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Tech leaders can be the secret weapon for supercharging ESG goals
Environmental, social and governance (ESG) factors should be key considerations for CTOs and technology leaders scaling next generation companies from day one. Investors are increasingly prioritizing startups that focus on ESG, with the growth of sustainable investing skyrocketing.
What’s driving this shift in mentality across every industry? It’s simple: Consumers are no longer willing to support companies that don’t prioritize sustainability. According to a survey conducted by IBM, the COVID-19 pandemic has elevated consumers’ focus on sustainability and their willingness to pay out of their own pockets for a sustainable future. In tandem, federal action on climate change is increasing, with the U.S. rejoining the Paris Climate Agreement and a recent executive order on climate commitments.
Over the past few years, we have seen an uptick in organizations setting long-term sustainability goals. However, CEOs and chief sustainability officers typically forecast these goals, and they are often long term and aspirational — leaving the near and midterm implementation of ESG programs to operations and technology teams.
Until recently, choosing cloud regions meant considering factors like cost and latency to end users. But carbon is another factor worth considering.
CTOs are a crucial part of the planning process, and in fact, can be the secret weapon to help their organization supercharge their ESG targets. Below are a few immediate steps that CTOs and technology leaders can take to achieve sustainability and make an ethical impact.
Reducing environmental impact
As more businesses digitize and more consumers use devices and cloud services, the energy needed by data centers continues to rise. In fact, data centers account for an estimated 1% of worldwide electricity usage. However, a forecast from IDC shows that the continued adoption of cloud computing could prevent the emission of more than 1 billion metric tons of carbon dioxide from 2021 through 2024.
Make compute workloads more efficient: First, it’s important to understand the links between computing, power consumption and greenhouse gas emissions from fossil fuels. Making your app and compute workloads more efficient will reduce costs and energy requirements, thus reducing the carbon footprint of those workloads. In the cloud, tools like compute instance auto scaling and sizing recommendations make sure you’re not running too many or overprovisioned cloud VMs based on demand. You can also move to serverless computing, which does much of this scaling work automatically.
Deploy compute workloads in regions with lower carbon intensity: Until recently, choosing cloud regions meant considering factors like cost and latency to end users. But carbon is another factor worth considering. While the compute capabilities of regions are similar, their carbon intensities typically vary. Some regions have access to more carbon-free energy production than others, and consequently the carbon intensity for each region is different.
So, choosing a cloud region with lower carbon intensity is often the simplest and most impactful step you can take. Alistair Scott, co-founder and CTO of cloud infrastructure startup Infracost, underscores this sentiment: “Engineers want to do the right thing and reduce waste, and I think cloud providers can help with that. The key is to provide information in workflow, so the people who are responsible for infraprovisioning can weigh the CO2 impact versus other factors such as cost and data residency before they deploy.”
Another step is to estimate your specific workload’s carbon footprint using open-source software like Cloud Carbon Footprint, a project sponsored by ThoughtWorks. Etsy has open-sourced a similar tool called Cloud Jewels that estimates energy consumption based on cloud usage information. This is helping them track progress toward their target of reducing their energy intensity by 25% by 2025.
Make social impact
Beyond reducing environmental impact, CTOs and technology leaders can have significant, direct and meaningful social impact.
Include societal benefits in the design of your products: As a CTO or technology founder, you can help ensure that societal benefits are prioritized in your product roadmaps. For example, if you’re a fintech CTO, you can add product features to expand access to credit in underserved populations. Startups like LoanWell are on a mission to increase access to capital for those typically left out of the financial system and make the loan origination process more efficient and equitable.
When thinking about product design, a product needs to be as useful and effective as it is sustainable. By thinking about sustainability and societal impact as a core element of product innovation, there is an opportunity to differentiate yourself in socially beneficial ways. For example, Lush has been a pioneer of package-free solutions, and launched Lush Lens — a virtual package app leveraging cameras on mobile phones and AI to overlay product information. The company hit 2 million scans in its efforts to tackle the beauty industry’s excessive use of (plastic) packaging.
Responsible AI practices should be ingrained in the culture to avoid social harms: Machine learning and artificial intelligence have become central to the advanced, personalized digital experiences everyone is accustomed to — from product and content recommendations to spam filtering, trend forecasting and other “smart” behaviors.
It is therefore critical to incorporate responsible AI practices, so benefits from AI and ML can be realized by your entire user base and that inadvertent harm can be avoided. Start by establishing clear principles for working with AI responsibly, and translate those principles into processes and procedures. Think about AI responsibility reviews the same way you think about code reviews, automated testing and UX design. As a technical leader or founder, you get to establish what the process is.
Impact governance
Promoting governance does not stop with the board and CEO; CTOs play an important role, too.
Create a diverse and inclusive technology team: Compared to individual decision-makers, diverse teams make better decisions 87% of the time. Additionally, Gartner research found that in a diverse workforce, performance improves by 12% and intent to stay by 20%.
It is important to reinforce and demonstrate why diversity, equity and inclusion is important within a technology team. One way you can do this is by using data to inform your DEI efforts. You can establish a voluntary internal program to collect demographics, including gender, race and ethnicity, and this data will provide a baseline for identifying diversity gaps and measuring improvements. Consider going further by baking these improvements into your employee performance process, such as objectives and key results (OKRs). Make everyone accountable from the start, not just HR.
These are just a few of the ways CTOs and technology leaders can contribute to ESG progress in their companies. The first step, however, is to recognize the many ways you as a technology leader can make an impact from day one.
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For tech firms, the risk of not preparing for leadership changes is huge
Every week over the past three and a half years, an average of three CEOs have exited tech companies in the U.S. That tally is higher — in good times and bad — than in any of the other 26 for-profit sectors tracked by executive search firm Challenger, Gray & Christmas. You’d think tech companies should be the paradigm of how to prep for leadership transitions, since they operate in such a constant state of flux.
