Capital Series: Lucas Joppa, Haveli Investments
This episode is part of our new Capital Series hosted by MCJ partner, Jason Jacobs. This series will explore a diverse range of capital sources and the individuals who drive them. From family offices and institutional LPs to private equity, government funding, and more, we'll take a deep dive into the world of capital and its critical role in driving innovation and progress.
Today’s guest is Lucas Joppa, Chief Sustainability Officer and Senior Managing Director at Haveli Investments.
Haveli Investments is a new and rapidly growing investment firm led by Brian Sheth, former president of Vista Equity Partners. Before Haveli, Lucas was the longtime Chief Environmental Officer at Microsoft, responsible for Microsoft's overall environmental sustainability vision, strategy, and program execution.
In this episode, Jason and Lucas have an in-depth discussion about Lucas's journey to becoming aware of and caring about climate change, how his views have evolved on the nature of the problem, and the best path forward from when he first started doing this work to today. They also talk about Microsoft's journey when it started caring about sustainability and its evolution to being one of the leaders in driving net-zero ambitions for big corporations. And finally we cover Lucas's decision to switch from wildlife conservation to the private equity world, his motivations and of course, Haveli's approach.
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Episode recorded on March 20, 2023.
In this episode, we cover:
2:10] An overview of Haveli Investments and Lucas's role at the firm
[4:29] How Lucas came to work in climate and what got him to care about the problem
[11:09] His experience at Microsoft
[14:08] What inspired Microsoft to address the climate problem
[16:32] The company's internal process
[21:51] Influencing factors that led to climate action at Microsoft
[28:57] Lucas's thoughts on corporate net-zero commitments
[32:52] Weighing the implications of GHG reductions on biodiversity loss
[38:40] Radical transformations vs. replacing current systems with sustainable alternatives
[42:09] Challenges with private equity embracing sustainability
[49:17] Haveli's internal net-zero operations
[50:53] How founders should evaluate Haveli's portfolio management relative to other private equity firms
[53:30] Lucas' work on sustainable software
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Jason Jacobs (00:00):
Today on the My Climate Journey Capital series, our guest is Lucas Joppa, Chief Sustainability Officer and Senior Managing Director at Haveli Investments. Haveli Investments is a new and rapidly growing investment firm led by Brian Sheth, former president of Vista Equity Partners. Prior to Haveli, Lucas was the longtime Chief Environmental Officer at Microsoft where he was responsible for Microsoft's overall environmental sustainability vision, strategy and program execution. We have a great discussion in this episode about Lucas's journey to becoming aware of and caring about climate change, how his views have evolved on the nature of the problem and the best path forward from when he first started doing this work to today.
(00:47):
We talk about Microsoft's journey when it as an organization started caring about this work and its evolution to being one of the leaders in driving net-zero ambitions for big corporations today. And we also talk about Lucas's decision to switch into the private equity world, why he did, why he views it as a key lever for change and of course, Haveli's approach. But before we do ...
Cody Simms (01:14):
I'm Cody Simms.
Yin Lu (01:15):
I'm Yin Lu.
Jason Jacobs (01:17):
And I'm Jason Jacobs and welcome to My Climate Journey.
Yin Lu (01:23):
This show is a growing body of knowledge focused on climate change and potential solutions.
Cody Simms (01:28):
In this podcast, we traverse disciplines, industries and opinions to better understand and make sense of the formidable problem of climate change and all the ways people like you and I can help.
Jason Jacobs (01:41):
And with that, Lucas Joppa welcome to the show.
Lucas Joppa (01:46):
Hey, thanks for having me.
Jason Jacobs (01:47):
Thanks for coming. I am so excited for this one. I was chasing you around for a while when you were at Microsoft and I was just a little humble podcaster in my bedroom and the schedules didn't allow, but you've graciously agreed to come on the show and gosh, I have so many questions for you and it's also just such an honor to have you.
Lucas Joppa (02:05):
Yeah, no, I know we've been playing scheduling tag for maybe years at this point so I'm happy it's finally happening.
Jason Jacobs (02:10):
I'm persistent, there's many things I'm not but persistent is one of the things I am. But yeah, really grateful for the opportunity and you've just got such an interesting perspective as well, not only because of where you sit currently and because of where you sat before, but also the transition and how you went about making that decision too. But for starters, maybe talk a bit about Haveli and your current role there and then we can go on the time machine and talk a little bit about the past but let's start there.
Lucas Joppa (02:37):
Perfect. Yeah, so I left Microsoft in September of 2022 to join a new private equity firm called Haveli Investments. Haveli is founded by an individual I've known for a long time and admired for a long time, a guy named Brian Sheth. For many people in the investment world know Brian as the former co-founder and president of Vista Equities, one of the top software private equity firms out there. And a few years ago, Brian decided to go do a new thing, start a new enterprise software investing firm called Haveli.
(03:14):
We've been talking about it for a long time and I'm sure we'll get into my Microsoft story and where I'm going with Haveli. But it just seemed like given where we are with sustainability in 2023, it seemed like getting even deeper into something that I'd been starting to do while at Microsoft and that's investing in, and of course operating technology companies on a net-zero trajectory was just something to double down on. It seemed like kind of an obvious choice.
