The new normal: Digital Sustainability

Software feeds sustainability

© Monitorfish, Annual Statement Rentenbank 2018

Foreword

What were the reasons?

1. Politics: the political framework was rudimentary at best. Despite many changes, it still did not result in proper sustainable production as prices were not placed on the use of environmental goods.

2. Markets: the markets for sustainable solutions hardly existed and were often based on short-term subsidies.

3. Corporates saw sustainability more as an image factor than as a component of their corporate strategy — something no doubt utilities and automotive groups regret today.

4. Sustainable Venture Capital investors focused primarily on capital-intensive hardware start-ups with long development and sales cycles.

What is different today?

1. Politics: 196 countries have signed the Paris Agreement and agreed to limit global warming to at least 2°C. This agreement has led to pricing on environmental goods (previously used for free). Now companies will have to bear an increase in cost when using the environment.

2. Markets: the markets for sustainable solutions continue to grow, be it in the energy, mobility, or real estate sector. And consumers want sustainability and are even willing to pay more for it.

3. Corporates are integrating sustainability into their corporate strategy and see it as a necessary change (and no longer, a green crank). BP, for example, has decided to be CO2 neutral by 2050 — an oil company!

In short: we are facing the dematerialisation and decarbonisation of the entire economy. It could be the greatest creative destruction since the Second World War.

What does this mean for Venture Capital investors (VCs) and start-ups? It is less about making a positive impact — ultimately, every company should make a positive impact. It’s about an incredible business opportunity. VCs and start-ups have already benefited from the digitisation of many markets over the last 20–30 years. Now the challenge is to use digitisation to dematerialise and decarbonise the entire economy: The Digital Sustainability Revolution.

1. Background: Wealth gain < Wealth loss

”Economics is the study of how societies use scarce resources to produce valuable goods and services and distribute them among different individuals.”[1]

Undoubtedly, the world has seen an enormous material gain in prosperity. However, this gain in prosperity is based on the overexploitation of our resources. This same rate of exploitation cannot continue and is therefore not sustainable.

All data and research results of the leading scientists assert that climate change is man-made and can no longer be stopped, it can only be limited. But this requires radical measures.[2] Moreover, the direct health and social impacts are considerable.

So, in summary, the gain of economic growth is becoming more and more outweighed by the losses. We may even experience a loss of prosperity— depending on how the influencing factors are measured and evaluated.[3]

To measure the actual wealth of a nation the United Nations developed the Inclusive Wealth Index which includes not the income flow, but the total asset base of a nation based on:

“(i) manufactured capital (roads, buildings, machines, equipment),

(ii) human capital (knowledge, aptitude, education, skills), and

(iii) natural capital (forests, agricultural land, rivers and estuaries, the atmosphere and the oceans — ecosystems more generally — as well as subsoil resources).”[4]

Depending on what is included in the calculation and how it is valued, the UN concluded that only 81 out of 140 countries could increase their inclusive wealth since 1990.[5]

NASA Earth Observatory
Aral Sea abandoned boats, photograph courtesy of Ismael Alonso, Copyright 2011

Why is this the case? Economics is ultimately about managing scarce resources. It is about the efficient production of valuable goods and the distribution of these goods. The market economy has proven to be a very efficient allocation mechanism for this. However, this efficiency is only apparent if all goods used have a corresponding price and are included in the calculation:

Economic output = f(Labor, Resources, Capital, Technology, Entrepreneurship).

This was and is not the case for many environmental goods. For example, the pollution of air, water, and soil was charged to the general public and next generations. The same applies to the atmosphere. Greenhouse gases are emitted for free, although the absorption capacity of the atmosphere is limited. In other words, the scarcity of all resources used in production is not reflected in the production function and, consequently, misallocation takes place:

Economic output = f(external environmental goods, labour, resources, capital, technology, entrepreneurship).