They’re far from it.
A change of command is one of the most delicate moments in the life cycle of any organization. If mishandled, the transition from one CEO to the next can result in a loss of market valuation, momentum and focus, as well as key personnel, customers and partners. It may even become that turning point when an organization begins to slide toward irrelevance.
With so much at stake, 84% of tech execs agree that succession planning is more important than ever because of today’s fast-changing business environment, according to our new survey of corporate America’s leaders. Seven out of 10 survey respondents agreed that tech companies face more scrutiny than other multinationals during a transition.
84% of tech execs agree that succession planning is more important than ever because of today’s fast-changing business environment.
Yet we found that tech execs appear just as unprepared for C-suite transitions as their peers in other sectors. Three out of five respondents said their companies don’t have a documented plan to handle a leadership change, even though, by that same ratio, they acknowledge that a documented plan is the biggest determinant in seamless transitions.
The findings may not be troubling if these respondents were millennial startup founders, years from leaving their companies. The executives we polled, however, hail from 160 companies that have been in business for a minimum of 15 years — 35 are tech companies, the largest industry cohort in the survey.
The smallest companies have at least 1,500 employees and $500 million in annual revenue, while the largest have head counts of over 500,000 and revenue upward of $100 billion. They have been around long enough to understand — and put into place — risk management and crisis planning, including what happens should their leaders fall victim to the proverbial milk truck.
Tech execs should be more rigorous about succession planning for one important reason: institutional memory. Tech firms generally are younger than other companies of a similar size, which partly explains why the median age of S&P 500 companies plunged to 33 years in 2018 from 85 years in 2000, according to McKinsey & Co.
These enterprises clearly have accomplished a lot in their short lives, but in their haste, most have not captured their history, unlike their longer-lived peers in other sectors. Less than half of these tech firms, in fact, have formally recorded their leader’s story for posterity. That puts them at a disadvantage when, inevitably, they will be required to onboard newcomers to their C-suites.
It’s best to record this history well before the intense swirl of a leadership transition begins. Crucially, it will help the incoming and future generations of leadership understand critical aspects of its track record, the lessons learned, culture and identity. It also explains why the organization has evolved as it has, what binds people together and what may trigger resistance based on previous experience. It’s as much about moving forward as looking back.
Most execs in our poll get it, with 85% saying a company’s history can be a playbook for new executives to learn and prepare for upcoming challenges and opportunities. “History is the mother of innovation for any type of company,” one respondent said. “History,” writes another, “includes the roadmap to failures as well as successes.”
But this documented history cannot be a hagiography of the departing CEO. Too often, outgoing execs spend their last years in office constructing their own trophy cases. Even as they conceded their own flat-footedness on transition planning, the majority of execs said they have already taken steps to create and reinforce their personal legacies — two-thirds said they have already completed their own formal legacy planning, many with the blessing of their boards.
It’s ironic, then, that three out of five also said that the legacy of a CEO or founder often overshadows the skill set and experience a successor brings. Two-thirds of tech execs believed that the longer a leader has been in office, the more it complicates a transition.
Tech leaders can do this right and have done so. Asked which five big-name CEO transitions was most successful, respondents’ No. 1 was Apple’s handoff from Steve Jobs to Tim Cook (38%), followed by Microsoft’s page-turn from Steve Ballmer to Satya Nadella (28%). The others, at General Electric, General Motors and Goldman Sachs, each netted no more than 13% of votes.
Apple’s apparent predominance in this survey might contradict the advice to play down the aggrandizement of an exiting CEO and highlight the compilation and transfer of an organization’s history to the next chief executive. Jobs, after all, painstakingly managed his legacy until the end. But even as he continued to take center-stage, he also made sure to pass along Apple’s institutional knowledge and ethos to Cook over the 13 years they shared space on Apple’s executive floor.
Sooner or later, everyone in the C-suite today — including startup founders — will depart. For the sake of everyone they’ll leave behind, they should begin prepping for that day now.
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Introducing the Open Cap Table Coalition
On Tuesday, the Open Cap Table Coalition announced its launch through an inaugural Medium post. The goal of this project is to standardize startup capitalization table data as well as make it far more accessible, transparent and portable.
For those unfamiliar with a cap table, it’s a list of who owns your company’s securities, which includes your company shares, options and more. A clear and simple cap table should quickly indicate who owns what and how much of it they own. For a variety of reasons (sometimes inexperience or bad advice) too many equity holders often find companies’ capitalization information to be opaque and not easily accessible.
This is particularly important for the small percentage of startups that survive in the long term, as growth makes for far more complicated cap tables.
A critical part of good startup hygiene is to always have a clean and updated cap table. Since there is no set format and cap tables are generally not out in the open, they are often siloed rather than collaborative.
Cap tables are near and dear to me as someone who has advised hundreds of startups over the past two decades as the founder of an accelerator, a venture partner and a senior adviser at a government-funded startup launchpad. I have been on the shareholder side of the equation as well and can assure you that pretty much nothing destroys trust between shareholders and startups quicker than poor communication, especially around issues such as the current status of the cap table.
A critical part of good startup hygiene is to always have a clean and updated cap table.
I really like the idea of a cap table being an open corporate record, because the value proposition to the companies is clear. From the time a startup creates a cap table, it’s prone to inaccuracy, friction and mistakes. What this means in practice is that startups may spend money on cap-table-related issues that they should be spending on other things. From a legal process perspective, the law firm that is brought in to help with these issues has to deal with tedious back-end work, so the legal time isn’t high value for either the startup or the law firm.
