TPG Rise

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CTW.1122. TPG Rise

It doesn’t provide products or services of its own, but TPG Rise is one of the financial engines behind dozens of world-changing startups, with $14 billion in assets under management and more than 55 “impact businesses” funded to date. Its most recent fund, TPG Rise Climate, launched in 2021, is its biggest and most ambitious, having raised $7.3 billion to support firms with a sustainability focus.

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Steve Ellis, A Managing Partner, TPG's Rise Funds Kentaro Kawamori, Chief Executive Officer, Persefoni Moderator: Sheryl Estrada, Fortune

Impact Initiative 2024: Tech Transformation - How Startups And Growth Investors Are Driving Change

Photography by Rebecca Greenfield/Fortune

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Thank you, Steve and Cantaro for joining us today. Thanks for having us. Great. So I'm gonna dive right in with the first question to you, Steve for almost a decade. TPG rise has been investing in companies that drive environmental and social impact and change while making money by virtue of what they do um from the lens of private equity and for profit capital. How are you identifying and supporting companies that are using tech to tackle some of these large problems? Yeah. So first of all, it's wonderful being here, let me maybe start just with a quick definition of impact investing because sometimes it gets conflated with ESG they're, they're siblings, but they're different. Uh It uh impact investing is about finding companies that by virtue of what they do to make money are creating net positive social and environmental good. And while ESG can be a policy and a set of practices that apply to every business, there's only a subset of businesses that are inherently what we call co linear meaning that their business model is focused on not just making profit but in creating social and environmental good that can be measured that's sustainable. And that is ultimately going to address some of the world's biggest problems. So we start from that premise and when it comes to identifying where particularly technology can make a difference, we start with the fundamental premise of access that uh if you think about really the cornerstone of impact investing is finding ways innovative ways to improve access to uh really valuable resources and services that underserved populations have difficult time gaining access to. So if you think about it, um education, access to quality education, access to affordable and high quality health care, financial inclusion, quality jobs, food security, uh clean water, clean energy, even access to uh a sustainable environment. Those are all problems that can be addressed through commercial businesses. And oftentimes the innovation, in fact, most of the time, the innovation is anchored on the application of technology. Um Obviously, software has enabled an enormous um amount of innovation in areas like education uh in Ed Tech for K 12 adaptive personalized learning in the health care world. The advent of gene therapy, cell therapy, advanced diagnostics have dramatically reduced the time it takes and the cost associated with diagnosing and treating illness. Uh Even in material sciences, we've found ways now with advanced technology to dramatically reduce the cost of solar panels to find ways to create clean hydrogen, clean ammonia. We've even found ways to convert municipal waste into usable thermal plastic that can replace petroleum based solutions. So we start with these, what we call impact pathways that are driven by this view of creating access. Um And then we figure out where technology can inflect the ability for a business to grow and to expand the footprint of its impact. Now, you do this all over the world. Um Are you learning best practices based on different regions? Uh how to u utilizing technologies that can maybe be applied to other places? Yeah, I mean, it's, we are a global fund which is a little bit unusual. We invest literally all around the world developed and developing markets. And uh one of the things that we've seen is uh is that this application of, of new technologies, it needs to propagate. And interestingly, we're, we're in sort of a de globalizing world as we sit here today, given everything that's happening geopolitically uh and what that's creating is a void. Um you know, there used to be, you know, free flow of commercial ideas and intellectual property and talent and that's all now being restricted a little bit. And so one of the things that we found is that we can be um a conduit for that, a very efficient conduit for being able to take some of the best practices from the developing world that are doing technology skipping, bringing those back to more mature developed economy, uh business models and vice versa, bringing advanced technology from the developed world into the developing world. So we've seen that cycle accelerate, you know, very meaningfully just at a time when the world seems to be retreating from the power of globalization. Thank you, Steve. Um Cantaro, you're the CEO of Persephone and also a co-founder and one of TPGS portfolio companies. Uh Can you talk a little bit about why you started your company and how you are leveraging A I to help uh carbon accounting and corporations? Absolutely. We talked about it a little bit, you know, when we started persephone almost five years ago now, which is just wild. Um We, we really looked at the problem that we solve a little bit differently than most. And thankfully, Steve saw that along the way and decided to, to endorse that strategy. And that was looking at what was traditionally environmental disclosures, which had been the providence of, you know, I think state, local regulators, the EPA and heavy industries. And we really saw that becoming a financially material topic both for investors like Steve, for example, um or in the corporate side. So us as a oops as a