(03:47):
And so, that's what I work on decarbonization and sustainability at Haveli, both at the management firm level as well as putting together the operations strategy and framework for a growing portfolio of technology companies to try to ensure that we put them on a path to exit our portfolio already operating as net-zero companies. And then, I also have roles and responsibilities on the other side of the coin helping lead one of our investment pillars, which happens to focus on sustainability software solutions. So, I'm covering the full gamut of what I think of as modern sustainability as the Chief Sustainability Officer at Haveli Investments.
Jason Jacobs (04:29):
Great. And of course, we want to talk about your Microsoft experience but before we do, maybe just going back in the way we back machine, how did you come to work in climate in the first place and even before that, how did you first come to care about the problem?
Lucas Joppa (04:43):
Yeah, I've told this story probably a million different times, I hope I haven't told it a million different ways. I grew up in northern Wisconsin, so it's hard to avoid interacting with nature and climate when you're from a rural place in the northern part of the Midwest. I saw climate directly changing and changing the ecosystems of the town that I lived in and its economy. We are a tourism-based location in northern Wisconsin and we started seeing winters changing, animal populations changing, none of this will make any sense to listeners who don't have a deep understanding of Wisconsin, but we started seeing things like turkeys existing north of State Highway 8, something that had never happened before.
(05:33):
These things were just like happening. Ice fishermen weren't coming up and snowmobilers weren't coming up from Chicago because the ice wasn't coming onto the lakes until much later. The snow wasn't falling with enough predictability to make sense to make that eight-hour drive up to northern Wisconsin. So, I just started seeing how the environment and the economy were so dependent on each other, at least in the place that I lived. And then I decided that I should try to keep learning more about it and that's what I did at university. I studied wildlife ecology and zoology at the University of Wisconsin Madison, was extremely fortunate to study in the department that was founded by Aldo Leopold, one of my conservation icons.
(06:20):
And I just really got fascinated by the theory and the practice of environmental science, ecology and then conservation biology specifically. Climate of course was that meta issue, that meta regulator of all of these other more granular things that I was interested in. And then, as the world really started to wake up to the climate crisis that were operating firmly in the middle of today, it was just a natural evolution I think of my training and my interests, both in environmental science and computer science to start focusing on ways that companies could stop being as much of the problem and start being much more of the solution.
Jason Jacobs (07:05):
All right. I guess, there's two distinct things that I want to dig into so I really should have separated this. The two questions, but the first is in terms of your understanding of the problem and the best ways to address it when you first started doing this work many years ago, it'd be interesting just to hear how your perspective has evolved from then until now. And then, same question in terms of just when your professional pursuits intersected with your caring about this problem and just how that manifested and played out.
Lucas Joppa (07:32):
Yeah, I would say that my perspective on the problem has evolved pretty much in line with the best available science. I would say that I came into it very focused on the biodiversity aspects of the climate problem. I'm a species guy, I love wildlife, I love studying species and their populations and evolution. I'm just fascinated by how it all works because I feel like we live in this golden age of information, particularly from a technology perspective, but we're still so ignorant about the way that our natural systems work. And maybe also I'm a little bit lazy, it just seems like when we know so little it's so easy to make contributions. You just have to look at something long enough and hard enough and peel one more layer of the onion back.
(08:33):
And so, I really came into it from a biodiversity perspective, worried about the extinction of species, worried about the impact that climate was going to have and accelerating an already catastrophic loss of biodiversity around the world. And then, I started really looking around at more of the chemistry and the physics and some of the biology of the problem as opposed to just specifically the ecology. And my thinking was always, I guess in some ways has been vindicated in some ways because when I first started paying attention to the climate side of our climate crisis, I was always really confused about why we were talking about things like two degrees Celsius.
(09:19):
And even somebody who'd been formally trained through my PhD in all this stuff, I still seem just esoteric to the average person who had to care about it or do anything about it. And when you're taking a global average of a unit of analysis that most people don't even understand, particularly here in the United States when everyone's talking about two degrees Celsius and 99% of the population doesn't even know what unit of temperature that even is, given that we're on a Fahrenheit scale, I was just really confused why this was going on. And I guess, I should say I wasn't very surprised at the lack of traction that we were getting.
(09:55):
And it was really that IPCC special report on climate change of 1.5 where I saw so much change and where I saw the opportunity to really start getting even greater action on the corporate side to engage in this when everyone started talking about net-zero. And we moved from talking about Celsius to accounting. And I don't know much that business and society has had to focus on where it's also made significant progress where we haven't had a formal accounting system at the center of our management activities. And so, that just really flipped I think a lot of people's thinking around, "Oh okay, this isn't a temperature thing. Obviously, it is a temperature thing, but really what we have to focus on is carbon.
(10:46):
We have a carbon budget, we can only spend so much of it has to zero out at the end of the day. There's deadlines by which we have to achieve those things. Okay." And I just saw my thinking and society's engagement really start to rapidly accelerate as soon as the global conversation moved into one around net-zero.