The value proposition for equity holders is equally clear. All equity holders have a general and legal interest in a company’s capitalization information. They have the right to this information, which they may need for a variety of reasons (including, if things ever get really bad, an aggrieved shareholder action). So making this information clear and easily accessible is a service to equity holders and can also encourage more investment, especially from less experienced investors.
When I imagine what this project could become in the next couple of years, I think back to late 2013, when Y Combinator announced the SAFE (simple agreement for future equity). I think the SAFE is a good analogy here, as no one knew what it was and people wondered if this was a nice-to-have rather than a must-have for startups. But the end result was a dramatic improvement in the early-stage capital-raising process.
While the coalition’s founders include Morgan Stanley’s Shareworks, LTSE Software and Carta, it’s also heavy on Big Law, with Cooley, Goodwin Procter, Wilson Sonsini Goodrich & Rosati, Orrick, Gunderson Dettmer, Latham & Watkins, and Fenwick & West rounding out the group of 10 founding members.
So what’s the real motivation of seven law firms, which together saw revenue of over $10 billion in 2020 to collaborate on an open cap table product for startups? Deal flow.
Big Law has been trying for a couple of decades to build relationships with startups at the stage where it makes no sense for a startup to be dealing with a massive and expensive law firm. Their efforts to build startup programs have often fallen short and received mixed reviews. They have also been far too heavy on the self-serve and too light on the “we’re going to give you our regular Big Law level of services at a small fraction of the costs just in case you make it big and can one day pay our regular fees.” So these firms are trying to separate themselves from the rest of the Big Law pack by building this entrepreneur-friendly tech.
The coalition has already produced its initial version of the open cap table. The real question is whether this is going to be a big deal, as the SAFE was, or whether it’s going to be a vanity solution in search of a real problem. My best guess is that if this coalition gets all the relationships right, doesn’t get greedy and understands that there is a social good component at play here, this could be, reasonably quickly, as impactful as the SAFE was.
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With open banking on the horizon, the fintech-SME love story is just beginning
The fintech sector has been hugely successful (and hugely profitable) for much of the last decade, and even more so during the pandemic. But it might come as a surprise to learn that many in the industry believe that the story is just beginning and the sector is poised to achieve much more, with fintech’s next decade expected to be radically different from the last 10 years.
Long before the pandemic, the way in which banks were regulated was changing. Initiatives like Open Banking and the Revised Payment Services Directive (PSD2) were being proposed as a way to promote competition in the banking industry — allowing smaller challenger firms to break into a market that has long been dominated by corporate titans.
Now that these initiatives are in place, however, we’re seeing that their effect goes way beyond opening up a gap for challenger banks. Since open banking requires that banks make valuable data available via APIs, it is leading to a revolution in the way that small and mid-size enterprises (SMEs) are funded — one in which data, and not hard capital, is the most important factor driving fintech success.
Open banking and data freedom
In order to understand the changes that are sweeping fintech and reconfiguring the way that the industry works with small businesses, it’s important to understand open banking. This is a concept that has really taken hold among governmental and supranational banking regulators over the past decade, and we are now beginning to see its impact across the banking sector.
Allowing third parties access to the data held at banks will allow the true financial position of SMEs to be assessed, many for the first time.
At its most fundamental level, open banking refers to the process of using APIs to open up consumers’ financial data to third parties. This allows these third parties to design, build and distribute their own financial products. The utility (and, ultimately, the profitability) of these products doesn’t rely on them holding huge amounts of capital — rather, it is the data they harvest and contain that endows them with value.
Open-banking models raise a number of challenges. One is that the banking industry will need to develop much more rigorous systems to continually seek consumer consent for data to be shared in this way. Though the early years of fintech have taught us that consumers are pretty relaxed when it comes to giving up their data — with some studies indicating that almost 60% of Americans choose fintech over privacy — the type and volume shared through open-banking frameworks is much more extensive than the products we have seen up until now.
Despite these concerns, the push toward open banking is progressing around the world. In Europe, the PSD2 (the Payment Services Directive) requires large banks to share financial information with third parties, and in Asia services like Alipay and WeChat in China, and Tez and PayTM in India are already altering the financial services market. The extra capabilities available through these services are already leading to calls for the U.S. banking system to embrace open banking to the same degree.
Serving SMEs
If the U.S. banking industry can be convinced of the utility of open banking, or if it is forced to do so via legislation, several groups are likely to benefit:
- Consumers will be offered novel banking and investment products based on far more detailed data analysis than exists at present.
- The fintech companies who design and build these products will also see the use of their products increase, and their profit margins alongside this.
- Arguably, even banks will benefit, because even in the most open models it is banks who still act as the gatekeepers, deciding which third parties have access to consumer data, and what they need to do to access.
By far the biggest beneficiary of open banking, however, will be SMEs. This is not necessarily because open-banking frameworks offer specific new functionality that will be useful to small and medium-sized businesses. Instead, it is a reflection of the fact that SMEs have historically been so poorly served by traditional banks.
SMEs are underserved in a number of ways. Traditional banks have an extremely limited ability to view the aggregate financial position of an SME that holds capital across multiple institutions and in multiple instruments, which makes securing finance very difficult.
In addition, SMEs often have to deal with dated and time-consuming manual interfaces to upload data to their bank. And (perhaps worst of all) the B2B payment systems in use at most banks provide very limited feedback to the businesses that use them — a lack of information that can cost businesses dearly.
New capabilities
Given these deficiencies, it’s not surprising that fintech startups are keen to lend to small businesses, and that SMEs are actively looking for novel banking products and services. There have, of course, already been some success stories in this space, and the kinds of banking systems available to SMEs today (especially in Europe) are leagues ahead of the services available even 10 years ago.
