Resources

• The Annual Impact Investor Survey 2020 describes the evolution of impact investing over the past decade, and finds that the sector is diverse, growing, and becoming more sophisticated in terms of measurement and management practices.
• A recent paper by HBS Professor Shawn Cole and others finds that investments made by the International Finance Corporation (IFC) -- which is required to follow an impact investing strategy -- outperformed public markets by approximately 15% over the period 1961-2019.
• Learn more about DBL Partners and its “trifecta” approach to identify investment opportunities (follow the carbon, fix something that’s broken and really move the needle, find sectors where the iconic names are 100 years old or more), DBL’s overall investment strategy, and about Nancy Pfund

Guests

Host: Rebekah Emanuel, Head of Social Entrepreneurship, Harvard Innovation Labs.

Guest: Nancy Pfund, founder and managing partner of DBL Partners

Transcript

Nancy Pfund:
When you're obsessed with carbon and climate change, you spend so much of your day reading about it, learning about it, talking about it. And so, any opportunity to infuse a discussion with climate change, we readily take that on. And so, we are hyper sensitized to connecting the dots in ways that other people are not. And I do think that's partly why we are able to develop these interesting scalable companies is because we do connect those dots and allow business models to be infused with a climate directive earlier than perhaps they would have been.

Rebekah Emanuel:
What do cemeteries, luxury handbags, high-quality audio and selling wheat have in common? If you ask Nancy Pfund, all of these can be powerful tools to address climate change. In each, her company sees a thesis for making both strong economic and environmental returns.

This is Climate Rising, a podcast from Harvard Business School. Over the next few decades, climate change will catalyze far reaching changes in every sector. From infrastructure to investing, from land use to transportation. This season on Climate Rising we're zeroing in on all the opportunity out there for people to innovate, to discover new business models, to become entrepreneurs in the effort to find solutions to the multiple problems we face with climate change. I'm Rebekah Emanuel, Director of Social Entrepreneurship at Harvard Innovation Labs. I work with current and future entrepreneurs every day.

This season we'll be meeting with people who are starting and financing companies that can address climate change and help us adapt to it. People who are seeing opportunity in places you may never have imagined. And we'll start today with Nancy Pfund, founder and managing partner of DBL, or Double Bottom Line Partners. A venture capital firm, whose goal is to combine top tier financial returns with meaningful social and environmental impact. Through her early stage investments in Tesla and support for companies in sectors from fashion to agriculture, Nancy has shaped the field of impact investing and demonstrated the power of venture capital to address climate change. Double Bottom Line Ventures is known as a pioneering impact investment fund, whose highly successful track record in achieving impact and running a profit is a model for many investors. She sees business and impact opportunities where others haven't looked. And her success is proving she's right. In this episode, we'll hear how Nancy applies her trifecta of criteria to identify those opportunities. And some of the companies she's excited to be taking bets on now.

Nancy Pfund:
The way it all happens, for us, is the early investments in transportation and energy with Tesla and SolarCity opened our eyes, obviously, to the opportunity to transform industries and make them clean, and make them cost competitive and appropriate for the 21st century. But it doesn't stop there. And part of our impact practice is showing people the impact lives in just about any company you can think of, and any sector. And so, when you think about cemeteries and luxury goods, the reason that's on our radar, those companies like that are on our radar is because we have this trifecta approach to investing. One, we follow the carbon and carbon, of course, lives in transportation and energy. But it's also a huge part of food and ag. We know that biodiversity and deforestation play roles in carbon. And so, looking at conservation is an angle we have. And certainly the circular economy, which is what you're referring to when you talk about our luxury goods company, The RealReal, there you're selling luxury goods online for low prices, yes. But you're also preventing new products from being the only thing you can buy. And you're putting your old goods into multiple economic lives. And it turns out that saves a heck of a lot of carbon, and water, and helps the environment. And people just never thought about it that way. So, that's the first part of the trifecta. The second is to move the needle to fix something that's broken. And the third is when you look at a sector and the iconic names are 100 years old or more it's time to invest because many of those participants in those sectors grew up and became iconic in the 20th century where they, by definition, optimize for generating carbon,

Rebekah Emanuel:
So, I'll admit, I'm particularly intrigued by the idea of a VC fund investing in cemeteries as a way of generating your Double Bottom Line of impact and return. How does a burial place, of all things, embody that trifecta you described?

