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Podcast Transcript: Franz Hochstrasser, Democratizing Clean Energy Investments

Announcer (00:04): Welcome to another episode of the Solar Podcast. Today Dave is talking to Franz Hochstrasser co-founder of Raise Green. They talk about Franz's years in the Obama State Department, his role in coordinating the Paris Agreement and his newest venture Raise Green, which is making investing in clean energy projects available to investors of all sizes. Let's get right into it on the Solar Podcast. Dave Anderson (host) (00:36): Well, everyone, thanks so much for joining us and welcome to the Solar podcast. Thrilled to have Franz Hochstrasser with us. I'm going to certainly have him give a little bit of his bio, but just reading off of the cliff notes and also from a reliable LinkedIn page, he's a lecturer at Yale. He also received a master's degree from the same university. He has a master's in Engineering Management, but with an emphasis, and I think why our listeners are going to be particularly interested to hear about, with an emphasis on sustainable finance and clean energy in business. More recently, he's both an entrepreneur as well as the CEO of a really fantastic and exciting company that we're going to want to hear a lot about, and we're certainly going to spend a lot of time on that. But Franz, welcome to the show. Franz Hochstrasser (Guest) (01:19): Thank you so much, Dave. It's an honor to be here. Dave Anderson (host) (01:22): Yeah. So I know that you have kind of a long background in spending a lot of time in politics, at least on the peripheries, but I'd love to get, if you wouldn't mind just diving into it a little bit with our listeners, about your background starting maybe early days and then working on into where you are today. I think we're going to spend the majority of our conversation talking about your kind of current projects that you're working on, but we might have to pause and take some time on how we got there. Franz Hochstrasser (Guest) (01:46): Certainly. Well, happy to go back in time a little bit here to move forward. And today is election day. It to me, holds special meaning for multiple reasons, and I've spent about nine years of my life working for Barack Obama, starting out as a lowly hope-filled field organizer back in Iowa in 2008, knocking on doors, making phone calls and working to build a list of supporters and then get them to vote on election day. So that community organizing really has put inclusivity and democracy at the core of my value set and has driven my professional career ever since. And thankfully, we did win that election back in 2008. It was historic for numerous reasons, and I was very fortunate to be on a staff call the following day with the President and the Vice President elect. And Joe Biden actually said on the call, "To all you field organizers and all you staff out there, if you want a place in Washington, we've got one for you to come and deliver on the change that you've been working on." (03:00): And to me, that was the first time I thought about going into government. But eight years later, I was leaving the Obama administration having worked for the Department of Agriculture, the White House Council on Environmental Quality and also the US State Department to help negotiate the Paris Agreement. So that trajectory really was like being strapped to a rocket and riding it all the way to the moon and came out the other side with whole set of passions as well as motivations to really ensure that we transition our economy as quickly as we possibly can, but also in a way that is equitable to the low carbon solutions that are necessary to tackle the climate crisis. So that's it in a nutshell. Dave Anderson (host) (03:51): Yeah. So you spent a lot of time, I think, when you originally started campaigning with Obama, were you as passionate then about climate and the climate crisis as you are today, or has that kind of changed and molded over time? Franz Hochstrasser (Guest) (04:08): Well, as a young person, I was very excited about working in politics, and particularly for this transformational leader who has leveled us up as a nation in so many ways and made us pursue our higher ideals. And at the time, I had some experience coming out of the environment program at the University of California, Santa Cruz, of looking at environmental issues and also working for a business while I was a student that did environmental planning consulting. So that was really the issue that I sort of dabbled with at a younger age, but I was just more excited about electoral politics at the time, and that really crystallized over the course of the campaign and then ultimately service and government to become a career in climate and clean energy. Dave Anderson (host) (05:07): Yeah, I'd love for, you talked about the work that you had done specifically around the climate crisis for the Obama campaign. To what level were you involved with that effort? Franz Hochstrasser (Guest) (05:20): As a campaign staffer, I was involved only in the sort of front lines of organizing. So literally we would make phone calls from 5:00 PM to 9:00 PM every night, and then the next day we would organize our lists and we would go and knock doors, and we would spend most of that time recruiting volunteers. So it was all very electoral organized or electorally oriented and not oriented towards working on policy in any way, particularly in my campaign days. It wasn't until I got to DC and moved into working on the Recovery Act and the Recovery and Reinvestment Act, because the previous largest climate investment in US history, $90 billion out the door at the US Department of Agriculture that I really started to wrap my head around these issues in a meaningful way. Dave Anderson (host) (06:21): And so then you worked at the State Department and you became the point person, and this is the part I'd love for you to dive into a little bit, but you became the point person for setting up meetings that ultimately led to the Paris Agreement. What did that specifically entail? Franz Hochstrasser (Guest) (06:37): Yeah, and also noting that this is the first week of COP27, the 27th meeting of the conference of the parties to UN Framework Convention on Climate Change. I've said it a few times before. This is the process that I was deeply, deeply involved in while working at the State Department under special Envoy for Climate Change, Todd Stern and ultimately Secretary Kerry. And by the time we got to Paris in December 2015, we had been working on getting this agreement to be closer to being finalized and ultimately to finalizing it there at the COP21 for really the past eight