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Experts Only Podcast #74

With Climate Impact Investing Expert Nicole Systrom

[ Founder, Sutro Energy Group ]

Our guest this week is Nicole Systrom, founder of Sutro Energy Group. Sutro Energy Group partners with philanthropists, investors and entrepreneurs to accelerate high-impact climate and clean technology solutions. Nicole serves on the board of directors for Activate, a non-profit supporting entrepreneurial scientists and engineers tackling the world’s biggest challenges; Prime Coalition, a non-profit providing funding to companies combating climate change; and the Energy Foundation.

Together with host Jon Powers, Nicole discusses the urgency surrounding the climate crisis and the ‘scientific and investment revolution’ needed to tackle it.

Nicole Systrom’s recent articles:
Listen now:

Transcript:

Jon Powers:

Welcome to Experts Only Podcast sponsored by CleanCapital. You can learn more at cleancapital.com. I’m your host Jon Powers. Each week, we explore the intersection of energy, innovation, and finance with leaders across the industry. Thank you so much for joining us.

Jon Powers:

Welcome Back to Experts Only Podcast. I’m your host Jon Powers. Today, we have a really fascinating conversation with the founder of Sutro Energy Group, Nicole Systrom. Nicole has spent much of her career facilitating innovations to help us address the existential threat of climate change. She works with fascinating organizations like Prime Coalition, Energy Foundation. She comes from a background of Stanford and has been working closely with the Stire and Taylor Center for Energy, Finance and Policy on focusing on investing in a new climate. The dialogue is about what the investment community needs to do to think longterm about solving the climate crisis, as well as what has to happen in the philanthropic community as well. But really there’s an underlining theme here that Nicole points out, which I just want to show it to amplify is that we’re running out of time. We need action and we need progress. And we are on the precipice of doing something really interesting to help solve this, but we need to act now. So, we’re going to hang some of her articles on the website so you can see them, but I hope you enjoy the conversation.

Jon Powers:

Nicole, thanks so much for joining me on Experts Only.

Nicole Systrom:

I’m so excited to be here, Jon. It’s great to see you again.

Jon Powers:

Yeah. So I want to talk a little bit about your fascinating background and sort of what led you to do what you’re doing today. As we were talking offline, you grew up in Chicago, moved to California for school. Have you always been interested in the environment?

Nicole Systrom:

Well, so, I grew up in a town on the shores of lake Michigan. So I always loved being outside, but I would say it was actually, as I was growing up, all of the kind of national parks that we traveled to mostly Yosemite here in California, that really, I think made me really sort of understand the power and majesty of the planet and nature. That was really exciting. And then in college I think is really where my whole interest in working on the planet and the environment as my life’s work really kind of came into focus.

Jon Powers:

That’s amazing. Yeah. You went to Stanford. What did you study at Stanford?

Nicole Systrom:

I was an earth systems major, which is an interdisciplinary program and environmental science and policy and economics. I would say I was a student who I really was interested in lots of different topics. So part of the reason I wanted to go to Stanford was because Stanford is lucky to let students take classes wherever they want to take them. But I didn’t know about the earth systems major before. I just took the intro to earth systems class just to fulfill a general, like the science requirement. And I got in the class and I was like, oh my gosh, this is the coolest thing. This is amazing. Can I just take class four times a semester for the rest of my… So I’m in college. And so I figured I should major in it and it was awesome.

Jon Powers:

That’s amazing. Yeah. And so we were talking before, you ended up interning for basically the version of EPA within San Francisco. And it sounds like in that experience, you were doing both environmental stuff, but you were also engaging in the business community. Was that a plan you had, or did that just sort of happened to work out and it really sort of opened your eyes to the business side of it?

Nicole Systrom:

Well, I think one of the major benefits of the earth systems program was that I felt like it really trained me to think about solving environmental problems from a very holistic perspective. You can’t just look at the biology of here’s how a forest grows and what it needs to regenerate itself. You also have to consider that people are going to live near that forest and they’re going to want to eat. And we do get some things out of forest, which are good for society. And so I think from very early on in my academic career, there was definitely that seed planted of don’t just look at the geology or don’t preserve polar bears for the sake of preserving polar bears, understand how humanity, how society interacts with the planet. And the business community is a huge part of that. So, yeah. Yeah.