Jason Jacobs (11:09):
And we talked about your current role at Haveli and we talked about your studies. We could spend the whole episode just talking about your history. I'm sure it's rich with anecdotes and learnings and stuff, but for sake of time, maybe just give the cliff notes version of what you did in between.
Lucas Joppa (11:24):
Well, really quickly, I had this opportunity I thought I was going to go and do whatever a PhD student thinks they're going to go and do I think is you're going to go be a professor, you're going to work on your topics of interest. I had this incredible opportunity to join Microsoft, but particularly to join Microsoft Research, which is this blue sky research division of computer scientists and other types of applied scientists around the world working on problems like 50 years out for the tech sector and for Microsoft. And I got to join as this thing called a computational ecologist and learn all the fundamentals of computer science and everything else alongside Fields Medal winners and Turing Medal winners and all sorts of things and got to learn the fundamentals of a company as well. And got to learn Microsoft, got to learn its technologies, all while still focusing on the environment and sustainability.
(12:21):
And really then quickly moved out of the research space around 2016, 2017 into a corporate position as the first chief environmental scientist for the company. When I left Research to go set up what became a program called AI for Earth, a program that I had recommended the company put in place, really focusing on deploying its 35 years of R&D and product in AI and machine learning towards key areas like biodiversity, climate, agriculture and water issues. And that was a great learning experience for how the company really worked outside of Microsoft. How we get products into the hands of customers and partners around the world to enact change. I moved from that position running AI for Earth, which became the template for all of the AI for Good programs Microsoft runs and a lot of what's going on in the tech sector and became the first chief environmental officer to oversee the sustainability work.
(13:21):
Really quickly was asked the question of, "What should Microsoft do next on sustainability?" And Microsoft had a long history of I thought very progressive, ambitious action on sustainability, but it was clear there was a lot more to be done. So, I went to work and helped lead the company through a process of identifying its key sustainability commitments to be a carbon negative, water positive, zero waste company while protecting more land than it uses in building this new computing platform called the Planetary Computer. Ran that operated, executed, et cetera for about two years and then decided it was in as best of shape as I could hope to leave it for anybody else, I thought that would be a good time to move on and try to take on the next aspect of my career.
Jason Jacobs (14:08):
Well, so many different ways that we could go from that setup, but one immediate question that comes to mind is what made Microsoft care in the first place or did they care? Were they just greedy capitalists or do you have to care?
Lucas Joppa (14:22):
Yeah, I think you would be hard-pressed to find a more logical company than Microsoft. Sure not all of its product decisions seem extremely logical, but at the heart of hearts of that company, it's an engineering company and it's people that live and breathe math and physics and logic and the fundamentals of computer science. And so, it was a very easy company to write equations on the whiteboard for. And I think that that's something that gave Microsoft a little bit of an unfair advantage in the sustainability space because it was led by executives that really wanted to see the equations, really wanted to understand. And when something pencils out with laws of physics, nobody wants to be the executive around the table questioning it, that doesn't bode well for your future of leading new product design or anything else.
(15:28):
And so, it was really, I don't want to diminish all of the hard work that it took to get everybody there, but it was like a guaranteed outcome in some sense. If you believe in math and science, then you have to do something about this, particularly because Microsoft operates, it's such an incredible scope and scale that kind of as goes the planet's economy, so goes Microsoft. And so, it's clear the math and the science says if you don't do something about this the macroeconomy's not going to do well and you don't need to be an expert in Microsoft fundamentals to realize that if the macroeconomy doesn't do well, Microsoft's probably not going to do well. So look, it's a company run by a bunch of incredibly talented smart people. They saw it very quickly and provided that opportunity for the team to go and put in place what we thought needed to be done.
Jason Jacobs (16:32):
And the act of actually putting that stuff in place, how much of that was a, I guess I'm not going to lay out an articulate question because it's a hard point to get at what I'm trying to but I'll take a stab and that is, without a dedicated team there's no accountability, but if it's the dedicated team on an island then you don't have buy-in from the people in the trenches across all the lines of business that are actually doing the work. So, how did Microsoft do it and what are the key learnings from now on the other side looking backwards about that process?
Lucas Joppa (17:04):
That is the number one tension that every chief sustainability officer needs to resolve if they're going to be successful. I don't know if the way that we ultimately end up doing it at Microsoft is the only way, but it's the way that worked for us. And it starts with a structure that makes sense and we'll talk about it. But it ends with a mindset that respects the fact that sustainability is so much larger than any one team. And so, the way that I think about setting up sustainability is that it touches every aspect of a company outside of the CFO, the CSO is really the only other one that is involved in every aspect of the company and the CEO, the CFO and now the CSO. And so, it requires you to have all of those types of people around. The way that we built things at Microsoft was to try to mirror the company in one team.
(18:14):
So, we had finance folks because we ran this carbon tax, we had investment folks because we stood up this billion dollar climate innovation fund, we had operations folks because we needed to drive core scorecarding and metric tracking across the company. We had a science team because we wanted our operations and our ambitions to be driven by the best available science. We had a customer engagement team, we had a product and engineering team building new things. We had all of these things all within one team. The idea was to just have enough expertise and resources so that you could be credible and knowledgeable in your engagements and relationships with your relevant business partners across the company, but small enough that it was clear it was impossible for your team to shoulder the burden alone and the mindset part then that has to come into it.
