Climate Change: Why the Planet’s People Need Catalytic Capital
Early in my career in impact investing, I was confronted with a choice likely familiar to others in this field: do I choose to work on issues facing the environment, or those facing people? At the time, in part due to the way our society and markets were framing these topics, the choice was dichotomous. To work for a healthy planet meant saving endangered species and protecting our natural environments from harm. To support our communities meant fighting urgent social problems such as poverty and income inequality.
Although we all know that human beings are intrinsically connected to the environment, at the time, the impact investing movement and our global culture often treated the fight for environmental change as irrelevant to immediate human needs. And these norms are still in part alive today: with 10% of PRIs from 1968 -2018 going to support issues related to the environment, and only 1% of those directed to climate innovation — we have yet to fully connect the dots.
In the meantime, our world is changing. With the recent IPCC climate report indicating we will need to reduce approximately 70 gigatons of CO2 equivalent annually by 2050, we will not reach our goal unless we definitively change our current course. This demands that we pursue numerous, pervasive actions simultaneously and at multiple levels. Otherwise we will miss this opportunity to mitigate the most significant threat not only to our natural ecosystems and endangered species, but to cities, human health, our food supplies, and low income communities at great risk of displacement from flooding and more. Our new path must recognize that separating our needs from the needs of the planet have left all of us unprepared for what may be coming in the next 20 years.
Changing our mindset: from insurmountable problems, to catalytic solutions
As overwhelming as it may seem, I believe our challenge is not insurmountable. But with so little time on the clock left, the way we think about solutions has to change. We can get half way to a 70 gigaton CO2 equivalent reduction with the mature technologies that are already available, such as wind and solar energy, LED light bulbs, and so on. To achieve the other half of our goal, we’ll need to develop and demonstrate brand new breakthrough climate technologies in the next 10-15 years: solutions that take us further and faster than we’ve ever gone before, transforming markets at massive scale.
And it’s possible to do this. To understand just how impactful it can be to support catalytic innovation – for both people and planet – I’d like to tell you a story about batteries.
Transitioning all of the world’s vehicles to run on electricity is one of the most recognized ways to lessen our reliance on fossil fuels. But to electrify all the world’s vehicles, we’ll need a lot more batteries than we are making today. In order to meet growing demand, we will need to increase the production of lithium, a key component of electric vehicle batteries, by 40-fold. But lithium is difficult to come by. The most reliable source is a handful of sites in the highlands of Chile and Argentina, where pools of highly concentrated lithium brine lie underground. To extract the lithium, workers dig many square miles of ponds where the sun can dry off the brine’s water, leaving behind massive piles of salt waste. From there, it takes years to achieve volume production, and rain carries the toxic waste down mountainsides to indigenous farmers in the valleys. Soon thereafter, these farmers find that their salted fields yield fewer and fewer crops.
To solve these problems, a company called Lilac Solutions (“Lilac”) developed a new lithium production process based on research at Northwestern University. Lilac uses ceramic-beads that act as “lithium sponges,” extracting the element by selectively drawing it out of a brine under one set of conditions and releasing it under another. This process can profitably produce lithium from low-quality resources all around the globe, bringing the overall supply of lithium up, and its costs down. In fact, Lilac’s solution could unlock a cost-effective, reliable and environmentally-friendly supply chain of lithium to abate 280 million metric tons (MMT) of carbon dioxide by 2050. This level of emissions reduction is equivalent to removing more than 605 million cars from the road for one year!
The whole operation can also ramp up in just months, not years. On top of all this, it is environmentally friendly: No piles of salt are left behind, ending harm to food supplies and the natural environment that communities need to thrive. This is catalytic innovation: new technology that not only promises great impact for the planet, but also protects livelihoods and avoids the destruction of the environment.