Jon Powers:

As you’re sort of moving throughout your career, was there a moment for you that went from the idea of the environment to climate change? What sort of triggered your interest in that? Because we’re talking sort of late 2000s, transitioning into 2010.

Nicole Systrom:

Yeah. Yeah. So that was also in college. So my, I would tell you, my degree is in earth systems, but it was really all my classes were about climate change. There’s their title and then there would be like subtitle climate change, or a third of the class would be about how climate change affected whatever it was that the topic of the class was about. I graduated in 2006, which was like run up to an inconvenient truth coming out, which at that time, you’ll remember it was like the height of public awareness about climate change. So kind of that’s where I got… I was like, do I care more about this? Or do I care more about oceans or whatever? And then through college, it just kind of came to the place that climate is the thing that affects all of those environmental issues and at the root of all of it. So decided that’s where I wanted to spend my time.

Jon Powers:

Yeah. Well, first of all, glad you’re doing it because it’s critical for all of us. So in that process, you started focusing on a variety of things career-wise. Now you’re really focusing on, and we’ll talk about more of this later on on investments and how folks are really moving capital into the space longterm, but you sort of professionally grew up in and around Silicon Valley being where you live. And it’s a place where people are taking bets on how fast we can get downloads of an app so that they can quickly monetize this in two to three years. What for you was the trigger point mentally to say, okay, because this is not how clean energy works, right? We’ll talk more about that later. But that the idea that this more patient capital, this long-term investment strategy was really critical.

Nicole Systrom:

Well, let me back up a little bit. I would say I started my career in the nonprofit sector, working on policy, working on forest carbon offset policies that could basically create a revenue stream for forest owners to keep their forest standing, moved to a little company called Terra Pass, where we were generating carbon offsets for sale. And part of the whole idea behind Tara Pass was that we were going to get some laws passed that would make carbon offsets incredibly valuable. And that was when, I mean, I remember the day at Terra pass when Waxman-Markey, the big climate bill of that era was being voted on. We literally projected C-SPAN on the wall and watched the vote as a company. And then of course what happened next, it didn’t pass the other Chamber of Congress. I can’t remember, I guess it started in the Senate. And then it just didn’t pass the House.

Jon Powers:

No, it passed the House. It didn’t pass the Senate. It was Carrie Graham and those guys who weren’t able to get done.

Nicole Systrom:

They just couldn’t get it passed the Senate. And that was really how young and naive I was, a really devastating day for me. But I think what that did was it sort of sparked in me this idea that I don’t know, it pointed up to me the benefits of the private sector, where you can be nimble, where you can move quickly, where if you have a good enough idea and enough people like it, you don’t have to have a policy that’s driving it. So that took me down a path of what can the private sector do? How do we make the case to business leaders that this is the right path to go down? So I ended up going back to business school and doing research at business school on these topics.

Nicole Systrom:

And after business school focusing more broadly on bringing more resources into this space and the more you get into it, the more you understand, I guess the other sort of atmospheric thing that was happening at the time was it was kind of 2010-ish, 2008 to 2010-ish, that was also the height of the clean tech 1.0 venture capital investment wave, which was where Silicon valley thought, okay, we’ve got this internet thing also. Now we know what we’re doing here. What else do we need to do now? Green tech, it was called at the time, green tech. Not clean tech. And so there was a lot of, I mean, Terra Pass was venture invested. It was a venture company, venture investment.

Nicole Systrom:

And so that wave was also sort of cresting as I was entering and going through business school where all of those venture investors were realizing that like, oh, we didn’t really quite-

Jon Powers:

I can’t exit in three years from this, what’s wrong?

Nicole Systrom:

I thought this battery company would be just like an app. And although we didn’t call them apps at the time, it would be just like a software company and surprise, they’re not. And so that really started me thinking about what are the other kinds of capital sources that are needed for clean energy companies and technologies and what is the actual path to getting these technologies to growth and scale?

