A Lawyer’s Guide to Climate Tech
Focusing more on near-zero and less on net-zero 🌍
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What is this? This newsletter explores topics in climate, energy, and everything in between.
This week we’re trying something new: Our first interview 🎙️
I’m more than excited that my friend Rickard - General Counsel at a pioneering climate tech VC in Europe - took the time to share his hard-earned wisdom with us.
This conversation takes us across various topics such as best practices for climate tech companies, his favorite policy instruments to fight climate, reasons why we might fail to reach net-zero, and many more.
I certainly got smarter absorbing his perspective.
Without further ado: our conversation with Rickard Vernet 🇸🇪
A Lawyer’s Guide to Climate Tech
By Art Lapinsch
What got you into climate? Was there a specific moment? And how did it lead to where you are today?
It was always somewhat in the cards I think.
My mom is a retired biology teacher and my dad is an engineer, so growing up in the 80s and 90s our house would be full of discussions on anything from the ozone layer, greenhouse gases and loss of biodiversity to energy efficiency, wind power and heating systems. As a teenager I got introduced to the works of some ecology and environmental philosophy writers such as Aldo Leopold and Arne Naess that really struck a cord.
Then I went to law school to work with international law and human rights - as everyone else did - but got interested in competition law instead. This was very much seen as a “cool” space for young lawyers interested in economic theory and innovation and we were all quite psyched to end cartels and price-fixing, bring down the predatory market incumbents, and ensure fair competition and perfect market efficiency. So I joined one of Sweden’s largest and most prestigious law firms to learn the ropes.
Competition law however, based on classical economic theory, is very much based on an ideal of infinite natural resources, and does not integrate the full costs of the behavior of market participants on society. Also, cooperation between companies to for example solve climate issues may be seen as anti-competitive and be prohibited. These realizations made me look to innovation and technology - and specifically startups and venture capital - as an alternative instrument, and I pivoted into that field.
I went to basically all the events and read all the literature I could find to learn about the industry and sought out projects and clients that would help me learn about private funds, the VC industry and startups. After working on that for around 10 years I got the opportunity to team up with the Pale blue dot - a climate tech VC fund - founders and everything pretty much fell into place 🌍
What does a typical week as a General Counsel at a climate tech VC look like? What are some unique challenges you face in this role? What’s different from working at a massive law firm?
“I am not an expert on this but the task is needed so I will learn it”
We are a small team, which means that we get to be a bit scrappy and everyone jumps in and help out where needed - so one week may look completely different from the other.
My main work streams can however be broadly divided into:
Handling investments (new and follow-on)
Fundraising and LP relations
Compliance and internal ops
Portfolio work (helping portfolio companies with regulatory/legal/contractual issues and strategy) and
Providing the investment and research teams input on (climate) regulations
While some specific tasks and questions are quite similar to law firm work (especially on the deal side), the mindset on how to carry out those tasks is very different.
In a law firm you are thoroughly drilled into a “professional services” mindset, with a focus on perfectionism and deep and narrow knowledge. This is the exact opposite of the growth mindset that is crucial for startups (and indeed also VC funds).
To be slightly tongue-in-cheek: When faced with a new area or task the professional services mindset would say “I am not an expert on this, so I will defer to someone who is”, while the growth mindset would say “I am not an expert on this but the task is needed so I will learn it”.
What legal concept or idea should every climate tech founder understand? Why?
The last few years have obviously seen an enormous boom in climate tech and “green” investments.
At the same time, we have also seen a strong focus on anti-greenwashing - not least in the financial industry where the regulators are trying to provide some clarity on what exactly “green” or “sustainable” investments are.
In Europe, the key legislation are the Sustainable Finance Disclosure Regulation (SFDR) and the EU Green Taxonomy. These acts force investment funds, and especially investors who market themselves as “green”, to comply with quite far-reaching data collection and disclosure requirements.
For climate tech founders this is very relevant to be aware of, especially if they want to raise money from “green” or “climate” VC funds. Because their investors will have to collect and report quite a lot of ESG data (e.g. scope 1-3 emissions). So when informed about the incoming lead investor’s reporting requirements, founders should remember that a lot of these data points are needed for regulatory reasons.
Founders should also be aware of the increasing focus and application of so-called foreign investment regulations on climate tech. These laws - for example the US CFIUS regulations - require investments into certain technologies and industries by foreign investors to be pre-approved by a government agency.
With the decarbonization and electrification mega trends, there have been an increasing number of new climate technologies that are considered as an essential technology, part of critical infrastructure, or otherwise strategic from a geopolitical perspective. Investments from foreign investors, especially if a foreign state has a direct or indirect interest in such investor, can lead to investments being delayed or even blocked, and/or tenders and requests for quotation (RFQs) being compromised due to the foreign ownership.