Catalytic innovation requires catalytic capital
When my new team at Prime Coalition first found out about Lilac (before I joined), the company had been struggling to access the capital it needed. Although the science behind the founders’ idea was well tested, venture capital investors saw the opportunity as simply too high risk. Nonetheless, in Fall 2018, when CEO Dave Snydacker was the only other director on the board, Prime took a chance on Lilac. Through Prime and its Impact Fund, Lilac was supported by over 40 courageous foundations and individuals, including the Blue Haven Initiative and fellow MIE members Sierra Club Foundation, The Boston Foundation, and the Fink Family Foundation. These investors employed various catalytic tools, including grants, recoverable grants, and impact investments across the risk-return spectrum.
Since receiving Prime’s support in Fall 2018, the company has raised $3.5MM in total, moved out of the lab, and signed commercial pilot agreements with customers in Australia, South America, and the U.S. The catalytic capital Prime helped to place allowed Lilac to mature as a company, become more attractive to follow-on investors, and can eventually bring Lilac’s solution to the scale our planet needs.
Venture capital (VC), the asset class most known for bringing early-stage ideas to market, wouldn’t have supported Lilac in Fall 2018. While it was clear that the company’s solution could yield an attractive, self-sustaining business in time, the level of risk was too high and the potential time frame was too long (most VC funds are limited to ten-year time frames and must generate market-rate returns in far less time than that). Hardware companies, and especially hardware companies in industrial categories instead of consumer ones, are a challenging fit for the VC asset class at the earliest stages. In contrast, early-stage hard-tech ventures that can make a huge difference on people and planet are an excellent match for catalytic capital, which MacArthur Foundation defines as investment capital that is patient, risk-tolerant, concessionary, and flexible in ways that differ from conventional investment.
With Prime’s early financial support and guidance, Lilac is now on track to cross the valley of death and grow as a company. This will place them in an optimal position to crowd-in market-rate investment, and ultimately deliver on their commercial (and our impact) goals. Through catalytic capital investments such as ours, Prime directly and indirectly helped shine a light on Lilac to other investors and supported their journey out of the valley of death. We are thrilled that Lilac is now in a position to evaluate financing strategies for its first large-scale pilot projects with corporate partners across the world.
Transforming markets, transforming minds
The effort required to avoid the most catastrophic effects of climate change is monumental. There has arguably never been an issue as equally complicated and urgent as this. And the multitude of critical matters facing us, our nation, and our world makes the level of coordination needed all the more daunting. Meanwhile, the clock steadily ticks away as we figure it all out.
But I hope Lilac gives you a glimpse into how reframing our problems into goals and solutions can allow us to imagine this daunting challenge differently. We can turn the magnitude of the problem into an opportunity for innovation; the threat of climate change into an opportunity for unity and collaboration. By supporting solutions that promise vast greenhouse gas emissions reduction, that can crowd-in market-rate capital and will not otherwise be supported, our fear can be transformed into productivity. Suddenly, the trillion-dollar financing gap to activate innovations in areas like energy storage, carbon capture, or water desalination looks like an incredible opportunity for philanthropists and other owners of catalytic capital rather than a reason to hide our heads in the sand.
I joined the Prime team this year as a continuation of my desire to focus on people, but I’ve learned at Prime that there is no work in climate that is not linked to the people who live within it. The ways in which climate change is felt across the diversity of humankind is central to the solutions we engineer to solve for it. Whether you focus your time and treasure on fighting for women and girls, social justice, poverty alleviation, economic development, or environmental conservation, we are now all climate philanthropists. Ideas behind ventures like Lilac Solutions make me optimistic that we can unify to coordinate our collective knowledge and ultimately create a resilient future for all of humankind.
About Prime Coalition
Prime Coalition is a 501(c)3 public charity that partners with philanthropists to place catalytic capital into market-based solutions to climate change. We believe philanthropic asset owners are central to the formation of a resilient future. Catalytic capital is instrumental to crowding in many billions of dollars of market-rate capital not presently supporting innovation or deployment for climate change mitigation at scale. Learn more at primecoalition.org.