Jon Powers:

Yeah. So you started your organization, Sutra Energy Group, and you sort of work with a variety of folks, right? You work with Prime and Energy Foundation.

Nicole Systrom:

Yeah.

Jon Powers:

Can you talk a little bit about the effort of Sutro and how you got started and some of the things before we get into the other conversation, I would love to hear more about your efforts there.

Nicole Systrom:

Yeah. So I would say I started Sutro after business school and it was never my intention to start it. I think I just…

Jon Powers:

What does Sutro stand for by the way?

Nicole Systrom:

So Sutro is a reference to when I founded the company, I lived in San Francisco and Sutro is just, I was going to… Well, this is a funny story. I was going to name it the Chutes Energy Group. And my boyfriend, now husband looked at me and said, you really want to name it that? So I was like, oh, oh, okay. Okay. I’ll take the hint. I’ll stay with Sutro instead, which is just Sutro is a kind of a San Francisco cyan and so that’s really where the name came from. Just really as I need to name this. What’s the name?I didn’t really think much more about it than that.

Nicole Systrom:

I got it started really after business school, I graduated off cycle because I did an extra degree in environment and resources. And so then I was kind of looking around, I missed the recruiting piece that business school often kind of to, and just as I was taking a little bit of a breath, I had friends and colleagues just kind of start to call me up and say, Hey, I have this project. Would you do this project for me? There’s this question I need to answer with respect to some aspect of our climate investment work. And so I just started doing a bunch of essentially consulting projects and decided that I really liked it. And I really liked how I could have my hand in different areas and sort of learn a lot about what people were doing and the NGO community and the business community, and think about philanthropy and investment. And so I just kind of rolled with it and I’ve been lucky to have lots of fun projects to work on all sort of aligned around bringing more resources to climate positive activities and companies. And yeah.

Jon Powers:

I mean, you’re working with some really incredible groups. I mean, you look at whether it be Series or Energy Foundation or Prime, and really some of the most forward leaning organizations thinking about this. So I do want to talk for a second about your recent article on the World Economic Forum. It was really interesting. And first of all, I think there’s often a long conversation on finance and climate and energy, not always around climate as a whole. So whether it be agribusiness water, I do like the way you sort of hit on a variety of different pieces there. We do focus heavily obviously here on energy.

Jon Powers:

One of the things you talked about, there’s sort of two key requirements for sort of decarbonizing the economy by 2050. And I want to go into these a little bit. One is the massive investment in innovation in areas like electrification and long-term storage. And then of course, investors who are patient enough to see this pay off. I think that there’s two different pieces there, right? We talked a little bit earlier about the venture community not looking at this as a traditional sort of short term ramp up in exit. And then two is who’s investing in the longterm sort of assets that are building the foundation across the country. So let’s tackle the first one first. We’ve seen a progression with the breakthrough effort with Gates and others. What else are you seeing in the venture community that gives you hope that there is capital moving into that longterm sort of patient structure around venture?

Nicole Systrom:

Yeah, well, I mean, I think one thing, well, just like a foundational thing that gives me hope is I think people have their eyes open now about what it takes to build and grow these companies. And so that’s good. I think the pendulum, I mean, we can talk about this more if it’s interesting to you. When I think about green tech 1.0, everyone saw that these investments will exit just as fast as software companies. And in fact, we are investing in companies that will/are relying on policy, that we are going to get a carbon tax passed and then this company is going to be a rocket ship.

Nicole Systrom:

And then of course those policies didn’t get passed. And then we had this huge backlash, don’t invest in anything related to policy. Don’t even talk to me about policy. If you pitch me, if your pitch has anything about policy in it, done. It’s in the pile. I think now the pendulum has sort of swung back to an understanding that policy is important and I don’t think any company wants to put forth a business plan that is entirely dependent on some policy occurring somewhere, but you need to be able to take advantage of policy. And I think investors are starting to understand that. I think we’re in a better place with respect to that.

Jon Powers:

There’s a Strategic advantage if you understand policy, and especially now it’s such a state level game, if you can figure out where the markets are going to develop ahead of time, you’re a hundred percent right.

Nicole Systrom:

Yes.

Jon Powers:

So key to what I’m working on.

