Today's guest is Scott Jacobs, Co-Founder & CEO of Generate Capital. Generate is a leading sustainable infrastructure platform delivering affordable, reliable resource solutions to companies, communities, and cities. In 2007, Scott joined McKinsey & Company to co-found its global Clean Technologies Practice, advising companies, institutional investors, NGOs, and governments worldwide on the economic imperatives of resource productivity and climate solutions. Before that, Scott spent over a decade in technology and venture capital, helping start and grow several companies. In 2014, Scott co-founded Generate Capital and has served as CEO since. In addition, he is a regular writer, keynote speaker, and conference panelist on thematic investing and risk management, climate- and resource-related innovation, and building values-based and people-centric businesses. Scott earned his MBA from Harvard Business School and BA from Dartmouth College. I was looking forward to sitting down with Scott and learning more about Generate Capital. Scott walks me through what led him to co-found Generate, the problem Generate is setting out to fix, and what sets the firm apart from its competitors. We also dive into how impact factors into Generate's mission, the types of entities that invest in Generate, and how the firm deploys capital. In addition, we cover carbon offsets, the future of fossil fuels, and a lack of political leadership around climate change. Scott is a fantastic guest. Enjoy the show! You can find me on twitter @jjacobs22 or @mcjpod and email at info@myclimatejourney.co, where I encourage you to share your feedback on episodes and suggestions for future topics or guests. Episode recorded November 1st, 2021
Today's guest is Scott Jacobs, Co-Founder & CEO of Generate Capital.
Generate is a leading sustainable infrastructure platform delivering affordable, reliable resource solutions to companies, communities, and cities.
In 2007, Scott joined McKinsey & Company to co-found its global Clean Technologies Practice, advising companies, institutional investors, NGOs, and governments worldwide on the economic imperatives of resource productivity and climate solutions. Before that, Scott spent over a decade in technology and venture capital, helping start and grow several companies. In 2014, Scott co-founded Generate Capital and has served as CEO since. In addition, he is a regular writer, keynote speaker, and conference panelist on thematic investing and risk management, climate- and resource-related innovation, and building values-based and people-centric businesses. Scott earned his MBA from Harvard Business School and BA from Dartmouth College.
I was looking forward to sitting down with Scott and learning more about Generate Capital. Scott walks me through what led him to co-found Generate, the problem Generate is setting out to fix, and what sets the firm apart from its competitors. We also dive into how impact factors into Generate's mission, the types of entities that invest in Generate, and how the firm deploys capital. In addition, we cover carbon offsets, the future of fossil fuels, and a lack of political leadership around climate change. Scott is a fantastic guest.
Enjoy the show!
You can find me on twitter @jjacobs22 or @mcjpod and email at info@myclimatejourney.co, where I encourage you to share your feedback on episodes and suggestions for future topics or guests.
Episode recorded November 1st, 2021
For more information about Generate Capital, visit: https://generatecapital.com/
For more information about this episode, visit: https://myclimatejourney.co/episodes/scott-jacobs
Jason Jacobs: Hey everyone, Jason here. I am the My Climate Journey show host. Before we get going, I wanted to take a minute and tell you about the My Climate Journey, or MCJ as we call it, membership option. Membership came to be because there were a bunch of people that were listened to the show that weren't just looking for education, but they were longing for a peer group as well. So, we set up a Slack community for those people. That's now mushroomed into more than 1,300 Members.
There is an application to become a member. It's not an exclusive thing. There's four criteria we screen for. Determination to tackle the problem of climate change, ambition to work on the most impactful solution areas, optimism that we can make a dent and we're not wasting our time for trying, and a collaborative spirit. Beyond that, the more diversity, the better.
There's a bunch of great things that have come out of that community. A number of founding teams that have met in there. A number of nonprofits that have been established. A bunch of hiring that's been done. A bunch of companies that have raised capital in there. A bunch of funds that have gotten limited partners or investors for their funds in there, as well as a bunch of events and programming by members and for members, and some open source projects that are getting actively worked on that hatched in there as well. At any rate, if you want to learn more, you can go to myclimatejourney.co, the website and click the become a member tab at the top. Enjoy the show.
Hello, everyone. This is Jason Jacobs, and welcome to My Climate Journey. This show follows my journey to interview a wide range of guests to better understand and make sense of the formidable problem of climate change, and try to figure out how people like you and I can help.
Today's guest is Scott Jacobs, CEO and co-founder of Generate Capital. Founded in 2014, Generate builds owns and operates sustainable infrastructure to deliver affordable and reliable resource solutions for companies, governments and communities.
Now, I was excited for this one, because Generate specifically started with an Impact mission through and through. They also specifically started looking to tackle the system's nature of a climate problem. Now, they're doing so in a way where they have many different types of capital sources in-house. They are acquiring, operating and managing these projects, post investments. They also are tackling a wide range of industries and project types as well.
And they've been able to do so quite successfully. They've specifically excluded any type of income and capital that is timeboxed, which I thought was really interesting, and I also have quite a bit of capital to deploy. And it's all balance sheet capital, meaning that their own funds are not timeboxed either. And in fact, you can't even really call them funds.
At any rate, Scott is a fascinating guest. And we cover a lot of ground in this episode, including the origin stories of Generate, but also the work that they do, why they do it, how they do it. And what led Scott and the Generate team to believe that, that is the highest leverage way that they can bring about the change that we so desperately need. Scott, welcome to the show.
Scott Jacobs: Thank you. It's great to be here, Jason.
Jason Jacobs: Well, I'm so psyched to have you, and you were kind of on my hit list that at some point we were gonna try to convince to come on the show. And then your colleague, Emily, just showed up in my Twitter DMs and said, "Hey, Scott would be a great guest." And it's like, "Are you serious? Like I've been, been waiting to, to get to that guy. So I'm so honored that you agreed to come on and so excited to talk to you and learn from you.
Scott Jacobs: Well, thank you. I feel like I've joined a pretty exclusive and prestigious club by getting to be on this side of the interview.
Jason Jacobs: I think that's hilarious. If you only knew what went on, on the inside, like I'm in my bedroom. Fortunately, my kids are in school, but if they weren't, they'd be, you know, jump all over the bed and trying to pull me away, uh, as we're talking. But at any rate, yeah, I've had Jigar [Shah} on and I've gotten to know several of your colleagues, both current and former. And gosh, it's just so impressive what you've built with Generate. So, maybe just take it from the top. What is Generate Capital?
Scott Jacobs: So, Generate is a permanently capitalized company that invests in and operates sustainable infrastructure projects. And I said a lot of those words quite deliberately, as you might guess. We really looked at the problem we were trying to solve, which is to build a lot more sustainable infrastructure to save the world. And we realized that the existing capital markets, the existing structures, the existing companies really weren't going to get the job done. And so, we had to start with a clean sheet of paper and think about what the market really needed. What the customers and communities really needed when it came to sustainable infrastructure. What the project developers and technology companies really needed when it came to sustainable infrastructure.
