that. We do believe we're responsible, at least in some parts.

So that's where I'll begin, Anna-Marie. I mean, I think this is a global narrative that impacts every industry, every business, every government entity and every community and individual. And that's true when it comes to FinTech, internet and blockchain as well, because all of those things are technology-enabled, and whenever we use a computer anywhere in the world, we of course use some energy. We can't fire up a computer or a mobile device without using some energy. And in fact, almost all human activities do use energy. So this is a narrative that I think is increasingly relevant to all of us.

Anna-Marie:
And a very good point as well. I think people probably don't see that connection when they're thinking about their daily lives, and they don't necessarily think of, "Where is this energy coming from as I turn on my computer?" I think as we evolve our way of working, there's been a lot of focus, certainly, on carbon emissions and carbon production. Do you think from an investor point of view, you spend a lot of time, I think, with investors and figuring out investment opportunities? Looking specifically at carbon, do you think there are options open today for investors and others who want to have that be an aspect of moving the economy away from being carbon-based?

Matthew:
Yes, for sure. Yes, of course. And the reason, Anna-Marie, is that society, broadly defined, is in a transition out of the industrial era and into a new era that Alison and I call the Fifth Era. It's why we've written books on the topic. We think that the industrial era is coming to an end. And where we're heading is driven by three powerful transformative forces on a global scale. One is the shift to a digital economy, which obviously does require energy to power it. The second is the rise of a global and much more sophisticated life-sciences environment, where we are editing and modifying plants and animals and even human life itself, though societally, we have to figure out what we think about that. And then thirdly, it is the shift from a heavily carbon economy to one that is more sustainable, that is kicking off as we speak.

And whenever you have big shifts in economic activity, you also have big shifts in economic value, and for an investor, that also means you have investment opportunities. And in fact, for early-stage tech investors, and we are primarily early-stage tech investors, change and innovation are exactly what we're looking for. And so going all the way back to your question, it's inconceivable that there wouldn't be new winners and new losers as we shift from a carbon-focused economy to a more sustainable energy source future economy. Yes, there will be many, many winners and many, many losers, and for investors, that means that this is a time of opportunity.

Anna-Marie:
That sounds interesting because it sounds like you're talking from the concept of a whole network of movement. Do you think that there's a specific action or movement that needs to happen to make this transition occur sooner rather than later? Do you think that's ongoing? What are your thoughts around how this will happen?

Matthew:
Yes, yes. Another good question. So there's an old English saying, which is people in glass houses shouldn't throw stones. And the spirit of that is if you live in a glass house and you throw a stone, a bunch of people may throw the stones back at you and your house, which is made of glass, will suffer irreparable damage. Well, in the context of energy usage, we all live in glass houses, and I want to be absolutely clear about this. All human activity uses energy, and for the last 200 or 300 years of the industrial revolution, we became absolutely wedded to carbon sources of energy. And that began with coal, and then it moved on eventually to oil and gas, and today, globally, we are absolutely reliant upon carbon sources of energy.

Well, the good news is... And of course they emit a variety of substances, carbon dioxide, sulfur dioxide and other things, and we know the implications for the atmosphere, and we believe for climate change that we're experiencing in many parts of the world or we believe we are, and I think most scientists would say we are.
Well, just taking that one step forward, all of us, therefore, have to look at ourselves and what we do and figure out how to transition to either, and this is obviously the top of the stack, is use less energy. So obviously if we can be more energy-efficient, that's job number one. If we don't need energy, or if we can use less energy, that's the place to start. The second thing is transitioning from carbon sources of energy to sustainable, renewable sources of energy, and there's a lot of them and more being created. So whilst we tend to think about solar and wind and geothermal and hydroelectric, that's not where it ends. There are other sustainable, renewable sources of energy that humans are exploring and innovating around, and the good news is that they are becoming more and more efficient sources of energy so they can truly compete, or in some cases even beat the old carbon energy sources.

So it's use less, make sure that it's more sustainable, and then thirdly, offset whatever remains of your positive carbon footprint. In this space, positive is about thing. Positive means that you are still responsible for putting out carbon. So we will never eliminate 100% our uses of carbon in my opinion, because that would mean we would stop using all plastics and all lubricants and many other things. Now, I guess I should be careful. I should never say never, because we are also innovating and exploring alternative fabrics and sources of building materials and sources of lubrication and so on and so on. So who knows? One day we made literally no longer need oil or gas in our lives at all.

So that's a very long answer, Anna-Marie, but I'm beginning there, because the movement is a mindset shift for every human being on the planet, all 8 billion of us, and all of us can do something. And this is one of the issues, right? One of the issues is we feel that in our individuality, we are too small to make a difference, and that is the old tragedy of the commons issue that when individuals feel that their individual actions are not meaningful, then you run the risk of a prisoner's dilemma where the actions of the many sum to a major negative externality. And yet no one feels that the first step is worthy of taking because they're too small in the grand scheme of things.