Nicole Systrom:

And well, just as a side note, I think one of the issues now is that, my hypothesis, and I wonder what you think about this and the kind of projects you work with is we now have a generation of entrepreneurs though that have been trained to not think about policy. So everyone’s relearning or needs relearn or re-engage. So I think there is a whole kind of area of training that we need to ramp back up for entrepreneurs, but that’s sort of a side note.

Jon Powers:

No, I 100% agree with you. I feel like you often, also though have entrepreneurs that are coming from maybe an engineering background, or a pure finance background where they’re looking at the markets, but not looking at how do you get some of the blocking and tackling done to make sure the framework is right where you can actually build a project in a place like.

Nicole Systrom:

Yeah, yeah, yeah, no, for sure.

Jon Powers:

I think you’ll appreciate this. When we were raising our series A, cleancapital was going out and we sort of positioned ourselves as a FinTech company and we had trouble getting traction in the clean energy venture space. They were really pushing us to do more for instance on crowdfunding when we were talking to FinTech investors and we ended up getting a whole series of FinTech investors into our series A, they just saw a new asset class. Like oh, we don’t know anything about solar. Can you tell us about how this works? And once we educated them on what PPA was, they’re like, oh, this is awesome. And we didn’t really have any clean tech investors, or very few in our series A. We have raised since then but we only had basically FinTech players who came in.

Nicole Systrom:

Well, I guess I would say that’s another thing that gives me hope is people are seeing how climate is more than just one thing. And there’s so many solutions that we need to address it. We can develop all the great technology we want, but if we don’t have the right financial instruments to deploy that technology or manufacture it, who cares? So I’d say that’s another thing. Another thing is you mentioned breakthrough, there have been a bunch more funds raised that are entering the space. And my view is that they’re mostly in the growth stage, so there’s still a challenge at the very early part of the kind of first steps out of the lab, part of the innovation spectrum, but there are many more funds out there, which is great. Ans the other thing, which I think is adding to that, which is hopeful is we’ve got Tesla now which shows that you can build a great big fat, sexy company that is good for the environment. So those are all good things.

Nicole Systrom:

I also think just going further down this kind of financial innovation path, there is more kind of growth venture money, but I also think there’s recognition now that clean tech companies often need different kinds of capital in addition to venture. They need project development finance, or just other kinds of investment capital to get companies in the first deployments, first projects, first plants. And then, I mean, you guys are a part of this revolution, but once you get to the point of your technology is mature enough, how you just kind of get that technology out the door and being able to have a pool of capital so that a homeowner can finance solar on their roof without having to put 30K down? Great.

Jon Powers:

Yeah. I mean, I think the idea for us is I always refer to as deployment capital. The more we can get the cost of capital down to get these projects in the ground, the more we have the long-term mentality that I think 2008, 2010, 2012, people didn’t know what a power purchase agreement was. Couldn’t spell PPA. They didn’t know if solar panels lasted 20 years like they talked about. But now you have this massive corporate demand calling for projects and people committed with good credit to pull the power. It’s interesting to see the divest movement that’s happened along the long-term institutional investors. And I think we’re just at the precipice of the investment where they’re starting to now put their money where their mouth is in terms of putting the capital at work.

Nicole Systrom:

Yeah. I also think just on the corporate note that there’s definitely more interest among the big industrial corporate players to engage with earlier stage technology, because again, this isn’t like an app where you put it on the app store and a bazillion consumers download download it, or pay you 30 bucks a month, or whatever it is. Many of these technologies, the ultimate buyer is a corporation. Either at the technology or the way that the technology can most effectively is by acquisition. So having a generation of entrepreneurs and innovators who are skilled in interacting with large corporations, we’re starting to see that happen as well, which is great.

Jon Powers:

Let me pivot for a second to another focused on philanthropy.

Nicole Systrom:

Yep.

Jon Powers:

Because there’s been, I mean, especially now, we are both doing this interview while somewhat sequestered in our house because of COVID. And so it’s an interesting time, and as people are thinking through how they’re going to be investing their philanthropic dollars, what has to change there and we can take it out of just energy for a second, but to really drive the climate solutions we need so that in 2030 and 2050, we’re looking back and seeing this as a decade of growth and answers.