And so, we just looked around and said, "How could we do this so that all of these different stakeholders actually win?" Because when it comes to sustainable infrastructure or infrastructure, generally, it really is kind of the ultimate stakeholder alignment exercise. You've got communities who have to feel good about it. You've got customers who have to get the economic value proposition that was promised to them. You have to have investors who make money. You have to have technology companies who actually get to sell their wares. You have project developers who succeed at building a project that actually gets to COD and beyond. And you have all sorts of suppliers, and obviously, an employee base of a number of different organizations that all have to be rewarded for these kinds of things.
So, obviously, we also believe that there's a stakeholder in the planet. But really, when we think about the planet, as a stakeholder, we're really thinking about the humans who we want to be able to live on this planet for generations and generations indefinitely. And so, we think a lot about the people who aren't yet born as genuine stakeholders of the assets that we're building today. So we really thought long and hard about what the right way to do this was. And it was clear to us that we had to have the flexibility that a balance sheet gives you to provide any kind of capital that these project developers and technology companies need. They also need to have the operational capabilities, and the customer base and customer solution orientation to actually deliver for the customers and communities what was promised to them in the original pitch.
And none of that gets solved with a finite fund life, like so much private capital is organized. And none of that gets solved with one tool in the toolkit, like so many investors only are able to offer. And importantly, none of that gets solved without a really innovative and reliable operating capability, so that, you know, these customers and communities actually can depend on the infrastructure as the mission critical resource provider that it is.
Jason Jacobs: I have so many questions about that. But before we get too far down the path, maybe we can take a step back in time. And where did, uh, all this come from? And I'll start just by saying you're a hard guy to put in a box. As I look at your background, it seems like you've kinda done some of everything. I mean, you've spent some time in academia, you spent some time in early stage venture capital, you, you spent some time in strategy consulting, you've done a number of different things. Has there been kind of a consistent driver along the way? Has it evolved over time? Like, how did you get here?
Scott Jacobs: You know, I talk a lot with my colleagues at Generate and younger people around the whole world of sustainability about how you don't really need to have a straight line to get to where you wanna go. And my experience is certainly an example of that. You hit on it, Jason. I've been in tech, I've been in venture capital, I've been in the government, I've been international. And I've been, you know, in very different sectors than energy and resources, which is where I obviously live now. I would say that it really goes all the way back to an interest in humanity, frankly, and humans specifically. And I thought about this a lot, because I knew you're gonna ask me the question. And I kept going further back in my story.
Jason Jacobs: Am I that predictable? I guess I am.
Scott Jacobs: [laughs].
Jason Jacobs: [laughs].
Scott Jacobs: You have asked this question, I think, of at least 180 or so people.
Jason Jacobs: I know. I got to mix it up. Keep people guessing. It's like getting the SAT question sheet before the test or something.
Scott Jacobs: Yeah. Wouldn't that be nice? So, you know, on this particular question, I kept going back further in time to try to trace the origin. And I, I looked all the way back to sort of my interest in human biology and becoming a doctor, which was what I thought I would be when I was first asked the question, "What are you going to be when you grow up?"
And that was because I wanted to be able to have an impact on a person's life that was particularly positive. And so I started out as a biology major in college and was really interested in the science of human biology and ultimately realized that I didn't like being around blood enough to endure with that career goal, and transitioned to thinking about another way of trying to be helpful to other humans. And that was civil rights law, which is what I thought I would do next, and did a lot of work preparing to go that direction. I had a job offer actually out of college at the NAACP Legal Defense Fund. And unfortunately, I wouldn't have been able to pay off my student debt if I had taken it living in New York as the offer was focused. And so I took a pretty meandering path through the technology industry that, that really I grew up with, having grown up in Silicon Valley and paid for college, you know, by being a software company employee. And I needed to pay off my loans. But in about 2004, I looked up from my job working in tech, and I was living in London at the time, and I realized how much time I was spending on my job. And it was more time than I spend with my friends, my family and myself combined.
And I thought really long and hard about the fact that the people with whom I work are going to actually define my experience as a person on the planet. And I also thought about how the work that I do was going to define a good chunk of my life. So, I wanted to spend that time, that precious time, on something that mattered a heck of a lot more than making labor free, which is really all software is designed to do. So, I really looked around and I thought about some of the biggest problems in the world. And one of those was the intersection of energy resources and geopolitics. I wasn't thinking about climate yet. I was too naive. I actually didn't even know really about climate change in 2003, in 2004, when I was contemplating all of this.
And I actually started learning about energy and resources, because I saw how we were sending friends of mine to fight wars to protect our oil supply. And I looked back at human history and concluded that a good chunk of all of the conflict that we've seen in human history was a result of a conflict over resources. Religion is often how you pick the sides or politics pick the sides. But really, it was about resources. And so then I started learning and decided I needed to learn a lot more. And I went back to business school as a way to pivot into climate, energy and resources. And I really started learning. And then at HBS, I was connecting to some of my former friends and colleagues in the venture capital and technology world who had started talking about something called green tech back then.
Kleiner Perkins came out and said, "This is the biggest opportunity in the history of the world." John Doerr and Vinod Khosla were obviously quite credible when talking about how much of an impact innovation could have given their track records in various other parts of the technology industries. And Vinod was actually on my board back in 1999 for one of my startups. So, I reached out to him and I reached out to Stephan Dolezalek at VantagePoint who had started the clean tech practice there. And I reached out to Raj Atluru at the time at Draper Fisher Jurvetson, who was doing clean tech investing, and it just invested in Solar City and Tesla back then. And I was lucky enough that they all were willing to sit down and tell me why they thought clean tech or green tech was the greatest opportunity out there.
I then got a chance to work with Sequoia Capital and take a look at a clean tech venture capital for them while I was in school. And we concluded through that project that this whole area of clean tech and green tech might not actually play out quite like Silicon Valley would like it to. It was a much different proposition for investors to invest in infrastructure ultimately than to invest in inventions.
It's not, you know, two people, a garage, a PC and a dog that can change the world and rebuild it the way we need to, to solve climate change and other resource challenges. And, you know, Sequoia's model has been incredibly successful supporting that type of approach to invention and, and innovation where you take small amounts of money, give it to small teams who, in short periods of time, create big revenues, big margins and big exits, making everybody a good return for the risk that they took at that early stage. You know, when you're talking about infrastructure like energy infrastructure, transportation infrastructure, waste infrastructure, water infrastructure, you know, these are capital intensive, very large scale sorts of projects. There's not actually a lot of value in intellectual property. And, importantly, almost none of those six criteria I mentioned that a venture capital firm like Sequoia would look at applying. It's about big capital, big corporates, big governments, not the opposite, which is where Silicon Valley has historically thrived.
