The Impact: ESG and AI tackle climate change – Equities News

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This interview has been edited for length and clarity.

Welcome to another episode of “The Impact” on FinTech TV. I spoke to Josh Hatch, Principal & Partner at Brightworks Sustainability, about how they are assisting clients in establishing & implementing sustainability programs. We also discuss the growth of the digital economy, the intersection of ESG & AI in tackling climate change, Brightworks’ future investment plans, and the main drivers of the sustainability conversation.

Jeff Gitterman: Josh, thanks so much for joining me today. Tell me about yourself and Brightworks Sustainability.

Josh Hatch: Brightworks Sustainability has been in business since 2001. It originally started as a sustainability consulting practice and grew really fast. We got into green building work as that was one of the bigger drivers of sustainability impact for a long time. As the broader markets are catching up, we’re doing a lot more in the ESG space: helping a lot of companies both from top down corporate strategy, but also from bottom up implementation in their facilities and their policies and their supply chain.

JG: Define the difference between ESG within building spaces and sustainability—I think people either conflate the two or get the two confused.

JH: I think classically green building and sustainable buildings [means] thoughtfully designing and running buildings: it’s their energy use, energy efficiency, water materials, green cleaning products, the whole spectrum of designing and running a building sustainably. When you get to ESG, the notable difference to me is the policies, the governance, the regulation. In the beginning you had a green team, and they wanted to do things better, but eventually it grows up and then it needs policies, it needs corporate goals, it needs the level of data and tracking to see how you’re doing and eventually to roll up to investors. So it’s the grassroots growing up and becoming serious adults.

JG: And you guys take this into the space of digital infrastructure. Can you explain what got you interested in that aspect?

JH: Yeah, mostly for impact. As we’ve seen, our lives are becoming increasingly digital, professionally and personally. It’s a fast-growing sector. It’s growing a lot, it has large impact. It’s also been one of the more innovative sectors. What motivates me in my work is that we feel like we can really make a difference. They’re funding some of the more innovative strategies, and the hope is that we can socialize and spread that and democratize those solutions to all the other sectors. So it allows us to do some of the leading work and then share it with all the clients we work with.

JG: We hear a lot about the growth of the digital economy and everything else we see in the stock market, the Magnificent Seven is mostly being driven by a digital economy. Is that growth sustainable in your opinion?

JH: I think what we’ve seen over the past few decades is unfettered growth. There haven’t been that many constraints. Digital has become increasingly part of our lives in that time period, and these companies have grown exponentially. We’re now seeing there’s always been constraints, but they’re becoming much more significant. They’re running out of power, they’re running out of water, and then social pressures, both willingness to operate, where they’re allowed to develop, and I think also just competition for our time. I think people want to have digital be part of our lives and enrich our lives, but they don’t want it to become our lives. So I think that there’s pushback from an environmental standpoint, from a social standpoint, and there’s even been financial pressures on them in the last few years.

JG: So from that perspective, what role does the consumer play in driving all of this growth and demand?

JH: I think the consumer is still growing up with how much they want digital in their lives. I think we’ve all benefited—digital has made our jobs easier and our lives better, but there’s also a dark side to that, [like] the term doom-scrolling, people know now that we don’t want to be online, on-screen, all the time. It wants to help us do the things we enjoy, family, rewarding professional experiences, being out in the world, hiking, it can help all that, but it doesn’t want to become the only experience. So I think consumers are starting to moderate their use and be more thoughtful. And increasingly, the tech companies have had an unlimited mindset in terms of let’s store everything, let’s compute everything, let’s not think about what makes more sense. With these constraints, the companies are being more thoughtful about how they’re going to run that and consumers are likewise thinking about what’s most valuable to them and what’s going to make their lives better.

JG: Recently we’ve seen the hearings in Congress where all the social media companies had to talk about how much damage they are doing to kids, so I think you’re right, there is this pushback, how much does it enhance our lives, how much does it make our lives more difficult today, and people are definitely wrestling with that. I grew up without internet, when I say that to my kids they’re like, “What? How did you grow up without internet? It seems crazy.” We’re also hearing conflicting stories within AI. Thomas Friedman said in his editorial in The New York Times a few months back, “The two biggest threats to humanity are AI and climate change. The one hope is that AI will solve climate change.” So in those conflicting narratives, we’re hearing, maybe AI will provide solutions and answers and digital infrastructure will help save us. At the same time, and you mentioned this in your remarks before, we’re worried about all the demand for water and energy that is being driven by digital. How do we balance these two stories?

JH: I think that neither extreme is right. AI is not going to solve everything, but it’s also not the case that it’s good for nothing. I think there are real applications where we’re going to find that it can help in particular with the grid and energy, and it’s an inherently complex system. And as we move towards a more dynamic model where it’s not just base load fossil fuels with peak natural gas, when we’re moving into a dynamic mix of resources with intermittency on renewables and solar and batteries mixed in, that level of complexity, machine learning is going to help, but, again, it’s not going to solve everything.

What we’ve seen is that over the last decade or so, technology companies have driven a significant portion of the greening of the grid. They’ve inked half, two thirds of the renewable energy that’s privately developed. So they’ve been a big part of the solution. The question is as we move forward into the next decade with more constraints, transmission constraints, constraints on where we can develop in available sites, can they continue that innovation, can they continue to be the leading companies helping the sustainability component be fully addressed? The worry is that they will pull back from those commitments and that innovation…

JG: In order to meet demand.

