Q&A: Sustainable Development Technology Canada's head Leah Lawrence on the explosion in clean tech investment
August 18, 2021
This year has seen a new era of investor enthusiasm for clean technology that is estimated to be worth trillions of dollars in the coming decade.
Sustainable Development Technology Canada, founded in 2002, plays a key role in funding clean technology in Canada. At an arm's length from the federal government, the foundation manages a seed fund for start-ups and a clean tech fund for small- and medium-sized enterprises (SMEs) in the sector.
Leah Lawrence, the SDTC's CEO and president, joined the foundation in 2015. Since then, she has presided over a growing portfolio of projects that is now worth a total of $4.8 billion, with $1.38 billion of SDTC funding to climate tech projects and another $3.42 billion of funding from its public and private sector partners.
Research Money sat down with Lawrence this month to ask her where the clean technology in Canada is heading and what to expect as the country recovers from the COVID-19 pandemic.
There's been an explosion of interest in clean technology. What would you say has been the story of the past five or six years? What has changed since you first arrived in this role?
There's been a lifetime of change in the last five or six years, even the last two or three. The pandemic, I think, only accelerated the change that we're seeing.
I think there's three changes. The first change is money. Today, trillions of dollars are going into public and private sector investments in clean tech. And in particular, into clean tech that targets climate and net zero. [This year] the Glasgow Financial Alliance for Net Zero was announced with Mark Carney as its lead, and that alone is 160 firms with $70 trillion in assets. That's why I use the word trillions.
VC investment in climate tech is three times that of AI over the last 5 to 10 years, and we've seen that as well in the last three years: record after record after record of private investment into climate and clean tech funds or companies. What that means is that an extraordinary number of firms are scaling. They're raising 20, 50 or 100 million dollars as they do that. For the first time in years, we're seeing IPOs and SPACs [Special Purpose Acquisition Companies] in the space. That's the first thing — trillions of dollars flowing into this space, bringing in new entrepreneurs, bringing in new skills and talent.
The second trend I would say is carbon risk. You really see people in the financial community getting their heads around carbon risk assessment. There's a great report by Goldman Sachs... [It's] by Michele DellaVigna, and basically he's looking at carbon asset risk — what is the quantitative assessment of carbon risk? How does that apply to firms who have carbon intensive assets? And what does that mean? What is the financial community through the full supply chain going to require of those firms?
And then the third thing, that builds on the second, is data. There's this overwhelming thirst for data. We have seen in our portfolio and writ large an explosion in what we call the data-enabled clean tech. So it's like AI and machine learning, different approaches with software and monitoring applied to clean tech. Really [understand] how do you get to super energy efficiency, how you get to reductions in emissions. These mega trends of digitization and data are really driving clean tech as well. About 40 percent or more of our portfolio today we would classify as data-enabled clean tech.
In March, International Energy Agency (IEA) released a report setting up a very narrow path for getting to net zero. And just recently the IPCC released another report stating the negative effects of rising temperatures with more certainty than previous reports. Is a transition happening fast enough to move to clean tech? What needs to happen in the next five or 10 years to make sure Canada meets its goals for 2030?
I would say I have never been more positive than I am today. In the time I've been here we went from $60 million to $150 million annually in investment in really interesting firms. And we're just the minority investor. Everybody else is coming in with more money.
Those reports are the latest chapters in what is a global movement and a trend that is not slowing down. And the world's not linear, it's exponential. I've worked on this for almost 30 years. The first 29, or the first 99.9 percent of them, were not as fast as I would have liked, but I would say that the momentum is really taking off now. It's such that you see talent from the entire financial system coming to bear and that's really important for scale.
As the IEA report and the Carbonomics report says, we have a good body of knowledge and talent that have great ideas. What the gap is now is taking robust talent and people and helping those people scale up. It's great that you were in a research lab or a first-generation pilot. But now you've got to build five or 10 of those things over the next decade to 2030, and you're going to have to do it quickly and thoughtfully and with efficiency. There's going to be mistakes — we're in the innovation business, there's always mistakes — but you need to really bring that scale of talent to bear.
The pandemic taught us how to do this. If you look at some of the examples of the smaller companies that were experts in the science of vaccines partnering with large scale global companies, companies who understood how you get distribution, scale and supply chain — those two entities have to work together in the same way they did with the pandemic to be able to commercialize and scale the many technologies that we're going to have to be scaling [to meet] climate challenges.
There are great innovation and ideas coming out of Canada, but Canadian companies often get bought by foreign companies, or they aren't able to scale up as much as we would like. What can be done to help clean tech companies to grow inside our own borders?