Nancy Pfund:
It's linked to the conservation. What happens is that cemeteries, the traditional way of burying your loved ones is highly carbon intensive. It's the embalming fluid, the wood. And so, what the company we've invested in, called Better Place Forests has done is to look at conservation as a way to improve that experience, the move into eternity, as we call it. By buying forest, allowing families to buy a tree or a grove of trees. And as they say goodbye to their loved one, as they honor their loved one, they're spreading the ashes at the side of the tree that they've bought. And so, in so doing, they're creating that tree, that forest is in perpetuity, not going to be developed, it's going to stay pristine and preserved. And you're also adding this immensely beautiful, natural experience to a process that for more than hundreds of years, for thousands of years, has been characterized by stone slabs in a graveyard on the corner of a neighborhood in the city somewhere. So, completely redefining this last expression of community, of honoring your family and turning it into not just a way to do this beautifully, but create a legacy, create a statement that you're helping to preserve the earth that your loved one lived in for future generations of your family. And it's important because, obviously, in terms of our trifecta moving the needle, we need to have scale. And so, it's not enough just to do this onesie, twosies, we'd like to transform the whole industry and make sure that there are lots of forests out there that are protected. And for every tree that is purchased by a customer the company does plant trees in compromised areas where trees have been threatened. And so, it's kind of the gift that keeps on giving in terms of conservation, forest protection and doing that at scale. And it's a great business too.

Rebekah Emanuel:
Yeah I was going to say, so your three rules have somehow brought you to a space that surely no one would previously have said, cemeteries are venture backable. But somehow you got to a place where this feels like a scale transformative play. So, paint a picture for me. I have a particular thing that I'm really curious about, which is that have all of these companies figured out the climate angle to where they're at first, or are they mostly pitching a general thing?

Nancy Pfund:
Yeah, it can be both. It's, I mean, some of the companies come in and they know so much more about climate than we do. And we think we know a lot about it. I mean, they've got a plan, they've got the data. So, in the case of Dan Shugar and Lyndon and Peter Rive at, at SolarCity, they bowl you over with not just enthusiasm, but just a visceral commitment that they are going to do this and nothing is going to stop them. And that it's going to be a big business, and that it's the right thing to do. So, that does happen quite frequently. On the other side of the spectrum that you described it often is the case that we see something a little earlier than our entrepreneurs do. And because we have a pretty broad lens in terms of impact, for example, The RealReal, the fact that it was a woman CEO, that it was in a low-income neighborhood, she was very committed to and still is, Julie, to supporting women that was kind of our first impact insight about the company. But very soon after we started doing due diligence, and this was many years ago, this was like five or six years ago. We realized, wow, this is a circular economy company.

Rebekah Emanuel:
So, The RealReal is this authenticated luxury consignment. People buy verified luxury brands, but they can buy it for far less because they're pre-owned. But she hadn't talked about it as a circular economy company?

Nancy Pfund:
No. And, in fact, she wasn't really interested in it, to be frank in the early days, which it's a good thing because she was focused on her business, and on putting the technology together, and getting the supply chain and the customers and all that, as she well should be. But because we have a relationship, and we're working we're working over the long-term, we were able to just continue to talk about it and work with Julie to see that this was a dimension of her company that while it wasn't obvious in the beginning how powerful it would be to the value proposition, it would emerge over time. And so, that's exactly what happened. And so, I would say that those two ends of the continuum we play in all the time. And sometimes we're the ones that reveal things that relate to climate. And sometimes it's fully baked in the DNA of the entrepreneurs. I think the consistent trend is that things change as you go along and you often uncover climate aspects in work where you didn't see it.

Rebekah Emanuel:
One example of a place you uncovered a climate angle is with the high fidelity audio technology company you invested in. Sounds like your original thesis was to make very high-quality sound available to a lot more people. How did that turn into a climate thing?

