In this ESG & Impact Talks we speak with Sergio Henrique Collaço de Carvalho, Partner and Head of Sustainability at Planet First Partners. With over 15 years of experience in the Brazilian Ministry of the Environment, where he held senior roles such as Director of Protected Areas and Deputy National Secretary for Biodiversity, Sergio transitioned into sustainable finance in 2017. Notably, he raised $230 million for Amazon conservation efforts before joining Planet First Partners in 2021. Holding a Bachelor’s in Biological Sciences and an MPhil in Animal Biology from the University of Brasilia, Sergio also pursued a PhD at the University of Oxford. In this conversation, he sheds light on the challenges of finding portfolio companies, the bottleneck between early-stage innovation and growth-stage ventures, and how Planet First is strategically positioned to navigate the evolving landscape of sustainable investments.
How did you transition from what you were doing before at the government to a private equity fund? How was this whole journey, including your short step into this startup role?
I trained as a biologist and immediately after graduating in 2002 I started working for the Brazilian government and started with energy infrastructure licensing and licensing in general.
Then after a couple of years moved on to do other functions in the ministry more involved with the conservation of biodiversity and sustainable development in general. And I think that the transition to private equity happened when I came to the UK to start my PhD. I somewhat got exposed to sustainable finance at first with the whole agenda of green bonds, so I had a good friend working at Climate Bonds Initiative and she invited me to join their efforts at developing their first technical screening criteria for forestry bonds, forestry green bonds.
And then I came in because I had all this experience in the Brazilian government as a regulator and somebody that had worked with protected areas that involved forestry concessions. So, I had that level of visibility, and starting to work with sustainable finance I suddenly identified, and I found out that it's somewhat akin to what you have with environmental licensing, the standards from the World Bank, from the IFC, disclosure requirements. So basically, I found out that a lot of the skills that I had developed and accumulated in 15 years of government were somewhat transferable to sustainable finance because it was all about finding ways to accumulate in a systematic and structured way non-financial data to be reported alongside financial data.
So finding that out, I somewhat started working as an academic, looking more and more into it, following up on the regulatory environment on both sides of the Atlantic, how the U.S. was going more of an industry disclosure focused on shareholder materiality, and how Europe was trying to get out of the quagmire that it got itself into of potentially opening up, allowing the industry to overload reporting channels with information and greenwash, which I think is what happened when you saw the evolution of the NFRD and to the SFDR and then the CSRD.
So I think they're very different journeys on both sides of the Atlantic and both of them are very much valid in terms of what I saw at the time, an interesting way for you to structure the work with sustainability, bringing closer to accounting engineering, which is a struggle that I saw in government all the time. So, every time we had to build a pluriannual plan or discuss a budget, we always had to build a narrative of how the public budget applied to environmental issues would deliver results to society.
So it's similar issues. So how do you build a narrative of allocation of CAPEX and OPEX and ultimately recognition of turnover of an actually delivers in terms of materiality for the company itself and then for society? I think that I found myself at a moment in my career where I had enough accumulated knowledge and enough accumulated practice from doing these things in government and seeing how I could transfer those to sustainable finance.
I also think that biologists are well-trained professionals to deal with complex systems. So different from an economist or an engineer, I think a biologist is slightly more comfortable with non-linear systems full of tipping points and feedback loops. So, I think, and especially if you think of what where sustainable finance is focused today on energy transition, these emerging technologies, biobased systems or biobased fuels, learning how to manage landscapes in a less impactful way, a more sustainable way.
I think that being a biologist gives me a bit of an edge there, which I find quite interesting.
So, all this is what brought you to your first encounter with this innovation world and with your startup, right? So, because I think in terms of a timeline, this is 2017 when you launched the ESG reporting or ESG data collection company for private equity. So back then, now this is like seven years ago, and back then it was not an issue.
It was a fascinating experience, basically looking at out of the investable universe, you have listed equities, which the bulk of the capital is there on public markets, but then you have a substantial volume of assets that are relevant for a sustainable transition within private equity strategies.
And there, this is where we found that in 2017, and 2018, even though there was an issue engagement in collecting data, there wasn't a strong incentive or motivation to collect in a structured way akin to what we saw starting to happen for the public markets. And it's basically because there's, I think there was an element of, there wasn't a lot of pressure from LPs to have this data visible in a structured way. So I think it's a reflection of the maturity of all these strategies when it comes to sustainable reporting.
