Hedge Magazine, June 2016. Original article p38-40.
The Scandinavian Model
Interview with Carl Hall, author of The Environmental Capitalists and partner at private equity group Alder
How do you solve a problem like climate change? Carl Hall thinks that if we’re to really get the green agenda going, we should put capitalism on the job: “It’s the largest agent of change that we have!” This is the big message in Hall’s book, ‘The Environmental Capitalist’, and there’s nothing modestly Scandinavian about its promise: “Making billions while saving the planet.”
Native Swede Carl Hall is in London today, fresh off a plane from Oslo where he lives with his wife and kids. Hall still spends a lot of time in Stockholm though; that’s the base of Alder, the cleantech-focused private equity group where he’s a partner. We’re meeting in elegant modern deco surroundings at 45 Park Lane, sitting on red chairs in a brown room where carpeted surfaces create an international hush. Hall, who’s in a dark blue wool suit over red pinstripe, is open and friendly as he talks, presenting his ideas in a strikingly unassuming manner.
Now, how you may feel about the title of Hall’s book, The Environmental Capitalist, will depend on your outlook – it’s either an oxymoron, or it makes perfect sense. There’s a strong argument for taking the business approach to the climate change problem – possibly the biggest challenge of our time. But still, finding efficient ways to push the green agenda in a manner that actually makes bank has proven elusive. Capitalism has certainly not solved this problem – not yet, at least. So why does Hall think it can?
The case for thinking bigger
“I like to compare it to what’s happened with the internet,” says Hall, his near-perfect English underscored by a mellow Swedish accent. He asks, do I remember the dotcom crash? That was around 2000, when hype was building around the internet’s seemingly endless possibilities. But because things always take longer than we initially expect, the letdown was harsh. But now, 15 years later, the promises of the dotcom boom have actually come true. “I think we have a similar thing happening which clean technologies. We had this bubble of irrational exuberance around 2008. Then came the crash, and everything that wasn’t cash on the table today wasn’t interesting at all. … In a few years down the line, that’s when we’ll see actual change.”
Hall first latched onto the cleantech phenomenon when he was an investment director at Applied Value in New York. “A lot of companies raised a lot of money, trying to solve these environmental problems. Many were completely hare-brained,” he says, remembering the startups looking to source energy by beaming in sunlight via satellites, or harvesting oil from algae. That was the hype: “But it got me interested, because I also saw that this is where it’s going to happen in the next 50 years.”
These days, the cleantech and green ideas that tend to get support are the more realistic ones: low-hanging fruit like biomass energy, smart grid technology, and hybrid cars. This is the sort of stuff that Hall backs at Alder: “We’re taking existing technologies that are working and making money, and accelerating them. We’re making them better, rolling them out faster, creating good financial models.” This approach is sound, but then again, Hall also writes in his book that “a bad conscience wanting to be green will never create scale”. In other words: if we’re truly going to solve the climate problem, we need to think bigger:
“I personally don’t believe this humdrum technology is going cut it all the way,” says Hall. “One of the behaviors I’m attacking in the book is this do-good attitude, where you’re desperately trying to look good.” In the book he talks about how a large company spent €10 to save 200 tons of CO2 emissions by swapping out its delivery vehicles, whereas a small company made €1 million by building a bioenergy plant, saving 250 times that amount of carbon. “The companies that are actually trying to make money are often much more successful, and in the end, they make much more of a difference,” says Hall. “Many of these so-called green initiatives – it’s not good bang for your buck!”
It’s good to be green
While this is certainly the kind of thinking that can be described as environmental capitalism, there’s also a second prong to Hall’s approach. In order to generate real change, political initiative is needed to kick things off: “Unless you have a carbon tax, for example, it’s never going to pay by itself to reduce carbon emissions. … It’s all well and good if 5-10% of the population decide not to fly in planes or eat meat. But that’s not going to make a big difference as long as the rest still go on. You need regulation or taxes that actually put a cost on using environmental resources.”
In his book, Hall writes that “big change usually doesn’t come voluntarily” – and yes, he thinks we should certainly use government to implement the changes we want to see. “To a very large extent, people need to be forced [to make greener choices].” Hall doesn’t actually want to see subsidies on cleantech – he’d rather do it the other way around, and tax the environmental villains. Capitalism won’t solve the climate change problem on its own, Hall admits: “No, capitalism is still going to need help, that’s true. But [after that initial help], we should have faith that capitalism will sort it out.” Hall says environmentalists in Scandinavia will argue against this, but, he points out, we can’t all go live in villages and eat organic food; ”Traditional environmentalists are a bit naive in that respect.”
