Podcast: Humberto Olivo on Investing in Sustainable Technology

Highlights from the Conversation

Welcome to another episode of Supply Chain Next! I’ve got Humberto Olivo here with me today. Let’s start off by asking, “Humberto, who are you and how did you get to where you are today?”

• I was born in Mexico City. Since I was a little kid I’ve been travelling all over the world.
• Fast forward a little bit… I went to school to study economics. I was living in Manchester, England where I got my Masters in international finance.
• I then went to work in New York for Citibank. First I started in investment banking and then ventured off into the dark side of trading.
• I then moved to the Santander Group where I was head of investment banking. This gave me a really interesting perspective that covered many different industries.
• After my time there I moved to San Antonio, Texas. I started in a venture capital firm with a couple of partners where we got involved with clean energy and renewable energy projects, mainly solar power, and this led to us looking closely at the technology that surrounded the clean energy industry.
• Some projects in northern Europe followed. These projects also revolved around the clean and renewable energy sectors and the related technologies that accompany them.
• This took me to cleantech, deep tech, and the circular economy, which has been getting a lot of traction especially during the final stretch of the COVID-19 pandemic.

Let me jump in on that one as a former banker myself… you really spanned across many different industries during your years as a banker. Did you ever see yourself ending up as an investor into the clean energy industry? How did that happen?

• When I got to Texas I became involved in the private venture capital space. This is where the opportunity surfaced in the solar energy sector. This happened during the mid-1990s, which was super early as that sector was just beginning its attempt to let the world know that it was time for cleaner, renewable energy sources.
• I got excited to see how this opportunity would disrupt the energy industry and nobody at that time had any idea on how big of a shift it was going to be.
• I began to study solar power and how it could change the industries of the world. I went through some bad startup opportunities which taught me so much.
• I was interested in the accomplishments of SolarCity in California at the time.
• Some of my connections in northern Europe and Texas got me into wind power.
• We began to see solar farms popping up all over Texas. It was then that we could see how popular and game-changing solar power had become and this only reinforced my determination to continue learning about renewable energy technologies.
• Fast forward to 2018 and we’re deeply into clean technologies with no sign of slowing down.
• We’re seeing big innovations in clean energy such as artificial intelligence (AI) and blockchain making their way into the decentralized smart grid technology, which of course, only makes the technology better.

So your initial pull into the clean technology world was solar power, which goes back decades, and really was the first major innovation in the clean energy space. Wind energy has been there for a long time too.

And for years now the business models that accompany these technologies have been in the right place where it makes sense to adopt these technologies everywhere.

I think that the data center and infrastructure movements have had a lot to do with the massive increase in acceptance of renewable energies since the early 2000s.

Global giants such as Microsoft determined that the energy consumption of their data centers were going to require new solutions, and in fact they were one of the first to start looking at renewable energy sources.

What changed in the 2000s that paved the way toward the mass adoption of renewables?

• I remember in 2005 I got an invitation to shift to renewable energy. It mentioned that renewables could reduce a portion of my energy bill.
• The technology back in the 2000s was still pretty expensive. Finally the technology became cheaper, especially because of China. The solar panels became really cheap which brought the technology to the mainstream.
• Also, people began to get tired of the “greed economics” (of the power generating stations).
• Denmark began to mass adopt renewable energy and this contributed further to the increasing widespread acceptance.
• And Texas, of all places, started its climb toward the top of renewables. Texas is the number one producer of wind energy and number two producer of solar energy (second only to California).
• Even the oil and gas companies now refer to themselves as “energy companies” and not just petroleum companies. They are incorporating renewables at an increasing rate and have been doing so for many years now.

So somewhere in the first decade of the 2000s we start to see the rise of consumer-related solar adoption. Then enterprise level adoption followed suit.

There are many options now in renewables: solar, wind, and ocean. Even battery technology has become incredibly efficient.

From an investment sense—during the first decade of the 2000s—what pointed investors toward the renewable energy sector?

• Batteries were not quite there yet. That was one of the areas holding back the renewable energy industries. Even though solar panels were becoming really cheap the batteries had to catch up since they are obviously required to store the collected energy.
• Some of the northern European companies began to make a big shift, for example, changing from petroleum to 100% renewables. Europe was at the forefront of the renewable movement and then America followed suit.
• When renewables were integrated as an option for utilities, and thus became a viable business option, it was only a matter of time before they became mainstream.
• The Nordic countries really began to take renewables seriously and started to demand safer energy sources. Protests were held to force change in the energy sectors of their country. Eventually these protests went global.
• Changing the attitude of corporations and their energy production and usage became a theme across the world. This movement became quite powerful as we all know.
• Then the technology got better which made collecting data possible. The metrics clearly showed that renewables were not only worthwhile but doable.