Nancy Pfund:
We have a immersive audio company that democratizes access to very high-quality sound, and makes it easy to switch back and forth in terms of natural sounds, or music and such. The kind of stuff that you'd need very expensive equipment to do previously, this is now done with an iPhone, basically. This is part of an investment thesis around education and the connecting on a audio level, then not just video. I mean, we have a whole impact thesis there. But as soon as we invested, I think a few months later, we found this article in a scientific journal saying, "Wow, it turns out that when you're really trying to restore coral reefs, the reefs grow back faster if you enhance the sound underwater to make it sound like a healthy reef, and that helps attract the fish back and just the pieces you need to reconstruct and build it, rebuild a reef." And so we saw this article and everyone was like, "Oh my gosh, this is like amazing." And so, we happened to know a company that's we haven't invested at this point, it's a little early for us, but they're restoring some coral reefs in the Bahamas. And they had some investors that we knew. And so, all of a sudden we're connecting our audio company with these guys out in The Bahamas.

Rebekah Emanuel:
So, it sounds like you're willing to take an impact investment thesis that starts not with your three criteria of carbon, but something much broader that could be an equity lens, could be a sort of women led business lens. And then, sometimes your nose leads you somewhere that's unexpected, but often has a climate component.

Nancy Pfund:
Yes. Because it shouldn't be that surprising because when you're obsessed with carbon and climate change, you spend so much of your day reading about it, learning about it, talking about it. And so, any opportunity to infuse a discussion with climate change, we readily take that on. And so, we are hyper sensitized to connecting the dots in ways that other people are not. And I do think that's partly why we are able to develop these interesting, scalable companies is because we do connect those dots, and allow business models to be infused with a climate directive earlier than, perhaps, they would have been.

Rebekah Emanuel:
Your portfolio includes a wide range of investments that fit your trifecta and address climate change. Yes, solar, but also luxury goods and coffee. To take on climate change, these businesses need to get big. What guides your intuition about the potential for scale?

Nancy Pfund:
We have this no sacrifice mantra. And so what it is, is a long time ago when Jimmy Carter was president and there was an energy crisis, you can see this on YouTube, he gave this famous speech in the White House and he was wearing a sweater out of recognition that he needed to conserve energy they had turned the thermostat down in the White House. And so anyway, it's a very famous speech. And yet it just is imbued with the notion of sacrifice. You got to cold, you got to wear sweaters in order to beat green. We felt from the get-go that, that was a non-starter. That you can't build big companies based on people having to sacrifice things they like. I mean, it's not the world I live in maybe someday. So, the notion of no sacrifice, and certainly Tesla embodies it and many of our companies do where the notion is you want to do something right for climate. You want to unhinge transportation from fossil fuels because we all know that's a big problem. But you also don't want to have a car that goes slowly, or you have to charge every 10 minutes, isn't fun to drive you. Especially in the Western US and in the US in general, where people are really interested in the driving experience.

Rebekah Emanuel:
Love their cars.

Nancy Pfund:
Yeah, you want it to be fun. And so, that is what Tesla embodied from the get-go is, okay, this is going to be like the best car you've ever driven. And it's going to change the paradigm in terms of the impact on climate that cars have. And we just see that over and over. The RealReal, it's another example of your guilty pleasure, you're getting some amazing designer handbag that you would never buy full price in the store. You're getting it for cheaper. Everyone loves a bargain, everyone loves to splurge and save money. And yet, now you go on the website, you can see that you can quantify the climate benefits of using someone else's bag. And then, perhaps, reselling it. So, just everywhere you go, you're able to experience that progress along climate goals, but without having to sacrifice what's important to you as an individual.

Rebekah Emanuel:
So it sounds like this upending sort of businesses that have gotten established, and then all of the sort of ecosystem around that, whether that's policy or others is a big part of what you're doing. There's few industries, more entrenched than ag. Can you tell me about the Farmers Business Network and The Grow Network?

Nancy Pfund:
Sure. Actually, we renamed it, it's the Gradable network. So, Farmers Business Network is one of our portfolio companies. We’ve been at it since the Series A. They just did a deal led by BlackRock this summer. And they're going to be close to 300 million in sales this year. So, it's a big company now. And what they do is they're creating a movement. And it's always farmers first. They aggregate data from farmers who joined their network and they just made it free this week to join their network. And so, now, they have over 14,000 farmers, 40 million acres of data in the heartland and mostly in the US and Canada, but expanding to other places too. And with that data and all the data scientists they have, they just learn things that help farmers do better. They learn that you're using too much fertilizer. Or you're planting your seeds too closely, you should plant fewer seeds further apart. Or you shouldn't use that kind of seed, you should buy this one it does better in the region that you work in. And just on and on and on. It brings the power of big data to help farmers make better decisions. And the mission of the company is to help farmers and put them first. And so, if they see that they're paying too much for seeds in Grinnell, Iowa, and that farmers in Ames, Iowa, miles away, are paying 30% less they correct that. They say, "There's no reason why you guys should pay more." And yet the incumbents, just the way the industry has evolved, that has been happening for many, many years. And in an era where every penny counts in terms of your revenue as a farmer, you've got to get rid of these inefficiencies. And so, FBN has developed a whole line of businesses that allow farmers to buy products and services at these better prices. And also, the company helps them sell their grain, their products at higher prices.

