Investing in a
Cleaner Future

Investing in a Cleaner
Future

By funding innovations that are making buildings
more energy efficient, financial institutions
are helping to shape the cities of tomorrow.
By funding innovations that are making
buildings more energy efficient,
financial institutions are helping to
shape the cities of tomorrow.

Ask people where they think greenhouse gas emissions come from, and for many of them, visions of cars idling on traffic-clogged highways or hulking 747s cruising across the skies typically spring to mind. But there are other more surprising sources too—including the buildings where we live and work.

Everything from luxury high rises and office towers to supermarkets and the corner deli add to overall U.S. energy consumption, and the related release of greenhouse gases. In all, the generation of heat, light and electricity in buildings accounts for nearly 40 percent of national carbon emissions, which helps contribute to global climate change.

Solving urban sustainability

Oliver Davis, CEO and cofounder of simuwatt, is among those trying to fix that problem. His Colorado-based company created software that collects, manages and analyzes data on a building’s operations, from HVAC systems to lighting. The goal is to make it easier for commercial building owners to identify—and reduce—energy waste.

“By increasing energy efficiency in commercial buildings, we can help reduce operating expense while reducing carbon footprint,” he said. “We want to empower building owners with these easy-to-use tools.”

Cutting-edge innovations like this build the foundation for smarter, more sustainable cities, a movement that has been gaining momentum in recent years. It’s projected that by 2025, around 58 percent of the world’s population, or 4.6 billion people, will live in urban areas. That level of density and development requires a lot of fuel. Implementing cleantech solutions—innovations like Davis’s that reduce environmental impact by improving energy efficiency—will be critical to ensuring this inevitable urbanization remains sustainable.

The challenge is that many of the most pioneering companies in this sector can barely get off the ground. These startups are on the bleeding edge of this emerging industry—one that is set to transform the ecological footprint of cities. Yet many lack the capital needed to perfect their tech and get it to market.

That’s where innovative, tech-forward solutions from financial institutions come in.

Banking on cleantech

The term cleantech first emerged in the early 2000s during a broad push among startups to create innovative solutions to environmental concerns. After roughly a decade of boom and bust—peaking in 2011 with $7.5 billion in investments—venture capital interest in early-stage cleantech companies dropped off in 2012. The prevailing view at the time was that these startups were a bad bet: the technology was too expensive to develop.

Yet as the reality of mass urbanization came into focus, it wasn’t long before interest in how we power these cities began to resurge. And much of this money is coming from perhaps an unexpected source. As traditional VCs have pulled back investment dollars, financial institutions like Wells Fargo have been filling the gap.

In 2014, the bank launched the Wells Fargo Innovation Incubator, known as IN2. Co-administered by the U.S. Department of Energy’s National Renewable Energy Laboratory (NREL), the program aimed to help accelerate the path to market for early-stage, clean technology entrepreneurs developing scalable solutions to reduce the energy impact of buildings. To date, the program has funded 20 startups from around the United States, including Davis’s simuwatt.

Mary Wenzel, head of Sustainability at Wells Fargo and an IN2 board member, believes it’s essential for financial institutions to take a leadership role on sustainability and clean technology efforts.

“If we look at global challenges like climate change, we’ve got to be sustainability-minded in everything we do. In financial services, this includes investing in and supporting entrepreneurs, businesses and projects that support the transition to a low-carbon economy,” said Wenzel. “A lot of capital needs to get put to work to develop these solutions and get them scaled. And Wells Fargo has the balance sheet, the know-how and the resources to play a key role in getting more of these technologies out there.”

Capital and credibility

For Lisa Laughner, CEO and cofounder of cleantech startup Go Electric, those resources proved invaluable. The Indiana-based company developed tech that uses a secure microgrid to deliver uninterrupted power. The goal is not only to keep the lights on in the event of an outage, but also increase overall efficiency and reduce costs.

Still, Laughner was dealing with a challenge many startups face: she needed to prove her innovation worked. When a small enterprise is trying to launch something that hasn’t ever been done before, a lot of funding—and sometimes additional expertise—are essential. IN2 offers both. As an IN2 portfolio company, Go Electric received about $250,000 in non-dilutive capital, and the opportunity to work with experts at NREL to prove the efficacy of their product.

“NREL has exactly the expertise and facility we needed to be able to validate our technology. It’s like being a kid in a candy store,” said Laughner. “No startup could afford to replicate that.”

In addition to this type of support, participants receive mentorship from project managers on how best to roll-out their product and guidance from financial analysts about investment opportunities. Some even beta-deploy in a Wells Fargo facility. “It really takes a village to raise a startup,” said Wenzel.

The big impact

There’s no doubt IN2 has sparked business success. The 20 startups that have completed the program have gone on to raise close to $85 million in follow-on investor funding. Yet for participants, and the bank that funds them, there’s a broader mission—to help realize real environmental solutions for the next generation of smart cities.

“We are simplifying the process,” simuwatt’s Davis said, “to realize efficiency improvements that will benefit the utilities, the owners—and most importantly, the environment.”

Research has shown that green-certified buildings have 34 percent lower CO2 emissions, consume 25 percent less energy and use 11 percent less water. If widely implemented in emerging urban centers, these types of solutions could have a massive sustainability impact.

Wells Fargo isn’t stopping at commercial buildings, either. In April 2017, the bank infused IN2 with an additional $20 million that will expand the program’s focus into other sectors such as transportation and energy storage. Recently, Wells Fargo also announced plans to provide $200 billion in financing through 2030 to businesses and projects that support the transition to a low-carbon economy.

Wenzel says it has been gratifying to be able to provide this level of support and access to startups through IN2. She acknowledges though, that there’s a lot more work to do.

“I’m continually inspired by these entrepreneurs and their commitments,” she said. “Through our experience with IN2, the people and the technologies are out there. We just need to identify them, help them scale and get them deployed and to market.”