Let’s double-click on that. The measurability is what really proved the viability of renewable energy. Once everybody got the numbers back that clearly showed the efficacy of renewable energy it was a simple chain reaction from there.

This led to the market forces that paved the way for big change within the energy industry.

What were the initial metrics of consumer and enterprise energy sustainability?

• With my background in investing and trading I began to look at the green bond market which started gaining traction in the early 2000s.
• There was a lot of effort across the stock exchange activities throughout the world to make the green market grow. The question was asked: how do you measure the “greenness” of a bond?
• This got third party rating agencies to measure the environmental impact of a green bond, which raised awareness and accountability within the renewable energy sectors, which in turn contributed to further adoption and investment into renewables.
• Green certification became a popular way to show the strength of your renewable energy solutions and this led to more investments into renewables.

Let’s give our listeners (and readers) the opportunity to learn what a green bond is. Can you give us an overview?

• Green bonds began with projects that centered around sustainable energy production and usage.
• In the beginning the definition of “green” and “sustainable” was really loose but became more clear as time went on.
• Green bonds were used within government, corporate, and other types of bonds, to introduce greater financial returns through sustainable inclusions into projects.
• As the metrics improved the definition of what it meant to be green and sustainable the demand for sustainability throughout the world’s industries increased.
• Now there are entities who can measure the sustainability of your project which means that investors can do what they do with confidence and clarity.
• It still took time for sustainability to catch on and become where it is today.
• The governments of the world began to implement policies that forced the industries of the world to make changes that help our environment.

When I was a kid people used to throw their trash out of the windows of their cars. Try telling that to a kid these days and they’ll be shocked. The general public has come so far regarding the preservation of our planet.

Measurability gave validity to the movement of sustainability and this has helped enterprises to move toward practices that don’t hurt our planet anymore.

Carbon analysis is one way of demonstrating the negative effects industry has on our environment. Is there another way to measure sustainability that could help show the world that we need to continue to move toward green practices?

• In the past corporations have talked about social responsibility but they would just continue to cause pollution and then use some of their profits to donate to charities.
• There has been a big shift in consumer awareness thanks to the Internet.
• Now people are asking the corporations, how do you make your money? How do you treat your employees? Are you moving your pollution to other parts of the world where the people can’t stand up against you?
• The corporations must now show that they are fair and sustainable, they must be transparent. Measurability has helped them with this since the results are concrete.
• And, the ability to measure sustainability has given the United Nations (UN) and other groups, agencies and governments the information they need to cause positive environmental change through policy.

Transparency has really caused corporations to be accountable for their practices.

The Internet has brought unethical and environmentally damaging practices to the light and this is forcing change.

• Yes. The consumers are paying attention to what these corporations are doing. They must change their ways or die out.

Transparency, accountability and visibility is driven by the Internet. Let’s go back to sustainability. What is the definition of sustainability?

• Sustainability is giving back to the planet, giving back to the communities you operate in and treating employees fairly.
• Once the consumer begins to push, you need to make the changes they want.
• It used to be that you were sustainable and ethical or you were profitable. It was an either/or situation. All of a sudden everybody realized that it didn’t have to be either/or… sustainability makes your company more profitable and this knowledge is everywhere now. That was a big shift.
• The shift by business was more about profitability than any feel good sentiments. It just makes better business sense to be sustainable.

Agreed. It used to be a binary choice: profitable or sustainable. Somewhere in the last 15 years that has changed. Leading with sustainability actually increases profits.

We pull approximately 500 gigatons of stuff out from the earth every year, everything from biomass to steel. Only 8% of that is circular and this number needs to be much higher.

Everybody seems to be focused more on carbon than circularity without realizing that circularity is much more real and profitable even though it might not be as sexy as carbon math.

• Technology has changed the whole game in this and is the driving force behind our ability to measure the impact our industrial practices have had upon our environment.
• Circularity is next. It is most certainly a part of the big picture in sustainability but there is more…
• It’s the new technologies that are helping us to improve sustainability. For example, carbon capture and storage is playing an increasing role in preventing air pollution and Canada is leading the way in this. The captured carbon can be used as fuel in other industries.
• Texas is using the carbon capture technology as well and is the second largest player in this area.
• Deep tech (a research and development methodology) is used to discover new solutions with the goal of achieving better sustainability in all areas of industry.

So deep tech may reveal some things that we never thought of if we use blockchain, AI, machine learning (ML), if there’s “autonomy” in the technology.

• Traditional infrastructure can have this new technology integrated to give us better measurements and control over our supply chains.

We’ve covered quite a range of the essentials to achieving sustainability such as the reduction of greenhouse gases via carbon accountability.

Is there anything else that you see coming up that will help us to tackle sustainability?

