Scaling sustainability: Moving from concept to credibility

Innovative solutions are just one piece of the global decarbonization puzzle. Deployment at a massive, industrial scale is key to creating meaningful impact, and scale requires affordability and profitability, according to dozens of investment fund managers, sustainable business executives, and researchers who convened in Singapore on Feb. 3.

The Roundtable on Innovating & Industrializing Sustainability, organized by the Stanford Doerr School of Sustainability’s Precourt Institute for Energy and Temasek Trust, focused on sustainable economic development in Southeast Asia. Several dozen long-term capital allocators, including managers of sovereign wealth funds, private equity firms, multinational corporations, and data center builders, explored “bridging the chasm between innovative ideas and widely deployed solutions,” as Precourt Institute director William Chueh put it. The organizers will publish a full report on the meeting in March.

Roundtable participants debated the strategies necessary to move beyond linear innovation pathways and accelerate the deployment of hard tech, specifically within the unique market landscape of Southeast Asia. The managers of large funds – along with several government officials, non-financial executives, and researchers – explored balancing fiduciary responsibility and social good, the impacts of geopolitical turbulence on economic development, and especially ways to bridge the “valley of death,” as it is often called, between proven technologies and scale.

“With catalytic capital, we can spark new pathways. It provides a bridge to help promising ideas move from concept to credibility – proving what is possible before markets fully catch up,” said Desmond Kuek, executive director and CEO of Temasek Trust, which manages the philanthropic assets and gifts from Temasek Holdings, a Singaporean state-owned multinational investment firm, and from others.

“A strategic, investment-driven discipline,” Kuek added, “measures success not only by risks mitigated, but by the systems change we unlock, across a true triple bottom line of profit, people, and planet.

Kuek and Arun Majumdar, dean of the Stanford Doerr School of Sustainability, set the stage for the discussion. Moving the societal needle significantly also requires affordability, which is a challenge as new ventures move down the learning curve, said Majumdar.

“Unaffordable solutions don’t matter,” Majumdar said. “We must listen to the front lines. The best insights are from the people who are there. It’s not enough to sit in air-conditioned rooms to know what’s really going on.”

Transcending “lemming” investing

The session kicked off by highlighting a shift in the venture capital landscape. For decades, noted moderator Ira Ehrenpreis, founder and managing partner of DBL Partners, the VC industry chased what was the hottest theme that season, ignoring broad, GDP-heavy industries like energy.

“For almost 30 years, I’ve been investing in companies committed to making a positive impact on the world,” Ehrenpreis said. “What was once deemed ‘crazy’ is now taken for granted and simply part of the way we operate.” He mentioned that DBL places emphasis on “mission-driven entrepreneurs” and particularly those who dedicate themselves to creating social and environmental impact. 

“The idea of first and second bottom lines not only aren’t mutually exclusive, but they have become mutually reinforcing,” Ehrenpreis added, highlighting how innovative business models and entrepreneurs make sustainability and profitability complementary.

Similarly, ESG (environmental, social, and governance) investing standards cannot be one-size-fits-all, noted a senior executive of a very large sovereign wealth fund: “We can’t hold a Chinese company to New Zealand standards, for example, but we can hold it to showing progress.” 

At the same time, this executive said, “If investing to support the development of a country or an asset is not profitable or won’t bring enough return, a sovereign wealth fund cannot invest in it.” (To facilitate candid discussions, participants were not to be quoted by name without their permission.) 

A renaissance of “hard tech”

Russell Tham, managing director of Temasek International, shared Ehrenpreis’ optimism. The current era is a "renaissance of hard tech,” he said. Unlike the software revolution, the energy transition requires massive physical infrastructure, including batteries, semiconductors, and grid upgrades. Tham noted that while 99% of investors might agree on the direction, the “challenges of scale” for these physical assets remain daunting compared to the capital-light models of the digital age. While policy is helping, the physical reality of climate solutions presents unique hurdles.

Tham emphasized the importance of constructing the right portfolio that allows fund managers to play across the entire spectrum, taking risks before the herd takes notice, while simultaneously capturing the macro tailwind of a major paradigm shift.

Some voiced a contrasting approach to portfolio creation that focuses more on sustainable growth. “We want to bet on proven technologies, helping them with their business model and scaling around the world,” noted Chalothorn “Boat” Vashirakovit, partner at TPG, a private equity firm formerly operating as Texas Pacific Group.

Bridging the capital gap

The discussion moved to the different roles capital must play at various stages of a company’s life. Matthew Lim, managing director at GIC Private Limited, a Singaporean sovereign wealth fund, highlighted the difficulty of fitting climate tech into traditional asset classes.

Having spent his entire career in energy and infrastructure investment – from fossil fuels to nuclear fusion – Lim adopted a “pyramid portfolio” approach, in which the top part is tech-heavy, carrying high risk; the middle section is more scalable, holding medium risk; and the bottom is conventional and much less risky.

GIC identified the “climate change as an opportunity” angle early but acknowledged the “high volatility” inherent in the sector, Lim noted. The challenge for large institutional investors is managing the maturation of technologies from the pinnacle of the pyramid through to its broad base.

Scaling often involves partnering with incumbent players rather than simply disrupting them, TPG’s Vashirakovit emphasized. He cited examples – including a partnership with an oil and gas company in Malaysia – to help traditional industries decarbonize.

Market fragmentation and AI

Scalability in Southeast Asia presents a particularly difficult challenge, said Spencer Low, head of regional sustainability for Asia-Pacific at Google. Traditionally, VCs demand proof of concept as well as proof of scale. However, startups can encounter major bottlenecks in their growth stage, especially in the Asia-Pacific region (excepting China) due to the fragmentation of the markets. Philanthropic investment funds can help overcome this, because they can be the backstop or take the first loss and allow startups to successfully scale, Low said.

Intergovernmental conversations and public-private partnerships could heal some of the fragmentation. For example, the 11 Southeast Asia nations’ governments are working to integrate their power grids more, said Low.

As one conversation participant noted, the Indochinese Peninsula – Vietnam, Thailand, Laos, Cambodia, Myanmar, and some of Malaysia – has the capacity to generate tremendous amounts of renewable, reliable, hydroelectric power, but they would need to export much of that power beyond the peninsula.

Artificial intelligence is a double-edged disrupter regarding sustainability, noted roundtable participants, many of whom have invested in and built data centers in Southeast Asia. On one hand, the countless data centers AI requires globally will have large – hopefully manageable – environmental impacts. On the other hand, AI will likely play an important role in accelerating sustainability solutions. Optimizing electric grids instantaneously is just one example.

One consensus view was clear: Hitting targets in 2035 and beyond will require coordinated efforts between early-stage VCs, growth equity, large corporations, and governments, all underpinned by rapid technological adoption.

Convening thought leaders is one way Stanford can help in meeting sustainability targets and economic development in Southeast Asia, along with research and education. Stanford employees aside, almost all the participants in the Singapore roundtable do not only invest in Asia, they work and live there.