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Podcast Transcript: Jeff Eisenberg, investing in earth's future.

























Dave Anderson (00:00):

Welcome to the Solar Podcast. I'm Dave Anderson, your host, and I'm very happy to have Jeff Eisenberg who is a long-term friend, but also someone that I would consider somewhat of a mentor. He is a partner at Ecosystem Integrity Fund which is an investment firm based out of the San Francisco Bay area, but they do strategic investments in impact companies around the country. And we're really thrilled to have Jeff on the call with us today.

Jeff Eisenberg (00:28):

Well, thanks Dave. It's a pleasure to be on the podcast. I'm a huge fan of yours and Complete Solar. And you guys have been doing amazing work for a really long time, so it's an honor to be here.

Dave Anderson (00:41):

Maybe if you can talk a bit about yourself, the Jeff Eisenberg origin story and how you ended up in the Bay area.

Jeff Eisenberg (00:47):

Yeah, sure, happy to. Actually, I'm originally from Boston, Massachusetts. Grew up in a little town called Newton, right outside. Big Red Sox fan and a Patriots fan. I hope that doesn't make me any enemies on your podcast here. I know they're not always the favorite teams in the world.

But I went to college in New England and got out and went into traditional finance. So, I was working at a big mainline investment consulting firm. And while I was there, I had one of those, call it "epiphany" moments, that I think a lot of people have in their early 20s when I realized I had skills in the financial realm, but I wanted to use my skills to do something better for the world, and specifically focused on climate change and sustainability.

It was always a passion of mine, but I recognized, I think, at the age of 25 that I should try blending the two things together, a passion for sustainability in the environment and climate change with my investment skillset. So, that set me off on a lifelong journey, I guess. And I think the biggest next step there was when I met a guy named Jamie Everett, whom Dave, you know.

When I was about 27 years old, I met this guy who talked about investing in sustainability in a way that I wish I had come up with, I wish I had thought of. And he had clearly been thinking about it and working on it for a very long time. And I think we met once, and I asked him if I could go work for him on his research team at a boutique investment bank out in San Francisco.

And that was in 2008, which was a great time to start a new investment job in the world, if you know your history of financial markets. Then, our third partner in EIF, Devin Watley, joined later that year in 2008. So, the three of us have been working together on sustainability-focused investments for 15 years now. And there aren't a lot of people who have been working together for 15 years. Dave, maybe you and Will are getting up there in years like that.

But it's been an amazing ride. My wife and I drove out to California in 2011, in our car with whatever we could pack in there and we couch-surfed for a month, and somehow made it work. And we've been doing the Ecosystem Integrity Fund in San Francisco now for 12 years. We spun it out of that investment bank. So, it's been a heck of a journey.

Dave Anderson (03:28):

Yeah. You mentioned Jamie. Jamie, he possesses a rare form of altruism that I think is pretty unique, particularly in the investment circles. I didn't realize that you and Jamie worked together before Devin, who is the other managing partner over at EIF, actually even joined.

Jeff Eisenberg (03:45):

Yeah. Not for very long. It was maybe nine months, but I think I was Jamie's first hire, and I've basically been working for him my entire career. And you're absolutely right, I think that sense of altruism is something that is common with everyone at our firm. And frankly, when we hire people, it's something we look for is a commitment to this mission. And I know it's a mission that you guys share, which is a focus on trying to do something to stem climate change and fix the damage that we've done to the planet.

And I think everyone comes to that from a slightly different place, but at the end of the day, we've got one home, we were charged with taking care of it, and we're not doing a great job right now. So, I think we all wake up in the morning just with an internal drive to do something about it, and this just happens to be the area where we have some skills where we can put it to work, and that's our mission.

Dave Anderson (04:39):

Yeah. And I think one of the things that's interesting about what EIF and what Complete Solar and what others do, but specifically talking about EIF as an impact investor, you have to go out and convince people to spend money or to invest their dollars into companies that are going to make a meaningful impact, but there has to be some sense that there's going to be a return.

If you can talk a bit about what unique challenges that impact investors have and maybe some of the benefits that you have as well when you go out to raise, and I'm talking pretty significant dollars, to help, in some instances, fledgling companies, but in other instances, more established companies to really further their cause to make an impact. And you've talked about some of those things, but maybe you can go a bit more into what it really means to be an impact investor and why that's a critical thing right now in the world today.

Jeff Eisenberg (05:31):

It's an interesting question, and it's a tough one to answer because it's such a broad category. There are impact investment funds and impact investment-focused vehicles that are focused on things like medical technologies or educational technologies or financial inclusion or DEI. And they each talk about the change that they're trying to affect in the world, their theory of change, in the way we talk about wanting to fix environmental problems, but they're talking about trying to fix other problems.