What are some best practices for climate tech startups when it comes to managing legal and regulatory risks in their early stages?
I would really like to stress that for many climate tech startups, regulation is an opportunity more than a risk.
Climate regulation has created lots of new opportunities over the last couple of years, both through push (restrictions and disclosure requirements creating demands for new solutions) and pull (incentives, tax credits etc). So it makes sense for lots of climate tech companies to work with and leverage regulation into their core business strategy.
When it comes to managing legal and regulatory risks, the early stage is not so different for climate tech companies compared to “normal” startups. So standard processes very much apply:
Understand if there are any legal and tax liability for owners
Protect your business assets (so keep track of licenses, consultants and IP)
Make sure you have a co-founder agreement (with a vesting schedule)
Do due diligence on your investors
Keep things simple and streamlined (for example, don’t sign a gazillion of NDAs)
Other than that, legal risks are quite different for say a green finance startup compared to a company building next-gen heat pumps. For B2C companies in general however, it’s important to note that any green claims will likely be thoroughly scrutinized by customers, media and authorities.
As it’s not really time and capital efficient to involve outside legal counsel in the daily operations of a startup (don’t be afraid to bring them in for the critical/strategic issues though), basically all early stage companies are well served by looking at some legal ops software, such as Pocketlaw or similar.
And then once the company’s customer base grows, bring in in-house legal ops to standardize, ensure quality control and create efficiencies.
Which areas of climate tech are over-indexed in public discourse? Which are under-indexed? Why?
Firstly – I don’t work as an investment professional, and I think that there are literally hordes of investment professionals looking at that question. And at the same time the herd mentality of the VC industry is well-documented, making this question a real potential trap to me.
The solutions that are over-indexed in the public discourse are the silver bullets.
The common theme is that these technologies - be it CCS, SMNR or even fusion power - are extremely promising but also extremely costly and a long way from being deployable. The risk here is that we focus so much on the future utopian solutions that we lose focus on the smaller nitty-gritty things we can do today to incrementally make the world a better place.
Also, it does seem that there are an ever-increasing lot of carbon accounting and sustainability reporting software and tools. Many of them are great of course, but reporting and accounting platforms only take us so far.
If we want actual change we have to create and implement the tools and processes that actually cut emissions, not only make them visible. One area that I believe is under-indexed is tools for anti-corruption and access to justice (surprise answer from the lawyer). Accountability for loss caused and enforceability are in my view key to ensuring that net-zero strategies and technologies are actually deployed.
What is one climate insight that you constantly surprise people with? Why do you think is it surprising?
Public policy - and the votes cast on who will decide that policy - is the single most important tool we have available to meet the challenges of climate change.
I think we generally tend to overstate the importance of individuals (including ourselves) and understate the importance of existing structures to bring about change.
As a smaller thing, I learned that shutting of your camera at video calls can save up to 96% of carbon emissions. It’s interesting as it showcases how little we think of the carbon footprint and general environmental impact we cause by our modern digital lifestyle.
Also, it’s a great fact to bring up whenever you can’t get your camera to work on Google Meet 📸
In our last conversation, you outlined an existing tension in EU law: “Leveling the playing field” in the internal market vs. risk of losing to global competition due to over-regulation. What’s your current thinking on this topic?
No question this is a trend that is growing stronger and stronger.
Historically, the European project has been very focused on the internal market and to enable European companies to compete on equal terms in other member states. The emphasis has been on free movement, fair competition in and between EU member states and prohibitions on state aid.
The Union shall adopt measures with the aim of establishing or ensuring the functioning of the internal market, in accordance with the relevant provisions of the Treaties.
Art. 26(1) TFEU
In a highly globalized world however, the imminent and most dire threat to say a French manufacturer is likely not the German manufacturer across the border but rather global competitors.
And if those competitors are subsidized or less-regulated compared to European companies, leveling the field within Europe, it is argued, should not be the primary concern. So far it seems that EU legislators generally have chosen stricter regulation on non-EU actors rather than deregulation.
The best examples we have are probably the new EU Foreign Subsidies Regulation, the Carbon Border Adjustment Mechanism (CBAM - see below) and the relaxation of state aid rules brought about in the EU Green Deal Financial Plan.
These are all very fresh legislative initiatives focused on strengthening the EU competitive power as a whole.
If we fail to reach net-zero, what would be the most likely reason? Any ideas how we could avoid it?