However, open banking promises to accelerate this transformation and dramatically improve the financial services available to the average SME. It will do this in several ways. Allowing third parties access to the data held at banks will allow the true financial position of SMEs to be assessed, many for the first time.
Via APIs, fintech companies will be able to access information on different types of accounts, insurance, card accounts and leases, and consolidate data from multiple countries into one overall picture.
This, in turn, will have major effects on the way that credit-worthiness is assessed for SMEs. At the moment, there is a funding gap facing many SMEs, largely because banks have been hesitant to move away from the “balance sheet” model of assessing credit risk. By using real-time analytics on an SME’s current business activities, banks will be able to more accurately assess this risk and lend to more businesses.
In fact, this is already happening in countries where open banking is well advanced – in the U.K., Lloyds’ Business ToolBox offers unlimited credit checks on companies and directors in addition to account transaction data.
Open banking will also allow peer comparison analytics far ahead of what we have seen until now. APIs can be used to provide SMEs real-time feedback on how they are performing within their market sector. Again, this ability is already available in the U.K., with Barclays’ SmartBusiness Dashboard offering marketing effectiveness tools as part of a customizable business dashboard.
These capabilities will be so useful to SMEs that they are likely to drive the popularity of any fintech product that offers them. For SMEs, this value will lie mainly in intelligent data-analytics-based insights, recommendations and automatic prompts that can be built on top of account aggregation.
Then, additional insights generated from these same monitoring tools could enable banks and alternative lenders to be more proactive with their lending — offering preapproved lines of credit, in a timely manner, to SMEs that would have previously found it difficult to access funding.
The bottom line
Crucially for the fintech sector, it’s almost a certainty that SMEs will be willing to pay fees for data-analytics-based value-added services that help them grow. This is why some startups in this space are already attracting huge levels of funding, and why open banking is at the heart of the relationship between tech and the economy.
So if fintech has had a good year, this is likely to be just the start of the story. Backed by open-banking initiatives, the sector is now at the forefront of a banking revolution that will finally give SMEs the level of service they deserve and unleash their true potential across the economy at large.
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What the growing federal focus on ESG means for private markets
The increasing regulation of ESG (environmental, social, governance) disclosure reporting may have started in the public markets, but will almost certainly have downstream effects for private market actors — for founders, companies and investors.
Since his confirmation as the chair of the U.S. Securities and Exchange Commission in April, Gary Gensler has made reforming ESG disclosures concerning climate change risk and human capital a top priority. The SEC’s regulatory agenda confirms as much. And Gensler is not alone in his focus on ESG at the federal level.
President Joe Biden issued an executive order encouraging regulators to assess climate-related financial risk. At the end of March, Treasury Secretary Janet Yellen wrote on Twitter that “our future livelihoods … depend on the financial sector to build a more sustainable and resilient economy.” Congress is considering measures that would require increased ESG disclosures, including the Improving Corporate Governance Through Diversity Act, the Diversity and Inclusion Data Accountability and Transparency Act and the Climate Risk Disclosure Act.
This renewed federal focus on ESG issues will bolster the SEC’s effort to create disclosure practices for public companies and mutual funds. Regardless of whether these federal policies around ESG come to pass, they reflect a momentum that will almost certainly impact private markets:
- Firms that want to go public — whether via SPAC, direct listing or traditional IPO — may have to seriously consider board diversity or environmental reporting in conjunction with — or well in advance of — their debuts.
- Private companies seeking to align with public companies as vendors or partners may be expected to meet specific ESG requirements before the engagement.
- Startup founders and venture funds raising capital may work to maintain the largest target market by proactively scoping ESG engagements to ensure they meet criteria for investors who may have their own ESG-focused investment requirements.
In his confirmation hearing before the Senate in early March, Gensler said, “Markets — and technology — are always changing. Our rules have to change along with them.”
The federal government is moving to increase regulation around ESG disclosure requirements with the goals of establishing greater transparency and metrics for public companies.
The federal government is moving to increase regulation around ESG disclosure requirements with the goals of establishing greater transparency and metrics for public companies. These requirements are a response to the changing markets — demands from consumers, scrutiny from investors and a general insistence for higher corporate standards from society at large.
Private markets aren’t immune to these forces. Already, three-quarters of investors in a 2020 survey said it was very important to measure the success of sustainability initiatives, but they also said there’s been a lack of clarity on how to define and measure outcomes.
To be sure, private markets are not headed toward full-scale adoption of ESG regulations. They will not be subject to the same reporting or disclosures framework as their public counterparts. Not today, and possibly not for some time.
But we may begin to see private investors, funds and companies adapting to get ahead of ESG regulation and position themselves to effectively operate in a new — albeit adjacent — regulatory environment. In their case, the rules may not change — but the game could.
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The case for funding fusion
Digital technologies have disrupted the structure of markets with unprecedented breadth and scale. Today, there is yet another wave of innovation emerging, and that is the decarbonization of the global economy.
While governments still lack the conviction necessary to truly fight the climate crisis, the overall direction is clear. The carbon price in Europe rose from below $10 to over $50 per ton. Shell was handed a resounding defeat by a Dutch court. The major blackout in Texas at the beginning of the year revealed the fragility of the existing energy supply even in a highly industrialized country. We must urgently invest more into developing and deploying reliable, clean electricity generation technologies to make decarbonization a reality.
Forward-thinking investors understand this. Global investment in low-carbon technologies climbed to $500 billion in 2020, according to Bloomberg. Renewable energy accounted for around $300 billion of that, followed by electrification of transport ($140 billion) and heating ($50 billion).
However, we remain far from the finish line. According to the International Energy Agency, global emissions of CO2 this year are set to jump 1.5 billion tons over 2020 levels. And more than 80% of global energy consumption is still made up of coal, oil and gas.