And I think, at its core, impact investing focuses on trying to solve a problem that is beyond financial. Part of impact investing is not just the impact, it is the investing part. So, to your point, part of getting in, we call them "limited partners" or "institutional investors", to entrust us with their financial assets for long periods of time, they need to be convinced that we're not just focused on the impact, but also on the financial side, on the investing side.

So, we came to this game with a commitment to being just as committed to being excellent investors as to having impact or making meaningful contributions to sustainability. I think that we, and this really comes a lot from Jamie's thinking, that the two have to be intertwined, the impact in the investment side, in order for there to be real large scale systems-wide change.

You can't just set out to have impact. You need to set out to have financial returns and above market financial returns, because that, essentially, gets the rest of the financial world involved, just as impact investors probably can't have meaningful economy-wide impacts. But if we show other investors that, actually, there are outside returns to be had here, then they will come to our space and they will start investing in these types of technologies.

And I think you guys have seen that at your company where it started out with sustainability, clean tech, climate-focused investors like us, and now you have just traditional private equity firms looking to back your company. And I think that's a big component to the impact investing world is making sure that you're an excellent investor so that you can have impact at scale.

Because it's like anything else, we can't do anything ourselves. It relies on great entrepreneurs like you guys, but then other investors, they have to believe in the companies that we're backing. Then, there have to be later-stage investors that may not be impact investors, but also start to see what we see and start to see the attraction from a pure financial standpoint, and investing in the kind of companies that we're investing in.

So, I think it's part of building an ecosystem, it's part of changing hearts and minds around what makes sense from an investment standpoint. I think that we have also, in the climate environmental sustainability space, we have greatly benefited from some macro trends that have been happening over the past 10 years. And you know this as well as anyone, Dave, where the cost of, let's just say, solar, has come down tremendously.

So, solar is now the cheapest way to produce electricity, full stop. It's cheaper than natural gas, it's cheaper than coal. And if you look at the investments in energy development over the past five years, every year, renewables end up being the type of new energy production that garners the majority of the dollars. Institutional investors are investing in solar and they're investing in wind because it's cheaper. It makes more economic sense.

And I think part of the impact that we've tried to have and others have tried to have is bringing the cost down of these environmentally sustainable technologies so that they just become the smart thing to do. Now, you don't have to actually be an impact investor to invest in solar now, you just have to want to make a good return.

So, I think impact investors, in many cases, they're the first push on trying to get stones rolling downhill. And I think the core thread that ties all impact investors together is this larger mission, this larger outcome that you're trying to affect, in addition to excellent financial returns.

Dave Anderson (09:49):

Yeah. There's a lot of things you talked about there, but one of the things that is top of mind as you were going through the impact that an early-stage impact investor has is you actually bring a lot of institutional money into the space as well, later on, later-stage institutional investors. And those can be, in the case of like Complete Solar or someone like a Carlisle or someone like a Goldman Sachs, some of these really large private equity companies.

But the other part of it is it brings entrepreneurs into the space as well. So, I would say that, and I don't know what the percentages are, I would hate to venture a guess, but while there are some people that are certainly in the solar space just for pure altruism, the majority of them are in the solar space because they are seeing the tides change in terms of how we generate and how we use and produce and consume electricity, and are being opportunistic, I would say. Not impactful in any way, other than just to say, "I want to build a strong, sustainable business."

And there's been a lot of, particularly at the federal level, even at the world level, there's been a lot of tailwinds that have pushed renewables, but then at the local level, and we've talked a lot about this on the Solar Podcast, there's been a lot of, at the local level and even at the federal level at times, conflict and bureaucracy and red tape and things that you have to jump through.

But I think one of the things that you talked about there, which is fantastic, is the blend between, as an impact investor, and again, when we're talking about Ecosystem Integrity Fund, maybe you can go in a bit more into the specifics of your mission, but when we're talking about the impact that you're trying to make, it's on the environmental side of things, and there's lots of different types of impact investors.

And for people that have large amounts of money and want to certainly make a return on that money but also to have the biggest impact, what they're finding is that they can actually go and invest their dollars and cents with a firm like Ecosystem Integrity Fund that is responsibly placing those dollars, growing segments, and maybe having a bigger impact that way than they could if they were to just give their money through charities, for example. The net impact is much larger through these institutional investors.

Jeff Eisenberg (12:02):

I have heard the joke that giving a grant is just a guaranteed 0% return, that's it. You give it away, it's done, it's gone. At least, if you invest in an impact investment fund, there is a chance that not only will you get that money back and you can reinvest it in other missions, but maybe you'll make even more, and so you'll have more money to put towards your philanthropic goals.