This misallocation not only leads to enormous wealth losses for the general public and next generations, but it has also assumed proportions that threaten our livelihoods. To put it bluntly: either we change it or we destroy our livelihoods in the medium to long term. This has all been known for decades and is nothing new. But what is new?

3. Sustainable development: tipping point reached

3.1. Politics: Agenda 21 & Paris Agreement

As early as 1992, the UN adopted Agenda 21, which calls for such development. In the years that followed, there were many more conferences and agreements, but ultimately only a few concrete activities. For many governments, sustainable development was opposed to economic growth and prosperity and was equated with renunciation. Consequently, global greenhouse gas emissions have further increased by 40% since 1990 [7].

This has changed. Sustainability is now not only seen as necessary from an environmental point of view, but it is also seen as a chance for economic development.

Eventually, in 2016 196 nations signed the Paris Agreement:

”The Paris Agreement central aim is to strengthen the global response to the threat of climate change by keeping a global temperature rise this century well below 2 degrees Celsius above pre-industrial levels and to pursue efforts to limit the temperature increase even further to 1.5 degrees Celsius.“[8]

To reach this goal of at least limiting global warming to 2°C we have to reduce global greenhouse gas emissions by 65% by 2030 and we have to become even net-zero by 2050. According to the OECD, this means for the G20 countries that they have to invest only in infrastructure USD 6.9tr pa for the next 15 years. However, OECD also expects positive growth effects of 4.63% by 2050 (including estimated avoided climate damages).[9]

Governments worldwide have taken a variety of measures to implement the Paris Agreement, ie the European Union has further strengthened the EU Emission Trading Scheme[10], introduced emission targets for car manufacturers[11], and announced the European Green Deal aiming to make the EU climate neutral by 2050[12].

Whether or not these measures are sufficient, is questionable. However, there is no doubt that significant steps are being taken and these will have a great impact on existing economies.

3.2 Consumer: choosing “green” is becoming normal

“Almost 80% of North Americans want to know the origin of the products they buy, and 69% of these consumers would pay a premium for brands that provide this information. (…) Globally, nearly eight in 10 consumers surveyed say they value sustainability. Over 70% of these respondents would pay, on average, 35% more for eco-friendly brands.”[13]

Other studies paint a similar picture:

“FMCG Gurus research shows that 61% of European consumers are concerned about the state of the environment. (…) in Europe they are mostly concerned about global warming (50%) and reducing their carbon emissions (52%).”[14]

There is a big gap between noble intentions and actual action. Nevertheless, it turns out that conscious consumerism is on the rise.

3.3 Corporates: net-zero carbon by 2030–50

This has changed. Today sustainability is seen as an integral part of the corporate strategy, and the entire company is re-aligned. This realignment is no longer green crankery but is rather a necessity to remain competitive in the future. Here are some more or less arbitrarily chosen examples:

Amazon: “This is Amazon’s commitment to be net-zero carbon by 2040. In addition, we are on a path to powering our operations with 100% renewable energy by 2025. “[15]

Apple: “Apple today unveiled its plan to become carbon neutral across its entire business, manufacturing supply chain, and product life cycle by 2030. The company is already carbon neutral today for its global corporate operations, and this new commitment means that by 2030, every Apple device sold will have net zero climate impact.”[16]

BP: “BP today set a new ambition to become a net zero company by 2050 or sooner, and to help the world get to net zero. (…) BP’s new purpose is reimagining energy for people and our planet. (…) To deliver all this, BP will fundamentally transform its whole organisation, and maintain its commitment to performing while transforming.”[17]

Siemens: goal to be carbon neutral by 2030.[18]

Volkswagen: “Our passenger cars are responsible for 1 percent of global CO2 emissions; we want to bring that down to 0 by 2050, at the latest. That is how we are making our contribution to the global climate.”[19]

This list can be expanded quite easily. One would think there is a competition to see who sets the more radical sustainability goals. In the past, there were many declarations of intent, but now sustainability is anchored deeply in the corporate strategy.