Rebekah Emanuel:
So, bringing it back to your three criteria, again, here's an example of replacing quite an old way of doing things. So, how's this carried out? What's the business model, enabling this to happen?

Nancy Pfund:
And that's where the Gradable network comes in. This is an effort on the part of FBN that they're working with companies like Unilever, they're working with the California Air Resources Board, with POET, which is a big ethanol supplier. And, basically, with the data that they have they can, at the farm level, not at the state level, which is kind of useless. That's what the USDA info is. But at the farm level, they can find out what your carbon intensity score is.

Rebekah Emanuel:
Oh, wow. How did they do that?

Nancy Pfund:
Yeah, they crunch through a lot of data points. Things like the level of transportation on your field, whether you have cover crops, what tillage practices you use. And, it turns out that, there are pretty basic ways you can reduce your carbon score. And so, what they're doing is it's almost a certification where you can show that your practices have led to your getting a lower score. And now that corn, or that soy, or the wheat, or the alfalfa, whatever it is you're selling, you now can sell it for a higher price because the buyer, whether it's POET as an ethanol supplier or a food company that's making animal feed or corn flakes or whatever, is very interested in being able to show the customer that we are sustainable. This is low carbon grain. This is not harming the environment in the way that you traditionally think agricultural practices do. And then, on the regulatory side, the goal is to allow farmers to get paid more to give them an incentive for these practices. And some of the regulators will be able to allocate benefits, financial benefits to that. So, this is just revolutionary when you think about it, because we've always thought of agriculture as a huge environmental engine that has some disturbing parts, if you're looking at the long-term carbon profile. And this allows you the opportunity, by creating incentives for farmers to grow their crops in a low carbon way, to take a sector, which is trillions of dollars and is 30% of carbon produced on this planet and transform it into a low carbon industry.

Rebekah Emanuel:
And it also sounds like there's something about just de-commoditizing ag because you have to be able to say that this alfalfa's different.

Nancy Pfund:
Yeah, absolutely. I mean, the crazy things that go on, you can grow organic corn, or low carbon wheat. And today, oftentimes, what happens is when it's all transferred to be sold, it gets thrown in the same silo as traditional grain. I mean, all that effort you went to is totally wasted. And so, just fixing that will solve a lot of problems.

Rebekah Emanuel:
So, I think that's very important when you think about what are you investing in? But you're also sort of there as a steward of the company. Surely, there are moments that the company itself is just looking at really hard choices, and there's a time where your values would point in one way, and the longevity or scale of the company would point in another one.

Nancy Pfund:
Absolutely. We have always told our investors that if we're in a crisis situation, which we were in 2008, we're in one now, you have to take your foot off the accelerator for a bit in terms of all of the impact work. I mean, some of it is so connected to the business that you don't have to. But if you're in a survival mode and the company's at risk of failing, it's like any triaged moment, you've got to focus on near term efforts to save your company. And I think COVID, the nimbleness of companies to do that is really allowing many companies to survive, but they're not all going to survive. And so, the reason that's important is because when you talk about impact, if you don't have scale, you really don't have huge impact in our sector.

Rebekah Emanuel:
Can you tell me the story of how you got into the impact investing space?