(19:21):
That's in many ways the hardest, particularly because of the way companies work and how people succeed and how people are metriced for success and compensated for success, is that you constantly need to be figuring out how you make other people successful, how you do the opposite of what most people and companies do, which is try to build fences and grow. I was always thinking about, "Well, how do I keep shrinking my team? How do I get to a point where I don't need a product and engineering team anymore because product and engineering is doing it? How do I get to a point where I don't need a comms team because comms is doing it?" All of that stuff. And that's easy to say and really hard to play out in practice because people, they worry about their jobs. "Well, am I making myself irrelevant? Well, am I doing this? Am I doing that?"
(20:25):
And at the end of the day, it just requires an extraordinary sense of both self-confidence as well as organizational confidence that there are always going to be more problems. If you think the total number of problems is the rate limiting step in career progression, then this doesn't work for you but also you're wrong. The problems outweigh people by about 10 million to one or something like that. And so, that was just that mix of team structure and team mentality that worked for us. And quite frankly, it's what made me get to a point where I felt like I could finally leave. Because I used to say what a lot of people say, which is, "Well, I show up every day and I work as hard as I can to put myself out of a job."
(21:13):
I definitely wasn't out of a job by the time I left, but I started to feel like others can do this. There's opportunities for others to step in, the company was stepping in and it was just so cool to see, to look back a couple years and it's not like nobody cared, but we were definitely writing equations on the whiteboard stage all the way up to running something like the Climate Council inside Microsoft with senior executive membership from every business division across the company. It is a fascinating time and from what I can see, it still remains to be a fascinating time and a fascinating place to be on sustainability.
Jason Jacobs (21:51):
I want to go back to something you said before about how Microsoft operates at such a scale that it's so intertwined with the, I forget your exact wording, but it was basically as the world stability goes, Microsoft's stability goes. And in terms of acting, there's many different reasons why an organization could act. One could be the macro stability or fear of instability. And there there's a question of timescale, which is tricky with climate because it's not an acute scale, it's a sliding scale. And then, there's fear of or expectation of pending regulation or changing consumer sentiment or employees or being a talent hub or public pressure.
(22:36):
But when you talked about how Microsoft, because of their scale it's intertwined, what mix of those was actually the mix that led to action internally and relatedly, otherwise I should have probably just stopped there. How do you balance dollars and cents in the bottom line with things like the collective good, which of course also goes along with Microsoft's long-term stability for the reasons that we just discussed?
Lucas Joppa (23:03):
Yeah, everybody wants to know the answer to that question. My answer is it's just all of them, it's all of them all the time. A company of that size is facing all of those pressures every day and if you try to separate one out, you end up making bad decisions. And so, I think that that's something that we've gotten very good at was to be able to take that global signal across customers, across regulators, across economics, across new product innovation drivers, et cetera, et cetera and bring that all together into just one decision-making apparatus. So, what was exciting and really helpful about that time was because there are so many different things that are important to Microsoft in so many parts of the world, anytime you felt like, "Oh, the pressure might ease up because this thing changed," or maybe two months ago a bunch of your major customers had been asking about this stuff. And so, it really pushes.
(24:04):
And then, maybe you don't get another top customer inquiry in demand for a couple weeks, but then a competitor comes out and does something. And then, maybe competitors go quiet but then the EU regulators drop something. And so, it's just was like this constant tailwind pushing, but that tailwind wasn't coming from the same direction every time and that's what really helped Microsoft get to where it was. The thing that I think is relevant both to this question as well as to the question of why I left and why I wanted to go into investing is that we need to normalize net-zero, that's fundamentally what we need to do in the corporate space. And Microsoft's products have become normalized in our global economy. That's why for Microsoft to do well, it needs the world to do well. Their products have become just totally ubiquitously normalized across our modern digital age.
(25:05):
But Microsoft is not a normal company and that is something that I think a lot of people easily forget that when you look back from a historical perspective, it is a highly abnormal company. When you look at it from a modern perspective, it is a highly abnormal company in both its success, it's product penetration, et cetera, et cetera. And because of that, there are abnormal expectations put on companies like Microsoft as it should be. And I think for better, Microsoft recognized that that those have more need to do more. And that's why I think you saw the ambitions of the company on sustainability trying to set new thresholds, not because it was a game of one upsmanship or anything else, just because if the world for instance, carbon negative, why carbon negative? Well, if the world has to get to net-zero and we know that some have more and some have less, then those that have more are going to have to go further. And what is further than zero? It's negative.