3.4 Tipping point reached — sustainability is here to stay

In abstract terms, this means: the global economic production function is changing. Politicians are setting new frameworks, ie the aforementioned Emission Trading Scheme which gives GHG emissions a price. This leads to external environmental goods previously used for free but are now being allocated a price and thus gradually flowing into the production function:

Economic output = f(external environmental assets, Labor, Resources, Capital, Technology, Entrepreneurship)

This changes the allocation of resources step by step worldwide. Creative destruction is taking place, the likes of which we have not seen since the Second World War. Either companies adapt to this and or they will disappear from the market.

This means for VCs and start-ups: Sustainability is less about making a positive impact. It is rather how to adapt to the change of the global production function and how to profit from the dematerialisation and decarbonisation of the entire global economy.

4. The Digital Revolution: unlimited access to intelligence

Now the Digital Revolution gives us almost unlimited access to intelligence. This intelligence is available in the form of software, running on increasingly powerful processors. These processors, in turn, are often in our pockets, and these pockets are connected worldwide. Hence, Marc Andreesen’s famous phrase that software is eating the world.[20]

The increasing intelligence has already had a strong influence on the economic production function and has radically reshaped industries, such as the media industry, retail, advertising, etc. This has led to the rise of powerful players such as Alphabet (Google), Amazon, Apple, Facebook, and Microsoft in the US and Alibaba, Baidu, ByteDance, Huawei, Tencent, and Xiaomi in China. Europe too has SAP and Spotify but is quite behind compared to other countries.

The biggest industries are only at the beginning of the Digital Revolution: real estate, mobility, energy, food, water, etc. This revolution will not only be digital, but also sustainable. The last 30 years were only the beginning of digitisation.

5. Digital Sustainability — software is feeding sustainability

Software provides us with the intelligence to achieve the decarbonisation and dematerialisation of the industry needed to limit climate change and minimise local pollution while maintaining a high standard of living with enough food production for 10 billion people: software is feeding sustainability.

Software is certainly not the panacea for solving our environmental problems and preventing climate change. We also need to adapt our behaviour. But software makes change much easier. What does Digital Sustainability mean in concrete terms?

1. Digitisation of material processes and products

2. Dematerialisation and decarbonisation of material processes and products

3. Development of entirely new processes and products

5.1 Digitise material processes and products

5.2 Dematerialise and decarbonize material processes and products

1. Transparency: how is matter used?

2. Improvement: how can I use matter more efficiently?

The startups below illustrate this.

5.2.1 Everimpact & CarbonSpace — measuring GHG emissions[21]

Figure 7: © Everimpact

24 billion CO2 equivalent tons have to be cut by 2030 (-65%) to limit Climate Change. This requires an investment of USD6.9 trillion p.a. in infrastructure only in the G20 countries [22]. However, measuring CO2 is so far a time-consuming, manual, and spreadsheet-based process. CO2 data is based on estimates that are unreliable and making reductions hard to find. But we can only properly manage and reduce what we can measure.

Both Everimpact and CarbonSpace are developing a unique measurement platform. They use publicly available satellite data, combines this with data from local sensors, and analyses it with their AI-based software. This allows them to offer their clients a SaaS platform that automatically measures their carbon emissions, finds reduction opportunities, and generates revenues via carbon offsetting.

Everimpact is already working with 8 cities and is now expanding from public to corporate customers, ie to the shipping industry, while CarbonSpace is mainly focusing on agriculture, forestry, and ports so far.

5.2.2 alcemy — make the production of cement and concrete more sustainable[23]

Figure 8: © Alcemy

Concrete is the backbone of our world, but it is also responsible for 6–9% of global anthropogenic CO2 emissions. This is due to its most expensive and important ingredient: burnt limestone, also called Clinker. Concrete contains excessive Clinker to compensate for today’s imprecise and error-prone production process.