portfolio company at TPG, we don't just build a tool to help companies do that. We actually do what we say. And so as part of the rise funds, for example, we provide carbon and climate disclosures to our investors like Steve. But the core of what we looked at was all this data that's required to calculate a carbon footprint. Looks a whole lot different than traditional environmental data for a lot of people. And what that means is we had to build a system that can take a huge variety of data sets by all accounts, the largest range of diverse enterprise data we've ever seen in a single system of record, be able to ingest that transform it and then publish it in a standardized format that could, that could meet regulatory scrutiny. You know, that was really the vision that we laid out, which was quite different than the rest of the market. That was saying, hey, you know, if you look at the previous cycles of ESG and sustainability, that was really CS R was driven by marketing and reputation. Now it's really become a financially material topic sitting very, very often now in the office of the CFO as well. Yes. And uh with uh SCC regulations in, in uh financial reporting when it comes to uh uh climate uh initiatives, um especially scope 12 and three. how do you explain to companies, you know, especially scope three? I know that's an issue that uh a lot of companies are grappling with. So can you tell us a little bit about that? Definitely the, the disclosure regulations that are either here already or about to be here. Topic, number one that, that we deal with in our customer base and like the, the, the advice that we have to dispense is quite diverse because companies tend to be in such a, a broad range of, of stages in this journey, right? And it's best to think about sustainability and climate as a journey. And, you know, it doesn't matter if you've set an S BT I target first. And now you're sort of realizing like we saw on the panel before, how do we get there? Maybe we have to rethink these targets or if you're just starting out and you're looking at, how do I set a target? What does good look like? You got to start with the fundamentals of understanding what you have and where you're headed. That's where we focus a lot of our time and advice. You know, there's a, there's a rightfully so a lot of excitement and desire to get to the end stage of that. So for example, in private equity or in Corporates, there's a lot of uh a lot of discussion about value creation. How do you, how do you create value from impact and sustainability and climate? But for a lot of people, I mean, look at what's happening in the news today. It's about getting the basics right first, value protection. But we're, we're dealing with a massive hurricane right now. We have people in our business that are out from that event. And so we, we very much advise our, our customers and our prospects that we deal with disclosure isn't just about sending something to a regulator. It's about understanding what you have and where you're headed. So you can actually manage the thing that you're trying to manage against. Yeah, I would say uh one of the things that has become very, very clear as we've gone through this journey is that um the market has been waiting for a lot of regulation to create top down um mandates for reporting. And obviously, those mandates have been more fragmented. Uh They've been delayed, they've been controversial. Uh And, but what we've seen happening now increasingly is that um people realize that they're going to need to be accountable for their carbon footprint and that they have going to have to have a, an accounting system to start so that they can understand exactly where their footprint is. 12 and three. Uh But more importantly, they're going to need actionable information from that system that gives them the ability to manage their footprint. And that's what is seems to be missing. A lot of people are getting the initial footprint. Um I like to call it sort of the, the blueprint of the house, but we need working drawings, right? We've got to understand specifically how we're going to address that um that footprint. You know, whether it means mitigation approaches, whether it means going into the uh voluntary uh uh carbon markets. And that's the, that's the tie that has, has been missing. But we're beginning to see now sort of an organic tipping point where that is um companies are doing it on their own. I am going to open the floor to questions in just a moment. If you have a question, you can raise your hand and someone with a mic will come. Um We can start now, this is Kwara Sheikh from IBM. Um When we look into the SCC regulations around the climate change and when we look at the VC investment, typically the venture capitalists have got uh high risk uh more patients long term orientation attitude. But uh the, we don't have the same mindset for the companies which are more short term oriented because the culture has to change uh for the new era where they need to be more long term focus. What advice would you offer if you are part of a business round table? Uh So that uh the CEO S can infuse the VC mindset where we, we just don't necessarily look at the SCC climate regulation standpoint, but also for the value creation for all stakeholders. Well, that's a, that is a great question and, and uh I'll start in and Kor will finish. Um This is one of the biggest challenges that we face, right? Because this concept of what is the method of change management to get organizations to stop just responding to the stick, which is regulation and start responding to the carrot, which is all the extraordinary benefits that flow from embracing this kind of management discipline and in principle, um and you know, it's in my mind, the most important thing is to just be crystal clear with how this aligns with your broader business objectives, to create the linkage between doing what's right from a sustainability standpoint with what's right for the important stakeholders