Fusion, the process that powers the stars, could be the cleanest energy source for humanity.
That’s why we need to continue backing new technologies with breakthrough potential. Of particular promise is nuclear fusion. Fusion, the process that powers the stars, could be the cleanest energy source for humanity. We are already indirectly harvesting the power of fusion through solar energy. Being able to build fusion reactors would give us an “always on” version, independent of weather conditions.
But why fund fusion at all, given that we don’t yet know how to do it? First, this isn’t an either-or proposition. We can afford to build out renewable energy and investigate new forms of energy production at the same time because the latter — at least at this early stage of development — will require a comparatively trivial amount of money. The U.S. government’s latest plan is to spend $174 billion over 10 years on the electrification of car transport alone, so to invest $2 billion to create a fusion power plant seems doable.
Second, we are about to need a lot more electricity than we ever have. The global demand for carbon-free energy sources is set to triple by 2050, driven by increasing urbanization, the electrification of industrial processes, the loss of biodiversity and the increase in energy consumption in emerging markets.
Third, there’s been tremendous progress in the necessary supporting technologies. Superconducting magnets for the magnetic-confinement approach to fusion have become much cheaper, lasers for inertial confinement fusion have become much more powerful, and breakthroughs in material science have made nanostructured targets available, which enable the use of completely new approaches to fusion, such as the low-neutronic fuel pB11.
Thankfully, there is a growing number of entrepreneurial efforts from world-class teams to try and build fusion. At least 25 startups around the world are targeting fusion right now, approaching the problem with a wide range of technologies. The amount invested in private fusion companies across the world increased tenfold to almost $1 billion in 2020, according to Crunchbase.
The upside of successful fusion is nearly unlimited. The clean energy generation market represents a trillion-dollar opportunity. An estimated 26 TW of primary energy capacity needs to be built globally from 2030 to 2050 to serve the rising global energy needs, according to Materials Research Society. Just 1 TW of capacity will generate $300 billion in revenue, and a 15% market share from 2030 to 2050 would yield more than $1 trillion in annual revenue.
We need many shots on goal here, which is why Susan Danziger and I have personally invested in three different fusion startups already (Zap Energy and Avalanche in the United States and Marvel Fusion in Germany).
But it is not primarily the potential for financial upside that motivates us: There is an opportunity to make an indelible difference in the trajectory of human history. If even a small fraction of the large wealth accumulated by entrepreneurs and investors in the last couple of decades is invested here, the likelihood of successful fusion rises dramatically. That, in turn, will unlock much more investment from both venture funds and governments.
Now is the time to go all-in on decarbonization. Funding fusion with its breakthrough potential must be part of that effort.
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Nuclear waste recycling is a critical avenue of energy innovation
No single question bedevils American energy and environmental policy more than nuclear waste. No, not even a changing climate, which may be a wicked problem but nonetheless receives a great deal of counter-bedeviling attention.
It’s difficult to paint the picture with a straight face. Let’s start with three main elements of the story.
First, nuclear power plants in the United States generate about 2,000 metric tons of nuclear waste (or “spent fuel”) per year. Due to its inherent radioactivity, it is carefully stored at various sites around the country.
Second, the federal government is in charge of figuring out what to do with it. In fact, power plant operators have paid over $40 billion into the Nuclear Waste Fund so that the government can handle it. The idea was to bury it in the “deep geological repository” embodied by Yucca Mountain, Nevada, but this has proved politically impossible. Nevertheless, $15 billion was spent on the scoping.
Third, due to the Energy Department’s inability to manage this waste, it simply accumulates. According to that agency’s most recent data release, some 80,000 metric tons of spent fuel—hundreds of thousands of fuel assemblies containing millions of fuel rods—is waiting for a final destination.
And here’s the twist ending: those nuclear plant operators sued the government for breach of contract and, in 2013, they won. Several hundred million dollars is now paid out to them each year by the U.S. Treasury, as part of a series of settlements and judgments. The running total is over $8 billion.
I realize this story sounds a little crazy. Am I really saying that the U.S. government collected billions of dollars to manage nuclear waste, then spent billions of dollars on a feasibility study only to stick it on the shelf, and now is paying even more billions of dollars for this failure? Yes, I am.
Fortunately, all of the aggregated waste occupies a relatively small area and temporary storage exists. Without an urgent reason to act, policymakers generally will not.
While attempts to find long-term storage will continue, policymakers should look towards recycling some of this “waste” into usable fuel. This is actually an old idea. Only a small fraction of nuclear fuel is consumed to generate electricity.
Proponents of recycling envision reactors that use “reprocessed” spent fuel, extracting energy from the 90% of it leftover after burn-up. Even its critics admit that the underlying chemistry, physics, and engineering of recycling are technically feasible, and instead assail the disputable economics and perceived security risks.
So-called Generation IV reactors come in all shapes and sizes. The designs have been around for years—in some respects, all the way back to the dawn of nuclear energy—but light-water reactors have dominated the field for a variety of political, economic, and strategic reasons. For example, Southern Company’s twin conventional pressurized water reactors under construction in Georgia each boast a capacity of just over 1,000-megawatt (or 1 gigawatt), standard for Westinghouse’s AP 1000 design.
In contrast, next-generation plant designs are a fraction of the size and capacity, and also may use different cooling systems: Oregon-based NuScale Power’s 77-megawatt small modular reactor, San Diego-based General Atomics’ 50-megawatt helium-cooled fast modular reactor, Alameda-based Kairos Power’s 140-megawatt molten fluoride salt reactor, and so on all have different configurations that can fit different business and policy objectives.