(26:19):
And so, those are just the very basic simple expectations about society and regulators and customers and suppliers, et cetera, all have of an abnormal company. And I thought that that was amazing and we had this opportunity to do that and start to normalize net-zero expectations across for instance, our global network of suppliers or normalize carbon removal purchasing as part of any net-zero portfolio. But I couldn't shake the fact that Microsoft isn't a normal company and I really wanted to prove that you can normalize net-zero across a whole host of companies of different shapes and sizes. And so, that's ultimately where my decision point came was just to prove that Microsoft wasn't a fluke. If you look at it from a success perspective on a historical graph of companies you might say, "Wow, there's a data outlier that must be a fluke." If you look at it from a sustainability perspective, you might say the same thing. I wanted to prove that it wasn't a fluke, that lots of companies, lots of different shapes and sizes could do the same thing. And that's what we're trying to do now.
Yin Lu (27:35):
Hey everyone, I'm Yin, a partner at MCJ Collective, here to take a quick minute to tell you about our MCJ membership community, which was born out of a collective thirst for peer-to-peer learning and doing that goes beyond just listening to the podcast. We started in 2019 and have grown to thousands of members globally. Each week we're inspired by people who join with different backgrounds and points of view. What we all share is a deep curiosity to learn and a bias to action around ways to accelerate solutions to climate change. Some awesome initiatives have come out of the community.
(28:04):
A number of founding teams have met, several nonprofits have been established and a bunch of hiring has been done. Many early stage investments have been made as well as ongoing events and programming like monthly Women in Climate meetups, idea jam sessions for early stage founders, climate book club, art workshops and more. Whether you've been in the climate space for a while or just embarking on your journey, having a community to support you is important. If you want to learn more, head over to mcjcollective.com and click on the members tab at the top. Thanks and enjoy the rest of the show.
Jason Jacobs (28:35):
Well, forget how you worded it in your TED Talk, but it was something along the lines and forgive me if I misstated all, but that all net-zero is not created equal. And a lot of people that work in or on climate for a living, when they see all these big corporate net-zero commitments, they roll their eyes. When you see all these big corporate net-zero commitments, how do you feel?
Lucas Joppa (28:57):
Well, not all net-zero plans are created equal. I think that we could talk forever about this, it's hard to judge anybody unless you've spent a year in their team meetings. So, I won't because I know it's easy to look at what Microsoft was saying before it started doing and say, "Ah, whatever." But then, you look and you see the incredible investments and the incredible standard setting and just nitty-gritty details of work that they got into. And you start thinking, "Oh, maybe they actually mean it." And unfortunately, I think right now it's just so hard to know until maybe it's too late whether or not any particular company means it. But eventually they will all have to. So, I'll tell you my one worry and I think it's a real one and it's one that I struggle with all the time because people want to say, "Oh, who do you think is good in this space and by default, who do you think is bad?"
(30:04):
And I spent a lot of time in the AI world in my time in Microsoft Research particularly, and then I created a program called the AI for Earth so it was like AI has been a core part of my career for a long time. And if you know anything about AI, if you've been investing in this space, if you've been active as a researcher in this space, what you know is that it's so strongly defined by these hype cycles. And what happens after a big hype cycle is what became popularly referred to as an AI winter. And I will say as somebody who was fascinated by AI, was excited by the progress that we were making, these winters were terrible. They were terrible. No one cared, funding dried up, teams got cut, ambition went down the drain, good ideas were lost if not forever, for decades. And that all happened because promises were made that couldn't be fulfilled and marketing outstripped reality.
(31:21):
And I do worry that right now we are at the risk of, we're in the early fall of a sustainability winter if we aren't careful in the way that we talk about our commitments, the way that we put our plans together, the transparency with which we provide to stakeholders. I just really worry that the incredible expectations and urgency that exist in this space are increasingly allowing less and less room for what one organization might call error and then another organization might call success. I just want to make sure that we don't lose the spirit of innovation in sustainability at a time when innovation has never been more desperately needed. And so, I said what every CSO has to navigate, it's that tension between it being someone else's problem and it being your problem. And what we've got to navigate here is making sure that we have more and more expectation and scrutiny on execution while still having arms wide open to blue sky innovation. And I don't know, it's just what I'm worrying about right now.
Jason Jacobs (32:52):
Well, I definitely want to make sure we're saving enough time to talk about Haveli and private equity and the theory of change there and what led you to think that that was the right place to anchor. But I can't help this, just a couple more things I feel like we need to cover, and one is you talked about the importance of biodiversity and how you came from a biodiversity background, but you also talked about the importance of accountability. And I think it was in your TED Talk that you talked about the importance of having a single metric and it seems like sometimes GHG reduction and biodiversity are at odds. Do you agree and how do you think about that? How do you reconcile that tension?
Lucas Joppa (33:32):
I don't know if they're at odds. I think that one's a lot more complicated than the other, I would say.
Jason Jacobs (33:40):
Well, maybe here, here's an example. In order to get the transmission built that we need to for the grid to support all the electrification that needs to happen, we need to ravage natural systems. And maybe I'm being dramatic, but just like a hypothetical.
