What do Dick’s Sporting Goods, HVAC systems and leather have in common? They’re all getting an assist in cutting their emissions from companies backed by the venture capital fund Regeneration.VC.
The firm has a splashy strategic adviser in actor Leonardo DiCaprio as well as architect William McDonough, and it has big ambitions for funding retail-focused climate innovation. Regeneration.VC’s early-stage fund closed its first $45 million round on March 28.
Michael Smith, who has a background in impact investment and as a global touring DJ (yes, really), is one of the firm’s general partners. He said the fund’s goal is to reimagine what we buy: from what materials go into the products, to the services using those materials, to the technology that could keep those materials in circulation. The firm decides what to invest in based on what Smith describes as a project’s “circular regenerative potential” across five themes: their resource footprint, greenhouse gas emissions, material waste, toxicity and human impact.
In an interview with Protocol, Smith unpacked the fund’s philosophy, a few of the first companies it backed and whether its focus on consumer goods is compatible with the fact that we all should probably be limiting our consumption. After all, the just-released Integovernmental Panel on Climate Change report found demand-side changes could reduce emissions up to 70% by mid-century. To Smith, though, we’ll never stop consumption completely. “[W]e think there's better ways to consume,” he said.
This interview has been edited for brevity and clarity.
What is the rationale behind Regeneration.VC’s focus on decarbonizing consumer products?
With apparel accounting for 10% of global emissions, and food and agriculture accounting for one-third of global emissions, we see that there's an opportunity to focus on the underlying supply chain of those businesses, as well as those products that are traveling through various consumer touchpoints. And we think that there will be a lot more funds and a lot more capital focused on this in the future. There have been some specialist funds, but we're the only fund to our knowledge that is focused on consumer applications of circular and regenerative technologies today.
It is relatively common to hear that individual actions have such a vanishingly small impact on the climate crisis that changing our consumer habits should not be our priority. How does Regeneration.VC contextualize its consumer-focused approach, given the enormity of the challenge?
We firmly believe every person can play a part in the climate emergency, and each one of us can shift the conversation in the supply chain and vote with our wallets. The CEOs of companies, the folks voting on climate legislation: All of those are individual consumers as well. And the more that momentum occurs in apparel or in food systems, the more it sets the table for major regulatory shifts. But there are also great businesses to be built, and to service the underlying needs to get there and make change. If people aren't demanding alternative packaging or food products or apparel products, how can we attack the embedded emissions in the supply chain by regulation alone?
We need to treat everything on the planet as vital and important and connected, and find new ways of consuming that look a lot more like our grandparents’ and generations before us.
To say that our individual actions don't matter, I think is just wrong. There is an opportunity to educate and to be mindful of how we consume things. That can drive our decision-making with our families, with our communities, with the companies we work for, with the countries we are a part of. And hopefully that trickles up to [United Nations climate talks called] the Conference of the Parties and has real, meaningful impact and outcomes.
What has the reaction from consumer brands been so far to your work?
We've been very encouraged by the reactions from larger holding companies and larger corporations. Because they've made really bold claims around circularity, they are eagerly looking for options to meet their targets and a lot of our investments are well-positioned to help service those goals for larger consumer brands.
We're investing alongside major corporations in a number of our companies, and I would characterize their interest as very high and vital to their future. We think in the next year or two, there will be major commercial agreements announced; in fact, a number of our portfolio companies have direct partnerships or commercial agreements with large corporations.
Can you walk me through some examples of the companies Regeneration.VC has invested in so far?
Our first investment is a company called CleanO2, a commercialized micro carbon capture company that's based in Calgary. The business revolves around a patented CarbinX unit, which is about the size of a refrigerator. It’s installed into natural gas heating systems, where it captures emissions and converts them into carbonates. These carbonates are high-value, energy-intensive ingredients that are used in many industrial products like soaps, detergents and fertilizers. So we are taking emissions from HVAC systems and converting them to things like soap and fertilizers that are directly usable in those buildings or nearby buildings.
To say that our individual actions don't matter, I think is just wrong.
Another example is a company called Arrive. They're accelerating the transition to the circular economy for retailers by providing turn-key rental and resale services to big-box retailers. One of their launch partners was Dick's Sporting Goods; if you go to the Dick’s site, you can purchase things or you can rent things. If you rent, that's Arrive on the back end handling shipping, receiving, cleaning and related packaging. And the idea here is that if a garment or a tent or golf clubs can be reused multiple times — instead of remade multiple times — there's a great potential for emissions savings there.
Most environmentalists and climate scientists say we need to be purchasing fewer things altogether. Do you think the projects that Regeneration.VC is investing in could result in more consumption in a way that could prove counterproductive?
The minimum viable opportunity for us is that we are a drop-in replacement for something that's already being made, and are able to reduce emissions associated with it or even apply regenerative thinking and draw down carbon in the soil and make materials from it.
The maximum — and what you're getting at is something that really excites me — is getting more from the things we have. How do we extend the life of products? How do we make heritage products? When you and I were kids, you'd have pieces from the grandparents passed down through generations. We want to encourage that, and we're looking for companies that are building things that are not single-use and going to landfills. We need to treat everything on the planet as vital and important and connected, and find new ways of consuming that look a lot more like our grandparents’ and generations before us. Are we out to eliminate consumption? No, that’s not viable; but we think there's better ways to consume.
Is there a different time scale associated with decarbonizing these consumer sectors, like leather or plastic, as compared with, for instance, heavy industry?
The good news about apparel and food is, because they are driven by consumer tastes and preferences, we can more rapidly move the underlying supply chains within them. And you've seen this happen in food, you're seeing it happen in fashion, you're going to be seeing it happen in packaging. That kind of change can happen much more rapidly than decarbonizing heavy industry, and that gives us encouragement. This is a climate emergency that we’re in, and we think we can very quickly make change happen on the ground in these industries.