Listening to Hall makes you aware how the Scandinavian perspective on cleantech differs from the British. In the UK, the idea that business-sound solutions will win out is arguably reasonably established, but it’s the subsidy issue that’s less straightforward. Hall nods: “The UK and the US tend to be very pro-market. But in Scandinavia, and Germany, France, Holland, there’s a whole another discussion. … [My views] are definitely more contrarian in many circles in Sweden and mainland Europe.”
The moment of big change
Hall’s (43) roundabout route to private equity hints at an entrepreneurial streak, although what young Carl wanted to be was an explorer. “But then I realised there’s no uncharted territory left. That was a bummer. But I’ve made a point over the past ten years to get to the most inhospitable places in the world.” Hall’s been to Mongolia, the Atlas mountains, Svalbard, and Greenland, but it’s trickier now that he has young children. “Now I go kitesurfing. It’s a bit of adrenaline. … It gets you out of your head and into your body.”
After graduating from Stockholm School of Economics, Hall went on to establish a series of e-commerce companies. He entered the investment fray ten years ago, but still keeps a hand it by sitting on boards of several of Alder’s charges. “I love building companies, and I love entrepreneurship. I love being part of when big changes happen. That’s what attracted me to the internet industry, and that’s what I felt with the environment. This is the biggest problem we face!”
Co-founding Alder in 2008 brought Hall back to Scandinavia, where he saw a gap for the kind of green-focused investment he’d set his sights on. “In the US, there were all these companies getting so much money. But in the Nordic region, which has been thinking green for a long time, there wasn’t many investors helping these companies.” Alder started as a pack of slides and a round of investor meetings, but even now, Hall sees his SEK1.1 billion strong company as a startup: “There’s still the thrill of doing something new.”
Alder avoids the riskiest upstarts though, preferring to back prospects with a turnover of £20-100 million. This makes good business sense: cleantech is still a field that’s finding its feet, with a failure rate that will make an investor weep. And even when things have gone right for a while it can still go wrong, like when Adler backed bioenergy outfit Jernforsen: “When we invested, they had been growing 15-20% a year for 10 years, with good profitability. Two years after we invested, suddenly the oil price went down, and nobody wanted to build a new biomass plant when the alternative was cheap. That market completely died for us for a few years. It’s coming back a bit again now. But these things happen.”
Aidon, the smart energy metering group, is an Alder success story, as the Finnish company hit it big when Norway decided to overhaul its metering systems: “We took a bet on what was going to happen in Norwegian market. We thought we could get 25%, but we got almost 60% of that market.” Hall was initially attracted to Aidon for its modern thinking: “Instead of having a lot of hardware, it was a lot of software. Also, they decided to be platform independent. Take Landis+Gyr and Toshiba: they want to provide an end to end solution. We” – he means Aidon – “provide a solution that will work with other people. Working with other technologies is a more modern approach. I think it’s a winner.”
Aidon’s technology also enables demand management; Hall explains how you can incentivise people to do things like run washing machines at times when the wind is blowing, and there’s more power coming into the grid. It’s similar to how it used to cost more to call during the day, I point out, and Hall nods enthusiastically. He’s interesting in behavioural economics, and how people can be encouraged to make good choices: “I think that’s exactly the way to approach it: putting incentives in place to make people want to do the right things. That’s the only way to have a massive impact.”
I ask Hall how far we are from the next wave of cleantech – the one where the initial promises come good, like with the internet. His answer is a lot more optimistic than I expect: ”I think it’s not further out than three to five years.” But maybe that’s because Hall spends so much time in Scandinavia? There’s more of an appetite there for deliberately steering these things – the carrier bag charge came into effect in the UK last year, but it’s been in place in Scandinavia for a generation. Hall tells me how electric cars from Tesla and Nissan recently became the bestselling cars in Norway, because the government decided to encourage sales by making them tax-exempt. “In five-ten years from now, everything is going to be electric or plug-in hybrid. Those technologies are completely taking over,” asserts Hall. “Once change starts, it goes much faster than you think.”