So, with that notion that it's a big capital, big corporate, big government game, it was clear to me I had to think of a different way to impact it than my history in Silicon Valley. And that's why I linked up with McKinsey to start their clean tech practice, because where better than McKinsey to influence big capital, big corporate, and big government actors? And that promise really played out. What really came out of that work at McKinsey was the realization that the capital markets were totally broken when it came to long term, big problems that are thematic in nature like climate change. And so, with that knowledge and a lot of work with clients and others, it was clear that I needed to go be an entrepreneur again, and Generate came out of that.
Jason Jacobs: So, before you landed on Generate and the key tenets for that, talk a little bit about what you observed. What was broken? How is it broken? And, yeah, I'll stop there.
Scott Jacobs: Well, we have a lot of clients at McKinsey who are looking for money to pursue their objectives with respect to sustainability. One of the things I think we successfully did at McKinsey in those years from 2007 to 2012, where I was there, was we reframed the topic of sustainability out of altruism and out of policy compliance, and into the realm of economic and rational self interest for the leaders of the world. And we did so because we created a common language for people to use, which was the language of economics.
And McKinsey was famous, as you surely have covered with their cost curve work and the carbon abatement cost curve that they put out in 2006, that was before I joined. And really creating an understanding of the economics of climate change was something that we were able to do for leaders of governments and leaders of companies and leaders of NGOs all around the world. What was clear as those leaders were looking for money to pursue their projects, whether it was for top line growth in the case of a company or bottom line growth in the case of energy efficiency, for example, or whether it was about national security, or economic competitiveness, in the case of a country leader. You know, they all needed money to go do these things. And the money wasn't there from the capital markets.
And in fact, one example is probably the most instructive. We had a client, a chemicals company client who knew that all they did was turn energy into chemicals. And so, the energy price volatility that we saw in the late 2000s, as a result of the commodity cycle that was underway with huge new demand from China and India in particular, meant that this chemicals company was really struggling to address the high price and the volatile price of energy. And it was a pretty important thing for them to think about how to address.
So, the CEO of this company went to his board and said, "I'd like to put $2 billion into energy conservation measures across the fleet of manufacturing assets that we have." And the board said, "Go for it." And over the next six years, that two billion dropped $9 billion to the bottom line. And it therefore looks like one of the best capital investment programs that company has ever undertaken, in more than 100 years of history. But the board said stop.
When the CEO went back for the next two billion, the board said no. And you have to scratch your head at that. But if you think about incentives, you really understand why they might do that. The $9 billion that went to the bottom line over 24 or so quarters, you know, didn't really move the needle on the stock price when the stock analysts care about quarter to quarter revenue growth more than anything else. In other words, short-termism of the capital markets we know very well is a challenge. Not to mention short-termism in other places, like in government and other agents.
But what was clear is that that chemicals company needed another two billion to do a very good investment program that generated a really great return, certainly a great risk adjusted return. How many of us would take two billion and turn it into nine billion over six years and, and say that's not a good investment? Not very many of us.
So, it was the insight that that kind of a capital project was not gonna get funded by the company, nor by the investment banks that support that company that made it really clear something was broken, because I went to the largest asset holders in the world, the pension funds and the sovereign wealth funds, and the insurance companies, and I said, "Do you really not want good long-term cash flows with very reasonable risk profiles? Forget about whether or not it has a sustainability angle to it. And I described this history with this chemical company and some of the renewable energy projects that we were seeing at the time delivering 15% rates of return over 20 years with contracted cash flows. And these big investors said, "We'll take as much of that as you can give us every day of the week and twice on Sunday." But they weren't seeing those opportunities, because there were intermediaries between the real economy, those projects, and the financial economy, like the actual asset holders and capital allocators that they represent. And those intermediaries are specifically investment banks and asset managers.
And if you again look at the incentives, you learn why they make the decisions that they do. Investment banks make fees off transactions that close. They like to make more fees than less fees, as you might guess. So, bigger projects that have more fees and fundings that happen faster that have fees come faster than slower are good things. Well, that all means that these investment banks are incentivized to do the stuff that they've already done before.
And that's not what we're talking about when we're talking about rebuilding the world. We're talking about doing stuff that hasn't been done so much before. And then you look at the asset managers, and they also are incentivized by fees. And they can raise money to generate fees for them if they ask for money to be deployed in the exact same way that everybody else does it.
Well, again, given what we're talking about in terms of rebuilding the world with a much longer-term time horizon and with some innovative solutions, you had to do things differently than they've been done in the past. So asset managers weren't incentivized to do it. Investment bankers weren't incentivized to do it. But the actual money wants to do it, and the actual projects want the money. So, there needed to be something to facilitate that flow of money to these good projects that wasn't subject to the inertia in the system that caused those problems that we actually are trying to solve now.
Jason Jacobs: So, when you set out to address this gap, and bring these two sides together of the product developers and the capital without these intermediaries with the detrimental incentives, in the way, what type of vehicle did you imagine to fulfill this promise and capitalize on the opportunity?
Scott Jacobs: Yeah. So, we really knew that we needed to have the flexibility to provide different types of capital at the same time and at different times for these project developers. Sometimes they need corporate growth capital, sometimes they need project, development capital. Sometimes they want to sell their projects and generate their developer fees. And so, there needs to be capital for long-term ownership of these assets. Sometimes they need inventory financing. Sometimes they need supply chain financing. They need other types of working capital. They need tax equity.
So, if you look at these project developers and technology companies, the CEO is really keen to get customers and the CFO is really keen to get capital. And we said, "We need to build a business that delivers on those two problems that the people we're trying to help need to solve." So, Generate was built as a company in order to address the long-term nature of these assets, the permanently refreshing opportunities that exist serving these customers or these partners. And importantly, to have a single balance sheet from which we could actually provide any kind of capital.
And then in addition, we realized we needed to have operational credibility so that the customers felt like they could trust that these assets would actually deliver on the promise on the box. And that meant that again, our best serve by having a company with a group of people that have the expertise and competency to operate these assets for their entire expected lives. So, we built just a typical company. And we capitalized it with capital we raised straight on to the balance sheet. It's not a fund, it's a company. It's the same way you's start any of the companies that you fund with your venture fund.
Jason Jacobs: So, if I'm starting a company, and I raise, let's say, equity capital, and let's say it's from VC just because that's what I know, know the best. Not that I know well by the way, but I just know it better than, than other asset class. I'm like more a mad scientist than like a, a financial engineer, [laughs] or something like that. But let's say I raise equity capital, the investors that I'm raising from halftime horizons, because their investors that invest in their fund have time horizons that they're promised. So, are you raising money from capital sources then that do not have time horizons?
Scott Jacobs: Yeah, we made the very difficult choice at the outset in 2014 to reject all time limited money. We were fortunate enough to have far more demand for the shares that we were trying to sell. Or an oversubscribed capital raise is another way of thinking about it that we were able to choose and curate our investor base, and that has been true with each of our sequential capital raises. We thought it was super important for us to have values aligned, vision aligned investors, because they are our partners. They're not limited partners, they're actually partners. I hold the exact same security that all of my investors do. Every employee at Generate holds the exact same security that our investors do.