So if public equities were still not there yet, where you have corporations that should be auditing and providing insurance, when it comes to smaller venture firms or startups, this is not there. And rightly so. So pivoting into reporting around sustainability in 2017, 2018, we thought it was an interesting opportunity because, as I said, a lot of the relevant assets for a sustainable transition towards a sustainable economy were within that part of the system, startups, and the structure was still not there.
And we saw these emerging discussions. We saw the discussion around the SDGs, for instance, everyone's scrambling to find a way to narrate how your portfolio, either public or private equity portfolio, is delivering the SDGs. So, there was initial pressure from asset owners.
We saw a few pension funds, mostly pension funds, a few family offices at the time, discussing like, look, I want to see how my capital is being invested and delivering positive contributions to the SDGs. So, this discussion was already there at the time, but in no way mature, and no one had cracked it yet. So, if you think of the existing reporting standards at the time for sustainability, you had SASB, there is very much SASB, GRI, etc., etc.
Yeah. They were at the time super robust and very well structured but reporting very much on a primary dimension of materiality. So what's material for the company and the company's own footprint, but it didn't enable you to look at the double materiality aspect of how the company is affecting the world and being affected by the world from upstream and downstream angles.
And now it's mandatory. I mean, it was not until it was like a requirement for companies to do it then that this actually became a requirement...
It's a requirement. In Europe, if you want to hold on to claims of sustainability on financial markets, so if you want to call your stock, bond, or fund, if you want to call a financial product sustainable, you have to disclose, you have to discuss this double materiality aspect of how the products or services of your company are actually affecting positively or negatively upstream and downstream connections of your company. So, I think that's finally there.
And at the time we saw this as an emerging possibility because of the nascent discussion of how we translate the sustainable development goals into an impact or sustainability narrative for our investment strategies.
But you said that you saw that this was something that the LPs were already kind of asking for, right? Back in 2017.
Yeah, because we had a couple of pension funds with mandates from their pensioners to have at least one-third of capital invested in companies or strategies that delivered a positive contribution to the SDGs.
So, this was already there in 2017 and 2018, with indications that this mandate will become more stringent as in asking for great exposure to positive contributions to the SDGs in time. So, I think that the societal preference was already starting to materialize in 2017 and 2018. Not yet the critical mass, but the regulators in the market were observing that nascent critical mass and the risk of greenwashing.
So we were slightly ahead of our time. So we thought that was enough critical mass to justify hiring our services.
You just needed a bigger push, right?
We also assumed that AI systems, basically LLMs, were mature enough at the time so that we as a plucky startup with no one who is specialized in machine learning and large language models could just hire a team and start working with that, which was a bold assumption. We had good ideas, but not enough technical expertise to engage with them.
Yeah, I remember in 2017, I was in my MBA and I took a class that was the most futuristic class, which was AI and machine learning.
So yeah, it was something that we were already talking about, but it was seen as something that, yes, it's going to happen. Now it's been there for a while already and everyone's using it. But in 2017, I don't think it was that.
No, not at all. I don't even know what the metaverse was. We didn't even go through that trend yet.
You could see the direction of travel was there, but at the time and from our internal efforts structuring the work with AI and machine learning, targeting LLMs to basically digest sustainability reports and collect valuable information, we saw that, yes, this is going to happen in the future. Is it going to happen three years from now? Is it going to happen 10 years from now, five years from now, 20 years from now? It was hard to tell because, again, we were not specialists and we were just trying to use existing available consultancies to develop our own model. But all the remaining pieces were still not in place.
So basically, the idea of using GPUs at scale was already being done in academia but hasn't been fully spun out as a commercial trend. And I think what happened between 2017 and 2022 where AI, again, in 2022, AI simply exploded is that those final pieces came into place. So we couldn't tell it was going to be five years, three years, 10 years.
It ended up happening in five. So in 2022, everything explodes. And now the bulk of data center expansion globally is actually linked to this hunger for AI.
But as you said, you were not an expert in AI, but you are an expert in everything related to biology, biodiversity, and everything you've been doing for the past 15 years or more. So in that, as you were saying before, LPs are paying attention to this. For them, this is an asset. This knowledge is an asset, especially when it comes to impact investing. So how do you think this experience that you have, this knowledge, this working in the government, in protected areas for the Amazonia, how do you think this enhances your decision-making process nowadays?
So I think that, and going back to how the LPs see this, I think that during the fundraising process, when we came out, and remember that we started fundraising a bit before the SFDR came into force, but we officially launched the fund roughly 10 days after the sustainable finance reporting disclosure came into force.
We registered 10 days afterward. So we had to engage with it. We had an internal discussion.