But I think it's important. I think that's how a lot of impact investing started was someone saying, "Hey, could we do something more than just give this money away, just invest in philanthropy. Maybe we can make it work a couple of times if the money comes back to us." But then, I think people started seeing this, frankly, the incredible scaling capacity of capitalism, the incredible scaling capacity of private enterprise.

And don't get me wrong, governments' philanthropy, they have a really important role to play. They're quite catalytic. But scale usually comes from private companies and from capital enterprise. And I think it's important for us to recognize that there's three legs of the stool here if we want to affect change in the world. And again, we're focused on environmental sustainability. It takes all three.

It takes government. You need to have government support, you need to have government funding, early-stage technologies, and you need to have government investing in infrastructure, we need huge transmission lines to be able to move all this renewable energy around the country. Then, you need philanthropy doing the same thing, in some ways increasing the skid and laying the tracks and doing the research and providing really important information about where we should be putting money to work, what problems we need to worry about, what the environmental damages are that need to be fixed.

Then, once we all can agree on what needs to get fixed, what needs to get done, private companies, they have shown the greatest capacity for scaling quickly. So, I think, that recognition from the investor community and from entrepreneurs, getting back to your point of really smart people getting into the space, I think that has fundamentally changed, at least, environmental investing or sustainability focused investing, where it had felt 20 years ago a bit like a matured version of environmental philanthropy and environmental NGO-ism.

But it has really grown into its own enterprise in a lot of ways. The solar industry is its own $50 billion industry. In the United States, there's half a million people directly touching solar panels every day and a couple million people as part of this solar industry and around the distributed energy industry. It's big business. And to your point, that then attracts great entrepreneurs, super smart people, super driven people. They come in.

I think that all of them believe in the need to do something about climate change and the need to do something about the energy system. I think I find very few people in our space, and maybe you talk to them more than I do, but I find very few who are, "Nah, I don't believe in climate change. I'm just here for the money." Most of them say, "Hey, you know, I wanna do something. I have the skills, I have abilities. I'm really good at business development," or, "I'm really a good CFO. I'm really a good CEO. And now I want to put that to work in solar. And I want to do that because I kinda want to do something that's not bad for the world. I'd like to help."

But this is a really rapidly growing industry. If you had to pick, if you were a really smart energy executive, would you want to be an executive in the coal industry or the solar and wind industry? It's, this is where the growth is. So, that I think has a really positive effect where it attracts the best and brightest, and then that has this multiplying effect where it attracts then really more capital and better capital, and the whole thing starts scaling.

And we're really seeing, I think, the benefit of that now. Last year it was something like over 80% of the new energy installations were renewals. This is globally. In the United States I think it was 75%. So, you start thinking about that and it's, over time, it won't happen overnight, but in the next 20, 30 years, a majority, probably, of the power produced on the grid is going to be from renewable resources.

Dave Anderson (16:39):

Yeah, without a doubt. In fact, we're talking about almost a billion people on the earth that don't have power at all, and so certainly renewables and solar and micro grids and local generation are going to be the keys to getting those nearly one billion people energy that don't have energy today. And talk about a big impact, imagine all of our lives if we didn't have lights, if we didn't have electricity, if we didn't have energy.

And if you want to talk about making a huge impact, I would say that energy's a pretty big deal in all of our lives, something that we generally take for granted, but for a billion or nearly a billion people on the earth's globe, they don't enjoy the benefits of electricity. And it goes to one of the things that gets talked a lot about in the Solar Podcast is, if we were to do it over again, knowing what we know now, we probably wouldn't build the grid the way that we have.

And because you have had this very established and mostly protected monopolies that have controlled those grids for so long, it's been really slow and difficult to make changes there. But for the emerging markets, the markets that don't have energy, obviously we're not going to go build huge macro grids with huge generation.

We're talking about local renewable micro grids where the consumers are also the producers of energy, and with one of the most abundant resources, the sun, and doing it in a much more responsible way from a climate change perspective than we've ever done it before. And that is encouraging, but it also speaks to some of the problems that we have, that we fight against.

Jeff Eisenberg (18:21):

Yeah, it's a funny thing, you go to a lot of foreign countries, especially emerging markets, and no one's got a landline in their house. They just went straight to cell phones. We call it "leapfrogging". So, they leapfrogged over that bad technology. And we invested in a great company, it's called Energicity, and this is what they do.

They go out to townships in Western Africa that don't have electricity, and basically, they sign everyone up and they install a mini grid for a 100 people, a 1,000 people. And it's a ground mount solar system with battery backup. They run poles and lines, and it has a lot of interesting effects. First of all, you give people electricity who've never had it before, and entrepreneurship just blossoms.

