TPG’s Jim Coulter says Tesla is the AOL of EVs, but won’t necessarily end the same

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Climate change has been one of the most important topics of 2021, but private capital is still in its infancy to move forward in this space. TPG Executive Chairman Jim Coulter is raising one of the few climate funds in existence. Here it is on impact investing and the role of private capital in mitigating climate change risks.

(This below has been edited for length and clarity.)

Leslie Picker: Where did this idea come from? You are co-manager of the Rise Fund [which] impact investing in particular. What gave [you] the idea of ​​raising a climate fund?

Jim Coulter: Five years ago, we started to wonder why impact investing hadn’t gained momentum, and if the idea for the next year would be to start focusing capital on companies in impact. From there was born the Rise Fund, which was the largest private equity fund focused on impact investing. One of the areas we approached was the climate. For a while, I have to admit it was a bit slow, as most of the climate investment was in the contract renewables infrastructure market. But about two years ago, we noticed a fundamental change in the market for the quantity and quality of investments.

Picker: So where are we in this cycle?

Coulter: I was fascinated by the recognition of patterns of what I experienced as a technology investor in the 90s and over the last 30 years and the current climate. So it seems a bit like technology to me back in 1998. It’s a time when society begins to realize that technology was going to affect everything just like the climate is going to affect everything, and that the capital markets weren’t. quite set up for how they were going to handle this. There were a few tech companies in 1998, take AOL, that were famous. But towards the future, AOL is not what it used to be. Home pages are not the engine of technology today. So we are sitting today realizing that climate change will generate investment opportunities for perhaps decades to come, but the markets are still forming.

Picker: So if AOL was sort of the darling of the late ’90s, what do you think is the darling equivalent of the current climate scene?

Coulter: Well, it’s clear in public markets that Tesla, in some ways, is attracting attention – it might not end the way AOL did – but it’s a first understanding of the importance of a sector of the climate change universe. Electric vehicles are therefore part of what needs to happen. If you think about climate change from an emissions perspective, the way we travel is probably only 18% of our emissions problem. And yet, if you look at the concentration on climate-related companies, a huge concentration is in this corner of the market.

Picker: With the tech cycle, we’ve seen a big boom and a big slowdown and people kind of pulled different pieces of it by looking at areas like SPACs and some of the business in government markets as you mentioned. Do you see some of this recent frenzy and rush to invest in these areas, similar to this part of the boom and bust cycle in technology? And, you know, an extension of that, does that indicate that the climate ecosystem might be in a bubble right now?

Coulter: I don’t see it as a bubble, but I see it as what will clearly be a twisted and interesting journey. So I don’t want to make too strong an analogy, but in some ways it sounds like 1998. If you remember 1998, people understood the immensity of what could happen. Each company was trying to come up with a technology strategy, and capital began to flow into the area. So what happened? A number of companies have jumped into the public market probably before they should have. Some of them did not find a very hospitable resting place there. Others, like Amazon, got into a public market early, but took a long time to really find their way into the market. Fast forward a few years, what happened after that moment? The market has reconfigured and the growth equity market has developed into the private market. Companies like Uber and Airbnb have been private for 10 or 12 years and I think we’re going to see the same pattern in this cycle, in the climate revolution, where there’s going to be a lot of excitement at the start. Businesses can step in and react to the excitement, but a long-term ecosystem of capital and capital solutions will develop and this will help the revolution unfold.

Picker: If the climate situation experiences some kind of downward reassessment, is that detrimental to the movement towards climate change? Is that something that might get investors to take a step back and say, “I’m going to, you know, sit on the sidelines a little bit, wait for this to play out,” and then what the hell does this mean for climate change and the efforts to solve all these problems?

Coulter: As the markets react from day to day, what drives long term returns are long term trends. So I’m not very bothered by the daily trips to this market. It is quite clear to me, however, that the long term trend is developing. We are not coming back to a carbon-based world. The only thing that gives me some confidence about this is that there’s always a question of whether green was a high-end phenomenon and as soon as something went wrong the green sort of faded. We have just gone through a global pandemic, social upheaval, electoral uncertainty and we are coming out with a more entrenched green and with greater momentum.

Picker: And why is that? People were really struggling last year and it was remarkable that so much attention was paid to how to improve the environment, climate change, just a huge difference in feeling at a time when I didn’t. not expected that to happen.

Coulter: I have to say that maybe Covid was a time when we understood that angering nature with us, or that nature can surprise us in strange ways, has huge effects. So it was a time when something we couldn’t control was affecting us all. And the climate has some of those same attributes, where we had something that was going to take collective action and that would affect us all. It is something that knows no borders, that does not know national containment, and therefore, maybe there was an awakening that transferred part of his consciousness to the climate. I also think there was a time within Covid where business and government came together against a problem: Operation Warp Speed ​​and later vaccine distribution, and it really worked.

Picker: What is the role of private capital here? How does this differ from all other sources of capital that seek to change this problem?

Coulter: Private markets have a very important role to play, because we need to build the climate businesses of tomorrow. And these companies are probably best built in the private market. And unlike what we’ve just experienced in tech, we’re going to need a lot more capital than a tech company to build. So our aim is really to help play the role that venture capital has played in technological evolution, where venture capital has played a very important role in giving birth to new companies which then went through growth equity in public markets. The same cycle must occur here where private markets must organize themselves to provide the capital necessary to solve this problem.

– Ritika Shah, producer at CNBC, contributed to this article.