We chose to be an Article Nine fund, so we committed to maintaining a plan at first, 100% of sustainable investments. Basically, the bar at the time was, and it still is the bar for us, you have to demonstrate that your investments deliver a substantial contribution, do no significant harm, and meet minimum safeguards, which means that every time we run an investment, it must have a sustainability thesis accompanying the investment thesis, or a sustainability thesis being part of the investment thesis. And our LPs were basically asking like, look, we find interesting that your plan first is trying to not keep itself tied up with only climate change mitigation, which is what most funds at the time were doing.
So basically focused a lot on climate change mitigation. We understand that you guys want to cover the entire landscape of sustainability from environmental to social perspective. But the question is, how are you going to keep that running, covering the breadth of issues, and guaranteeing that this will be fully incorporated into DD.
This is where I think our founder commitment of having a team to take care of sustainability, to guarantee that we have this balanced work between the investment team and the sustainability and both sides forming a unit doing the for each deal. And I think my experience, which is where I think I managed to balance well, technical knowledge, technical scientific knowledge, and regulatory experience to bring that in to help us navigate the current landscape for sustainable finance. So, it's no longer an environment where you can build whatever tier of change you want, and sell that off to the market, you can still build your tier of change.
But you do have to observe the aspects of the structure that are required of you today. So you have to demonstrate a substantial contribution, which has to be backed or based on the six environmental objectives of the of you or the six environment or the environmental objectives that are now popping up in taxonomies globally, you have to understand the ambition level, which basically forces us or forces the entire industry to think of materiality in a robust and in an honest way for sustainability. So doing minor improvements on an industrial process, then in itself doesn't have a large footprint.
And a good example, sometimes there are several examples, but we can take a semiconductor manufacturer, for instance, it does have, it does consume a lot of resources, but not to an extent and the consumption of resources and the processing footprint is not in any way comparable, for instance, to steelmaking, or other manufacturing processes. So, you can't call you can't think of marginal improvements in the semiconductor manufacturing industry as a substantial contribution to sustainability, because you have much greater challenges in other parts of the manufacturing of many manufacturing. On the flip side, you can think of a potential angle for a substantial contribution of having innovative semiconductors being used to enable circularity, for instance.
So it's a different way of thinking. And I think that my background, because I am trained as a biologist, I did a master's, I started off the PhD. So I had all this recurrent exposure, I was recurrently brought back into academia, I always managed to keep a strong foot in academia and exposed to science and just digesting and reading as many papers as I could, this strong footing on regulation, and having done a bit of regulatory impact assessment.
So I think that that training and starting my career, I had this shock therapy when I went into government, as a very naive 21 years biologist, I was thrown in a deep end to work with energy infrastructure licensing in Brazil, basically working with big hydro’s, oil and gas pipelines, transmission lines, and all that. So, these were pretty substantial projects at the time, the largest hydro in Brazil at the time that was being licensed at the time, and I was the biologist responsible for it, for the licensing. And I had to relearn, not relearn how to work, but learn how to work, learn the mindset of environmental licensing, which is very much similar to the mindset of what you do in the due diligence to understand how that particular infrastructure project is affecting the country positively by delivering more renewable electricity, but also the region by basically flooding communities, flooding a cemetery, flooding a bridge, a road, agricultural land, displacing communities, affecting like human communities, affecting animal communities, changing the landscape.
So I think that it's a strange combination of skills that fit quite well what you have right now as a requirement from the LPs. And I managed to build a team, then my team transitioned away. But I had for a while a team that was very much following up in my footsteps and kind of looking at each file with these two ideas.
One, is a strong diligence angle to guarantee that you meet the requirements of substantial contribution or significant harm. And the next post view of the company is great, we invest in the company. Now, how do we take sustainability and create value from it? How do we improve the sales process? How do we improve your supply chain diligence, like internal protocols? How do you position yourself against your peers? How do you talk to legislators to ask the legislation to be more stringent? Because today is not stringent enough to drive the industry to adopt your technology.
But we know that there's an issue and then it should be driven that way. So these two elements of strong diligence and then value creation, I think I've accumulated those skills. And then I feel that the LPs were keen on seeing a platform like Planet First and our founder, Frederick, is very much involved and dedicated to ensuring that we have these capabilities within the team.
And before launching this other fund, which is not an impact fund, you do impact investing, right?
We always kind of try to push ourselves away from the discussion of impact investing, because even though I know that the community of impact investing doesn't necessarily think that that's the case. And we've had this discussion many times over with a bunch of my peers. I've had this discussion many times over with my peers.