Nancy Pfund:
I was a traditional venture capitalist at a firm called Hambrecht & Quist in San Francisco for many years, starting in the mid '80s. But before all of that, I worked for Jerry Brown when he was the governor first time. I worked at Stanford Medical School, looking at health policy and innovation. I worked at The Sierra Club. I worked at Intel helping them build innovation policy. So, I've always had that thread in me to work with the public sector, to work on policy, to work on social change. At the same time, being a venture capitalist you're working with entrepreneurs who are changing the world, but it traditionally didn't have that social lens. And so, when it all came together was in about 2002, when I was able to combine the jobs I had at H&Q into one job. And the reason I was able to do that is because a local business organization that we had been involved in for many years, the Bay Area Council, still alive and well, asked us to help them raise a fund that would pay attention to the problem in the Bay area back then, which is now pretty well known everywhere, is that the same old neighborhoods were getting the jobs and low-income people, low-income neighborhoods were missing out. And so, they wanted to correct that and pay attention to place, as we made investments. And so, they asked us to raise a fund that would invest in great companies, but also help them create jobs in low-income neighborhoods. And my boss said, "Hey, this is a way you could have one job instead of two jobs."

Rebekah Emanuel:
And so, from where you sit now, where do you see the future of Double Bottom Line ventures? How are the opportunities for impact investing changing now?

Nancy Pfund:
Yeah so, in the early days, no one paid attention to the kinds of companies that we were investing in because they weren't traditional venture investments. And people just didn't think it was interesting. Once you have some successes and you do get some iconic companies out there, that changes. And, at the same time, as the world increasingly is confronting climate change, the negative aspects of climate change, there's just a higher degree of literacy around the world about why we need to do something. And so, we have seen a change in the investor interest. And, for example, like the FBN story that I just told, which was Kleiner Perkins and DBL in the beginning, has now grown, as I mentioned, BlackRock, a very mainstream investor, led the last round. Fidelity, T. Rowe Price, or in that company. And the companies across our portfolio are beginning to attract very large mainstream investors in their later stages. And so, why is that important? It's because you need the support of that kind of an investor to make the transition from a small company to a big company, and to go public. I mean, to have a company go public and have the interest of long-term holders of folks that aren't just going to flip the stock that are going to invest in research, invest in distribution that really gives the public the ability to invest in climate improvement. Not many people cannot invest in venture capital because of the risk of losing your money and the laws around that. But they can invest in public stocks. And so, we really feel that while not every company needs to go public, obviously, we do need some public companies. We need more of them because without that you're not going to allow a school teacher, or a firefighter to invest in companies that they believe in, and that they feel are building a better future.

Rebekah Emanuel:
Awesome. That's super powerful. It's almost democratizing, the ability to use your money in the areas that you want to have the impact in the world.

Nancy Pfund:
Exactly. And, as we say, it's important to vote, a timely comment there, but it's also important to vote with your portfolio. And even if that is a small portfolio of a few stocks and some bonds, and such, you can make a difference. But in order for to happen, we've got to generate some companies for you to invest in.

Rebekah Emanuel:
So, it sounds like that's a change that you wanted to see in the world that is basically happening. Are there any changes you want to see in the world that we're early in on, and that you hope are going to gain traction?

Nancy Pfund:
Yeah. There are so many signs of people being aware that their purchasing power is shaping the future. And so, things like the accountability, people wanting to know the workforce practices of a company that they buy their running shoes from. Or they want to know the carbon footprint of the food that they're buying. All of that it takes some data and infrastructure to develop that, but that is happening. And so, I have been very impressed with the growth of awareness and commitment on the part of just the general buying public to make sure that whatever they buy they're considering climate impact, or social justice impact, financial inclusion, whatever it is, those dots are being connected. And I think that movement is extremely powerful.

Rebekah Emanuel:
Well, Nancy, thank you so much. It's such a pleasure talking.

Nancy Pfund:
Thank you.

Rebekah Emanuel:
That's it for this episode of Climate Rising. Next time, you'll hear about how a new type of investment tool, special purpose acquisition companies, or SPACs, can help to address some of the toughest problems with transitioning a big company to being green. This episode was made possible by the remarkable collaboration between this episode's associate producer, Anna Sakellariadis, HBS Class of 2020, producer, Mary Dooe, and our team from the HBS Business & Environment Initiative, faculty chair, Mike Toffel, Jennifer Nash, Lynn Schenk, and Elise Clarkson.

Thanks for joining us. I'm your host, Rebekah Emanuel. This is Climate Rising, a podcast produced by the Business & Environment Initiative at Harvard Business School. You can subscribe on Apple Podcasts, or wherever you listen. We love reviews. You can also find show notes and links to resources discussed on this episode on the Climate Rising homepage, that's climaterising.hbs.edu.