The Lightsmith Group - Adaptation Investor Interview

What Is The Lightsmith Group?

Jay, Could You Kick Us Off With An Elevator Pitch For The Lightsmith Group And Your Role There?

Jay Koh - Lightsmith Group is a global private equity platform focused entirely on resilience and adaptation to climate change. Investors, entrepreneurs, and technologists have a huge opportunity to develop technologies and solutions that can assess, manage, and even transcend the increasing physical risks of climate change.

Lightsmith manages the first private investment fund for adaptation and climate resilience. It's a growth equity fund, so we focus on companies at the growth stage. We manage $185 million and have made five investments so far. We see hundreds of opportunities in companies that can help us understand how climate change will happen and manage some of the issues we will face.

Attracting Funding

How Should We Be Communicating The Need For Funding In The Adaptation Space?

Jay Koh - The first recognition we need to make, which I discussed at Adapt Unbound USA 2024, is that climate change is a humanitarian tragedy. Some people are being impacted right now in their livelihoods and their health. We should never forget that we have created a real challenge for ourselves and our children and biodiversity. So when we talk about the opportunity out there, it's always in the context of understanding that this is an enormous challenge we have unfortunately created for ourselves. That being said, investors, technologists, and policymakers need to think about the adaptation or climate resilience side of the equation because it is an unavoidable opportunity. The 2023 IPCC synthesis report for policymakers says that some changes are now "unavoidable and irreversible" because of the cumulative amount of carbon dioxide in the atmosphere. So between now and 2030, there's a certain amount of climate change that's going to simply unfold. We can have a limited effect on the trajectory between now and 2040, and we are really fighting for the world after 2040.

Make no mistake: decarbonisation and shifting our economy to a lower-carbon universe are critical to dealing with the challenges facing us. Despite this, between now and 2030 and 2040, you may now have more conviction and certainty about the trajectory of climate change than you do about what will happen with interest rates, inflation, consumer behaviour, and AI. We make lots of investment decisions based on where we think all these other factors may be going when we have much greater certainty about where climate change will be.

Because of the trajectory of climate impact, we know now that there is an unavoidable set of changes, creating the opportunity. Knowing that that set of changes will be before us, the opportunity is to learn how to invest in technologies and solutions that help us navigate that set of changes and help us transcend those changes. How do we deal with the fact that there will be more heating? There will be very challenging changes to how we exist right now, but they also create an enormous opportunity for investors who know now that demand will grow.

It's excellent that decarbonisation is happening and deals with the causes of climate change; intertwined with decarbonisation are adaptation and resilience to the effects of climate change. At least 1.5 degrees of warming is what the IPCC has told us is now table stakes, and that creates this certainty around trajectory. Therefore, you should have more confidence to develop and scale up these solutions, which creates a case for investors.

The Cost Of Inaction

Do You See The Trajectory You've Touched On As The Most Significant Risk Facing Global Society In 2024 And Beyond?

Jay Koh - I think it's the opposite. The most significant risk we're facing in 2024 is inaction. We used to assume that if you were going to do something new, you were taking a risk, and the risk of it not working out was that the situation would remain static. We now know the next five years will differ from the past. If we're sitting here at Adapt Unbound 2030 or 2040, the world will have changed in a knowable way that the scientists have told us they have a fair amount of certainty is going to happen.

Knowing that we shouldn't be acting as if nothing will happen. If you look at your retirement accounts, you can invest in decarbonisation. You think electric vehicles are now inevitable. That's why Tesla has a Trillion-dollar market cap. Suppose we had had this conversation at the Unbound Conference in 2008, and I said electric vehicles are inevitable; you'd be like, we should cut you off before happy hour!

That same feeling of inevitability will emerge on the adaptation and climate resilience side because scientists have now told us that physics and time will create an increasing amount of complexity in the environment around us. So the challenge is, when we have this conversation in 2030 or 2040, what did you do knowing that that is the case? What if we got into a Silver Delorean and went back in time to today? What did we invest in? Did we invest in technologies, solutions, or entrepreneurship? Did we scale capital because there is a billion or trillion-dollar opportunity to help us deal with the complexity going forward from a data analytics or solution standpoint? There's an opportunity, and you want billion-dollar-sized companies or even trillion-dollar-sized companies to be built to deal with the scale of complexity that we will now see unfold.

There's an old Wayne Gretzky quote where they ask him, "How did you become such a great hockey player?" And he said, "Don't skate to where the puck is; skate to where the puck is going". The challenge of climate change is that the puck will keep moving. There's a first and second derivative. The puck is moving, and the rate at which it moves will also change. If we understand that, we can build technologies and solutions and adapt to that future to create better outcomes for everybody. That is the opportunity because that future will be coming now. So, inaction in the face of that unavoidable opportunity, not taking up the opportunity is the most significant risk.