We have this understanding that if you call yourself an impact investor, there's an idea that you will compromise returns to guarantee sustainability. And while we've been trying to push our thesis that you can be a well-rounded sustainable investor, where you don't compromise on either end, you guarantee returns on commercial market returns, but you also guarantee that you will deliver the substantial contribution of sustainability. And to date, within our portfolio, we've seen how that can materialize.
And I think Submer is a great example of a company that is somewhat following... It's following a neat growth narrative and delivering substantial contributions to the industry. I mean, it literally offers a product that will reduce the energy consumption by data centers from 40 to 50 percent. Data centers are now getting their permits denied because they are gobbling up all the energy available for a particular region.
So this is, for me, the best case of ROI. You're solving a material footprint on sustainability, but you're also unlocking your permit because you can now operate in a region with the capacity that you need, with the processing, the stock capacity that you need to have your data center servicing your needs, but without compromising, without emitting, having that massive energy associated carbon footprint, but also without gobbling up all the resource available for a region. So eliminating the issue of rivalry.
And for us, we see that as a clean, neat narrative of, yes, you deliver on sustainability, but you also deliver on ROI. So there is no compromise on either end. And so we end up trying to pull ourselves slightly towards that direction.
And we've been really striving to prove this point that you don't have to compromise on either end.
Yeah, but now, because how do you identify? Because you're talking about, yeah, there's some stuff that is, I mean, there are some innovations that you can start from scratch and solve the planet's issues by starting from scratch. But then other stuff is already there that you can approach from a different angle, not from a circularity point of view, as you were saying before, right? So how do you identify those companies that can really have this growth potential, that are on a growth stage, that can also meet these impact requirements, that you can transform into more sustainable operations, etc. And at the same time, keep being profitable, because in the end, the ROI is also very relevant. How easy or how hard it is to find this type of companies in the growth stage? Because in early stages, it might be a bit easier, because some of them are just ideas. But here you have published companies with real people working there, employees, etc. So how do you do it?
I can start by saying that it is hard. And as you said, rightly so, there's an abundance of opportunities from an early-stage investment perspective, and not so much from where we come in for more mature venture to growth. And it has to do with basically, we're looking at a part of the economy, where you see a lot of innovation, either technological innovation, or just an innovation in terms of how to build a service or adapt the techniques that we use from one industry to the next, or find an innovative way to engage with the users and enable them to go on a user journey that actually delivers on sustainability.
So we have plenty of those. But the challenge is, from an early stage, we're looking at a technological readiness level of three to five, or three, three, four, five. And when we come in, which is basically above seven, or actually above eight, there's the value of depth of innovation.
And it's called the value of depth of innovation, rightly so, because a lot of these technologies or a lot of these ideas don't scale well from a lab bench to a small-scale prototype. When you take it and you test it in the industrial environment, it simply doesn't work, or requires a lot more time for it to mature and develop, or requires breakthroughs in other areas, like material science, and your own innovation doesn't get there. So it's harder, basically, because there's a really strong bottleneck between venture and where we come in.
Basically, these technologies die, these ideas die, for a million reasons. So it's harder from that perspective. But what we try to do when we have a really smart and competent investment team, so my colleagues in the investment team, they have strong connections with the early stage funds, but also with universities, with corporates, where we see all these earlier stage investments maturing and getting closer and closer to the market.
So we try to keep a watch on these pools and pockets of innovation. We have a strong relationship with the EIB, for instance, because they manage the European Investment Council. Plenty of great startups popping up, and Europe does a really good job at pre-seed, seed, and up to Series A funding.
So we see a lot of these super exciting assets popping up in Europe. We started seeing more and more, we started looking more and more in the US as well, but we see all these pools of breakthroughs and new technologies coming out. And what my colleagues in the investment team do is I support them in having the views and the ideas around sustainability, and they simply go out hunting, trying to find great companies that are just now breaking into market with positive margins and etc, etc.
So it's hard. Our mandate from a sustainable investment perspective creates a bit of a smaller funnel for these companies to come through. But it's also about being patient, and this is something that Frederik was quite keen on first being an evergreen structure, so that we wouldn't be fully pressured in time.
So we do have the pressure to keep continuous deployment, but it's not like we have the pressure of, we need to deploy because the fund is going to close and we need to get all the money dispersed. So we are slightly more patient, which also is relevant for how we manage our portfolio companies, we can hold on to the portfolio companies a bit longer. So to your question, it is hard and the way we try to go around it is to be really good at hunting, to find the good opportunities in a sea of sometimes noise, or sometimes great technologies that are not yet that mature, which we see a lot.