Many Gen-IV designs can either explicitly recycle used fuel or be configured to do so. On June 3, TerraPower (backed by Bill Gates), GE Hitachi, and the State of Wyoming announced an agreement to build a demonstration of the 345-megawatt Natrium design, a sodium-cooled fast reactor.
Natrium is technically capable of recycling fuel for generation. California-based Oklo has already reached an agreement with Idaho National Laboratory to operate its 1.5-megawatt “microreactor” off of used-fuel supplies. In fact, the self-professed “preferred fuel” for New York-based Elysium Industries’ molten salt reactor design is spent nuclear fuel and Alabama-based Flibe Energy advertises the waste-burning capability of its thorium reactor design.
Whether advanced reactors rise or fall does not depend on resolving the nuclear waste deadlock. Though such reactors may be able to consume spent fuel, they don’t necessarily have to. Nonetheless, incentivizing waste recycling would improve their economics.
“Incentivize” here is code for “pay.” Policymakers should consider ways that Washington can make it more profitable for a power plant to recycle fuel than to import it—from Canada, Kazakhstan, Australia, Russia, and other countries.
Political support for advanced nuclear technology, including recycling, is deeper than might be expected. In 2019, the Senate confirmed Dr. Rita Baranwal as the Assistant Secretary for Nuclear Energy at the Department of Energy (DOE). A materials scientist by training, she emerged as a champion of recycling.
The new Biden administration has continued broadly bipartisan support for advanced nuclear reactors in proposing in its Fiscal Year 2022 Budget Request to increase funding for the DOE’s Office of Nuclear Energy by nearly $350 million. The proposal includes specific funding increases for researching and developing reactor concepts (plus $32 million), fuel cycle R&D (plus $59 million), and advanced reactor demonstration (plus $120 million), and tripling funding for the Versatile Test Reactor (from $45 million to $145 million, year over year).
In May, the DOE’s Advanced Research Projects Agency-Energy (ARPA-E) announced a new $40 million program to support research in “optimizing” waste and disposal from advanced reactors, including through waste recycling. Importantly, the announcement explicitly states that the lack of a solution to nuclear waste today “poses a challenge” to the future of Gen-IV reactors.
The debate is a reminder that recycling in general is a very messy process. It is chemical-, machine-, and energy-intensive. Recycling of all kinds, from critical minerals to plastic bottles, produces new waste, too. Today, federal and state governments are quite active in recycling these other waste streams, and they should be equally involved in nuclear waste.
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In the race for tech talent, the US should look to Mexico
The global tech sector is booming, and as technologies like cloud and AI accelerate their growth, the demand for tech talent outpaces supply globally. Specifically, the U.S. tech sector has seen unprecedented growth in recent years, with four tech firms reaching a $1 trillion market cap by the beginning of 2020 — all of which have seen double-digit growth since achieving a 13-digit valuation pre-pandemic.
One of the major factors in the growth and adoption of tech in the U.S. is the increasing focus on software as a service and broader digital transformations across industry sectors, which have accelerated due to the COVID-19 pandemic. As such, there is an insatiable appetite for quality tech talent in the U.S., with projections showing an 11% increase by 2029 from 2019 numbers, which amounts to over half a million new jobs.
Given that the U.S. produces only about 65,000 computer science graduates, there is a vast deficit in the tech talent market, which materialized as over 900,000 unfilled IT and related positions in 2019 alone. The problem is so vast that more than 80% of U.S. employers stated that recruiting for tech talent is a top business challenge, according to a survey by top HR consulting firm Robert Half.
Demand increasing for Mexican tech talent
Mexico’s tech talent can help to fill the gaps left in a hypercompetitive U.S. market for tech workers. Unlike the U.S., 20% of Mexican college graduates have relevant engineering degrees, amounting to over 110,000 per year, far surpassing the U.S. in technical talent. Investors and tech firms have noticed and are increasing operations in Mexico.
20% of Mexican college graduates have relevant engineering degrees, amounting to over 110,000 per year, far surpassing the U.S. in technical talent.
Some have referred to the cities of Monterrey and Guadalajara as the “Silicon Valley of Latin America,” and while their tech sectors are also seeing tremendous growth, the pace falls short of Mexico’s talent production, leading to a surplus of highly trained and capable individuals in the tech sector. The cost of higher education in Mexico is far less than in the U.S., so we’re likely to see that talent surplus grow in the coming years.
Under current conditions, the U.S. has an incredible opportunity to capitalize on the surplus of tech talent in Mexico. Because tech jobs are more scarce than in the U.S., the cost of talent in Mexico is considerably less than in the U.S. or in Canada. In general, talent in Mexico can be two to three times cheaper than in the U.S. while still delivering outstanding quality and specialized experience.
More so than other Latin American countries, Mexico has the experience and economy to support a robust tech talent export ecosystem. In fact, Mexico City’s concentrated market is larger than the sum total of every other Spanish-speaking country in Latin America. Specifically, Mexico’s IT outsourcing industry has been growing at an annual rate of 10%-15% and is now considered the third-largest exporter of IT services.
What’s more, the U.S./Mexico relationship is seeing a refresh after several tumultuous years. With Mexico ranked No. 1 among U.S. trade partners, the political and economic mechanisms for investments and partnerships are in place. Technology leaders such as Cisco and Intel have already set up shop in Mexico, demonstrating confidence in the country’s ability to support tech and economic growth.
The benefits of proximity
Mexico provides a number of benefits that make drawing from its talent surplus easier and more efficient. For one, Mexico’s time zones align with those in the U.S., enabling real-time collaboration at times that work best for both parties. Compare this to the time difference in India, which is over 12 hours ahead of California’s Silicon Valley.