And as a result, we really wanted to make sure we had alignment. And it goes back to that point I was making earlier. You have to have the alignment of interests in order to actually achieve the goals, certainly over a long period of time. So, we turned down all those funds that had 10 year lives who offered us money at the beginning. And we only took money from permanent capital sources like family offices, endowments, and foundations.
And then in our first very large capital raise, our second round of funding, we went to institutions, and we were lucky enough to attract sovereign wealth funds and pension funds in that capital raise. And every raise since has been primarily sovereign wealth funds and pension funds who have no time horizon at all, because their liabilities are indefinite just like the ones that I think you see in sustainability.
Jason Jacobs: And it sounds like this type of vehicle was not available before for the clean energy transition and the infrastructure. But is this a type of vehicle that these types of entities were familiar with investing in, in other areas?
Scott Jacobs: Not really. At the end of the day, we look like a direct investment. And that means we are a single company, uh, that doesn't have a fund structure, obviously, or a GP the way that most investors organize private capital. So, many of these institutional investors have started doing direct investing in infrastructure projects or in companies. But for the most part, institutional capital relies on the intermediaries, the GPs, in order to invest their capital directly into companies or infrastructure projects.
So, this was pretty unfamiliar. A lot of investors said to us, "We totally get how this is better for us. This is more aligned. We don't pay you fees. We can fire you at any time. We have exactly the same interests that you have. We have exactly the same financial incentive that you have. We get that this is better than what we typically do, but we have a policy that requires us to only invest in limited partnerships that have a defined life."
And as a result, most of the institutional investors in the world are actually not candidates to be investors in Generate at this stage. But it's okay. There's tens of trillions of dollars of institutional capital out there. The key is to find the capital from the parties you want to call your partners. And we were able to find those despite the fact that, you know, the universe of potential investors is much smaller than, you know, you might find for a typical GP/LP fund structure.
Jason Jacobs: So, do you use the word evergreen when you describe the structure?
Scott Jacobs: You can, because there's no reason not to say that, but I think it's also important that, that usually applies to a fund structure. And we are a company for a reason. So, think of us more like Berkshire Hathaway than KKR. More like Koch Industries than Carlyle. We don't have a series of funds. We don't have a management company and a general partner, and a limited partnership. We really have a company that owns a lot of subsidiaries, either projects or project development and project operation platforms. And most of those we've built ourselves.
Jason Jacobs: And so, every time you then go to deploy more capital, so is it a set timeframe that you go out to the capital markets? And is this a set amount that you plan in advance? Or are you kind of winging it as you go, depending on what you see? How do you think about planning and discipline?
Scott Jacobs: Well, we essentially invest through partnerships we form with technology companies and project developers. So, we have a sense of what demand for capital there is among the partnerships we've formed with these companies that are rebuilding the world. So, we might have $100 million program with a battery storage developer and a $300 million program with an electric vehicle company. And we might have a $200 million program with an anaerobic digester developer. And so, we have a sense of where they are in all their development timelines with the assets that we're hoping to finance and own. And we roll that all up and just like any company, create a forecast, and we have a certain amount of money that we need in order to fund the ability to achieve the forecast, both in terms of the operational talent and expenses that we need to fund inside Generate, i.e., a budget, and the capital expenditures we need in order to build these projects.
And so, we go to our board every year, and we say, "Here's what we're going to do over the next three years, and here's an idea for how we might finance that, a combination of equity and debt. And let's go to the capital markets and raise the money."
Jason Jacobs: So, I made a big list as you were talking of the different types of capital that you potentially offer, you said corporate growth, and project development, and long-term ownership, and inventory financing, and supply chain financing and, and more. I'm sure we missed some and then it sounds like there's also a big list of, of industries or project types that you'll invest in.
It's a weird analogy, but I want to ask it just to test how I'm understanding things here. But when I think of like a general contractor for a home, you know, they might come and take a look and assess or a primary care physician as another example, but, you know, if it's too thorny on the plumbing side, they call in a plumber. If it's too thorny on the electrical side, they call an electrician, etc, etc.
Or in the primary care example, it's someone that specializes in, you know, hearts, or brains, or, or something like that. All these asset classes that you mentioned, are there firms that do just those and are specialists in those areas? And do you partner with them? Or, or are you building up all this expertise and capital for these kind of sub-vehicles in-house?
Scott Jacobs: All of the above, really, Jason. So, we do provide all of that capital, and we do whatever it takes to get these projects built and successful for the customers and communities they're expected to serve. So, some companies that we partner with who are, say, specific to battery storage technology, you know, they're really just worried about how to develop battery storage projects and the software that's necessary to manage those batteries and get paid for the usage of those batteries when deployed on the grid. And they have a need for maybe growth capital and project financing in the form of both equity and debt.
And a different company might be interested in just building a leasing program for a vehicle, like we did with BYD for electric buses, when we introduced the world's first electric bus leasing program many years ago. It really depends on the segment of the market that we're talking about. And most importantly, on what the partner and what the customers for that partner’s solutions are going to need.
And yes, we have a lot of built-up expertise in-house and we have 160 people now at Generate who know as much or more than most folks about innovative solutions in power, innovative solutions in transportation, innovative solutions in water and waste management. And we also have people in-house who clean poop out of pipes, literally. We turn poop into power. We turn poop into profits. And we need to actually manage those physical assets to ensure that they are up and running. That the waste gets loaded effectively, that it gets managed effectively, that it gets disposed of effectively, and that it turns that waste into the power and the water and the fertilizer that they're expected to.
In solar, for example, we have lots of great people that we can hire and partner with, to manage the solar farms, because it's a much more established industry where there is a lot of good expertise out there. And many companies who competitively can bid for delivering those services. So, we'll take advantage of that when that's available. And if it's not available, we'll have to build it ourselves.
Jason Jacobs: And when you think about which categories to take on, how much of it is intentional in terms of we think there's going to be opportunities here, and we're going to go build up these capabilities, and we think that, that sector in those types of projects are going to need these types of funding vehicles? Or we're gonna make sure we get that expertise in-house. And then we're going to make a concerted effort to go out and do business development and get to know everybody in that industry and find projects. Versus the phone ringing from, uh, someone in an industry with a project type that you haven't worked with before. And then you kind of putting it through a ringer and, and making a determination of whether you think you can pull it off successfully.
Scott Jacobs: It's both as you might guess. As you establish yourself, like we were trying to do in 2014, we started with a few theses. And we went out to the market and tried to prove those theses as we met all the developers and technology companies and figured out exactly what they needed and whether we were right about what we thought they needed. And sure enough, that's what translated into the opportunities that we found in battery storage, in solar water heating, in commercial and industrial solar, in community solar, back in sort of the early days of Generate between 2014 and 2016.
On the other hand, Plug Power came to us in 2015 or 2016 and said they needed corporate equity. And they were a publicly traded company and they were looking for a way to finance projects for Walmart and the US Postal Service and a few others. And they came to us through an investment banker, and they came to us asking for growth capital. And we said, "Actually, we think we can help you solve your problems and not force you to dilute yourselves or your current shareholders by taking corporate equity with a very high rate of return, and deploying it into projects that have a much lower rate of return." Just doesn't make sense financially to do that.