in your business, whether it's your shareholders, whether it's your customers, your employees, and really spending time to understand what they want, what they need, how they measure it, how they uh how they metabolize whatever information or um or evidence that you provide them for what you're doing to contribute to a more sustainable world. And that's just good business, right? I mean, you don't want to be working against the grain of the organization. Let's take that focus on commercial success and profit motive and use it to our advantage to accelerate the change. Yeah. And I think the the regulatory piece is such a bear in our world, right? It's both this immense opportunity for acceleration and standardization and you know, a whole bunch of things in between. But at the same time, you know, if I come back to your question on how do you, how would I talk to a VC or a corporate board and sort of infusing the VC mentality, I would say, you know, building a business off of regulation alone is very risky. Like you need to look at what are the intrinsic macro forces happening and is there an underlying set of drivers that's gonna make this business or this product? Successful regardless. And a great example in our business, you know, Steve and I are very aligned on the vision of persephone, obviously as as investor and entrepreneur and our business is going to benefit massively from regulation, but it hasn't needed it yet. You know, we're seeing a huge groundswell right now, for example. So you have some some data to tie to this. We released a, a free to use first of its kind, what we call a premium type product that allows any company to do scope 123 and accounting completely free. And we've seen 3500 sign ups in six months. There's nobody's signing up because the regulation is live, they're signing up because their investors are asking for these disclosures, their customers are asking for these disclosures or some other stakeholder is forcing them to do this. So there's these intrinsic market forces already creating this market. So it's a small microcosm coming back to that, right? I think you have to look at macro developments and trends far beyond the regulatory side. And then regulation is either can go both ways, it can be a huge accelerant or it can be a huge inhibitor. Um So Cantaro, if you're a company that is having to do this type of, of reporting, um There's a lot of data, there's a lot of different technology that you can use. How do you actually figure out what is right for your company in terms of if I'm like for us helping the our customers. Um you know, fortunately for us, there's a very, there's a gold standard in our world, but here is probably familiar with the greenhouse gas protocol and it's sort of like what gap is to financial accounting. That's where the complexity starts, right? So the, the greenhouse gas protocol documentation in itself is over 600 pages in its various iterations, which is nutty. The best example I give to people is uh if you, if you really like have trouble falling asleep, go download the IRS tax code. And the IRS tax code is sort of like the greenhouse gas protocol uh in our world. So we, we have to have an immensely talented set of individuals that from a support and advisory perspective helps our customers interpret that our software has codified a whole bunch of that, right? So there's, there's a patterns and there are data driven ways that we can extrapolate what it is. You should be reporting that tends to be question number one to your, to your point on scope 12 or three. A lot of people say I know I need to do this, but there's 15 subcategories in scope three, which one's actually material for me. And there's various ways to answer that the data informs that the methodologies give the prescription of how to actually translate that data from one form into the other. And that's what our software does that's what our team does every day. Um And, you know, we've been fortunate, you know, we've been able to invest a whole bunch of cash into R and D frankly, which has allowed us to have a very strong set of IP both in our system of record. So the underlying software um workflows as soon as you come in, actually, we'll tell you here's what's material to you, how here's how you calculate this and then from an A I component, massive opportunity, massive Steve and I geek out about this all the time because where especially in the GP T world, where software really excels is when you have human readable language. And there's a great amount of, of data that sits in a company that is human readable that can now be read by machines. But in the past wasn't meaning a lot of data that sits in a SQL database, for example, isn't human readable, right? It's machine readable. But now the GP T world has really enabled a whole new set of use cases where we look, we can look at things like uh supply chain data in a whole new different light. When companies are getting small invoices from small vendors that say, you know, I was with a car manufacturer in Italy, you can take a guess which one and getting material welded at small shops and literally they're getting handwrit notes that now can be transcribed and read by A I which wasn't possible before. Yeah, I think just one of the things that we're seeing is it's a classic technology playbook which is to leverage the power of virality. And what's happening is um you know, uh many companies scope three is some other company, one, many companies scope one and two are other companies scope three. So if you can start to get the flywheel spinning where people are addressing the question of their carbon footprint on a common platform with a, with a really well designed and curated data layer. That's when you can start to really accelerate the adoption of practices that change behavior. Well, we're at time, that was an interesting discussion. Thank you so much, Steven Cantaro. Thanks for having me. Thank you.

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