We've seen a lot in farm-to-fork. There's a huge number of companies that don't get to the point of maturity we need to see not because of the company itself, but because of the regulatory environment. Europe has done a great job at throttling back innovation and agriculture by keeping the regulatory environment for pesticides substitutes basically.
So if you bring a sustainable molecule to the market that is fully biodegradable, non-hazardous, etc., you're going to have to go through the same six years process to bring it to market, run the same tests, etc., that you do in a conventional pesticide. So plenty of these companies are stuck, not because of the technology itself, but because the regulatory environment with so many hurdles between you and the market that it takes forever. Do you think this has, sorry I'm interrupting you, but I think there's something, because there's a lot of like a lot within the industry now when we talk about with growth investors, there's an issue now that many of the companies that are in the growth stage just go out of Europe to get the funding.
Does it have to do with what you're just saying, or it's not like that from your perspective, or what's going on there? Because there's this need for growth stage investments here in Europe, and the companies just leave Europe.
I think that at that point there is growth capital available in Europe, but you don't necessarily have the conditions, and I think that the example I gave for agriculture is a good one, but you can see the same examples across all the industry, from hydrogen to battery manufacturing, etc., etc. Well, I think that the problem in Europe today is the check sizes are slightly smaller when compared to the U.S., because Europe is a geographic, a geography with 500 million people pulverizing to smaller member states, with the financial industry also pulverizing to smaller member states.
So pension funds are not servicing a bigger chunk of that 500 million people, they're servicing the local population of the Netherlands. And so there are issues, which I think that like a lot of the answers for why some growth stage companies are just plucked out of Europe and taken to Asia, to the U.S., are in the report that Mario Draghi delivered this week, which is Europe has struggled to keep up, to keep competitive in the global stage. It's a very open market with really strict, great rules around sharing competitiveness, which is good for keeping the internal balance, but sort of, I think, missed the game, is in misstep with the game when it comes to the global economy today, where we have a giant financial industry in the U.S., where you have a giant manufacturing industry in China, and these clashes, geopolitical clashes with Europe trying to play by the rules, it reminds me a lot of Brazil, actually, trying to play by the rules of a game that no one else is really playing anymore.
So European industry starts losing competitiveness. We are invested in hydrogen, so you can call my opinion bias on that one. But we've seen European industry using hydrogen equipment manufactured in China and paid for by European taxpayer money, which, to be honest, I understand, I don't like protectionist measures.
I think they're inefficient. But in a way, for strategic industries, you have to find a middle ground, not to simply see all the manufacturing capacity get out of your region, especially for things that are strategic, or geography that is not energy independent, like Europe. So does it make sense for you to be buying electrolyzers from China? I don't think it does.
When you have a local industry that is more capable, super capable of manufacturing and actually has, and this is where I think that you're kind of going the right way with the carbon border adjustment mechanism, but missing the point of adopting in a nicer, more agile way for other parts of the industry and considering sustainability performance in general. So I do think that Europe could protect its industry, not by simply adopting hard line protectionist measures, but basically by asking the world to at least perform as well as European companies do on a broader sustainability perspective. When I say broader, I include all the elements of sustainability, environmental, social, and governance.
Because European companies do lose slightly performance because they actually have to comply with higher standards, and they should, which for me makes complete sense. Not complying with those standards, it doesn't look great if you're skimming off on governance, or you're not paying a decent living wage, or you're not allowing your workers to unionize. That's not nice.
So European companies comply and struggle a bit because they have to comply, whilst other geographies just do whatever the hell they want. And then you can't compete. Yeah, but you as an investor as well, right? Because you cannot, I mean, as you said before, your funnel reduces a lot.
You have just a few options where to invest, especially because it's hard to actually ask other potential portfolio companies from different other locations across the world to actually give you all the information you need in order to be able to comply with the regulations here in Europe, right? Yep. So as somebody who was governed for a long time, I do see in the European regulatory environment elements of inefficiency, which one of my mentors in government, Francisco Gattani, he was always very adamant that regulation has to be efficient in terms of if you're touching something that is better done by the private sector, you're doing it wrong. You should enable the private sector to do it in the best way possible, maximizing returns for the investors, but also guaranteeing that society will not be exposed to externalities.
So you can regulate, it's an impossible task, but you can aim at that. And this is where I think Europe misses the game sometimes. It leans too hard on activism.