These people start their own companies. You have fishermen who now can run a freezer or refrigerator, and so they can not have half their product spoil while they're trying to get it to market. People can keep milk for a couple of days. It does amazing things for health and for the economy and for people's resilience, their ability to withstand weather shocks or bad luck, sickness and illnesses. Electricity has this huge enabling capacity.

The other thing is, it democratizes power and it gives power back to local townships and local people in a way that we didn't have the benefit of. Now, in many ways, they are beholden to large utilities, large independent system operators, great operators, and basically regulatory body overall utilities. And it's usually bureaucratic and it's tough to get anything done and it's tough to adopt new technologies, whereas, you go to Western Africa and these people, they want power, they want it from Solar, they sign up, very quickly they have it.

And they don't have to pay bribes to the local government. It's not like the hometown of the president gets electricity before everyone else and he punishes his political enemies by not running the grid out to their townships. It is a cleaner, more democratized way of providing people with something that is a fundamental resource, something that you need to flourish.

And I would say, that is going to probably be a real benefit to them over the next 100 years. It will be an economic advantage that they have over us. Their system is modular, they can upgrade it when they need to. I think that they also will be much more conscious of when they buy energy-using pieces of equipment, they'll be efficient. So, they'll be using less electricity for every dollar GDP produced, and so their economy won't be as dependent on so much electricity.

And that's an economic competitive advantage that these markets are going to have that we don't, because they should be able to leapfrog over us. And we're super proud of the work that Energicity is doing there. It's amazing to hear the stories about what happens to people in these townships when they get electricity for the first time.

So, I completely agree with you. I think it's one of the biggest things that we can do as investors and as a planet is help people without electricity leapfrog over the mistakes that we made and go straight to a democratized, decentralized, renewable mini grid.

Dave Anderson (21:47):

One of the things that the solar industry in the United States has struggled with is, there's a lot of regulatory risk. And if you don't believe me, just go look at most of the solar stocks and you'll see them all move together. Step function gains, step function, losses across the segment when some random guy from West Virginia opens his mouth and says something, or some other Senator or someone that's part of an en energy commission.

So, you see these huge fluctuations, which it's really difficult to run a business when you're always just waiting to see what some guy might say, how do you think about that? And you're obviously affected by that because you're in the solar space. You guys think more broadly than just solar, but how as impact investors specifically in an environmental space, do you guys navigate the regulatory issues?

And sometimes you're betting on an election when you're making an investment. How do you, Jeff, and Ecosystem Integrity Fund, navigate through that? I think it'd be fascinating for listeners to hear maybe even some anecdotes or examples of how you've had to very specifically take into account some of those large macro things.

Jeff Eisenberg (23:05):

Well, the first thing I would say is, every industry is regulated. So, essentially, any investment takes on regulatory risk. And it's interesting, we've seen that as electric mobility has come into the money and become a better place to invest. If you think the energy space is highly regulated, go try to start a car company or invest in a new vehicle. You're going to face this wherever you go.

Traditional energy faces huge environmental regulation and subsidy risk. And try investing in medical technologies or new drug discovery. Everything's highly regulated. So, you do take on that risk wherever you go. And I would say, what we look for, and this should be true for anyone investing in any industry, is businesses that are not dependent upon any regulatory incentive or anything like that, but it can serve as a tailwind.

So, look at you guys, Complete, you guys have focused on creating a super efficient platform and model that if the solar subsidies went away, you guys wouldn't just survive. You probably could out-compete. Your competitive advantage would be around just being a lower price provider as opposed to maybe some other bigger players in the industry whose advantages sourcing tax equity or structured finance.

So, when it comes to certain types of incentives, in some ways we might be better off with them going away because they're so complex. What I worry more about, and this is something that's happening right now, is a bit more insidious, and it happens mostly at the state and local level, and this is happening in California right now, where utilities get together with certain other political groups, in some cases environmental NGOs, and they're trying to make it very difficult to put solar on your roof.

They've just put a bullseye on residential solar. And I think that those fights come up, and we have to fight them back, and it's never going to end. And I think that's the realization is that in some ways you become a real industry when people are always trying to take you down, when they're always trying to hinder you. It means that you're stepping on someone's toes and you're taking someone else's lunch at this point.

Now, I think in a lot of cases, it's traditional old line lousy utilities that are not run well. Look at distributed renewable energy is a huge threat because they've had this protected place and they haven't had to worry about it. Now, they're going after distributed renewables in closed door meetings, behind closed doors and trying to bend the ear of regulators and just make it harder.