JH: In order to meet demand and move back to more traditional methods, whether that’s fossils or nuclear or whatever. There are two paths here. If they continue the leadership and innovation that they have, which I’m really hopeful for, they can drive those solutions through the rest of the economy. Or if they revert to some of the historical older methods, it could be the undoing.

JG: But you’re seeing even Microsoft now launch a whole nuclear division within Microsoft to look at that. How do you feel about nuclear as a potential solution for all of this increased demand from infrastructure?

JH: I’m conflicted on it a little bit. On the one hand, I think that nuclear can make sense in some limited situations and I think in particular when you have a building or a piece of digital infrastructure like a data center that uses a massive amount of power, having an on-site resource that is reliable and baseload could make a lot of sense, because if you don’t have that, then it’s going to put that much more burden on transmission and public resource constraints. So it could be a way to pull off the grid some of these significant loads. It could also maybe help provide that same level of predictability to the base of power. So I think it could be in a limited sense really a meaningful part of the solution, or at least a stepping stone for the next decade as we figure out how to get renewables and all this intermittency and affordable battery storage at different time scales integrated into the grid.

So I don’t think I want to see it everywhere. I don’t think it’s going to come back in the big power plant ways. I think most people are thinking about these smaller reactors, SMRs, that are self-limiting. I’d love not to have that be part of the solution, but I think in reality it could provide a real part of the solution at least for a decade or two.

JG: What does Brightworks see for the future? What are you most interested in from a company and investment standpoint going forward?

JH: The corporate sustainability work has always been present, but green building became the biggest driver for change for a long time, and that was a big part of our practice. In the last six or so years, it’s really diversified and spread out. We do a lot more work now on the corporate side, a lot more in supply chain, a lot more in embodied carbon of materials, a lot more in the health and social aspects. It’s not just an environmental thing.

All these materials and raw materials that go into servers and data centers come from all around the world, and they’re manufactured and mined in jobs that we probably wouldn’t enjoy. We want social to be a real important part of the solution. Sustainability is not a competitive advantage—it lifts everyone up. We need to think of it from an infinite mindset, and that means more collaboration, more sharing what’s working and what’s not working, so that we can help companies that are less far along figure it out quicker, and bring people together to work for the solutions that we need.

JG: Do you find that a lot of companies you’re working with are driving the demand for solving a lot of these issues? Or is it more consumer driven? Where are you seeing the push right now?

JH: Regulation has been a relatively small component of this. I think it’s starting to become a lot more real, not [so much] from the US perspective; more so from what’s happening in Europe. The spillover of that is driving multinationals: they may be based in the U.S. but they have European operations, they’re going to reform their sustainability and reporting programs globally to meet that regulatory scheme. So I think Europe is driving us more, but it seems like financial and investor pressure are some of the most significant things.

There were early movements years ago on insurance companies. The real risks and challenges are being realized in financial markets. I think there’s a lot more investor-driven and shareholder-driven pressure right now than there is regulatory pressure. There’s always been this morale driven [pressure], but, as we’ve always known, sustainability is good business. The morale factor has brought people to the table, but companies that have been successful with integrating sustainability have done so to help their businesses. So I think that there’s both the self-interest for the company, there’s the license to operate from investors in acknowledging risks that are real, and I think regulatory in some ways is catching up.

JG: Lastly, let’s just touch on the IRA bill a little bit. Do you think it is also fostering a demand from an investment standpoint? Are you seeing it unlock money and capital going into this area more quickly now?

JH: We don’t see it as much directly in our business, but it’s definitely pushing forward a lot of things like EV batteries. There’s a big need for infrastructure, so I hope that the IRA can drive some of the infrastructure investments that are needed from a public perspective. One of the limitations in getting to where we need to be—our entire grid powered by renewable energy—is the utilities and the transmission resources and these projects that take so long and require a agreement between public and private sector transmission lines. Nobody wants a transmission line near them, but at the end of the day we want power in our homes.

If we want to get to a green grid, we’ll need transmission lines that help better connect where renewables are strong and economical to develop and where power centers are. Digital infrastructure has an opportunity to locate where the renewables are. Can we make those investments to bring power lines there and internet lines there so that we can put things in the right place with less infrastructure rather than more? The public needs to lead in providing that network, they need to lead in helping develop the base to build on.

JG: What is Brightworks doing now to help drive this change and this move towards sustainability?

JH: We are doing a lot of work on individual client problems, helping them with their green building programs, helping them look into their supply chain and in embodied carbon, but some of the more interesting work is bringing those companies together. You’d be surprised to find out that often the three embodied carbon leads at three different technology companies aren’t already talking. We’re working with each of them and can help bring them together, and it’s really helpful for us to work with NGOs that are also in this space trying to do the same thing. So we’ve been hired by both the infrastructure iMasons Climate Accord, as well as the Sustainable Digital Infrastructure Alliance to help bring these companies together in a more powerful way so that they can leave their company mandates at the door and share solutions, and align on some of the outcomes that they’re going for.

One great example of that is we’re building buildings, we want low carbon concrete. Everyone’s asking the market at different times and in different ways and using different metrics. It’s really confusing to the market. If they all go together and say, “This is the common specification we’re going to go out to market with,” and they all start using it, that’s going to move construction and manufacturing more quickly. So we don’t want five different bespoke versions going to market. We want one powerful single message. And groups like Climate Accord and SDIA can help those companies come together, leave their self-interest at the door, work together for the common good so we can go faster. And that trickles to other industries as well. Leadership can help other industries follow.

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