Nicole Systrom:

Yes. Well, a lot of people look to philanthropy as sort of like philanthropy will fix this. Philanthropy will fill this gap. And when I say a lot of people, what I mean is people outside of philanthropy. I can’t tell you how many conversations I’ve been in where I’ve been in a room and it’s like a bunch of investors, or maybe it’s some investors and corporate folks. And they’re like, oh, we have this big gap here and no one wants to pay for it. What do you do think about philanthropy, Nicole? Can philanthropy?

Nicole Systrom:

That being said, philanthropy is a precious resource. And I think smart philanthropists want to be sure that what they are investing in, especially when it comes to climate is an area that gets them a lot of leverage, a lot of bang for their buck. And so to date, most of climate philanthropy has been focused on policy, which is great and wonderful and a very smart-

Jon Powers:

And when you say that you’re sort of advocating and trying to drive change to policy.

Nicole Systrom:

Yeah. So like-

Jon Powers:

Energy Foundation.

Nicole Systrom:

Yeah. Energy Foundation is a great vehicle, a great example of this, providing all of the technical support and analysis so that the right kind of policies are designed and eventually get passed. Right?

Jon Powers:

Right.

Nicole Systrom:

As a way to level the market, level the playing field, develop markets for we’ve already talked about policy and its effects on innovation in this conversation a couple of times, so that’s great and wonderful, and we absolutely a hundred percent need it and everyone should go vote, please vote. Vote at the federal level, vote at the state level, if you care about climate, make it a voting issue. But philanthropy is a unique… I think we also, from now speaking from the philanthropic world, we also have to face the fact that all of the wonderful work that climate philanthropy has done in the past 20 years, which has had a very, very large impact on our world trajectory for sure. It’s not enough. We’re not getting there fast enough. So what then as philanthropists, can we do, how can we be more creative? What new things can we try? And I don’t know, I think we need to acknowledge the fact that policy is it’s not enough on its own. It’s so important and it’s not enough.

Jon Powers:

Especially when it can be completely undercut by a new president.

Nicole Systrom:

Yeah. When it can be completely undercut by a new president or it’s also just… the other thing I think about a lot with climate these days is we’re just running out of time here. We can’t wait 15 years to get it right. We just have to start doing it. And I think one of the things that is really wonderful about philanthropy is that it is a pile of capital that the whole goal of it is to achieve some societal benefit, like some societal impact. Right?

Jon Powers:

Right.

Nicole Systrom:

And when it comes to climate, you can give that money away as grants or you can start to ask yourself, are there ways that we can inject philanthropy into the capital market system in ways that kind of juice things up and bring other sources of capital to the table? I loved your story about how your first round was mostly FinTech funders. It wasn’t climate funders, or I guess, clean tech funders at the time. Can we use philanthropy in smart ways in kind of tiny amounts, but in ways that make an investment or a project or a program demonstrate its worthiness for mainstream investors to come along behind the philanthropists and kind of grow it to scale?

Nicole Systrom:

And I would go even a little bit further there, most philanthropists kind of have this wall between what’s the program money, what’s the grant charity money and then how does the investment capital that foundations, donor advised funds are growing to provide that charity money to give away?

Jon Powers:

Yeah.

Nicole Systrom:

I think philanthropy is going through this really interesting moment where people are really starting to look at we only give away 5% of our money every year. This other 95% is sitting there, what is that doing? If we’re invested in oil and gas markets and our portfolio and the profits from that is what we’re using to give away to charity, that seems not productive. So I’m really excited to see so many philanthropists really kind of start to think that through, and at the end of the day, all of that money, both the investment capital and the grant capital is supposed to have an impact. It’s tagged for impact. It will go to impact eventually. And so what can philanthropists do today to actually start making sure that that’s all working towards the ultimate climate goal we want right now, instead of in the future sometime?

Jon Powers:

Yeah. That’s fascinating. And I love the fact that you sort of framed it up as we’re running out of time and really thinking through getting some of these next tier solutions at the table so that it won’t need philanthropic dollars or impact dollars. It just becomes an asset that people are investing in because it makes sense. It’s like insurance companies looking at climate as a risk issue. Right?