So we solved that problem by being more creative and working bilaterally, obviously, with Plug Power, but they again came to us from an investment banker they had hired to go find them some capital. So, it's been a mix of both the proactive intentional outreach that you described, and the fact that we're one of the only folks out there that really understand sustainability, that truly believe, that have a long term focus, that have all the tools in the toolkit that we have. And so, we do get a lot of inbound activity as well, and some of our best opportunities are the ones that we weren't looking for at all.
Jason Jacobs: And if you take out the mission element for a moment and you just look from a financial standpoint at the types of projects and corollaries, are always oil and gas projects the best comparables? Or what are the comparables that you think most closely resemble these projects? Again, taking out the mission element.
Scott Jacobs: I would say aircraft leasing is certainly a comparable model for some of the technology and equipment financing that we do. I would say that the solar PPA project finance model is one that we've tried to apply and have successfully across a lot of other technologies and segments of the resources world. Those are probably the best examples on project financing. But, you know, like I said, we do a lot of other things and we don't know a lot of other folks who do all of these different things or have all the tools in the toolkit that we can offer. I would say investment banks like Goldman Sachs and Macquarie have a wide range of these tools in their toolkit, but it's typically that they're gonna go get the money from somewhere else.
And so, yes, you may hire an investment bank, and they might like one part of the capital structure or one investment opportunity, but most likely they're going to go farm out the capital raising, you know, to others. In our case, essentially, instead of going to an investment bank, they come to us and we say we can take care of all of the capital needs that you have. We're your one-stop shop as we like to say. And that is a very different proposition than I think anyone offers in the market.
Jason Jacobs: So, that's the pro of this approach. What's the con from a customer standpoint?
Scott Jacobs: Well, from the partner standpoint, you don't necessarily know at the outset whether we're going to be competitive on all the different costs of capital that we're talking about here. And you might think you can optimize your capital structure by going to a dedicated person for this part of it, and another person for this part of it, and another person for another[crosstalk 00:40:10].
Jason Jacobs: It's like a convenience premium, basically.
Scott Jacobs: Well, I don't think we actually charge a convenience premium. And in fact, the point that we always like to make and then we prove, and have proven by getting rehired effectively many, many times by these partners, is that we are the most competitive capital for any part of the capital stack. And when we are not, we will help them find it.
But most of the time, we can be the most efficient capital for project debt, we can be the most efficient capital for project equity, we can be the most efficient capital for a warehouse. We can be the most efficient capital for corporate equity or corporate debt. And if we don't think we can get there, just our underwriting and our relationship can often bear fruit for these companies, because we can make the introductions to our network and we're a trusted party.
Jason Jacobs: I'm a bit surprised to hear that you're also managing these assets, because it just seems like ... Or that you offer those capabilities, because it just seems like a lot. Do the big banks offer that? And if not, who do they work with when these projects need management? And how does your offering compare? It just seems like that's a whole business in itself and a whole set of expertise and, and resources. It's daunting. I, I mean, kudos that you're pulling it off. Yeah, it's stressing me out just hearing [laughs] about it.
Scott Jacobs: It's daunting to me too, Jason.
Jason Jacobs: [laughs].
Scott Jacobs: I mean, you didn't ask me what the downside was from our perspective, you asked me what it was from these partners' perspective. But exactly this complexity is what I would say is the downside for Generate from a management standpoint. It is absolutely complicated. But we're talking about system change here, and system change is hard. And I can't rely on other people to solve the system change that we need. Because if I could rely on other people, we wouldn't need to do it now. Right? It's a problem that the world has created, and now it's time to solve it. And unfortunately, no one is solving it fast enough, so we decided to try. But, you know, it is absolutely super complicated.
And I would say the people who are the best at managing physical infrastructure assets are utilities, to your question. They're the ones like NextEra, who know how to manage physical assets very successfully for customers through many, you know, decades often of the asset's life. What they don't do well, as you know, is understand innovation or take risk. And so, you need a utility type reliability, but you need a venture capital type risk appetite. Tell me where that exists.
Jason Jacobs: Well, tell me where someone exists that has the back on you do that touched all the different areas that, that you touched. So, so I guess that's where ... And I feel like climate attracts those people because it touches so many different things. It's almost like the ADD people particularly thrive in, [laughs] in climate because you need to be context switching so much to get anything done.
Scott Jacobs: Absolutely. I mean, I am constantly in awe of people like my co-founder, Matan, who understands the nitty gritty details of the risks of every single one of our assets. He's our chief investment officer. And we have, you know, 2,000 projects we now own and operate across the world. We have over 1,000 customers we serve. We work with 50 technology companies with whom we develop these projects.
And so, you know, the complexity is indeed quite daunting. And the good news is we started this business as three co-founders, each of us who had run our own shows previously, but recognized that running our own show would limit our ability to actually have the impact that we're hoping to have or the success that we want to achieve. And so, we came together knowing that each of us was insufficient.
And in fact, all three of us were still insufficient. And we needed to continue to bring along an army of people who complemented us, and who could work together, and who could find ways to get through the inevitable ups and downs that come with something so complicated and, and frankly, something so important.
Jason Jacobs: So, the, the investors that you do have that don't have fixed time horizon funds, as we talked about, are they viewing this investment through a financial lens? And if so, who are they benchmarking against in terms of return expectations? And what ... How do you frame that when you're out soliciting new capital?
Scott Jacobs: We have always solicited investors who saw a pure financial return but had a values alignment with us, and understood that, you know, sustainability was a big opportunity, big problem, and one that they wanted to be after.
So, funny story from our first capital raise, our Series A round. We were talking with one investor who said, "Oh, we just started a new impact bucket. And we have a number of clients who want us to do impact investing. You can be our first investment out of our impact bucket, because you're the first ones we've found that aren't suggesting trading off financial return in order to get the impact. And that's the kind of story that our customers, our clients are eager to hear. They want no trade off on financial return, but they still want great social or environmental impact. So, you're going to be our first portfolio company in that theme that we've built with those clients looking for impact."
And we had a $5 million minimum investment back then for our first round. And so, they did all their diligence, and they came back and they said, "We're so excited. You're going to be our first investment in the impact group. And we've got $3 million for you." And I said, "Well, that's not enough." They said, "Well, you know, it's just the beginning. We're going to get more. But, you know, we just want to get our feet wet and, you know, we've got all these clients, lots of money. Believe me, there's more where that came from." And I said, "No."
I said, "Put us in the non-impact bucket and compare us against KKR and Farallon on and tell me why we don't win. Because I think our risk adjusted returns are superior to any of those. And if you don't agree, you shouldn't be an investor anyway. I don't care whether we're in the impact bucket or otherwise. So, they went back, they did more homework, they came back with a much bigger check, well in excess of the minimum ticket that we asked for. And they have been happy investors for seven years now.