years, because it started with COP15 in Denmark. (07:32): And so I swooped in in 2014, started at the State Department, and by the time we got to Paris, I was in a position where I was coordinating all of the US delegation meetings, bilateral meetings with the ministers on the other side. So the Minister of Environment from South Africa, the COP presidency, Laurence Tubiana, and many of the other foreign leaders and dignitaries that John Kerry was sitting down with, that President Obama was sitting down with, and that my immediate boss, Todd Stern, was sitting down with. Dave Anderson (host) (08:10): Wow. And at some point, was it during that time or was it post Barack Obama that you went back to school at Yale to get your master's degree? Franz Hochstrasser (Guest) (08:20): Yeah, it was afterward. That was my walk in the woods after giving the government my twenties. So I actually mailed my Blackberry and iPad back to the State Department from my first day of classes at the Yale School of Environment. So that was my post administration life and an opportunity really to reinvent what I was and what I could contribute to the climate movement. I came out of the experience of having worked in government with two main kind of motivations. One was that I had seen over the last eight years that finance really was the biggest blocker for progress, whether it be globally or locally in deploying climate solutions. So I knew we had to scale up finance immensely. At the time I was leaving the government, there was an estimated $300 billion a year flowing into climate solutions. (09:26): Now there's an estimated 800 billion to a trillion, but as many of the leaders at COP27 this week are starting to say, we need something in the order of 3.5 to $6 trillion per year flowing into this space. So I wanted to work on that very intensely. But the second thing was that we need more people involved. So the talent pools that were working on climate back in 2015 needed to expand exponentially to draft a whole host of new, brilliant people from tech, from manufacturing, from services and sales and marketing in every sector of the economy ultimately, that needs to transition to low carbon solutions. So anyway, I answered more than you asked, but I think those two motivations in leaving government are what led me to direct my studies toward sustainable finance and ultimately to found Raise Green. Dave Anderson (host) (10:32): Yeah. You've said previously that one of your passions, at least I've seen you said, is solving the climate crisis. There's two things I want you to do. One of them is to help us define what the climate crisis is? But secondarily, I want you to talk about as part of the transition from working on these problems at the highest levels from the political sector, to now working on them at a more grassroots level with your existing project that you have, which is Raise Green. And we're going to talk a lot about that. But maybe if you don't mind just talking about, for our viewers, help us to define as you see it, and perhaps as a lecturer at Yale, how you might define the climate crisis? Franz Hochstrasser (Guest) (11:14): Sure. Haven't been asked to explain that in a while, but at its base, our society runs on fossil fuel driven machines for the most part, whether that's the gas boiler that most of us have in our closet or the electricity grid that predominantly and historically has run on coal and natural gas or the automobile that we drive that runs on gasoline. Those sources of energy lead to carbon emissions, greenhouse gas emissions specifically of various types. So it's not just carbon, it's also hydrofluorocarbons, which we've just got a major amendment passed to the Montreal Protocol to address that, called the Kigali Amendment. But it's predominantly CO2 that gets caught in the atmosphere and leads to the greenhouse effect heating up the planet. (12:30): And over the course of the past, really since the industrial revolution of the late 1800s, we have as a society because of those greenhouse gas emissions heated the atmosphere to the tune of about one to 1.2 degrees Celsius. And the estimates now are that if we don't act urgently to completely effectively cut off our carbon emissions in the next eight years or so, according to the Intergovernmental Panel On Climate Change, we very well may find ourselves exceeding 1.5 degrees Celsius of warming globally and find ourselves in a circumstance where the floods and the droughts and the hurricanes and the other extreme weather events that result from climate change begin to become irreversible. So that's what we're trying to avoid, and that's the problem we're trying to solve. Dave Anderson (host) (13:41): Yeah, so the IPOC report that you're referencing suggests that we have a fairly small window where we can actually make an impact, where the temperatures become essentially irreversible, at least there would be little that humans could do to intervene to reverse it, I think is the suggestion there. So with the problem well defined now, you worked on it again, politically at the highest levels, and now working on it on a more of a grassroots level. Tell us a little bit about how you transitioned out of the political sphere and now are doing what you're doing and maybe that's a good segue to introduce your existing passion project. Franz Hochstrasser (Guest) (14:21): Certainly. So going into COP21, the Paris Agreement being the result of that, with all 196 nations adopting the very first durable, ambitious, and flexible framework to address the problem collectively, countries hadn't come around to that level of specificity about what the problem was, how to deal with it, and what needed to be done in order to tackle it. And so when that happened, it was a tectonic shift because it really laid the groundwork for countries to organize themselves with their nationally determined contributions, but then more importantly, for all of the supporting civil society, cities, states, companies, faith-based groups, NGOs, to also reorganize themselves toward implementing against those big targets that the government has or that governments of the world have. And so to me that was like, hey, this is a tremendous business opportunity for us to do this, but it's also a moral imperative that those of us, particularly who have benefited from historical advantages, work on solving this problem together. (15:54): And so that led me, again, back into school with those two main things, wanting to get more people involved, wanting to get more capital flowing into climate solutions. And that's where I found a co-founder and launched Raise Green. And Raise Green is a climate investment platform. It already has