Why is it imprecise? Huge amounts of limestone and sand, taken out of quarries and mines, are the basis for concrete — excavator by excavator, their properties like chemistry or moisture differ greatly. If not accounted for, this makes the quality of the resulting concrete fluctuate heavily and constantly — by up to 100%. Operators in concrete plants do try to fight these fluctuations by manually fine-tuning each batch of concrete, and highly experienced operators with decades of experience may occasionally get the fluctuations under control to a certain degree. But even the best of the best can never achieve the consistency required for low-Clinker concrete because it takes 28 days to measure the final strength of concrete — however, by that time, it is already 28 days too late to change anything in the production process.

alcemy aims to reduce the CO2 emissions of concrete production by approximately 30% and costs by 10–20%. An AI is built that uses sensor data obtained during production to predict the quality of the resulting concrete. Based on the predictions, their AI automatically adjusts the mixture recipe on the fly, before the concrete leaves the plant, minimizing the required clinker.

5.2.3 MOTIONTAG — the digital twin of urban mobility[24]

Figure 9: © MOTIONTAG

Urban mobility is already far beyond its limits, and it will get worse as more and more people move into cities. But to make urban mobility more efficient we need to know when, how, and why people move from A to B. So far, we have almost no insights into the travel behaviour of people.

MOTIONTAG changes that by providing a software for mobile mobility applications that can detect ten modes of travelling in real-time, ie MOTIONTAG can detect if you walk, ride a bike, drive a car, take a bus or a subway, etc from one place to another. Hence, MOTIONTAG creates the very needed insights to analyse current mobility behaviour, improve existing mobility services, develop new mobility offerings and finally deliver data to build a smart and sustainable city. MOTIONTAG brings intelligence to mobility and eventually becomes the operating system for urban mobility.

Customers like the German rail (Deutsche Bahn) and Swiss rail (SBB) are already using their services.

5.2.4 Monitorfish — digitise aquaculture[25]

Figure 10: © Monitorfish

Aquaculture has reached a market size of more than 217 billion Euros globally already and is further growing by 6% annually. It is expected that by 2030, 60% of the global fish consumption will come from aquaculture. Hence, aquaculture is far from being just a niche.

Fish farming companies lose on average 40% of their revenue because the fish are not kept in optimum growing conditions. Every 7th batch is lost. This is caused mainly due to a lack of transparency about the conditions in the pot, ie ph-value, amount of oxygen in the water, needed food, etc.

Monitorfish solves this with their AI-based fish health diagnosis software. Sensors and cameras are installed in the pot which is connected with the Monitorfish platform. The mobile app allowing the fish farmer to see in real-time how the fishes are growing and if all indicators are correct. If an indicator goes above or below a certain threshold the farmer will get automatically an alert.

Monitorfish can ensure optimal living quality for the fish, reduce mortality by up to 15% and save costs by up to 40%.

5.3 Develop entire new processes and products

5.3.1 planblue — mapping the seafloor to foster a Blue Economy[26]

Figure 11: © planblue — Alexis Pey (Thalassa Marine research & Environmental awareness)

Two-thirds of our planet is covered with water, but we know more about Mars than our underwater world, though approximately 40% of the world’s population lives near its coastlines. There are estimated values of $24 trillion, and oceans absorb 30% of our carbon emissions. According to the European Green Deal, a “Blue Economy” is the only way to unlock the potential economic value of the oceans to feed the world, provide jobs, and combat climate change.

Why don’t we know more about the oceans? Because we don’t have satellites underwater. planblue has developed an underwater satellite. The underwater satellite is used for high-detailed and focused seafloor mapping to create a Global Seafloor Database and become a kind of “Google Maps of the underwater world”.