Even though I am a sustainability guy, I was never really an activist. So it leans too hard on activism, but for some things, and basically yields to pressure from industry groups that are no longer relevant or for this need to, I mean, it's an impossible challenge balancing out member states. Whilst one member state is willing to put more budget in the EU, other member states want to put no budget in the EU.
It's a challenge. I do also want to caveat all these observations of how Europe can be incredibly inefficient. I do think that it's a better system than most.
Yeah. And that's what I wanted to ask you. No? Yeah.
Because I mean, yeah, but it's still, there's still a system, you know, in other parts of the world, there's no system. There's not, I mean, there's nothing yet. So I wanted to ask a little bit about that because I mean, I'm from Latin America as well. So when you compare, you know, what we're doing now in right now in Europe, now with all these flaws and all the issues that we're seeing and you see what's going on in Latin America, you know, how far are we in Latin America from what's going on in Europe? You know, because you were there not that long ago and you know how things are doing. And I think in Brazil, it's like, I would say it's a continent itself, you know, and how do you, I mean, how would you compare that in terms of like maturity? What matters now? What's biodiversity in Brazil compared to what do you, what's your approach to biodiversity when you invest here in Europe?
I think that this would be a topic for an entire podcast for like hours and hours and hours. And I'll definitely bring more people, more experienced and more versed on that. And some of my colleagues will jump straight into the trap of colonialism. But to be honest, Latin America broke off from colonial rule around the Napoleonic wars. We don't have the recent post-colonial effects of the 19th, 20th century, as most cases in Africa and Asia.
So I think that there's, there's so many aspects from geography, to be honest, the geography for Latin America is not that great. We don't have deep, like natural, deep, deep water ports, aside from Venezuela that has all the oil in the world, which is also like turns into a natural resource curse. So the rest of us, we do have natural resources, but the geography is incredibly complicated and we have high elevation at the coast, which is the case for Brazil.
It's the case for, for, for the Indian countries. We have soils that are not necessarily fit for purpose for normal agriculture, which means that it took a long time for us to actually develop cultivars and develop agricultural practices that could implement it at scale. And this is very recent.
And when I say recent, it's from the eighties onward, where we actually, even though Brazil has always been a powerhouse in coffee, Argentina has always been a powerhouse in meat and wool and but not necessarily the best products where you can actually throw into industrialization. So I think all of us have been cursed with being more tropical, complicated soils, complicated geography, a really weird history influences, not from first from Europe, then from the U S our post-colonial history is complicated as well. And more recently, I think that the region has been like Argentina is a case apart, but everybody else, I think it's a case of not it's, it's, it's when you get too close to development, I think that it becomes increasingly harder for anyone to manage the aspirations of a rising middle-class and of, of, of, of, of the, those that control capital in the country.
It's really hard to balance that with the need for you to do the final chunks of, of, of investment in social and social development, which are really, really hard. I mean, solving that final leg of transforming a slum of a favela into a nice community. It's incredibly hard.
It's easy. It's a lot easier to get them to become middle-class, stabilize a crime, improve their income, improve their diets, improve their access to information, but then get them into and become entrepreneurial and enable them to become the potential economic powerhouses that you, that you could see in those communities. That's super hard.
So this final step is, is, is really hard. Whilst if you think of Europe, they've been doing that, they've been doing this for much longer with wars in the middle, but the infrastructure was there and is there again. So the built environment on, on, on, I guess I'm trying to say like the, the, the wealth of these nations was translated into infrastructure, capacity building, literacy training.
And you see wealth is not necessarily financial wealth is, is the built environment is the societies. And, and, and in Latin America, we had a population explosion around the sixties and seventies. And we're basically having to do what Europe has done a long time ago right now in geography.
It's a lot more complicated. Yeah. Like when we are trying to keep up like in a few years, what took centuries to another country to do now, I think.
And in an economic environment where just throwing money at things is somewhat frowned upon, just throwing money at public infrastructure. No one likes doing that anymore, but it was quite common before the seventies where people just throw money into, into, into public projects. I think that having to, to, to engage with large-scale development after the seventies and the eighties made our lives a lot harder.
And, and in Latin America, then Argentina is a case apart because Argentina was somewhat developed in the early 20th century. And then a lot of stuff happened there. Yeah
But they, they have their own, their own issues, their own prices that go back and forth. And it's, it's also, it's also this point, everyone like, Oh, Latin America, Latin America is huge from, from, from, from the size of the countries, the population. And it is, it is very diverse in terms of, we are all Latin.
