Leveraging Climate Technologies with Mark Patel of McKinsey & Company

June 13, 2023

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Mark focuses on serving clients where technologies come together in hard and complex ways for maximum global impact. He coleads the McKinsey Platform for Climate Technologies and founded and leads McKinsey’s Internet of Things (IoT) work globally. He is also a leader in the company global Semiconductors Practice and a member of the McKinsey Technology Council.

John Shegerian: Have you been enjoying our Impact podcast and our great guests? Please give us a thumbs up and leave a five star review on iTunes, Google Play, or wherever you consume your favorite podcast. This edition of The Impact Podcast is brought to you by ERI. ERI has a mission to protect people, the planet and your privacy, and is the largest fully integrated IT and electronics asset disposition provider and cybersecurity focused hardware destruction company in the United States and maybe even the world. For more information on how ERI can help your business properly dispose of outdated electronic hardware devices, please visit eridirect.com. This episode of the Impact Podcast is brought to you by Close Loop Partners. Close Loop Partners is a leading circular economy investor in the United States with an extensive network of Fortune 500 corporate investors, family offices, institutional investors, industry experts and impact partners. Closed loops platform spans the arc of capital from venture capital to private equity bridging gaps and fostering synergies. To scale the circular economy, the fine closed loop partners, please go to www.closedlooppartners.com.

John: Welcome to another edition of The Impact Podcast. I’m John Shegerian, I’m so honored to have with us today, Mark Patel. He’s the senior partner, McKinsey and Company. Welcome to the Impact Podcast Mark.

Mark Patel: Thank you, John. I’m delighted to be here and really delighted to be talking with you and listeners.

John: Yeah, it’s an honor. McKinsey is such an iconic and amazing brand around the world. You guys are doing a lot of important work in so many different sectors. Today we’re going to be talking of course, about more about environment and sustainability, but it’s just an honor to have you here. Before we get talking, Mark, about all the important work that your team is doing with regards to net zero and climate technologies. I’d love you first to share the Mark Patel story. How did you even get here? Where did your journey begin and what led up to you joining McKinsey?

Mark: Thanks John. I’m delighted to share it. It might be brief and uninteresting, but you might tell from my faint accent. I’m here in San Francisco, but it’s not where I started out. I was born and grew up in Scotland, in Dundee. Maybe the accent will come through stronger as we talk.

John: Yeah.

Mark: I somehow made my way into McKinsey. I decided I wanted to build cars, and I went to work for Ford in the UK and it was around a time where it was tough. It was a tough industrial period. I saw these friends going at consulting and solving these big problems for clients and the excitement that went along with that. I was somehow caught up in and drawn into that. And that’s how I was lucky enough to find a role in McKinsey in London after studying engineering in the UK. That was kind of the start of the journey. There was many years ago, but it was early days of.com. I kept hearing about Silicon Valley and what was going on around technology in the Bay Area. I somehow managed to get someone here to convince me to take me on a project. When I came out and experienced the vitality and the energy of the West coast, I was totally hooked. I just decided not only do I want to be there, but I also want to be part of what it means to be building, creating great companies.

John: Wow.

Mark: Helping and supporting. So I had a couple of different parts. I ended up leaving McKinsey, joining some colleagues from McKinsey in London with a startup in the software space, mobile software. I came back out to the Bay Area and did my BA Stanford rejoined McKinsey here in the Bay Area, and was totally kind of ensconced in the whole tech environment, became one of our semiconductor partners and leaders in our semiconductor practice working across broader tech as well. But I had this itch around climate, and I have to say the itch developed over a few years into something that I couldn’t scratch. I was struggling with what to do with it. I was lucky enough for some investors and some entrepreneurs to approach me and say, Hey, we’re building a company in the renewable space. Why don’t you come join us? And so I left McKinsey over a decade ago now into a company called Amaris. It was one of what I’ll call the Cleantech 1.0 kind of unicorns. We had a very fast run from kind of lab scale up to commercial scale up to IPO. We rode that whole rollercoaster of what it means to take a early stage climate tech company public. I had an incredible experience. I discovered that it was possible to be in a mission-driven company and still be part of a team that was driving extremely hard to achieve a goal. After three, four years of that, we were married, we were starting a family. I was spending a lot of time on the road and decided it was time for a bit of a change. Folks at McKinsey were kind enough to say, why don’t you come back? We know you might have learned something about climate the tech while you were out, so maybe you can apply that in your client work. So I rejoined McKinsey that was over eight years ago now. I came back with a real desire to figure out how to serve clients who were trying to do what I’d just been trying to do. How to take technologies that were early, but had massive potential and accelerate them through the challenges of getting to scale and getting to commercialization around climate impact. That’s a big part of what I do today. So I lead together with a couple of other colleagues, something that we call the McKinsey platform for climate technology. Our goal globally is to partner with clients large and small, to help them accelerate the development and scaling of those technologies and the commercial success of those. We’re driven by emission, which is as individuals and as a firm, we want to have the greatest possible impact that we can. We hope that we can be one of the real forces in the private sector for decarbonization. I’m personally totally bought into that mission. I balance that with some of my other passions, which are continuing to serve clients on the semiconductor side and on the IOT side.