What is so special about the planblue technology? Planblue’s underwater satellite technology combines artificial intelligence with advanced imaging and underwater navigation. The underwater satellite has a normal RGB camera, stereo cameras for 3D mapping, and hyperspectral imaging. Hyperspectral imaging has been used in space for decades. While a “normal” camera can only detect 3 wavelengths (red, green, and blue), a hyperspectral imager detects more than 200 wavelengths. It generates richer data about the underwater world.

planblue combines this richer data with its AI-based software. The software can detect eg plastic waste, distinguish healthy coral reefs from dead ones, analyse biodiversity, etc. The same data can be used for multiple use cases from different customers.

planblue focuses on mapping hotspots — seafloor areas of high interest. They map these areas once but then sell the data several times to different customers. Finally, planblue will build the Global Seafloor Database.

5.3.2 Beyond Meat — go beyond[27]

Figure 12: © Beyond Meat

The average amount of meat consumed per person globally per year has nearly doubled in the past 50 years, from around 23kg in 1961 to 43kg in 2014. Total meat production has been growing fivefold since 1961.[28] Meat production requires comparatively large amounts of land, water, and energy and also produces high amounts of greenhouse gases. Further, long-term consumption of increasing amounts of red meat and particularly of processed meat is associated with an increased risk of total mortality, cardiovascular disease, colorectal cancer, and type 2 diabetes, in both men and women.[29]

For these reasons, current meat consumption is ecologically unsustainable for 10 billion people and also inadvisable from a health perspective. Two solutions are conceivable: Renunciation and/or substitution.

A variety of meat substitutes have therefore been developed in recent years. Probably the most famous substitute product comes from Beyond Meat, a Californian start-up that is now active worldwide, listed on Nasdaq, and valued at over 10 billion USD (30.09.2020).

5.3.3 Nüwiel — changing cities[30]

Figure 13: © Nüwiel

Many cities are gradually pushing car traffic out of the city because a car is usually stationary 95% of the time and consumes a lot of space. However, goods still have to be transported, be it the family groceries or the parcel for the last mile.

Nüwiel has developed a solution that at first glance does not seem spectacular but is very practical and versatile: an electrically operated bicycle trailer, which automatically accelerates and brakes thanks to patented sensor technology. The e-trailer is pallet-sized, can transport around 150kg, has integrated suspension, can be attached easily to any bicycle, and can also be used as a handcart — and even then, it accelerates and brakes automatically.

In short, a very simple and useful way to easily transport goods of all kinds from A to B. So far, it is already used by customers such as IKEA, UPS, Belgium Post, Post AT, etc. Their goal is to become the transport solution in cities.

5.3.4 Leaftech — intelligent building automation[31]

Figure 14: © Leaftech

In Germany, 26% of final energy is used for space heating alone. Additionally, there is further energy consumption caused by cooling, air conditioning, hot water, etc. To reduce and control energy consumption, several solutions and methods have been established.

One approach is the use of Building Automation Systems, which are mostly implemented in larger office buildings. Although increasing overall efficiency and comfort, these systems are limited by the quality of data decision-making is based on. Today, it is estimated that around 28% of energy is wasted because of insufficient data. What lies at the heart of these shortcomings?

To date, the information taken into account by the building automation stops at the exterior wall. Buildings are considered to be isolated objects. Their real environment consisting of other buildings, trees, mountains, etc is not taken into consideration when analysing current and future energy demands. Leaftech adds value by:

1. Developing a digital twin of the building based on building plans and relevant publicly available 3D-geo-data.

2. On the digital twin’s surfaces Leaftech positions virtual sensors. These virtual sensors allow Leaftech to analyse weather influences and their effect on the building’s energy balance.

3. Based on machine learning algorithms, Leaftech correlates past consumption and virtual sensor data. Anticipating upcoming energy demands Leaftech enables the building control to save up to 28% of energy.

6. Summary: the Digital Sustainability Revolution

But how does the social challenge of sustainable development become a business opportunity?