Our goal is to help Canadian companies accelerate and scale — we've been putting together programming like that for the last six years. We have four streams of funding that go from seed to scale up, and each of them are tailored to help entrepreneurs in their path, trying to circle them with the ecosystem and the supports that they might need as well as money. And so that's the SDTC schtick.
But what I would say [in terms of commercialization] is we're a small open economy that's focused on exports. We're always going to have companies that are Canadian, that are multinational and are everything in between. And that's fine. What we want to do is create a network of supports and an ecosystem that allows those entrepreneurs who want to stay here, who want to scale, to be able to do so.
One of the issues we have in thinking about that is we have very narrowly defined what we think success and innovation looks like. A great book that you should read, if you haven't read it, is Dan Breznitz's book Innovation in Real Places. He's at the Munk School, and he's been thinking about innovation and commercialization for decades. What he said was that lots of times we focus on the novelty of innovation, right? R&D goes to Y Combinator, to Silicon Valley, so we need to be the Silicon Valley north. That's one form of innovation.
The clean tech form of innovation is sometimes like that. But more often, it's some of the other kinds of innovation he's talking about — design, prototype development and product engineering. So if you think about all these Silicon Valley folks, they send all of their ideas somewhere else to do the design, prototyping and development. I think about Ranovus in Ottawa here who's trying to do optical switching — they're in that innovation space, which is design, prototype and development.
Another one would be second-generation development. This happens a lot in energy systems in Canada and has for many, many years. Somebody goes and figures out how to make the first solar panel. And then Morgan Solar goes, "yeah, but if you use these kinds of materials, and you tried to put it in a less sunny place, and you did these other things, you would have an even cheaper, better product." And so that's what we need to do.
When we think about scaling, we need to stop thinking it's all about novelty and the Silicon Valley model, and realize that we've been really good at other kinds of models. How can we now take the learnings and the great talent, the expertise, that we have in those other kinds of models, and apply those to whatever the next 20 years of emerging innovation is? I really think that's our greatest challenge.
One piece that does cross over [all areas] is intellectual property. And I think this is something that we've been missing. To many of your readers' credit, this is something a lot of them have been championing. There was a view that intellectual property only mattered if you were in data-enabled sectors or ICT [information and communications technology] or what have you. Of course, this is not the case... we need to get our heads around that every new material that is born of smart science and technology is going to have some intellectual property standards strategy around it.
Historically, economists have stated that capital and talent are the foundations of competitive advantage in any sector. Now, it's capital, talent and intellectual property and data.
The SDTC often talks about educating companies about intellectual property. What exactly does that mean? What are you educating them on?
It does start with education. What does education mean? It means understanding what kinds of business strategies are being used by incumbents, by people in the supply chain around intellectual property, and then how that might affect you.
If you're a lithium ion battery recycler, for example, and you want to figure out how to manufacture it differently. There are five other people doing lithium ion battery manufacturing, so you need to understand whether you have the freedom to operate and whether you can scale a business in that realm. There are companies like Tesla that are doing that, and there are companies like Samsung that are doing that. There's already a body of research and commercialization know-how, that may or may not be protected through intellectual property globally, that you're entering into in terms of the playing arena.
Just like you need a marketing strategy and a financing strategy and a technical strategy, you need an intellectual property strategy to understand over time whether you'll be able to do the stuff you want to do. And if there's somebody in that area that already has the intellectual property, then you have to figure out how you're going to work with them to achieve your business goals. So it's like a fourth pillar in terms of business strategy.
We start very early. We start with companies who are entrepreneurs or just out of university or have been in the business for a few years. And we pair them up with companies who would have been in the business longer. And then we bring in experts in intellectual property law and commercialization... those are the nuts and bolts of the education.
But the real experience is really important horizontally. We just had an education workshop where a woman from Terramera with a very strong intellectual property strategy was there. She's the Chief Technology Officer and is doing a PhD in her field. She was just there telling stories about "okay, we were there five years ago, this is where we were at, and these are the kinds of trade offs we had to think about." What do we patent? How do we patent it? How much capital do we allocate to that strategy? And what do we think about? And what kind of network do we have to have to be able to make those assessments well?
It's about understanding what the base stuff that you might learn in a course, but then connecting to the ecosystem to understand how the rubber hits the road, so to speak, and connecting with people who have been there before you.
Has the pandemic had an impact on your outlook?
It really shone a spotlight on the possible. People rolled up their sleeves, small and big companies figured out how they could get through what is usually a multi-year negotiation to react and execute, and share talents and profits in that regard.
This rapid development and deployment of tech, with the full supply chain coming together to deliver is exactly what you're going to need. So really, in many ways, COVID was a crash course in the possible. You can adapt collectively, you can quickly focus in a time of crisis. And climate and medical technologies are really similar in terms of their commercialization pathways.
This interview has been edited and condensed.