My journey and decision to enable companies to tackle the world’s pressing sustainability problems by building new Scope 4 businesses
If you only have a minute:
Most people, governments, and businesses acknowledge that we are running out of time to address climate change, biodiversity loss, and waste pollution before catastrophe arrives. Despite that acknowledgment, there is still too much talk and too little action because the status quo resists change and because people tend to give up when problems seem too big and too far beyond their control.
Most organisations see ESG as a hassle and a cost, even as the pressure to take urgent action increases daily, most businesses are responding with the bare minimum effort that manifests itself as greenwashing, superficial CSR or net–zero targets two decades away with little substantive action behind them. The few companies that are taking substantial action are still primarily inward-looking, limiting their potential impact to only reducing their own Scope 1, 2 & 3 emissions.
Wright Partners advocates more for the outward-looking, impact-enabling approach of Scope 4. We see the opportunity for organisations to build high-value ventures with comparatively low environmental impacts and enable their customers to reduce and avoid their emissions too. We build these new ventures from scratch for corporates, family offices, and HNWIs to be free from internal corporate constraints but tailor-made to leverage the corporate’s unfair advantages.
The burning platform
In 2010, when I first started working on climate change and sustainability issues, climate change scepticism, if not outright denial, was widespread. The science behind it was already pretty clear, but climate records weren’t being shattered as dramatically as they have been recently. Potential solutions to avoid the worst effects were known but not as well developed or funded (though we can partly thank the Global Financial Crisis for that last point). Fast forward to today, and few people deny that climate change is very real. The strategies and solutions on how to avoid 1.5C have been clear for decades, and more public and private funding is available than ever before. So why are we almost certain to miss the 1.5C threshold and possibly reach 3C? Why is there still too much talk and too little action? Why are some of the best available solutions receiving damaging criticism from climate allies? Why do so many of the companies falling over themselves to make “green” commitments and products get exposed for greenwashing?
The problem with business as usual
The full explanation is complex, but I’d like to focus on two major factors: incumbency and people’s tendency to become overwhelmed by big problems. Other reasons beyond the scope of this article include short-termism, cynical reputation management, the regulatory environment, a lack of knowledge and expertise, and (perceived) lack of alignment with existing businesses. Incumbency can be an advantage, but when the environment changes, it is more often associated with myopia and the inertia of the status quo. It is a classic strategic problem whereby organisations stick with what has worked in the past rather than risk the tried and tested formula that got them to their current position. At the individual level, there is the human tendency to become demotivated, give up, and do nothing when faced with big problems beyond one’s locus of control. Together, these two effects conspire to create a creeping normality until an acute motivational pressure is applied, or, in other words, when s**t hits the fan. But the threshold at which s**t hits fan is usually not defined.
A worldwide shutdown due to COVID-19 was seen by many as the acute pressure needed to finally accelerate the switch to clean energy, but as economies reopened, carbon emissions came roaring back. Instead, according to one recent analysis by The Economist, it took a war in Ukraine to accelerate the green energy transition by 5 to 10 years. Without such a dramatic burning platform, it’s arguable that most businesses default to the bare minimum of activity in order to avoid the worst publicity or consequences. The end result has often been either superficial CSR programs run by foundations and PR departments or misguided greenwashing that naively (or dishonestly) attempt to cater to customers’ very real demand for sustainable products and services. There may even be a 2050 net-zero goal, a glossy ESG report and some splashy events, but there is no in-depth GHG footprint calculation or action to reduce it.
I had first-hand experience with this in a previous role with one of SEA’s most distinguished unicorns. I was trying to develop a solution with the sustainability team of a very large FMCG company that has been making major plastic recycling claims for years. The idea was for the FMCG company to pay us to collect plastic waste from small shop owners on our platform and take the waste directly to the FMCG company’s recycling plants. This would cut out several intermediaries and reduce the net cost of recycled plastic. However, after several months, discussions stalled before their sustainability team finally admitted that the plan was only a marketing effort with a very small marketing budget that would only cover a portion of one city. Furthermore, they wanted us to match their budget contribution. Since we had approached this as a commercially viable “triple win”, for both parties and the environment, the project unfortunately never went any further.
At the end of the day, it was just PR, even though I remain convinced that the FMCG’s sustainability team genuinely cared about plastic waste and wanted to do something substantial. They simply were not empowered to do more. Thankfully, more and more organisations are at least making serious commitments to calculate and report their scope 1, 2, and 3 value chain emissions. This is critical, but unless action is taken (excluding offsetting), it is just an accounting exercise with little impact. While crucial, any action taken on scopes 1, 2, and 3 is predominantly obligation-focused and inward-looking to the value chain of legacy businesses. Convincing upstream and downstream partners to limit their GHG emissions is asking them to help you rather than you offering to help them.
