Food production, fossil fuels, and innovative entrepreneurs: ETF Partners’ dispatches from COP28

As global powers wrap up another year of climate-focused talks and negotiations at COP28, ETF Partners’ Managing Partner, Rob Genieser, shares his thoughts from his time attending the conference and chairing a panel on innovative technologies. Reflecting on the often contentious discussions now taking place, Rob questions the role of hard to abate industries in the energy transition, how we can make food production greener, and explores the ways that startups play a vital part in creating the intelligence layer needed to produce rapid, sustainable change. Read on for his in-detail thoughts below.

How can fossil fuel companies play a part in the energy transition?

Perhaps the most jarring image of COP, particularly for the activists and those of us with long “environmental memories,” is the block-long billboard once taken out by Exxon, promoting their sustainability credentials. You couldn’t help but think back to the Exxon Valdez oil spill, or early efforts to deny climate science, and wonder what they were doing here!

For many at COP28, they wanted to see countries agree to phase out fossil fuel usage, with the US stating that it believed that this was “largely” possible. Of course, there has been massive pushback in the last few days of COP, something that was not wholly unexpected. The energy companies themselves seem to be hoping that next generation, large scale solutions like carbon capture and storage, or production and use of hydrogen will ultimately keep them in the game.

It is certainly true that the large energy incumbents were lobbying heavily at COP28 to be part of the long-term solution. The fact that these organisations hold a prominent role at COP has come as a shock to many attendees but the reality is that traditional industries with large pools of capital and political sway have to be part of the solution.

How would these companies legitimately play a part in the energy transition? They might claim that massive decarbonisation solutions are ready today, but the reality is that there is a big difference between innovating in technology and managing to deploy at scale at multiple sites around the world. Financial institutions at COP28 discussed how there isn’t a great appetite from investors to fund such projects, due to the high interest rate environment and risk-off in the general investment climate. Simply put, capital is more expensive, harder to come by and less willing to speculate on the “new-new” thing.

Connecting the dots, I suspect that energy companies will promote a few select projects, which might seem large as one-off dollar investments but pale in comparison to the overall marketing or lobbying budgets that they have. These investments won’t impact short-term cash flows, which is sacred to their Boards. In addition, I am sceptical that these solutions can be deployed quickly and since they cost a great deal, I doubt the companies will be pushing for rapid commissioning.

If you are more optimistic and believe certain energy majors are itching to deploy decarbonisation solutions at scale, I see a different problem on the horizon. If oil and gas are effectively commodity products, how can you tell a “good” barrel from a “bad” one? With the war in Ukraine, we saw how easy it is for bad actors to move to alternative customers, who are perhaps more forgiving or just want a lower cost solution. In fact, there are a number of energy regions and producers who are unlikely to play by the new emerging decarbonisation initiatives and will continue to trade the commodity products. Michael Porter’s suggestion, therefore, that advanced regulations and stricter environmental rules can make companies more efficient, as well as better long-term operators, might not hold if the costs incurred for switching are particularly high, or the end product is relatively undifferentiated. A more universal, global appetite for cleaner and greener production processes would encourage other producers who resist decarbonising initiatives to reconsider their operations, but that might be harder to achieve than many at COP realise.

Food production on the COP menu

Most environmental activists would agree that the production and supply of food accounts for 20%- 30% of global CO2 emissions, so it is surprising that it has taken so long for COP delegates to focus on food. The recent announcement that the countries plan to make this a big topic going forward is welcome, especially when you realise that as much as a third of the world’s food production is wasted while so many people live in food poverty. Even in developed countries like the United States, it is estimated that 17 million people live in food insecurity, while in the UK 12% of children do not get enough to eat. Our portfolio company Phenix is tackling this issue by providing a digital solution to connect retailers with consumers for food just before it goes off, thereby avoiding unnecessary wastage.

At an impact conference I attended in Amsterdam in November, I also heard how vulnerable the food system is to a rapidly-changing climate. A speaker representing small-scale farmers from South Asia expressed how if their crops fail, large food companies would source elsewhere and weather price rises by passing the cost on to the end customer. However, the farmers from his community would be left destitute, as producers themselves don’t have insurance to help them deal with rising risks. As an aside, it is obvious that the insurance industry will have a massive role to play in helping many parts of the world through addressing adaptation challenges.

Of course, the growing need for adaptation will lead to a topic for future COPs, with the recently announced Loss and Damage Fund, for the poorest and most vulnerable of countries, being a first step. I was reflecting that today there are estimated to be 100m or so refugees on the move; in the future, with food production at risk in many parts of the world, coupled with rising sea levels, growing scarcity of water and higher temperatures, more people will be forced to seek new places to live. One estimate says 1.2 billion people will be climate refugees alone by 2050. This should become an increasing focus of future COP discussions, which will be especially difficult, when you think how countries like the US, the UK and the EU struggle to develop humanitarian solutions around refugees crossing borders today.

Entrepreneurs to innovate through digital intelligence

A number of very large companies spent COP28 promoting that they had the technology, creative ambition and forward-thinking mindset to change the world. Rubbish.

It is very hard for large companies to innovate, throw out existing business models and attract young, ambitious, change-the-world employees. The young want to go to startups. It was once said the best German engineers wanted to work at BMW or Siemens, but now I bet a number are intent on starting their own companies.

This is a very good thing. Startups only succeed if they can move quickly and answer a real need. They will either fail fast or be on to something great. One of the key messages of COP is that there are more and more customers looking to try these innovative solutions, as they know they must change their own operations in the face of government regulations. For startups, this is exciting news.

And it can work!

At ETF Partners, we have spent the past 17 years championing digital technologies that can be quickly and efficiently deployed to transform industries and ultimately accelerate new climate-focused innovations. These solutions can be deployed quickly, have a massive impact and can be delivered at a relatively low capital cost.

Several companies in our portfolio already exemplify the many ways that digital tech can supplement the macro level policy work of COP28 to accelerate solutions to climate change. I had the privilege of helping a young AI company, DeepSea Technologies, as they worked to decarbonise shipping through optimising the routing of vessels. They were able to reduce the amount of fuel a ship consumed by as much as 12% per voyage, which is an enormous development when 4% of the world’s carbon comes from ships. The large Japanese company Nabtesco recognised that Deepsea’s solution was so special, they gave them additional capital to grow and went on to acquire the company to take its innovation to the next level.

Most excitingly, the Greek Prime Minister also praised DeepSea at COP for making such a big impact, and he encouraged other companies to follow suit. It is an amazing feat for a company of less than 100 people, that has been around for less than three years, to make such a difference.

If we continue to innovate to develop great solutions, often using digital intelligence to transform economic sectors, we can move quickly to address the climate emergency and support the good work done at COP28!