Jason Jacobs: Amazing. And when you think about the types of customers or projects to take on, maybe talk a bit about the financial criteria that they need to check to know that they're a good fit, but also the impact criteria, like BEV has their half a giga ton threshold. What's the lens that Generate looks at that side of the equation?
Scott Jacobs: We don't do anything we don't believe moves the needle on the natural resource issues or sustainability issues that we're trying to solve. We obviously think about a lot more than just about climate change. We think about water scarcity, food insecurity, energy poverty. These are all intertwined issues with climate change and, and natural resources. We think of it as a resource productivity question. Can we do more with less of our precious resources? So, that's an inherently economic question.
You know, doing more with less of our finite resources has been the driver of the three industrial revolutions we've seen. Agricultural revolution, industrial revolution, digital revolution, we're all about doing more with less of our resources, specifically labor, of course, in these three cases. And now, we're talking about getting more productivity out of energy, water, food, land, even air. And that's what Generate is all about, and I think that's inherently an impact screen, if you will.
It's essentially a, a negative screen on anything not impact oriented or not very significant with respect to social and environmental benefits. We don't have a particular methodology that we look at when we look at individual investments with respect to their environmental or social impact. We do look at all sorts of factors that a lot of people would call ESG factors today when we look at those investments, but we don't think you should get lost in three letter acronyms.
The question is whether the management team is hungry, capable and values aligned. And the question is whether the technology or the project has a compelling economic value proposition to its customers and the communities it serves. And if you get to the point where you can say yes to those first two questions, then, you know, you really have a diligence process underway for us. But we only know the areas of the economy that we would call sustainability. So, we don't try to operate in areas where we don't really understand the trends, the economics, the risk factors, the networks that you need to know people, etc.
Jason Jacobs: So, that all makes good sense. One thing I just want to drill down on a bit is I've been finding as I've been making the rounds that there's all these gray areas or source of debate, or you call it a gray area, call it a source of debate, call it a lightning rod, whatever you want, but for example, carbon capture and storage. For example, direct air capture. For example, offset projects. For example, plugging leaks and natural gas pipelines. Some, uh, methane leaks. Right? You'll have people beating their chests on both sides of these saying for and against. Do you come up on any of these gray areas? And how do you sort through them given that you don't have a quantifiable mandate?
Scott Jacobs: Judgment is the answer. But, you know, we do a lot of work. We do a lot of research. And oftentimes, the science is actually clear. It's not debatable. It's not an ideological question. And so, certainly, we like to rely on science and facts and economics, unlike the media or the political punditry. And usually, the science, the facts, and the economics are not a matter of subjective debate. They're usually pretty clear.
So, it is true that there are projects that some might ideologically oppose. Nuclear is a great example of that lightning rod type discussion that, you know, you were alluding to. And there are a lot of people in the environmental arena who are anti-nuclear. And then there are a lot of people in the environmental arena who are pro nuclear, because they recognize it is an incredibly important source of zero carbon power. And climate change concerns trump other concerns like what to do with the waste, or what have you.
And we try to make a judgment call on those kinds of gray areas or lightning rod issues like you talked about. We would not be religiously opposed to financing a nuclear project. We just don't think it's a cost competitive project. So, we haven't done nuclear. It doesn't make sense from a risk adjusted return standpoint for us to fund nuclear yet. But it would be great to see zero carbon base load power at a competitive cost of electricity that is compelling to the communities and customers it would serve. It just doesn't exist, at least in North America today. So, we just try to do the work, Jason and understand the issues. And, and then ultimately, we just make a judgment call as a team with a lot of diverse perspectives brought to bear in the decision making process.
Jason Jacobs: And I'm sure you do financial reporting, especially given what you said about not wanting to attract any capital that isn't greedy capitalists. Although, you didn't use that word. But what about impact reporting? I know there's big debate about the merits of that, and the best form that, that should take. What's the Generate Capital view?
Scott Jacobs: We do it. I think it's that simple. You, you should do it if you can do it. We follow the SASB standards in thinking about our own impact metrics. You know, five years ago, seven years ago, I would have said, "Are you asking KKR and Farallon to do these impact reports? Because until you do, I'm not going to do them. Because otherwise, it's just not appropriate. You are, by definition, forcing me to be concessionary capital. In other words, taking a lower return because I am bearing costs that the people who aren't focused on sustainability are not forced to bear in their operations.
Now, I think it's an important thing that we disclose and describe and tell stories, frankly, about the success that we've had. We need to be a success story. We have proven sustainability pays. Our investors have made more money investing in Generate than probably anything else they've done in the infrastructure space, or the sustainability space, ever. And as a result, it's important for the rest of the world to understand that, because we are trying to be the tip of the spear for the change, the system change I was talking about.
And system change needs success stories. People need to feel comfortable and confident that there is a profit motive here, and one that can motivate and mobilize a lot of different private sector resources, because we have only 10 years left. And we're not gonna get there with altruism or policy alone. We're gonna get there because the private sector has decided this is an incredibly important risk or set of risks to mitigate. And it's an incredibly important set of opportunities to pursue.
Jason Jacobs: And what about ownership? What form does that take? And also, how do ... I don't know if you use or even use the word distributions, but in what form does liquidity take as well, and over what time horizon?
Scott Jacobs: You're saying for our investors?
Jason Jacobs: Or employees for that matter.
Scott Jacobs: Yeah.
Jason Jacobs: Yeah.
Scott Jacobs: So, employees and investors have the exact same opportunities for liquidity, so I appreciate that prompt. Generate is owned by employees and investors all through common stock, like if you were to buy a share of Google on the public markets today. It's just that we're privately held and privately traded.
So, we've managed to figure out how to achieve that liquidity opportunity for our shareholders, frankly, by just making our shares valuable enough that there's a demand for our shares. Just like anything else, if there's a buyer for the shares, then a seller can transact. And to the point of distributions, we've issued a dividend distribution for many years in a row now. So, our investors are also compensated as our employees are through dividend distributions through their stock ownership as well.
Jason Jacobs: And if I'm not allowed to ask this, just don't answer it. But, but how's that price set when those windows occur?
Scott Jacobs: Just like any other company’s price gets set. So, usually, in the private markets, as you know, you look for a new lead investor to determine what the company is worth, and they write a term sheet and the company has to negotiate and then decide if they sign it. And then the round comes together.
We obviously have the help of investment bankers, and accounting firms, and valuation firms, because we're pretty big and complicated at this point. But, you know, it's not terribly unlike any other valuation exercise. There's a discounted cash flow analysis on the future cash flows. Sometimes there are terminal values applied at different times. Those terminal values are informed by multiples that the market is showing whether it's in the public market, or the private market precedent transactions. And it's a pretty clear analytical exercise that is not reinventing the wheel, it's what you do every day.
Jason Jacobs: Do they tend to be timed with the external capital raises where there's a new lead coming in for an external round, and there's just, you know, a small percentage of secondary like you would in a private technology company?