Nicole Systrom:

Exactly. Yeah.

Jon Powers:

They’ve known it for 10 years. They’ve seen it coming, they haven’t been addressing it, so.

Nicole Systrom:

Yeah. Yeah. Yeah.

Jon Powers:

Nicole, this is fantastic. Listen, it’s been an awesome conversation. I love the work you’re doing and want to find ways to help elevate it because it’s so important to the dialogue that we’re having right now as a country. If you could go back to yourself in Chicago before you headed out to Stanford and could sit down, or maybe when you’re graduating Stanford and can have a beer or a coffee when you’re in high school with yourself, what piece of advice would you give yourself?

Nicole Systrom:

Well, I think probably the main piece of advice I’d give myself is that life is long. We’re not fixing this problem in five years. It’s not like a college career Where you after four years, you graduate and you get your big, shiny star that you did it. That climate is so much bigger an issue than you think it is right now. And I mean, one thing we didn’t even really get to talk about in this conversation so far as I would say I started being passionate about climate change from the perspective of, oh, I love the mountains and I love the oceans and whales and polar bears and happiness. This frog deserves to live its life. And I’ve really in the past five, ten years really transitioned just to the belief that climate change is like, yeah, it’s great. I love the planet, but this is about people and our safety and I’ve got young kids now. We’re already seeing massive amounts of people displaced from climate related disasters, influences. It’s hard to tie anything specifically to climate, but when you kind of zoom out, you’re like, well, what other explanation could there be?

Nicole Systrom:

And so I guess that the advice I would give myself is you got to figure out or just be aware that this is a lifelong project, and you’ve got to figure out how to engage in it in a way that is sustainable for you so that you’re not…

Jon Powers:

It’s good advice.

Nicole Systrom:

It’s so funny to me, when we talk about that day, the Waxman-Markey bill day. And I remember being so devastated after the bill didn’t pass the Senate. And I mean, at that point, Jon, it was early in my career. There were people that had been working on climate change for like 20 years. And so the fact that Waxman-Markey even passed the House was the big, huge, apex commit, the achievement of their climate careers. And just so the advice I would give myself would just like, you’re 22 and you have no perspective, try and have some perspective.

Jon Powers:

No, it’s good. It’s so funny. You keep talking about them because I actually didn’t get into climate until literally that moment. I had been in the military and then had started to write on climate change. And National Security had a piece on Huffington Post that was read by someone in the Senate. And I ended up testifying to the Senate right prior to that vote on the national security implications of climate change. And that was the trajectory that launched the rest of my focus.

Nicole Systrom:

Wow.

Jon Powers:

But also seeing that fail for me was just this unbelievably enlightening moment where I watched moderate sort of blue dog Democrats who had voted for climate getting crushed by the oil companies politically, and realizing that we didn’t have an infrastructure as a movement yet to really start to fight back against the status quo. And hopefully it’s changing. And I’ve been working to do more around that. I serve on the board of EDF and some other places trying to drive some of that change. But it’s just so critical for us to act as a grownup institution now, we’re not just hoping to get this done, but we’ve got to be able to battle the status quo each every day, so.

Nicole Systrom:

Yeah. Yeah. Yeah. Yeah. Yeah.

Jon Powers:

Nicole, thank you so much. This has been awesome. Love the work you’re doing. And I want to just thank your team for the effort they put in helping to put this together. Melanie, Victoria, thank you so much for that. And our producers, Courtney Flynn and Carly Baton. For all those listening, you can get more episodes at cleancapital.com and we’ll make sure we hang Nicole’s articles so you can access them and see some of the great stuff she’s putting out. So thank you so much.

Nicole Systrom:

Thank you. It was really, really fun. Great to talk to you.

Jon Powers:

Yeah.

Jon Powers:

Thanks for listening in today’s conversation. Find more episodes on cleancapital.com, iTunes or wherever you get your podcasts. If you liked what you hear, be sure to subscribe and leave us a five-star review. We look forward to continuing our conversation on energy, innovation and finance with you.