Collaboration

How Can You Unite Public And Private Stakeholders To Drive Necessary Change At Pace? You Mentioned That 2030 Is Five And A Half Years Away. So, How Can We Collaborate Better?

Jay Koh - Fundamentally, we need to improve and refine communication to drive collaboration in the space. Investors, governments, and policymakers are all thinking about how to shape the trajectory going forward. Getting on the same page that 2030 will look different than 2024 is an essential initial starting point.

Let's say you had three magic wands that would solve the communication issues that hold back change. The first wand I would wave would be to say that the "unavoidable opportunity" is here. Climate risk is happening right now. We should manage that risk, protect what we have, and then get beyond the risk and create value despite that risk. Those steps need to happen now.

The second communication wand is an incredible opportunity for technologists, entrepreneurs, and investors to invest in the future, which will be more complex than it is today. Suppose you could develop technology to guarantee that we will have great coffee and cocoa – food, water, shelter, of course! – in what will inevitably be a more complex world. That technology would be tremendously valuable to everybody. You can make billions of dollars if you can build a company to help us adapt to these environmental changes. I am a technological optimist and believe we have the innovation and capital to reach that point.

The third communication wand is that the government can be helpful here, even though there are other demand drivers. Sometimes, in the decarbonisation context, experts talk about an "inevitable policy response": someday, we're going to wake up, we're going to price, tax, or ban carbon, or take some other dramatic policy action to drive decarbonisation. In the climate resilience context, there is an "inevitable physics reality": global warming will continue to unfold between now and 2030 (and 2040, and potentially well beyond that) because of the cumulative emissions in the atmosphere. That inevitable reality of physics will be independent of the direction of government policy until 2040.

That said, government can help address the needs created by unavoidable climate change. The government can work with investors, entrepreneurs, communities, and individuals to advance the technologies for climate resilience. Perhaps someone should create a CHIPS Act for climate resilience. As we are advancing chip technology, perhaps we should support climate resilience technology. Whoever figures out how to build the technologies that help the world be a better place when it's more complex because of climate change – that person, that company, those investors, that country will have a massive value advantage and a global opportunity to bring that technology and those solutions to everybody else on the planet.

Now, will we take up that opportunity or not?

Countries Leading The Charge

Do You Have Predictions On What Country Might Lead The Charge? Are You Hoping It's The US?

Jay Koh - Well, you're going to see innovation everywhere. Artificial intelligence will play an increasingly important role In the data analytics space, which is particularly strong in the United States, Europe, Japan, Korea, and parts of China.

We invested in AiDASH, which applies artificial intelligence to satellite images to help utilities manage wildfire risk from electricity lines. AiDash has over 60 utility customers. We will deploy more electricity power lines to support the decarbonisation transition. Those power lines need to be secure against the physical risk of climate change. That company is based in the US and has 85% of its employees in India, so the innovation is happening globally. Adaptation solutions will also be locally distributed, so solutions will have to work in different parts of the world at different cost points. Technologies that may work in India could be deployed in Africa, Africa, and other places, such as Brazil.

In other places, we're looking at companies like Solinftec, which is one of our investments in precision agriculture. The company covers over 90% of sugar cane production in Brazil and by deploying sensors and software, makes farming more efficient and resilient to climate change. We're planning on localising that technology and deploying it through robots in the United States right now and localising and potentially piloting it in sub-Saharan Africa. The technology and the solutions are out there.

Climate change risk is not an "aliens landing on the Earth" risk – it's not a risk we've never seen before. Climate risk is an existing risk – just much more complex. That's why I'm a technological optimist. We can align capital, technology, and policy because we now have visibility on the climate trajectory. Whoever takes up that opportunity can build enormous value for investors, technologists, and, most importantly, society. And we have a chance to bring that technology to people who are impacted today.

Without that set of solutions, people will continue to be harmed by climate change. Without scaling that technology and providing it to as many people as possible in the face of climate change's inevitable growth in demand, we will not have the future we want.

There is an unavoidable opportunity.

The question is, will we take up that opportunity or not? Great investors, technologists, leaders, young people, entrepreneurs, and policymakers who are aware of this and join hands to move forward will build enormous value for investors and society and craft the reality that we want.

I have a fifteen-year-old, a thirteen-year-old, and an eight-year-old. In 2030, my eight-year-old will only be fourteen. This is the world that they will inevitably live in. And the question is, what are the choices we're making now about what that world looks like? Because climate change is an unavoidable set of challenges. When I think about a call to action, I say to anybody out there that this is a great challenge, and it's a great and unavoidable opportunity: what are we going to do about it?