So, one of the things that we do is we try to stay up-to-date on that, understand what markets are friendly, what markets are unfriendly, hear when that's happening, flow that information to our portfolio companies, give them the information so that they can be nimble and they can manage their business as well.

The other thing we do, and I'll put in a plug, we support a group called Vote Solar. It's a nonprofit. And what Vote Solar does is, anytime there is a local regulatory attack on solar or EVs or wind, they go in there with lawyers and reams of information on data and math on why it would be a bad idea to kill residential solar. And they make the case to the regulator, and they get writers at newspapers to write articles about it.

And they have an incredible win record of fighting back these closed door, behind the scenes attempts to take solar out at the knees. So, we need more groups like that. We need to support groups like Vote Solar. But I think solar has gotten big enough now, it's gotten serious enough. The economics of solar are better than other forms of energy that we should just expect continued attacks, and that's the way it is.

It doesn't mean that the industry won't continue to grow really rapidly. We're seeing great growth in your business and other businesses in the renewable space and in the ED space and others, but it just means that you need to be prepared to fight. And I think we might have been, I think, not us in particular, but the environmental space might have been a bit naive about you just make an argument and it's the right argument, everyone will agree with you and the road will be smooth. That's not the way it works.

If you're trying to remake the energy industry, there are people who are going to be unhappy about it who are going to try to fight you. But again, I come back to the original statement I made, which is every industry is highly regulated. And if you back good companies, you back competitive companies, you back nimble, smart entrepreneurs in businesses that are fundamentally good at economics, and you'll find a way to win.

Dave Anderson (28:10):

Yeah, for the most part, in particular in the solar industry, you've got thousands of smaller entrepreneurs that are running businesses that are trying to provide energy to homeowners in a way dramatically different than the incumbent. So, the incumbent is used to being well-connected to the public utility commissions. And in fact, all of their economics rely on working through the public utility commissions, and so they already have a stronghold or a very strong position with these utility commissions.

So, I don't think entrepreneurs, particularly in solar space, while there is regulatory risk in any industry, I don't think they fully understood that oftentimes you're fighting a battle on two fronts, which is, I think, different than a lot of entrepreneurs are used to. And we have actually supported other organizations. I'm glad you mentioned Vote Solar.

So, I actually am part of their mailing list at a minimum, but we also share a lot of their fantastic content with our base and with all of our partners, and then more broadly with customers and then just generally on social media, because I think that they are a really fair organization that talk about solar in a fair way. Other than they're founded by a group of people that believe strongly in solar, it's not like they have any huge financial gain by promoting solar and the benefits of it.

We've also had, recently on the Solar Podcast, a couple members of FlaSEIA. And Vote Solar was very involved in trying to fight against NEM 3.0, which is policy that would make California Solar the largest solar market, now being rivaled by Texas, but the largest solar market, essentially, be cut, at a minimum, in half, if not more significantly, almost overnight by one stroke of a pen on a policy.

And FlaSEIA fought very aggressively against a similar type of a policy in Florida, and ultimately, I wouldn't say largely responsible, but had a big impact on fighting against a similar policy in Florida that has allowed Florida to become another huge solar market or to continue to be another huge solar market. So, these sorts of organizations exist across the country, and I think being involved in those, is an important thing, but something that entrepreneurs might not be used to.

And while there is regulation in all industries, I think that there are some industries, and I would say that solar and renewables generally are ones where you have to, at a minimum, be aware of, if not fully involved with understanding what the politicians are talking about, both at the local level as well as at the national level if you want to make sure to keep a leg up or at least do things to be proactive about protecting your business.

Jeff Eisenberg (31:11):

It's a good point. And it goes back to, again, this distributed democratized entrepreneurial nature of solar specifically and renewables in general, which is, if you look at traditional energy generation utilities, it's very consolidated. These are big companies. And they have lobbying arms. These are companies that pull in tens of billions of dollars a year and they spend a $100 million a year on lobbying, and they use that money to keep things the way they are and to bend the ear of the PUC and try to make their business as successful as possible.

And solar is a bunch of smaller companies, and it's a bunch, to your point, they're entrepreneurs. Entrepreneurs, day-to-day, are not focused on policy, they're not focused on lobbying. They're focusing on making their customer happy and making their business work. And I think that renewables still, as an industry, is pretty immature and maybe a little naive about the need to band together and to play bigger. Solar and wind play small right now. We don't play big.

And I think solar and wind get a somewhat fair shake, at least at the national level, because we're in 50 states and we have economic benefits and provide jobs in all 50 states, and so it's one of the few things that red senators and blue senators c