Beyond the time difference, there are also many cultural similarities that make working with Mexico the clear choice for IT outsourcing. For example, the U.S. is home to more than 41 million native Spanish speakers, and plus over 12 million bilingual Spanish speakers, making the U.S. the second-largest Spanish-speaking country after Mexico. While difficult to quantify, the number of consumer and cultural exports from Mexico to the U.S. also helps to build familiarity and solidarity between the two countries, which can only improve an already healthy relationship.
New geopolitical considerations favor U.S.-Mexico ties
The steady progression of America’s tech sector is now seen as a strategic priority at the federal level. Meanwhile, public and private sector decision-makers are more interested than ever in conducting business under favorable trade treaty terms with friendly governments amid a new climate of geopolitical uncertainty.
As the U.S. tech sector continues its explosive growth, technology companies in the U.S. will need to seek alternative means to supplement its in-demand tech workforce. Rather than turning to countries undergoing increased regulatory scrutiny, or distant talent bases requiring significant business travel, business leaders are looking to geographically close, diplomatically friendly nations. U.S. companies are finding Mexico’s status as a key business partner and strategic ally to be a massive value driver.
By 2030, the middle-class population in Mexico is expected to reach 95 million, placing it in the top 10 countries with the highest share of global middle-class consumption. As the middle class rises, so will companies to meet their consumer needs, and, as such, Mexico’s own tech sector will grow and require significantly more tech talent, reducing or potentially eliminating Mexico’s talent surplus.
This is evidenced by the uptick in Mexico-based technology companies, such as Mexican used-car startup Kavak, which recently hit a $4 billion valuation. Amid an exciting backdrop of skyrocketing tech valuations and potential, the U.S. tech sector should look to Mexico as a key growth market and technology partner. The time is now for the U.S. to tap into the surplus of quality tech talent in Mexico.
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Restrictions on acquisitions would stifle the US startup ecosystem, not rein in big tech
Bipartisanship has long been out of fashion, but one common pursuit among Democrats and Republicans in Washington has been placing Big Tech companies under a microscope.
Congressional committees have held scores of hearings, lawsuits have been filed and legislation has been introduced to regulate privacy and data collection. The knock-on effect of these reforms for young companies and their venture investors is unclear. But one aspect of increased antitrust scrutiny — restrictions on acquisitions — would have a significant negative effect on our entrepreneurial ecosystem, and policymakers should approach these changes with caution.
Acquisitions are an important element of the startup ecosystem
For VC-backed companies, there are effectively three outcomes: standalone company (often via an IPO), merger or acquisition, or bankruptcy. Despite best efforts, company failure is the most common outcome — more than 90% of startups fail. Fortunately, the success stories are often companies with a big impact, like Moderna and Zoom, which helped the world in the pandemic.
Acquisitions contribute to the health of the startup ecosystem, as entrepreneurs who realize liquidity through the sale of their company regularly go on to found innovative new companies and often invest in other startups as angel investors or venture capitalists.
Entrepreneurs are optimists by nature, and so when the company journey begins, there is great hope of one day creating a standalone public company. However, in most cases, an IPO is not possible. The reality is that entrepreneurship is incredibly hard, and the journey from infancy to public company is one that relatively few companies achieve.
Silicon Valley Bank’s 2020 Global Startup Outlook puts it this way: “[T]he fact is most entrepreneurs never expect to reach a public market exit.” Accordingly, 58% of startups expect to be acquired. NVCA-Pitchbook data on acquisitions and IPOs back up the sentiment of founders when it comes to likely exit opportunities. In 2020, there was an approximately 10:1 ratio of acquisitions of VC-backed companies to IPOs, with 1,042 venture-backed companies acquired and 103 entering the public markets.
Some might argue that acquisitions are more dominant today because of the anti-competitive motivations of current tech incumbents. But as Patricia Nakache of Trinity Ventures said in testimony before the Senate Judiciary Committee: “[Acquisitions have] been commonplace in the U.S. since before the dawn of the modern venture capital industry.” In fact, today we are witnessing fewer acquisitions relative to IPOs than in years past, as the average acquisition-to-IPO ratio since 2004 is approximately 15:1. This is happening against a backdrop of challenges in taking small-cap companies public that has reduced the number of companies in the public markets today.
Acquisitions contribute to the health of the startup ecosystem, as entrepreneurs who realize liquidity through the sale of their company regularly go on to found innovative new companies and often invest in other startups as angel investors or venture capitalists.
Furthermore, acquisitions help power the returns of VC funds, thereby allowing VCs to raise new funds and invest in the next generation of entrepreneurs. This “recycling effect” is one of the key drivers of dynamism in our economy and should not be slowed down.
Acquisition changes could impact entrepreneurship
Despite the importance of acquisitions, antitrust reform has included significant changes to how acquisitions are assessed by the federal government. The two most prominent examples in this space are Sen. Amy Klobuchar’s Competition and Antitrust Law Enforcement Reform Act (CALERA) and Sen. Josh Hawley’s Trust-Busting for the Twenty-First Century Act.
These bills are likely a reaction to findings that incumbents have acted like Pac-Man, gobbling up would-be competitors before they become a competitive problem. But both proposals would ultimately harm startup activity and competition rather than propel it.
A common thread between these proposals is to restrict acquisitions by companies valued at more than $100 billion. Hawley’s bill would impose an outright ban on acquisitions by companies of that market cap that “lessen competition in any way.”
Klobuchar’s bill would shift the burden of proof to parties to an acquisition, a major change because the U.S. government bears the burden currently. This means if the government challenges an acquisition in federal court, the parties to the acquisition must demonstrate it does not “create an appreciable risk of materially lessening competition.” If that standard is not met, the acquisition could be blocked.
Both proposals have negative ramifications for venture-backed companies.