Reintroducing Scope 4 (aka the Enablement Effect)
How can a business overcome this inertia and address the generational issues of pollution, climate change, and nature loss? By framing and tackling them as “the greatest commercial opportunity of our age” while delivering sustainable impact, rather than avoiding them as distracting, costly obligations. Despite its valid criticisms, the VC-startup ecosystem offers some solutions. To start with, the inherent creative destruction of early startups is a natural force for overcoming incumbency. Secondly, the upside potential incentivizes people to rise to the challenge with the hope of solving big problems against all odds.
Taking this creative, opportunity-focused approach means developing new high-value, low-impact products and services that help others meet their own sustainability targets. This is the less well-known Scope 4, defined as reductions that occur outside of a product’s life cycle or value chain, but as a result of using that product.
If you’re asking yourself, “Isn’t the use of my product already included under Scope 3?” you’re correct. In Scope 4, though, the comparative emissions of your business-as-usual products and new, low-carbon products are the focus. The “Enablement Effect” was the name given to it in a 2019 study by the Carbon Trust and the GSMA, the trade association for the mobile technology sector. The study claims that the 2019 emissions savings from using mobile technology such as IoT were ten times greater than the global carbon footprint of the mobile industry itself.
But as an actual driver of change in support of the above, innovating scope 4 enabling products should be done in three different ways:
- Creating new product lines under the existing organisation is the first possibility which raises multiple questions:
- Can an old dog learn new tricks?
- Does your existing business have the knowledge and willingness to develop new products, and can it do so quickly without too much internal resistance?
2. Corporate venture capital is another option, but balancing between financial returns against strategic ones and coming in too late to ventures can create difficulties.
3. A third option, where Wright Partners excels, is corporate venture building. In this scenario, a new venture free from internal corporate constraints is built from scratch and tailor-made to leverage the corporate’s unfair advantages.
Corporate venture building for sustainability is all about taking action and pursuing sustainability while ensuring that the business built is long-term sustainable, i.e., it makes money on its own and can raise money by itself. It means applying what the parent businesses know best (their assets) to goals beyond just profits. A few examples of this are:
- A logistics company that creates a new service filling trucks that used to be returning empty so that they now return full. By displacing another logistics provider who may also only have been full in one direction, they avoid 1–2x the emissions that would have occurred. The innovation here is that the marketplace for the return trip can be cheaper than the original trip, with the original shipper possibly getting benefits from an overall lower costing round trip.
- A palm oil company that reduces emissions and improves biodiversity on its plantation by reducing pesticide use and instead deploying silviculture to manage weeds and generate natural fertilizer (manure) or by leaving epiphytes on trees since research shows that they do not negatively affect FFB yields. The new business makes the parent business more sustainable by providing services while being scalable and independently profitable. With learning, it can be sold to other competing or related plantations.
- A mobile operator that uses its network management capabilities and distribution capacity to promote IoTs for fleets or client businesses to allow them to manage and reduce their overall emissions. This can be a new venture for the mobile operator to learn about IoT (and better deploy their 5G) and be a standalone business.
(You can find more thoughts and ideas on building impact ventures with corporates in our piece on creating net-positive corporate ventures.)
We at Wright Partners, working with MING Labs, are the first venture builder specialising in building Risk-aligned, Investable Corporate Ventures. As we see the success of our ventures, we are proud to say that most of them touch on sustainability. In fact, two of our portfolio companies, Pitik and Agriaku, were recognized in the 2022 HolonIQ South East Asia Climate Tech 50. Agriaku focuses on providing the right inputs at the right times for farmers, thereby improving productivity per hectare and reducing land needs while minimising input usage. Pitik, on the other hand, focuses on increasing the food conversion ratio of raising chickens in Indonesia, producing more protein from fewer inputs. We look at sustainability across the various industries we build in (Agriculture, Logistics, and Banking to name a few) and in all the regions we work in, from South East Asia to Europe.
We sincerely want to build new, more sustainable businesses by learning from the disruptive approaches of startups and applying the fantastic assets and advantages that companies and their ecosystem players have. Having done it before and possessing more experience across multiple industries, we look forward to ensuring that the future looks brighter from a sustainability and profitability perspective.
In conclusion, while it is clear that work needs to be done to transform existing businesses to be more sustainable, creating new businesses with a sustainability lens should be simpler, AND creating new businesses that can actively work to improve others’ sustainability while still being profitable should be a clear focus.
We are also pleased to be an appointed venture studio of EDB’s Corporate Venture Launchpad 2.0. CVL 2.0 is an expanded S$20m programme by EDB New Ventures, designed to enable companies to incubate and launch a new venture from Singapore, supported by venture studios experienced in corporate venture building. You can also find out more on our website.
Interested to learn more about investable ventures? Drop us a line: contact@wright.partners
Written by:
Simon Sjahrir-Wright, Venture Partner at Wright Partners
With contribution from:
Ziv Ragowsky, Founding Partner at Wright Partners
Sebastian Muller, Co-founder at MING Labs