Lucas Joppa (33:55):
Yeah. Look, every time that we disturb a square meter of land or water on this planet that has biodiversity implications. So, you have to have a balanced viewpoint of this. If you're shutting down coal plants because of that, that's good from a biodiversity perspective. If you're disrupting and destroying habitat to do it, that's bad. But you're going to do hopefully both. And one of them is net positive and one of them is net negative. For us as a society, we've got to figure out how to make sure that on the whole, it's overall a net positive. I think that I worry ... One of the reasons that I got into climate was because I started really worrying about all the time I was spending on biodiversity conservation and realizing that it might all be for not if we don't get this climate thing figured out.
(35:00):
And that's the same way I feel about the human aspects of climate change as well. There's lots of realtime impacts of climate on people today. And we could spend all of our time trying to figure that out or all of our time trying to avoid impacts on human populations a hundred years from now. That's a balancing act that we have to solve for. And it's I would say an extremely difficult one in the fact that stakeholders, whether species or one particular type of species, homo sapiens today are being influenced or impacted versus this existential challenge that we have to solve for. I think that the magnitude of the crisis existentially is orders of magnitude greater than the current impacts, but the strength of the voices today are orders of magnitude louder than the strength of the voices of future generations, whether again, that's species or people.
(35:59):
And so, I wouldn't say as a society we're doing a fantastic job of moderating that discussion, but yeah, I just think that I love the simplicity of solutions like direct air capture. From an accounting perspective, ah it's beautiful. But I love the complexity of things like nature-based solutions because it allows us to take into account all of these environmental co-benefits for things like biodiversity. So, you could say hey, these things are in conflict of like, "Well, I could just go plant basically a tree desert of eucalyptus plantations," that's not great from biodiversity perspective unless you're a species of eucalyptus but also we could do it in a different way. We could plant more natural, more complex, more resilient, robust forests and ecosystems and build up the greater return on investment, if you will. The thing that's really holding us back in that perspective is just like it's still really hard.
(37:04):
Biodiversity, ecology, ecosystems, the units of analysis are really tough still. And I talk about this from a climate perspective like why caution is warranted and it's like the chemistry's really easy, Arrhenius has figured this stuff out a long time ago. The physics is hard but totally doable, our global climate models have shown that. The biology is really hard and maybe impossible. And I believe that the ecology is impossible and I'm an ecologist. So, there's a reason I have Aldo Leopold's the key to intelligent tinkering is to keep every cog in wheel tattooed down my arm as a daily reminder of like, "Be humble like you have no idea how this stuff works." And climate scientists have been consistently wrong.
(38:03):
I say consistent because both they keep being wrong and it's always in the same direction, which is they underestimate the speed and the scale of the impact and that's because of ecology and biology, how species their ecosystems and their physiology can and will react. That's what keeps me up at night about all of this. And so, in many respects I think they shouldn't be in conflict, climate and biodiversity because they both need each other as each one needs the other just as much as the opposite.
Jason Jacobs (38:40):
Well, I'm cognizant of time, I'm going to ask one more question in this vein and then we can turn on attention to Haveli. And I already know you're going to say both to this but I have to ask it anyways. And that is, there's people that say that the more invisible that's a solution set is to people, society the better. And how we live, we shouldn't try to change how we live we should just try to swap out the systems to be more sustainable invisibly under the hood. And there's others that say, "No, we need to rethink everything, we need to rethink where we live, how we get around, the food we eat, how we consume energy, our fashion choices," everything. How do you think about that tension? And again, I know you're going to say both.
Lucas Joppa (39:21):
Yeah, I'll say both. I'm an all of the above kind of a guy on.
Jason Jacobs (39:25):
I am too, for what it's worth.
Lucas Joppa (39:26):
Yeah, on standardized tests I chose D all the time so it worked out for me about 25% of the time. So look, we need to try to do the first as much as possible for a few reasons. One, it's the status quo is the easiest thing to keep and there is an expectation of growth and improvement in the overall human experience amongst growing trenches of global societies. But if we don't, then all of those radical transformations are going to happen to us, not because of us. They're not going to be choices that we purposefully made. And so, I think that there's a limit to how much we can just replace in our modern society and so that's why I say both. I think look, there's a lot of things that we know we can do, but there's a lot of things that we know we can do differently as well.
(40:26):
I just look at just an easy one like any net-zero plan should in my mind have at its absolute core, a four-step process of decarbonizing the world's electricity grids, then rapidly racing to electrify, digitize and then ultimately virtualize as much of our physical economy as we possibly can. Okay. So, is that a radical transformation or is that a replacement? Well, I don't know, we're already on the path to digitizing and virtualizing and electrifying a lot of our economy. So, in some ways you could say, "Oh, that's pretty much just what we're doing just with clean electrons instead of dirty electrons." But if you went back like I don't know, 40 years and you said that that's what we were going to do, people would say that that was just like, "You're out of your mind." And you could say, "Well, this is all going to be renewables and zero carbon electrons."
(41:22):
And people would've said, "You're out of your mind," and now China's going to install more capacity next year than the UK has in the past 10 years. There's more energy, electricity projects in the backlog for project development on the global grid than there is energy on the global grid today and 95% of it or whatever is our renewable projects. And so, I'm just like a guy that's like, "We just have to go and do whatever we have to do," but most of it is already getting done. Now, too slow? Sure. Too small? Sure. But it's about building the foundations for where society needs to go. And on that front, I feel pretty positive about where things are going.