thousands of members who are investing as little as a hundred dollars and as much as our largest investors, half a million dollars directly into clean energy projects at the local scale like solar on a school or into climate tech companies that are, some of which are building the breakthrough technologies like low carbon plastics that are going to help us decarbonize industry and those harder to abate sectors of the economy than the energy or transportation or building sectors. Dave Anderson (host) (16:52): And outside of the moral imperative, what's the incentive that the investors have to be part of the platform, the thousands of investors that you have as part of the Raise Green platform? Franz Hochstrasser (Guest) (17:05): Yeah. Well, this is where I go back to one of the things I learned at the Yale Program on Climate Change Communications, which is, people often think that the most motivating human emotion is fear. And oftentimes I will ask a crowd of folks, what do you think it is? And fear is always the answer, but what the YPCCC found is that actually pride is the most motivating human emotion, if we can draw it out of folks and give them something meaningful. So what I think about from the standpoint of Raise Green is we are trying to give everybody an opportunity to put their money where their heart is, own a piece of the clean energy infrastructure or a company that's going to build it, and be proud of benefiting from that transition to clean energy and to low carbon and climate resilient society. So not only can they feel good about assuaging their climate anxiety, which many of us increasingly have, but they can also make money while they do it. So that's hopefully a double whammy win-win that everybody can get behind. Dave Anderson (host) (18:28): Maybe you can give the elevator pitch if an investor were interested or considering Raise Green. Is it a fund model where I as an investor would be able to put my 100 to half a million dollars in and then have it ride along others? Or is it where I get to choose individual investments based on the merits of any individual investment? Franz Hochstrasser (Guest) (18:50): No. So it's the latter. You would get to choose what you put your money behind, and that's where I think it becomes really exciting because we have folks who are building solar projects in low to moderate income neighborhoods on the rooftops of schools. We have folks that are building company or industry leading climate tech businesses to deploy more energy efficiency for multifamily housing. And you can pick, and we also work with one of the largest and the first Green Bank in the US, the Connecticut Green Bank to issue green bonds certified notes. So of those options, you as an individual investor can pick what story and what investment type you're most excited about and put your money directly into that project. So we think that leads to, again, the ability to feel proud about what you're putting your money into and really invest with your values. Dave Anderson (host) (20:04): And do these investments, are they typically like a debt instrument where you're issuing loans that are ultimately paid back with a coupon? Or is it more of equity investments? Is it a combination? What's the operation usually look like for the financial instruments? Franz Hochstrasser (Guest) (20:19): Yeah, great question. We have offered now virtually every imaginable type of security. And when I say security, I mean either a debt instrument or an equity instrument. So we've sold about 80% of the investments that we've had are debt, which means that they pay out at a fixed rate over a fixed period of time. And then the other 20% are sort of equity style offerings, some of which are venture deals with simple agreements for future equity or convertible notes that would turn into equity once that company does qualified financing down the line. Dave Anderson (host) (21:02): So that must create, I mean, because of all the different financial instruments you're using from a regulatory perspective, there must be a lot of complications with that. How do you bring someone that wants to make a small and minor investment in, that wouldn't necessarily meet the Reg D or the sophisticated investor SEC requirement? How are you managing through all of the regulatory parts of being able to put these investments together? Franz Hochstrasser (Guest) (21:33): Yeah, that's a great point, Dave. And to me it comes down to thinking about and using the tools that we have available to open up access to investing, as well as open up access to capital formation in a way that historically has been barred. So 90% of Americans that are not wealthy, who don't make more than 200,000 a year or have more than a million in net worth, up until 2016, they could not invest in private companies for the most part. That all changed in 2012 with the Jobs Act that President Obama signed into law. And then the SEC's Finalization of Regulation, Crowdfunding, and that is what we use at Raise Green to enable non-accredited investors that the 90% of Americans who are not rich to invest directly into private companies. Dave Anderson (host) (22:34): So it's a crowdsource model and they're able to go to the platform, look through different investments and make strategic investments on their own. Do you offer any assistance for people that are looking to make investments or how does the platform handle those sorts of things? Franz Hochstrasser (Guest) (22:52): So we are an intermediary that is responsible for diligencing the projects, ensuring that they are qualified to sell securities in the eyes of the SEC and FINRA, which is the Financial Industry Regulatory Authority. They're our regulators and then also diligencing the investors. Doing a, Know Your Customer Anti-money Laundering check on every investor, and then ultimately sort of consummating the transaction between investor and issuer. And so we do not provide financial advice. We can't provide financial advice based on our registration. And so it really is useful for anyone who's thinking about investing, read our blog, read our frequently asked questions to get educated about what the options are. And then ultimately, if you want advice, consulting a registered investment advisor or a money manager as you add Raise Green securities to your portfolio, is certainly something that is a good idea. Dave Anderson (host) (23:55): And in terms of how you decide whether or not as an intermediary, an investment meets the minimum regulation requirements to be a part of the platform, do you also provide help in pricing the security or in pricing the debt or the coupon? Or do companies have complete liberty to do that on their own? F