We're all like called more colonized by Portugal and Spain, but we're very diverse on our own with really weird independent histories in each country. Which I think that, that it becomes like this conversation can be hours and hours and hours, and we will get to no conclusion because it's, it's, it's kind of like a, an impossible problem to solve. So I appreciate when, when our governments decide to go step-by-step, and I think that the, the, the, the, it is hard, it is hard to go step-by-step and not cave into hard swings to a different direction or land on dictatorships again and again, and again, which is something that has happened in our geography.
Yeah. No, I think this is something that we can keep talking about and we'll, we're not going to get anywhere because Latin America is, is way behind. And, and as you said, I mean, you were saying like in Europe, there's this system that's inefficient, but at least there's a system, right? And there's something you can do, like you can, you have this basis and you can always improve it.
And, and, and that's what they're trying to do actually, you know, like trying to, like they release these laws, these norms, regulation, and, and as this, and they are fixing them as, as, as they know that while they are working progress, basically, no. So I think that's, that's the best that we can get right now. No.
So I don't know. I think we, of course we went over time, of course. I just wanted to ask you one last question about, it because you were mentioning not before looking ahead, there were like these buzzwords, no? And we talked about climate became a buzzword.
Now we're talking about biodiversity, which is gaining momentum right now. Which means that people already like is taking, it's conscious, it's more conscious about it. And then with time, it will probably be like, like some, it will be like an organic, no? Conversation will be like, let's talk about biodiversity, but their biodiversity will be theirs. So as climate is doing now. So what do you think? And what are other like buzzwords that will just like come or become a trend in impact investing in the future, or that will attract investors in the future? I think biodiversity is there already. It's, it's been hyped up, hyped up, hyped up.
We have a biodiversity co-op this year in Colombia. So I think biodiversity is being hyped up with this whole idea of credits market. There's the investment strategies around biodiversity, but I am very bearish on biodiversity investment because it's a real asset perspective and it leans itself too closely.
It is, it leans, it is too close to a public good. So really hard for you to invest from a private perspective and expect conventional market returns from biodiversity. People say, Oh, there's tourism, there's this, there's development, there's bonds and et cetera, et cetera.
But whatever you look, wherever you look into this project, there's always a layer of, of, of grant based. There's, there's always a grant. There's always taxpayer money involved.
Um, there's always the like debt forgiveness. So it's never a normal conventional commercial operation. So our conventional like market operation
So I have, I have, I have my, my restriction of biodiversity. I think it's incredibly relevant, but it's, it's incredibly challenging. It's biodiversity is super complex. So if we look at what's happening now, carbon credits and the market being stable because of the underlying poor quality of carbon credits, biodiversity is going to be a thousand times more complicated. Um, so that's, I mean, yeah, this is just the beginning. Not so, yeah.
So beyond biodiversity, I see a lot of for initial talks around circularity, mostly because of batteries. So there's a lot of buzz and chatter around circularity for batteries, circularity for batteries, circularity for batteries. But on that, I think that the two elements, one is economies of scale are still potentially not there.
So I still think the EVs will get there and we'll win just because it makes sense from an engineering perspective. It's a lot more efficient. Um, and I think it's, it's just a matter of, of the engineering and the costs getting to a point where they can have like cheap, reliable EVs and it's getting there in many ways because of China now, but then we are kind of jumping ahead and starting off this discussion of circularity around batteries.
And I do think that unfortunately, it's, it's too early. We don't have enough batteries yet to recycle. And even if you do recycle, you don't have the infrastructure downstream to actually use the recycle products to, to the, to the best of my knowledge.
So you're going to end up with a lot of recycled battery materials and no one, no one would be able to use it to manufacture new batteries in Europe. So I think that that's a potential issue of, of, of the buzz around, around circularity and plastics. This has been there all along
Like we've always discussed circularity at large. We always talked about plastic pollution and we never really got around to actually solving the problem because the complexity of, of, of the, of the supply chains. But at least I think for plastics, because of some, some material innovation and, and process innovation plus regulation, I think that Europe has a good chance of actually getting some of the plastic in the next five years and largely reducing its plastic pollution problem.
Yeah. Also needed if you want to be an offering from fossil fuels, you always use fossil fuels plastics. Oh, you still use a lot of fossil fuels plastics.
In any case, I think that that circularity, so biodiversity is a buzzword that is complicated. Not sure if it's going to get anywhere. And the circularity you have it around batteries and around plastics.
I think plastics do have a chance of getting somewhere in the next five years, but batteries slightly more complicated. You didn't have, you didn't have a final point around social sustainability. I think that it was always there.