Jason Jacobs (42:09):
So, switching gears to Haveli into the decision to go into private equity. I know from chatting with you a little bit before we started recording that the state of the industry and this was my perception too just from the cheap seats, but private equity is not very far along in the aggregate as it relates to embracing sustainability and the inevitable clean energy transition. What's your characterization of the state of the industry and then talk a little bit about Haveli and what it is that made you think that this could be an outsized lever for change for you personally in the next phase of your career?
Lucas Joppa (42:46):
Yeah, I don't know if I'm in much more expensive seats than you are from the private equity viewpoint in the sense that it's really hard to figure out what people are doing in the private equity world when it comes to climate plans. I think the first word of private equity is private. And one of the things you learn very quickly when you start looking around trying to find information is how seriously people take that, which is in direct disagreement with the number one lesson I learned at Microsoft. The number one positive thing people would say to me about Microsoft's work was just how transformational Microsoft's transparency was. And I always thought that was so boring. Man, I work so hard on all these things that I think are so cool and all anybody gives me credit for is the fact that we published it or that we were willing to tell people whatever.
(43:51):
But you leave and you realize how unusual that is, how abnormal that level of transparency really is. And so, I think the world focused on technology starting a decade ago in the tech sector because of its success and its growing environmental impacts and its opportunity for ambition. I think that that focus now that the tech sector has really started to stabilize with its ambition and move firmly into operational and executional modes, that focus is really shifting towards the world of finance because that's where the next big opportunity is making sure that the money's going in the right places and not the wrong places, et cetera. And the first lesson that that industry needs to learn is the value of transparency. And so, when Brian and I first started talking about this we basically said, "Hey look, you had the opportunity to go and help set a new standard for what the tech sector did in sustainability.
(44:54):
And that was important but now there's even bigger opportunity to come and set the standard for how finance thinks about this. And I want you to come and help Haveli earn the right to be considered one of the most sustainable investment firms going and I want you to do it in such a way that it makes it extremely easy for anybody else to bypass us." What I heard in that was this acknowledgement of the importance of transparency, acknowledgement of the importance of ambition and this selfless worldview of saying that this isn't a winner take all game. And I just thought that if there was ever going to be an opportunity to normalize net-zero, it was going to require somebody that was able to have some aspect of operational control over companies, some aspect of ability to work from the top down the board level and the management team and the bottom up inside these companies and to help work on both the finances, the management, the culture, et cetera.
(46:07):
Because that's what you learn when you work on sustainability, that's a little bit of everything that gets a company to where it needs to go. I went down the list, I want to work in parallel, not sequential. I want to be able to work from the bottom-up and the top-down on companies. I want to be able to implement a framework, a relatively standardized framework across numerous organizations, but with a culture of understanding the organizational specificity of any particular company. And private equity was the only place where I thought that that was possible. And I also wanted to invest in new software solutions to sustainability challenges and I wanted to stay in tech because I think tech sits at the core of everything that we're going to do. I have this macroeconomic perspective that was influenced by I think the only economics course I ever took in college so maybe it's a observational bias.
(47:13):
But you learn there's these four factors of production, land and labor and capital and entrepreneurship. And what's obvious to me is that the reason the world seems so crazy right now is because our expectations that two of those were infinite, land and labor, those expectations are being shattered in front of our eyes. So, declining population growth, more restrictive immigration policies, et cetera, et cetera, are making labor increasingly scarce. And land is, and economists when we talk about land we don't just literally mean the dirt, we're talking about all of the services that nature provides is under unprecedented stress. And so, that means that capital, particularly modern capital and entrepreneurship have a lot of slack that they've got to pick up. And modern capital is tech, modern capital is software and software is this platform that allows entrepreneurship to go crazy.
(48:23):
And right now, we live in this time when entrepreneurship on top of capital can be used to solve some of these fundamental deficiencies that land and labor are showing. So, we see AI particularly on the labor side, I think we see software and entrepreneurship on top of it really helping to better monitor, model and ultimately manage earth's natural resources because we find ourselves with this existential challenge and basically flying blind from a digital data perspective on what is, where, how much is there and how fast is it changing software? Clever people building it and operating it and deploying it in the space of natural resources, that's going to have to mature rapidly if we're going to build a fully robust digital accounting system of nature's economic support systems.
Jason Jacobs (49:17):
Well, I know we're running short on time here. One question I wanted to make sure I got in is that you talked about the three hats that you're wearing at Haveli, one is around the sustainable software sleeve, if you will, and maybe sleeve's the wrong word but said it anyways. And the second is helping the companies across your portfolio to embrace these principles and set the standard and clean up their acts within their industries. And then, the last is an internal one to Haveli. First of all, did I get that right in terms of the three hats?
Lucas Joppa (49:47):
Yes.
Jason Jacobs (49:47):
Okay, so if that's right, then just speak a little bit about each one of those like what gets you excited in sustainable software? And so, that's a question. For the sustainability across the portfolio the question is, if I'm just a regular founder evaluating whether to work with Haveli, how should I think about you relative to any old private equity firm? And then, the last is just how you're thinking about internal and where the biggest opportunities are for impact.