By focusing on silver bullets and hoping we can continue to live exactly as we are doing right now or even increase our consumption.
It’s like getting a raise, once you know that you have slightly more money to spend each month, the risk is that you increase your spending so that your net savings are the same.
I think we need to:
Ensure global buy-in by addressing the climate financing gap between the Hlobal North and South, and enable climate justice for the people who suffer the most from climate change; and
Focus more on near-zero and less on net-zero. So less focus on carbon capturing, offsets etc, and more on actually cutting emissions.
As long as it is financially more advantageous and socially acceptable to buy low-cost carbon offsets from abroad or invest in cool and new carbon capturing technology than it is to reduce emissions, people are always going to look at those easy and/or future solutions and keep on increasing emissions.
Do you have a favorite policy instrument to fight climate change? What is it? Why do you like it?
I think that the best policy instruments are the ones that internalize costs so that activities that are harmful also have to carry the costs of the harm caused.
Carbon taxes - a tax levied on fossil fuels - are a prime example of that.
I am not an economist but I think that carbon taxes is widely viewed as one of the most - if not the most - efficient policy instrument available. There can of course be welfare issues to address if the price of goods increase this will hurt the poor more than the rich but it is extremely straightforward and clear.
While not usually seen as classic “policy instrument” I would also highlight the principles of company law and the fiduciary duties and obligations of the board of directors. The board of directors is obliged to act with care, skill and diligence, and to promote the interests of the company. And this includes taking science - including climate change and risk - into account.
It could be argued that a board that take decisions to invest in the carbon economy, or rejects net-zero strategies, are not acting in the long term interest of the company and its shareholders because such investments are at a high risk to become stranded assets, or because it places the company at high risk for climate litigation.
What is a piece of current or upcoming legislation that you are excited about? Why?
The new EU Carbon Border Adjustment Mechanism (the “CBAM”) is a novel legal “innovation” and has the potential to be truly groundbreaking.
I wrote a short post on LinkedIn about it.
In short, it will be the world's first carbon border levy on specific goods:
The aim is to prevent "carbon leakage" - meaning that EU and global climate efforts are not undermined by production being relocated from the EU to countries with less ambitious policies, and to incentivize foreign manufacturers to reduce their emissions and/or foreign governments to establish carbon prices of their own.
From an investment perspective, the CBAM has the potential to significantly de-risk investments in net-zero manufacturing and technologies as the costs of the emissions of competing imported products needs to be taken into account.
What would you recommend to a lawyer who wants to break into climate?
To understand that “breaking into climate” does not necessarily mean either (1) becoming an environmental lawyer, or (2) pivoting your career trajectory completely by throwing away your existing skillset and getting a new one.
This is not only wrong but also demoralizing and can lead to the belief that a transition into climate is impossible without going back to school.
Not everyone has to be a climate scientist.
Rather “breaking into climate” is for me a question of thinking about how you could leverage your existing knowledge and skillset and apply it in a climate context.
This can absolutely mean changing your job role, but can also just mean focusing on specific legal topics or from a private practice perspective actively targeting/choosing to work with specific clients and sectors (and reject others).
If you are a fintech/regulatory expert, you can focus your work on e.g. helping green neobanks, financing of net-zero projects, or EU taxonomy and sustainable finance regulations.
If you are working with shipping and transport law or construction law, you can actively look to work with companies using low-emission/alternative transport solutions and materials.
And if you are working in compliance, you could push for a focus on the importance of anti-corruption in the fight against climate change.
Of course, a full transition into an ops/bizdev/leadership role is fully possible.
I have friends from law school and ex-colleagues who are now sustainability experts, startup founders, tech CEOs and CTOs, business developers and policymakers.
Unfortunately, most startups and tech companies are not actively looking for hires with a legal background for operational roles, likely because lawyers are considered specialists. But I think such a legal background can be super valuable in operations at climate tech companies - especially those operating in a regulation-heavy sector.
And also – read, read and read.
There is an enormous amount of knowledge available on climate science, policy, technology and finance out there to help with the transition.
As we look back from a net-zero future, what do you hope they will say about us?
In the short and medium term perspective, that we did more good than harm. I think that’s the only obituary one can aim for.
In the long term perspective, nothing. A few thousands years from now the carbon economy will be a short paragraph in the history books.
🙏 Thank you Rickard for sharing your insights with us.
If you enjoyed this interview, please consider forwarding it to a friend who wants to get started with climate 🌳
If you have feedback/ideas/critique/etc., please get in touch.
Since this is the first interview we have done at Delphi Zero, I’d be curious if it is helpful and if you want to have more of this format.
As always, stay healthy, stay happy ✌️