And we've actually seen a lot of investment around social, around really neat social solutions. It's just that we never really narrated it. And, and in a, in a structured way, as we do for environmental sustainability, which I do hope it will change with the push for everyone to engage with the social side of sustainability with a more structured process as we have for environmental side of sustainability, which is something we want to apply first, by the way.
So yeah. But why, when and how do you think we can get there now? Because here it's like a climate change, right? This is what pushed this whole conversation into climate solutions, biodiversity and all, and everything related to like nature and et cetera. But when it comes to social sustainability, maybe, the pandemic was a bit of a push, you know, maybe, I don't know.
But I don't know. I think it was always there. I've seen so many like nice projects with microfinance.
Most of it doesn't work, but you do have great examples of when it works. Subsidized capital. I think there are, I think there are plenty of examples of how we've done social investments in the past that were really great and really like delivered on, on what I mentioned earlier, this, this challenge of assuring market-grade returns and sustainability returns.
I do think we've seen plenty of experience in the past from microfinance to housing, et cetera, et cetera, but it's always in a non-structured way. So the narratives are overblown and it always got mixed up with, with, with development assistance. I think now, because there's this push from the private sector to engage with social sustainability and the way that we engage now with environmental sustainability, we might see a clear pathway to really identify companies that are actually delivering on affordable insurance, for instance, more accessible insurance on, on, on appropriate microcredit for, for, for SMEs, for the mom-and-pop shops that actually lowered the cost of capital and bring greater stability, financial stability for the, for the segment of the economy.
So all the way to innovative educational systems that can accelerate educational gains in, in, in Sub-Saharan Africa. Yeah. I think there's a ton of stuff in social sustainability that if we engage in a more structured way, we'll basically see that these businesses were always there.
This we could, have done a lot more. We just needed to outline it more clearly to avoid money. Yeah.
To basically avoid impact washing because there's been a lot of impact washing as well on the social side. Yeah. That's, and then it, it makes it like less attractive to invest in now because again, you don't want to be associated with this.
Right. And also because you need numbers, right. You need to be able to find the impact in, in, in order to actually like not do greenwashing or like social washing, I don't know how to name it.
It's the whole point of, we need to see sustainability, a lot of sense of environmental and social sustainability being treated more like accounting and engineering and less so like activists pushing the boundaries and et cetera, et cetera. Like whatever is mature on that side needs to slowly trickle back into, into conventional business so that the ultimate goal for me, the ultimate goal of, of, of sustainable businesses, it's actually to upsell into the large corporates because then they will take it to the mass market, to the mass market, either the banking industry or, or, or Unilever, the big fat, like the, the, the fashion brands, et cetera, et cetera. If we find solutions from food to textiles, to social services, to new materials, if you find these solutions, they are viable and you can scale up to a point of mass adoption.
That's when you see the, really see the breakthroughs because then everyone in society can consume everywhere in the world. And you can basically take these sustainable products and services to the geographies that will have to go through all the steps in development where we find ourselves in Europe or we find ourselves in, in the more fortunate parts of Latin America within our countries. So if you take these solutions and make them accessible and like massively available, instead of having to go through the painful sustainability grading processes of over, over, overuse of natural resources, stressing out the social tissue, you can enable these guys to leapfrog.
A great example is Sub-Saharan Africa. Sub-Saharan Africa doesn't, in terms of the, track to development, they don't have to go to the same on, from a food perspective, for instance, for nutrition, they don't have to go to the same, the same struggle that we've been in Brazil, which is going from undernourishment and somewhat hunger to obesity because of over caloric consumption. And then adjusting as we're seeing right now happening in, in parts of Europe and parts of the U.S., we can help these societies to leapfrog, not get stuck into the poor nutritional part and, or, or, or overindulging in, in, in animal protein and basically leapfrog towards a diet where you have plenty of plant-based protein that has a much lower environmental footprint and a much better nutritional prospect than hyper-processed animal, animal, animal protein.
So if we make sustainability work at scale with these, with, with the big arms of our economic systems, we can deliver these across the world and then leapfrog into a sustainable world. And basically shut down all the, the, the, not shut down, basically prove wrong all the skeptics, skeptics and pessimists that use these Malthusian population bomb narratives that, oh, the world's going to be screwed because after we consume the same amount of resources to develop, they won't, which is what we see in Latin America, actually, where if you give, if you give the tool society will leapfrog and then they won't consume all the natural resources or stress out societal tissue. And they will actually arrive at a higher income with a much lower footprint than the trajectories in both in the global North.