First, consider the scope of the proposals: A $100 billion company is indeed a large one, but setting the threshold there captures far more than the large tech companies that have been hauled before Congress for antitrust hearings. Globally, about 150 companies are valued at $100 billion or more, and the U.S. is home to more than 80 of those companies. That exposes acquirers as wide-ranging as Estee Lauder, John Deere, Starbucks and Thermo Fisher Scientific. If you are struggling to recall those companies being under the antitrust spotlight, then you are not alone.
Second, the legal standards imposed by these new bills are daunting. Klobuchar’s proposal leaves startups scratching their heads on where the line is on which acquisitions are tolerated, while Hawley’s bill throws up a misguided red light for vast amounts of acquisitions. These two standards are particularly vexing since acquirers are generally looking for acquirees that complement their existing business. In addition, many of the most acquisitive companies are multifaceted ones that presumably compete with an array of other companies in some way.
Ultimately, the bills from Klobuchar and Hawley would disrupt an important part of our nation’s startup ecosystem. Acquisitions act like grease to help keep the wheels moving by injecting liquidity into the system so participants can move on to create new and hopefully better companies for our country. Those wheels should not be slowed down when the country needs all the entrepreneurship it can muster.
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Crypto and blockchain must accept they have a problem, then lead in sustainability
As the price of bitcoin hits record highs and cryptocurrencies become increasingly mainstream, the industry’s expanding carbon footprint becomes harder to ignore.
Just last week, Elon Musk announced that Tesla is suspending vehicle purchases using bitcoin due to the environmental impact of fossil fuels used in bitcoin mining. We applaud this decision, and it brings to light the severity of the situation — the industry needs to address crypto sustainability now or risk hindering crypto innovation and progress.
The market cap of bitcoin today is a whopping $1 trillion. As companies like PayPal, Visa and Square collectively invest billions in crypto, market participants need to lead in dramatically reducing the industry’s collective environmental impact.
As the price of bitcoin hits record highs and cryptocurrencies become increasingly mainstream, the industry’s expanding carbon footprint becomes harder to ignore.
The increasing demand for crypto means intensifying competition and higher energy use among mining operators. For example, during the second half of February, we saw the electricity consumption of BTC increase by more than 163% — from 265 TWh to 433 TWh — as the price skyrocketed.
Sustainability has become a topic of concern on the agendas of global and local leaders. The Biden administration rejoining the Paris climate accord was the first indication of this, and recently we’ve seen several federal and state agencies make statements that show how much of a priority it will be to address the global climate crisis.
A proposed New York bill aims to prohibit crypto mining centers from operating until the state can assess their full environmental impact. Earlier this year, the U.S. Securities and Exchange Commission put out a call for public comment on climate disclosures as shareholders increasingly want information on what companies are doing in this regard, while Treasury Secretary Janet Yellen warned that the amount of energy consumed in processing bitcoin is “staggering.” The United Kingdom announced plans to reduce greenhouse gas emissions by at least 68% by 2030, and the prime minister launched an ambitious plan last year for a green industrial revolution.
Crypto is here to stay — this point is no longer up for debate. It is creating real-world benefits for businesses and consumers alike — benefits like faster, more reliable and cheaper transactions with greater transparency than ever before. But as the industry matures, sustainability must be at the center. It’s easier to build a more sustainable ecosystem now than to “reverse engineer” it at a later growth stage. Those in the cryptocurrency markets should consider the auto industry a canary: Carmakers are now retrofitting lower-carbon and carbon-neutral solutions at great cost and inconvenience.
Market participants need to actively work together to realize a low-emissions future powered by clean, renewable energy. Last month, the Crypto Climate Accord (CCA) launched with over 40 supporters — including Ripple, World Economic Forum, Energy Web Foundation, Rocky Mountain Institute and ConsenSys — and the goal to enable all of the world’s blockchains to be powered by 100% renewables by 2025.
Some industry participants are exploring renewable energy solutions, but the larger industry still has a long way to go. While 76% of hashers claim they are using renewable energy to power their activities, only 39% of hashing’s total energy consumption comes from renewables.
To make a meaningful impact, the industry needs to come up with a standard that’s open and transparent to measure the use of renewables and make renewable energy accessible and cheap for miners. The CCA is already working on such a standard. In addition, companies can pay for high-quality carbon offsets for remaining emissions — and perhaps even historical ones.
While the industry works to become more sustainable long term, there are green choices that can be made now, and some industry players are jumping on board. Fintechs like Stripe have created carbon renewal programs to encourage its customers and partners to be more sustainable.
Companies can partner with organizations, like Energy Web Foundation and the Renewable Energy Business Alliance, to decarbonize any blockchain. There are resources for those who want to access renewable energy sources and high-quality carbon offsets. Other options include using inherently low-carbon technologies, like the XRP Ledger, that don’t rely on proof-of-work (which involves mining) to help significantly reduce emissions for blockchains and cryptofinance.
The XRP Ledger is carbon-neutral and uses a validation and security algorithm called Federated Consensus that is approximately 120,000 times more energy-efficient than proof-of-work. Ethereum, the second-largest blockchain, is transitioning off proof-of-work to a much less energy-intensive validation mechanism called proof-of-stake. Proof-of-work systems are inefficient by design and, as such, will always require more energy to maintain forward progress.
The devastating impact of climate change is moving at an alarming speed. Making aspirational commitments to sustainability — or worse, denying the problem — isn’t enough. As with the Paris agreement, the industry needs real targets, collective action, innovation and shared accountability.
The good news? Solutions can be practical, market-driven and create value and growth for all. Together with climate advocates, clean tech industry leaders and global finance decision-makers, crypto can unite to position blockchain as the most sustainable path forward in creating a green, digital financial future.
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