Lucas Joppa (50:08):
Yeah, let me start with the last one first because it's the easiest one in some respects. I moved from this massive company to a much smaller firm. Our carbon numbers are on orders of magnitude difference. But what we do strongly believe in the need to lead by example as a management firm, as an investment firm. And so, we are putting ourselves on track for net-zero operations as rapidly as possible. We've just got our first carbon numbers back from our first accounting exercise. And so, just like any chief sustainability officer going and looking at the primary sources of emissions where we can lean on suppliers for reductions and how we engage with carbon markets and operational change inside the organization to reduce our emissions.
(50:53):
From a portfolio company management team perspective, look, first, I won't talk about the actual software side of things other than to say one of the things that they see when they think about working with Haveli is just the incredible lineup of highly experienced industry operatives that we've managed that Brian has managed to bring on board. When you look at the quality of folks that Brian's hired, it's just off the charts. It was one of the main reasons I decided to make the jump. And so look, all of the traditional reasons that you'd want to work with one particular private equity company over another, I think we're amazing in all of those.
(51:33):
But one of the incredibly important things for any management team in 2023 to understand, particularly if you're thinking about engaging with the private equity company, is that you're very likely going to be entering their portfolio under a fundamentally different regulatory regime than you're going to be exiting it. You've got standard 10-year hold invest cycles on these private equity funds, et cetera, et cetera. 2023 versus 2030, 2033 I believe going to be light years apart from each other on regulatory expectations, on compliance expectations. And by that I mean compliance with both regulatory and societal expectations. And that's rare in the world of business that in one fund cycle the regulatory regime could change so dramatically.
(52:26):
I think GDPR might be one of the only other examples I can really think of that was that seismic. And unlike GDPR where most software companies have started thinking about security and data privacy and all of that kind of stuff, and the cloud companies are making it easy for them, most software companies don't have anybody working on sustainability today. And so, the value proposition of being able to come in and say, "Oh, here's a firm that I'm going to get to partner with that gets it, that has experience working in this space, has lived those lives and can come in, wants to collaborate, wants to learn and wants to help my company comply with societal and regulatory expectations by the time I graduate into what will be surely a scarcity of net-zero aligned companies in that rush to 2028, 2030? Why wouldn't I want to do that?
(53:30):
That's just like all goodness. And then, on the investment side, I think we see lots of opportunity in this space. Obviously, there's a lot of money focusing on the infrastructure side of net-zero right now, particularly with the passage of the Inflation Reduction Act and some of the other aspects of what's been going on in the US, in the UK and the EU and that's awesome. We need that infrastructure money, we need that infrastructure to be built. We believe that there's going to be basically an accelerated refresh of what's happened in the past when we need new infrastructure new infrastructure gets made, those infrastructure and investors and companies have done well and then the software entrepreneurs and companies and investors come in and help operate that infrastructure and they end up doing very well.
(54:21):
I think that's just going to repeat itself in the net-zero space. And the way that I think about it is writ large, what everyone should be focusing on is how you maximize the total amount of environmental assets that sit in your digital portfolio. And so, as a software investor, that doesn't mean going and owning physical assets or buying a timber company or whatever. What that means is really thinking hard about that core technology infrastructure that is going to help all of those natural resource companies and other aspects of the economy get a better handle on things as specific as CO2 and as broad as just natural resources writ large.
Jason Jacobs (55:12):
Well, I wish we had another hour here but I'm cognizant that we're already over time. So, why don't I just end it with asking you if you have any parting words for listeners or anything I didn't ask you that I should have?
Lucas Joppa (55:22):
I would just say that 2023 is a defining year for sustainability. So, if you're working in sustainability and you're wondering what next, et cetera, et cetera. The opportunity space is massive going forward. The past 10, 20 years that you've put in to date is going to pay off in massive dividends, I believe. And if you aren't in sustainability, but you want to be, 2023 is going to be an incredible year to get involved. So, if you have any doubts about your existing career or your career ambitions to be in sustainability, erase them from your mind and just get to work trying to build what we all know that we need to build, which is a net-zero economy and the companies that operate it.
Jason Jacobs (56:19):
Okay Lucas, thanks again. It was a bit of a wait, but well worth it. I'm so psyched that you came on and wishing you best of luck on your new adventure.
Lucas Joppa (56:25):
Thanks so much.
Jason Jacobs (56:27):
Thanks again for joining us on My Climate Journey podcast.
Cody Simms (56:31):
At MCJ Collective, we're all about powering collective innovation for climate solutions by breaking down silos and unleashing problem solving capacity.
Jason Jacobs (56:40):
If you'd like to learn more about MCJ Collective, visit us at mcjcollective.com. And if you have a guest suggestion, let us know that via Twitter at mcjpod.
Yin Lu (56:53):
For weekly climate op-eds, jobs, community events and investment announcements from our MCJ venture funds, be sure to subscribe to our newsletter on our website.
Cody Simms (57:03):
Thanks, and see you next episode.