Well, it isn't true. All of us, every individual, every community, every business, every industry, every government, every country around the world has to be in this together. And that's really a mindset shift, and that's why this has taken 40 years. It's because there are vested interests and individuals and companies and businesses who don't want to make the change. And we can talk more about that a little bit before the end of this webinar, if you want.

Anna-Marie:
Sure. Sure. And a fair point about individual change. You've mentioned that these are important aspects for both Alison and yourself. Would you mind sharing some of the things that maybe you're looking at on a personal level to make that behavioral shift required?

Matthew:
Yes, I'm very happy to, but let me say that I am the classic example of the frog that was sitting in the pot of water and didn't notice the temperature was going up. And I say that very seriously. I did study geography at Oxford many, many years ago in the 1980s, and I did write white papers on global warming and climate change. And my father at that time was the Head of Sales and Marketing for America's largest oil refinery services company called UOP, Universal Oil Products, which became part of Allied Signal. And so he was working on, at the time, the world's largest refiners like Dubai and Saudi Arabia, and I remember I was writing this white paper at Oxford on climate change, and I showed it to him, and then he showed me some papers, which probably he shouldn't have shown me, which were about the state of technology to scrub sulfurous emittants and carbon emittants.

And at that time in 1983, in 1984, the technology had already got to a point where it was possible to scrub out those emittants, but the issue was, it was costly. And here we are 40 years later and we still eject a lot of effluent into the atmosphere routinely in many parts of the world, when we already have the technology we have had for decades to capture those emittants. So in my personal case, I knew about this topic, and then I forgot it, and I forgot it for 20 or 30 years. And I will say that watching the Alcor film reminded me a little bit of this topic, and Alison and I began to do a few things then, and then as the years have gone by, we've done more and more.

So what have we done? Well, we have installed solar at our home, and so our home uses solar energy mostly at this point. We have bought electrical vehicles. We're very fortunate that we could afford to do that, because they were expensive at the beginning. The good news is they're now no longer more expensive, so anyone can drive electrical vehicles. Their range and reliability has also got to the point where it's a real choice. We should travel less. COVID has forced us to travel less, but I have to tell you, before, we were very heavy travelers and most of our personal carbon footprint is actually in our personal travel, and that continues to be an issue. But what we then did was we bought a good number of carbon credits to offset our personal footprints, and we also were part of a group of people that bought 10,000 acres of Panama rainforest to protect it and to essentially offset our activities as part of doing that.

So there's some personal things there. Use less, use more sustainable and offset what remains, and we're doing most of those things. We need to do more. From a business perspective, we have invested in some sustainable energy technology companies, and the one I'm most proud of, actually, is Universal Protocol Alliance. This is an alliance of leading blockchain companies, including Ledger, Uphold, Bittrex, Trovio, Hard Yaka, Fifth Era, CertiK and others, and we ended up creating the first tradable REDD+ rain forest carbon credit. It's called universal carbon or UPCO2, and it's available at Uphold and Bittrex. But what we basically created was a very easy tokenized form of carbon credit that can be bought easily, retired easily, and is very efficient.

So part of the challenge of the carbon credits today, at least for the mass market, for people like you and I, or even like companies like Ashurst or our own, is that it's very hard to buy small increments of carbon credits and retire them, and you tend to get hit by a lot of intermediary costs. You pay a lot more than the market price that, say, a Chevron or a Google might pay. And so Universal Protocol Alliance and Universal Carbon, which can be found at universalcarbon.com, is an attempt to address that issue.

So these are examples. I'm not being comprehensive, but hopefully you'll get a flavor. But the thought process is always the same. Can I use less energy? Can I shift my energy usage to more sustainable and renewable forms of energy? And then if I have still a positive carbon footprint, at least I should offset it. It's not greenwashing. It is trying to channel some economic value to those people that are creating sustainable, renewable projects around the world. And you get to choose. You can direct your final offset energy, if you will, to the rainforests or to a solar project or wind projects or whatever you want, because you can actually buy different flavors of carbon credits that have been generated by different types of positive sustainable projects.

Anna-Marie:
Exactly. And that scope includes biodiversity. It includes water usage and water efficiency, but really interesting points that you're bringing out. And I think this mantra of three... I'm always attracted to mantras of three, but this use less, what you do use shift to some renewable source, and to the extent that you do have something remaining, offset that in a way that is meaningful and transparent. I feel like that's the answer to what we always ask is our closing question. If you could get someone to take an action, what would it be and who might that be? Those three are a great place for people to start, both looking at their companies but also looking at themselves. Anything else that you want to share?

Matthew:
Yes, because I hinted at it earlier on in this podcast, and I want to make sure we at least pick up the loose thread, which is why doesn't everyone simply do this now? And the answer, broadly, is that everyone has vested interests in the past. You have businesses that are reliant upon ways of doing things that are threatened by this change that we're describing. Perhaps you sell combustion engine equipment, and your combustion engines are going to be less sought out, or maybe you're going to have to pay taxes or other economic burdens on that type of equipment. That would be an example, but it could be anything. It could be you are a manufacturer of plastic bottles and everyone is shifting over to paper cartons and your business is threatened.