Scott Jacobs: Yeah, it's not that different from that. We have had, you know, a great amount of interest in our shares over the years, so we look for a lead investor who we think has, again, the values and vision that we have. And we've been lucky enough to find that with the investors that we've attracted so far, and they've come in at a price that is quite credible to other investors, because these are well known, well respected institutional investors who know how to, you know, do evaluation exercise.
Jason Jacobs: Uh-huh. And don't disclose anything you don't want to disclose, but give us a sense of just what kind of scale you're at today. And then directionally, if you look out, I don't know, 10 years, 20 years, 30 years, whatever timeframe gets you excited, and you just knock the cover off the ball and achieve more than you could e-, ever have imagined that you would, what kind of scale are you at that? And also, more than just scale, paint a picture of what is Generate at that point?
Scott Jacobs: Well, today, we're about a $10 billion balance sheet capacity. So, we can invest up to about $10 billion into projects and companies. We just raised about two billion of equity earlier this year, and that was our largest capital raise to date. It was funded by some of the largest institutional investors in the world.
And, you know, we're about 160 people. So, company is, is quite big at this point, I would say. We really are hoping to keep solving the same problems we've been solving for these project developers and these companies that we serve. So, we have about 2,000 customers now that we can say rely on us, and trust us for decarbonization, and resilience, and cost savings. And I'd like that 2,000 to be 20,000 and 200,000 over the coming decades as you asked.
We have 50 partners who work with us to rebuild the world. These are the leading technology innovators and project developers out there and all of the emerging areas of sustainable infrastructure. And I hope that number is not 50, but you know, 150 in a few years and a few 100 a few years later. You know, in order for us to remain a leader in this space that's growing so fast, we need to continue to keep pace with the market. And that means doing more for these companies that we serve in terms of the solutions that we can offer, the infrastructure types that we can offer, the geographies we can cover.
And for the partners that we work with, it means delivering on that one stop shop that I've been talking about where, you know, we can offer them any kind of capital that they need and any kind of help that they need in order to get projects built and get customers online and succeed at their missions themselves.
So, 10 years from now, we should be a lot bigger. 20 years from now, we should be a lot bigger. 30 years from now, we should be a lot bigger, but it really shouldn't change, because the ethos of the company won't change if we're successful at this. You know, the values are front and center for us. We've got to do what we say. We've got to build trust every day. If we do that, there's really no end in sight to what we can earn the right to do.
Jason Jacobs: Awesome. So, we've talked about your personal journey. We've talked about the origin of the company, and the why, and, you know, the gap in the market, and the ways that you're addressing today and also the scale that you're at today. And then we just covered where you hope to be.
If it's okay, the last chapter of the discussion, I'd love to talk a little bit about, you know, that-, like that's kinda like generate in, right? And now, it's like, "Okay, now, let's look at everything else." Right? And so, in order for you to achieve what you set out to achieve, and in order for this problem to get addressed, or these problems as quickly and efficiently as possible, what needs to happen with others? So, government, or big corporate, or the financial market? Or like who do you think the key stakeholders are? And how do they need to change?
Scott Jacobs: So, back in 2007, when I started the clean tech practice with a couple partners at McKinsey, I came up with a framework that I think still informs how we think about the world and how we need to change. And there's really four spheres. You need innovation, you need capital, you need customers, and you need policy. And those four spheres are populated by actors who speak their own languages relative to one another, right?
You don't typically see people in DC having great conversations with people in Silicon Valley. And you don't often find people in Schenectady, New York knowing how to speak with people in Silicon Valley, and so on and so forth. Right? So, it's a challenge that we tried to solve by creating that common language of economics. But China has been able to top down, create the alignment of those four spheres, because they just force it to happen. In the rest of the world, we have to let it happen a little bit more organically or try to facilitate it.
And in order to get that system change, ultimately, I think we need to break inertia. To break inertia, we need leadership. And unfortunately, no matter where you look these days, I think we're seeing too little of that leadership. And as a result, inertia is extremely strong. So if you ask me for one thing that I would like to see happen outside of the sphere of influence that we at Generate have, it would be to price pollution. Because that is the system change tool that I feel like is the only one that is a tool that really actually affects all parts of the economy and all the incentives of all of the actors. It internalizes, of course, the negative externality of pollution. Unfortunately, I don't have a high hope that any of our leaders, given the lack of leadership, are going to be able to get a price on pollution, a price on carbon that actually moves the needle and changes behavior, not only at the margins, but in the main, because the price won't be high enough even if we get one. And the urgency that we need to understand we have with climate change is just too great.
Jason Jacobs: Other than pricing pollution or carbon, if you look at like what message do you have for big corporate. What message do you have for the black rocks of the world? What message do you have for President Biden and the, the great team that he's pulled together including some of your own? I mean, are there key initiatives? Is there anything else given the system's nature of this problem that other key levers that might not be the grand slam home run, but that can move the needle in a compelling way?
Scott Jacobs: Yeah, there are ton of small levers all of which need to happen, obviously, for us to succeed at this challenge. I will say that what gives me the most hope is the intergenerational transition of power that has been underway for the last decade or so. And it shows up in a lot of areas. But first and foremost, it's showing up in the customer demand for sustainable solutions that we have seen go through the roof for the last many years.
And, you know, all of the investor interest that we're hearing about, reading about, seeing, you know, new capital raise announcements and stuff for sustainability. That's a lagging indicator of what's been going on in the real economy – to the earlier discussion. The real economy and the financial economy aren't always perfectly linked.
The leading indicator of what's happening in the real economy is that customer demand. Customers want cheaper, more reliable, more sustainable resources. And you can get that today with a lot of solutions available to solve that. And they are the ones that are driving that demand. And it's because we have people, frankly, under 45 who believe in science, facts and economics, and understand that climate change is the greatest threat to humanity. So, they're willing to actually put their money where their mouth is and make decisions based on those science, facts and economics with a long-term lens.
And I think that's what should give us great hope, not only with the customer decision making behavior, but also obviously what we're seeing in the capital markets, what we're seeing among policymakers, what we're seeing in the financial sector. So, all of those four spheres are undergoing the transition from old people to younger people who are making those decisions, and that's quite encouraging from my standpoint,
Jason Jacobs: And I have a few key issues I just love to get your, uh, autonomy. We already talked about nuclear, for example. We just talked about price on carbon, but one is just given the polarization that currently exists in our country and certainly in our political landscape, there are some that argue that we should build bridges and better understand each other and find ways to collaborate. And there's some that argue that, that's a waste of time, we should dig our heels in and fight. What's your take on the best way to get things done?
Scott Jacobs: In the US specifically given the polarization?
Jason Jacobs: Yeah, why don't we start there, but then, then I'll ask the same question on the international stage given all the different countries and competing interests.
Scott Jacobs: So, I think in the US, there's not a lot of hope for a unified point of view in the nearest term in the federal government. But what is interesting to watch is what the states have been able to do and the local governments and municipalities around the country have done. At the end of the day, they're the ones that really drive the regulatory agenda with respect to infrastructure. It's much more local than it is federal.