  1. Political regulation — adjustment of the production function: External environmental goods that were previously used for free are gradually being priced in, eg via carbon credits, limits, and regulations.
  2. Economic consequences: The political regulations fundamentally change the global economic production function — step by step. To remain competitive, companies are forced to adapt their production methods, allocate resources more efficiently and dematerialise and decarbonise their products and processes.
  3. Technical capabilities — software feeds sustainability: digitisation gives us the tools to do this. Firstly, software helps us to gain transparency about how we use resources in concrete terms. Secondly, this transparency helps us to improve the allocation of resources step by step and even enables us to develop completely new solutions.

From an investor and entrepreneur perspective, this is less about creating a positive impact on society. Rather, it is about investing in the sustainable transformation of the economy and thus benefiting from the greatest business opportunity of the century.

This change also offers Europe a unique opportunity to use its strong technological base to build companies even more meaningful and valuable than the leading American and Asian tech companies and to regain a leading economic role in the world that has been lost to North America and Asia in recent decades.

[1] Samuelson / Nordhaus, 2009, 19th edition

[2] https://climate.nasa.gov/faq/16/is-it-too-late-to-prevent-climate-change/

[3] See also UN, 2018, Inclusive Wealth Report 2018

[4] Ibid., p. 2

[5] Ibid., p. 8.

[6] Definition by the United Nations

[7] https://www.wri.org/blog/2020/02/greenhouse-gas-emissions-by-country-sector

[8] https://unfccc.int/process-and-meetings/the-paris-agreement/the-paris-agreement

[9] https://ec.europa.eu/clima/policies/ets_en

[10] https://www.oecd.org/environment/cc/g20-climate/synthesis-investing-in-climate-investing-in-growth.pdf

[11] https://ec.europa.eu/clima/policies/transport/vehicles/cars_en

[12] https://ec.europa.eu/info/strategy/priorities-2019-2024/european-green-deal_en

[13] https://www.barrons.com/articles/two-thirds-of-north-americans-prefer-eco-friendly-brands-study-finds-51578661728

[14] https://industryeurope.com/sustainability-in-europe/

[15] https://www.aboutamazon.com/planet

[16] https://www.apple.com/newsroom/2020/07/apple-commits-to-be-100-percent-carbon-neutral-for-its-supply-chain-and-products-by-2030/

[17] https://www.bp.com/en/global/corporate/news-and-insights/press-releases/bernard-looney-announces-new-ambition-for-bp.html

[18] https://new.siemens.com/global/en/company/sustainability.html

[19] https://www.volkswagenag.com/presence/konzern/documents/Herbert_Diess_GTMC_2019_EN.pdf

[20] https://a16z.com/2011/08/20/why-software-is-eating-the-world/

[21] https://www.everimpact.com/; https://carbonspace.tech/

[22] https://www.oecd.org/environment/cc/g20-climate/synthesis-investing-in-climate-investing-in-growth.pdf

[23] https://alcemy.tech/en/

[24] https://motion-tag.com/; the author has coached MOTIONTAG during their tenure at the Climate KIC Accelerator and is also an investor of MOTIONTAG.

[25] https://monitorfish.com/; the author has coached Monitorfish during their tenure at the Climate KIC Accelerator.

[26] https://www.planblue.com/; the author is coaching planblue since their tenure at the Climate KIC Accelerator and is also an investor of planblue.

[27] https://www.beyondmeat.com/

[28] The Guardian: https://www.theguardian.com/environment/2018/jul/19/rising-global-meat-consumption-will-devastate-environment

[29] https://pubmed.ncbi.nlm.nih.gov/26780279/

[30] https://nuwiel.com/; the author is coaching Nüwiel since their tenure at the Climate KIC Accelerator and is also an investor of Nüwiel.

[31] https://leaftech.eu/; the author is coaching Leaftech since their tenure at the Climate KIC Accelerator and is also an investor of Leaftech.

Founder, Business Buddies — The Customised Accelerator