So many people have vested interests, and in the normal course of business, it is usual to defend your business and resist changes that threaten your businesses. And one of the strategies is to create confusion and complexity. It's a strategy I've seen before. I think you know we began as consultants at McKinsey in London, and then went on to run the Global Financial Services Group at Carney, and I ran the Global Digital Practice of Booz. And in those times, I worked with some of the world's largest companies, and sometimes they needed to resist change and we helped them do it, and one of the strategies is to create complexity.

So we've seen it before. We saw the tobacco industry try and put the burden of proof on the people who had to prove that tobacco caused cancer, and that was a very difficult thing to prove. And so the decades went by and they continued to sell cigarettes, and it was very hard to prove that they needed to put announcements on their cigarette cartons. And we've seen the same with sugars and fats, where people have put them into their food products and then they put the burden of proof on other people to prove that those items in the food chain are bad for human beings. And so we sell products for much, much longer than we probably should, because the burden of proof is put on the people that want to change.

I think, and have felt for 20 years or so, that this particular situation needs to be thought of differently. Now you are a lawyer and you're a law firm, so you know that we are all innocent until proven guilty, and the reason why that thought is in traditional legal and judicial systems is because we fear convicting an innocent person and ruining an innocent life. And so we set up the legal system to allow people to go free if we cannot prove that they are guilty, and the burden of proof is on the person bringing the case.

However, this is not a situation where we should use that thought process, because the person at stake is the planet, and the burden of proof cannot be that we need to prove that the planet is at risk before we change, because unfortunately, in this case, if we get it wrong, we destroy the planet. It's not that we destroy a life, which would be a terrible thing. We destroy the planet, and that destroys all of us with it. So in this case, I think the burden of proof should be reversed, and people with legacy businesses that pollute should be under pressure to prove that they are not having negative externalities and consequences, and they need to change very rapidly unless they can prove that their activities are not negative for the planet at large.

So I think that Glasgow and the next World Climate Conference that's occurring this fall in Scotland will be a time when the worlds will come together and we'll actually put the burden on the polluters to clean up fast or, at minimum, prove that they're not the ones impacting the world at large. And I think that that is actually where we are right now. That is what we need.

So if I could influence anyone, it would be everyone that pollutes today, and I would ask them to look closely at themselves and to acknowledge that they live in a glass house. And then I would ask them to think carefully about, can I use less? Can I shift it to more sustainable, renewable sources if I must use it? And finally, if I can't change, then at least I will offset and do all of that now. Because the burden of proof needs to be the other way up. We have polluted for at least 40 years longer than we should have, because everything we're talking about today, we essentially knew in the 1980s. We haven't learnt a lot, in fact, about this problem in the last 40 years. We have learnt a bit about how to solve it, of course. Sustainable, renewable energy sources have become more effective and more efficient, and all of that is very positive, but the problem has been in plain view, and like frogs, we have chosen to sit in the water and let it get much, much hotter.

Anna-Marie:
Good analogies. And also what an opportunity for people who do embrace that, right? An opportunity to be the ones redesigning the business ecosystem in a way that's sustainable and resilient and leading that transformation, I think, is quite an opportunity for the people who embrace it. Thank you so much, Matthew, for your time today. We really appreciate your insights, appreciate the depth of your commentary and the duration for which this topic went away and came back again for you. And thanks for joining us today.

Matthew:
Well, I hope this was useful, and I know many of your listeners will be lawyers, so the reason I went down that final path is because I think that lawyers also are often in the business of representing their clients and trying to protect their client's interests, and I do think you need to think very carefully about the degree to which you as lawyers may be protecting the wrong interests for the wrong reasons. The interests you now need to protect are those of the planet at large and the human population, all 8 billion of us, and sometimes that means you may need to slow down protecting the tobacco companies, even though it may feel rather difficult to do that, because you may, in the short term, feel economic consequences for your own law firms and practices. But be very clear about it: you don't want history to say you were the protectors of the tobacco companies, and we are surrounded by their equivalents right now when it comes to the issue of energy.

Anna-Marie:
Yes. Cost today versus cost tomorrow.

Matthew:
Yeah.

Anna-Marie:
Thanks so much, and thank you to everyone listening.

Matthew:
Thank you very much, Anna-Marie. I enjoyed it.

Anna-Marie:
Thank you for listening to our latest episode of 30 for Net Zero 30. Today, we were joined by Matthew Le Merle. If you'd like to find out more about Matthew and Alison, please visit blockchaincoinvestor.com to see what they've been doing with their time, including writing a number of books, which are available on Amazon or Apple. If you'd like to learn more about the world's first tradable carbon token available in public blockchain, please visit universalcarbon.com. To hear more about ESG Matters and the rest of our 30 for Net Zero 30 series, please visit ashurst.com/podcasts. To ensure you don't miss future episodes, subscribe now on Apple Podcasts, Spotify, or your favorite podcast platform. While you're there, please feel free to keep the conversation going and leave us a rating or review. Thanks again for listening, and goodbye for now.