• Carbon credits and green bonds were at first available only to the big players in global industry.
• Now we’re seeing an interesting wave forming in the financial system. Financial technology (fintech) has made financial systems that were only available to the big players available to the mainstream. This is causing disruption.
• Fintech has a huge opportunity to tap into the carbon market due to the attitudes and behaviors of consumers. Consumers have the ability to put their money where they want to with a greater level of control. For example, with access to cryptocurrencies and other forms of financial transaction processing that wasn’t available to the mainstream in the past.

Let’s zero in on that for a moment. When the carbon math is accurate it leads to carbon trading, green bonds, green washing, carbon markets, carbon offsets…

• Standards! It’s when you can standardize something you can start creating markets.

Yes! And the supply chains are tied into all of this but they are playing catch up. Once the supply chains are digitized they can be integrated into our sustainability goals.

For example, carbon can be tracked from the moment it is pulled out of the ground, processed, used, shipped, captured and decommissioned… we can track its whole life cycle. Now that’s transparency.

What else are you seeing on the horizon that will help us to achieve true circularity?

• Standardization is key. Our ability to capture measurements in everything we do will enhance every known process in everything we do.
• Let me use an example concerning cryptocurrency. It takes energy to perform cryptocurrency “mining” and this has been criticized.
• But if we look at a loan from a bank, how much energy did it take to create that? How much energy is being used in the bank to keep it running to process all of their financial services and products? Nobody seems to be criticizing that.
• If we were to compare the energy required in processing cryptocurrency and the energy required to process regular banking activities it would yield us more fair results. This would require good measurements and more importantly, acceptable standards by which to base these measurements on.

Do you see energy and carbon calculations getting to the same level as the nutritional information found on food packaging and menus?

• We have that already in many ways. In the European Union there are already standards put into place where you can see how much energy and what type of materials were used to make certain assets and products. Details such as “new materials” or “recycled materials” are included.
• We are going to see more of this kind of disclosure because we have the technology now. This transparency is going to become more widespread.
• And since the improvement of supply chains is all about transparency and measurability… we have the technology to accomplish this now.

The amount of energy used to produce an asset or product is important but so is the type of energy used.

• Let me jump in here for a second on that. Let’s take a look at Bitcoin miners again. These folks started using clean energy for their purposes because it’s cheaper and they deserve credit for that. Because of them data centers began to look at cheaper sources of energy for obvious reasons. And it just kept going from there.

Absolutely! Bitcoin mining and the misconceptions of the energy required to accomplish it could be a podcast of its own.

How much energy does it take to make, store and transport a conventional dollar?

So we have all of this data now: carbon measurements, digitalization of assets, transparency—why aren’t more enterprises embracing circularity? Especially since it’s more profitable?

• I think circularity is a balance of economic, financial and business factors that may be challenging to achieve for some at this point.
• In the case of Europe circularity started (historically) via scarcity of resources, the war and other factors, so there is a higher awareness of the necessity to preserve resources. This general attitude of the populace naturally lends itself to circularity.
• As circularity started to make good business sense then it became much easier for it to catch on in other places of the world.

What else do you see contributing to circularity that is outside of the things we’ve been talking about?

For example, much of our energy comes from nuclear plants which are a really clean source of power. Unfortunately many people still cling to negative misconceptions about nuclear energy that were formed 50 years ago.

• I don’t necessarily see any new energy sources emerging from what we already have but I do see advancements in preserving the energy that we have.
• Decentralized energy is becoming more popular and I don’t see that slowing down.
• Consumer produced energy is a great option for those who live in certain areas. This can open new markets, for example, trading energy with your neighbour.
• A real game-changer is energy storage. This is really important for wind and solar operations.

I’m glad you brought that up. Storage is a big deal. We lose a lot of energy via transmission and non-use.

If we can turn every household into a consumer producer of energy there will be a lot of trading and storage going on…

• A school bus is a good example. 90% of the time a school bus is idle. That would be a good use for a battery.

As we come out of this pandemic what are you excited about that you see coming over the next few years?

• I’m really excited about the circular economy. We’re seeing big companies in the auto industry getting involved in this.
• Also, huge brand names such as Apple and Walmart are getting into circular practices.
• Anything that makes supply chains more transparent and cleaner is gaining traction.

Let’s quickly talk about water consumption. Water is used in countless ways from growing food to industrial processing. Where do you see this improving from the perspective of circularity?

• Water doesn’t have the visibility it should. People seem to concentrate more on the health of the oceans.
• Water is going to be massive in terms of new technologies designed to process and control water systems.
• Perhaps trading water could be interesting with the right technologies?

Connect with Humberto Olivo

You can reach out to Humberto on LinkedIn (you must be logged in to view the profile).