‘We hope to see more material science, heavy industry firms coming out of SEA to address climate change’

We’re running out of time when it comes to climate change. Our conscience is not shaken yet, even as the dire changes caused by the catastrophe are already visible in the cities we live in.

As per the latest Intergovernmental Panel on Climate Change (IPCC) report, one-third of the planet we live in is vulnerable; if the situation doesn’t improve, we will likely face huge losses in the agriculture, dairy farming, meat industry by 2050 and 2100. And it could push about 183 million people into poverty.

But there is a glimmering of hope as the likes of Bill Gates and Jeff Bezos have announced massive funds to support companies addressing climate change.

However, in Southeast Asia, things are still a bit slow. There are many reasons for that, but it is changing, says Derek Handley, Founding Partner of Aera VC, a new Singapore-based US$30 million climate tech fund.

e27 recently had a conversation with Handley, who sits in his office in Auckland, New Zealand.

Below are the edited excerpts of the interview:

What is broadly climate tech from your perspective?

From our perspective, climate tech is anything that is meaningfully working to resolve or reverse climate change contributions. As we know, climate change is quite a myriad complex net. But the simplest version is how you reduce, remove or avoid CO2.

There are different ways to do it; you can substitute a current human behaviour with a new behaviour that significantly reduces CO2. Alternatively, you can find ways to trap it, suck it, or remove it.

Other things that contribute to the broader biosphere ecosystem might be as simple as the health of the oceans is linked to climate change and related issues, the health of forests and forestation.

How is climate change affecting Southeast Asia and Asia?

Well, it’s a global issue. Although it affects every nation differently, it affects everyone the same as the world is heating up. Sea level is on the rise, and it causes many issues everywhere. In some Southeast Asian and Pacific nations that are lower-lying, it becomes more problematic in terms of their sea and sea level boundaries.

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Things that contribute heavily to climate change, such as petrochemical or fossil fuel, also have a vast pollution effect. Coal-fired fuel power and hydrocarbon engines impact people’s health and livelihood. Forget about the actual climate change on the planet.

There are many other factors, including the ways we engage with the world, our country’s geography and nature, the long-term sustainability of different ecosystems of species and animals, who can no longer survive, and waterways and oceans that can’t thrive in a climate-warmed world.

There are also the geopolitical issues of the reliance on fossil fuels, which has their geopolitical challenges. If each country can rely on its climate-neutral or renewable grid, they have a lot more sovereignty.

Even in this Russian crisis, you can see that oil is a significant factor. And if the whole of Europe were renewable, there would be a very different dynamic between those two sides.

Yeah, the consequences of climate change are fatal. Despite this, few are investing in climate tech in this region. One study says only 0.8 per cent of the total funding invested across the globe came to SEA. Is there a reluctance among VCs to invest in climate tech?

Southeast Asia as a startup ecosystem is still some years behind America’s or Europe’s ecosystem. There’s a delay in the overall ecosystem development and maturity. When you are one, two or three decades behind, then it’s going to be delayed. Same as Australia and New Zealand.

And then, there are factors like how many founders have created unicorns, exited and are now seeding new founders. This number is less in Southeast Asia, Australia and New Zealand. We have a thinner layer of founders seeding new ventures and new funds. So the whole ecosystem is yet to mature.

The first wave of startups in Asia has been e-commerce, mobile commerce, and digitalisation. It makes sense because there’s a solid coding base, software ethos and culture of doing things with very little capital. So the first generation of entrepreneurship in Southeast Asia is based on that ethos.

As the problems become bigger and get more attention, we hope that there’ll be more founders looking to solve climate. As we know, if you have got a fund but no founders in the space, you have nothing to invest in.

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There should be an emergence of dozens and hundreds of founders looking at climate change-related issues. This is why we focus on making a much bigger presence in Southeast Asia, even India.

Climate tech is also regarded as a capital-intensive business. Is it also the reason for the lack of interest in this region?

We need to differentiate here. The rest of the world already has a huge interest in climate change at the moment. Many investors have created giant climate funds — from BlackRock, Blackstone, Bill Gates, and Jeff Bezos. So you have billions pouring into climate capital at the moment. Many of these investors are late-stage funds (Series C, D, or pre-IPO).

And there are more and more seed funds emerging, and I think there are a few dozen funds launched last year, a lot in Europe and the US, but not so much in Southeast Asia or Asia — barring a couple of funds in Singapore.

There was one or two launched last year in Australia. This side of the world doesn’t have many, but it is changing, and more funds are coming. And even the more general funds are looking to invest in climate.

To your question about capital intensity, people around the raise money for any business, so capital is not much of a problem. Our first investment was Solugen, which raised over US$350 million in September 2021 from Temasek, GIC, BlackRock and some others. This company is more capital-intensive because they’re building plants to create new types of chemicals.

But many of our companies don’t need that amount of capital. Their software systems don’t require that much. But I think the main thing is that they’ll raise a lot of capital if they can scale. However, you can get quite far with not too much capital.

Is there a lack of interest among big corporates and family offices to invest in climate-tech VCs?

There was a lack of interest in 2017-19 because climate tech was not popular. But in the last couple of years, it has become a hot topic.

There are quite a few climate-tech companies in Southeast Asia. But most of them are into the alternative food segment and only a few in other sub-sectors…

I am not sure if I have a perfect answer to the question. But our instinct and our feeling at the moment are it is about to change. And we have been looking at more and more companies coming out of Southeast Asia and even India.

I think that over the next year or two, we’ll be making several investments in the space. The ecosystem is developing to such a point that those founders are emerging. But you’re right; they’re mainly in the food space at the moment.

You have invested in just one company in Southeast Asia, Shiok Meats. Do you plan to support more companies, especially those in the other sub-sectors of climate change?

We have already done a lot of food deals in California, the Netherlands, Australia, New Zealand etc. We are invested in that segment because we think anything replacing the traditional way of trading meat, dairy, and seafood contributes significantly to a new way of being much more climate-neutral climate-negative.

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We have also invested in carbon capture/recycling/conversion and decarbonising of heavy materials or industry and material science. We hope to see more material science and heavy industry stuff coming out of Southeast Asia. This is where you can do lab-based science to create new types of materials for the built environment — be it construction, fabrics, cotton, or any materials that can be developed using synthetic biology and other methods. It is like the food space, but it’s more for the built space. So we hope those kinds of things will emerge.

Also, you still need a lot of SaaS tools for measuring, managing, monitoring and financing the climate transition. We also expect these tools to emerge in this region.

We have many deals coming up, but they’re not over the line. So we can’t talk about them. One of them will be in Asia.

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