So, while we can talk all we want about Biden's Build Back Better plan or the Infrastructure Bill, or, you know, Waxman-Markey all the way back in 2008, which was obviously a bipartisan bill. You know, a lot of the work that's been done from a policy standpoint has been done at a local level, and that's been very effective at supporting renewable energy and clean infrastructure in a number of places. It's obviously not enough to get us where we need to go on solving climate change writ large.
But, you know, I like to remind people, the best four years for renewable energy in the history of the world were the ones where Trump was the president. That's how much the federal government matters. He was trying to rebuild the coal sector and what happened there? That didn't go so well. It's economics, not ideology, that usually determine the path of things, especially in an economy like ours.
So, I think that whether you fight or whether you try to build bridges, there's a place for both. I'm more in the camp of let's find bipartisan solutions. Let's bring people together because it actually is a bipartisan problem or a multi-partisan problem. I think economics can unify us. I think our children or grandchildren can unify us. And I think we need to break the misinformation campaigns and the mythology that's out there that has created that polarization and ideology around something that is pretty clear from an economics or science standpoint.
Jason Jacobs: I have two distinct questions. What is the role of fossil fuels in our future, and over what timeline? And then same question for the role of fossil fuel companies.
Scott Jacobs: Look, again, I'm not an ideologue around this. I know that we need fossil fuels to support a lot of our economy currently. And there's a transition plan that many have put forward. Lots of different transition plans that are credible to get off of fossil fuels. But the true answer on a scientific basis is that we need to get the heck off fossil fuels. And we have to do so as fast as possible.
So, what's the place for fossil fuels in 2050? I would say there's no place in 2050 for fossil fuels, except for as good stores of energy in case something happens. Let's think of the Strategic Petroleum Reserve that the US has, and let's just keep building that. But let's not use it, because we can't afford to use it. So, in 2050, there's no role for fossil fuels.
Jason Jacobs: Does this include natural gas as well?
Scott Jacobs: Absolutely. Yeah, by 2050, we should be able to break our addiction to fossil fuels if we have a concerted effort continuing from today on forward, and we have to do that.
Jason Jacobs: And if you had to guess the providers of the energy today, what percentage of those will be the providers of energy once we're on the other side of this transition?
Scott Jacobs: That's a great question. I think those companies, some of them have already figured out the imminent threat they're facing that is so existential to them. And they've begun to make important and bold moves to transition to, you know, a clean energy company, or a more diversified resources provider, and those companies will still be around in all likelihood. They will be very different from the way that they operate today, and the assets that they hold and manage, if they do survive, obviously.
And, you know, I'm a student of technology and creative destruction and so are you. IBM still exists, but where are Compaq, and Digital Equipment Corporation, and Sun Microsystems? They didn't cannibalize themselves. Sun Microsystems, Digital Equipment Corporation, Compaq. And as a result, they're gone. IBM cannibalized itself, and they're still here. So, you have a choice.
Jason Jacobs: How important is carbon removal, and how viable is it?
Scott Jacobs: Absolutely critical. And I'm not sure on the viability yet. I think we're still all waiting for better data on that, and better proof points, and really hoping that we continue to see the encouraging progress that we've seen so far continue.
I think there's a huge role, again by 2050. We will be removing carbon from waste streams, from the air. And we will have to be in order to get the carbon balance in the atmosphere to a place where humanity can not only survive but thrive.
Jason Jacobs: Who will pay?
Scott Jacobs: All of us. All of us are paying for it anyway. It's just a matter of where we pay for it. Is it that we're paying for it in the hospitals through health care costs? Is it that we're paying for it in taxes to provide defense and security? Is it that we're paying for it directly as a customer? We're paying for it; we just don't always realize that we're paying for it. And we're gonna keep paying for it whether it's good or bad. And so, I'd like to be a little bit more intentional and transparent about that which we are paying for. And that takes policy, frankly, for us to have that transparency in the pricing of the externalities.
Jason Jacobs: How important are assets and how realistic is it that we can get that market functioning in the way that it needs to in regard to consistency, transparency and quality?
Scott Jacobs: Well, offsets play a really important role today in people feeling like they're making progress. And unfortunately, as we all know, there's a lot of fraudulence in the carbon credit market. And that's not good for the industry, it's not good for the planet. So, it would be great to see either voluntary or involuntary interventions that drive that transparency that you're talking about. That credibility is needed for the offset market to thrive. But I do believe it will play a role, it will continue to play a role. And so, we should work to improve it rather than to give up on it.
Jason Jacobs: Final two questions. One is just are you an optimist?
Scott Jacobs: Some days. I think I am naturally an optimist. But boy am I disheartened by the lack of progress on the policy front, the lack of progress in moving beyond misinformation, in particular, in this country. The lack of progress around long-termism in general for the agents and decision makers around the world.
But, you know, again, what does give me optimism is the people that I get to work with every day at Generate, the people that I get to call fellow travelers in our industry. There's so much talent coming into our markets. There's so much talent taking leadership roles at companies and in governments. I do have hope that humans will deliver the leadership that we need to address these huge problems.
Jason Jacobs: I got one more question, which is just, where do you need help? For anyone listening that's inspired by what you're doing, how can we help you? Who do you want to hear from?
Scott Jacobs: We always need three things, good people, good deals, and good money. So, if you're a values aligned investor, if you're a values aligned entrepreneur, if you're a values aligned potential colleague of mine, we'd love to hear from you. We need a lot of help in all three places, and we're in this for the long haul. It's going to take a while. We've done a lot so far, but we're just at the beginning.
Jason Jacobs: Any parting words for listeners?
Scott Jacobs: I would say, don't forget just how important it is to spend the time on the things you care about and with the people that you respect and admire, because that's going to define your happiness. At least it's been what defines mine. And I would say there's no place in the economy better to find people you respect, or to do things that matter, and to be able to even get paid, than the sustainability industry. So, we need more resource revolutionaries, and please join us. You and me, Jason, we all need more resource revolutionaries, and I'm proud to be one with you.
Jason Jacobs: Amazing. Well, gosh, I learned so much. And it's so impressive what you've built. And I know you've just scratched the surface of both your opportunity and also just the scope of the problem and what we need. So, thanks for all the work that you do. Thanks for making the time to come on the show, and best of luck to you and the team.
Scott Jacobs: Thanks so much for having me, Jason. This was fun.
Jason Jacobs: Hey everyone, Jason here. Thanks again for joining me on My Climate Journey. If you'd like to learn more about the journey, you can visit us at myclimatejourney.co. Note, that is CO, not dot-com. Someday, we'll get the dot-com. But right now, dot-CO.
You can also find me on Twitter, @jjacobs22 where I would encourage you to share your feedback on the episode or suggestions for future guests you'd like to hear. And before I let you go, if you enjoyed the show, please share an episode with a friend or consider leaving a review on iTunes. The lawyers made me say that. Thank you.