John: Mark, first of all, your timing probably couldn’t have been better because in terms of sustainability never was a huge deal here in the United States until just recently. If you look back to the last 20 years comparatively speaking to Europe where you were born and grew up, Europe is at least two generations ahead of us with regards to their culture and DNA being very embedded with circular economy behavior, good environmental practices same thing with South Korea and Japan. We were the laggard. But it seems as though the last three or four years, it’s an unstoppable and undeniable trend that we really are moving from a linear to circular economy that ESG is here to stay and that it’s not going to go away now and become a fading trend here in the United States anymore as it waxed and waned historically. Do you find that to be true?

Mark: I believe that to be true. My caution is having believed that to be true about a decade ago as well.

John: Understood.

Mark: When I decided to jump into earlier stage climate tech with the beliefs that we were going to see a real shift in the portfolios of the major emitters of the oil companies. The pull from both a policy and a regulatory perspective was going to be sufficient to get us [inaudible]. Now maybe that was naivety on my part.

John: No, no.

Mark: It’s not that I’m now negative at all about where we’re at. I agree with you that the conditions and the circumstances now different, right? Because the scale of commitment and the multi-stakeholder commitment has increased. There is no question we have capital markets and structure in the capital markets that’s driving to much more transparency around ESG. We clearly have stepped up, whatever I may have thought was significant in the past around let use the US federal and state level motivations. We’re in a totally different realm. Again, in terms of the scale,

John: I’m in your boat, by the way, too. I was an early believer, but again, somewhat saddened and disappointed. But as you said, when Larry Fink comes on board now and other massive financial institutions, as you said, it’s now an Omni Source stakeholder type of situation where it’s just not the government, local or federal or whatever. It’s now financial institutions of massive magnitude are saying, Hey, this is the way and it’s our way, or no way.

Mark: Exactly. I think the difference that we have this time round is even at a basic understanding level. I credit my colleagues and many folks outside McKinsey, of course, right?

John: Yeah.

Mark: For creating this transparency, the comprehensive understanding of the climate risks and how those are now integrated into an understanding of what that means in the economy. Of course in some cases, it’s affecting geographically parts of the world in a very dramatic way and will do. But the understanding about how that links to commercial success, economic stability, I think that’s what’s become much more foundational and is driving, as you said, John, much more of a concerted shift.

John: Yeah. For our listeners and viewers who just joined us, we got Mark Patel with us today. He’s a senior partner, McKinsey and Company, define Mark and his colleagues and all the important work they’re doing in climate change and climate technologies and the race to net zero. Please go to www.mckinsey.com. Mark, let’s first talk about McKinsey for our listeners and viewers who don’t have the luxury pleasure or opportunity yet to work with McKinsey. How big is McKinsey around the world in terms of employees, offices, approximate, nothing has to be exact, but approximate, and how many sectors is your company involved with

Mark: Yeah. Thank you for the opportunity delight to say a little bit about McKinsey for those that don’t know us. Often we have just one lens on us. I think one thing, first of all, important to say, McKinsey I think it continues to be the largest private partnership in the world. So that’s something that’s quite special about the firm. We’re not a public company. we’re owned by partners myself, and my peers. We’re led by a managing partner who’s elected by his peers. It has all of the characteristics and is governed and managed as a partnership. There’s something wonderful about that. It means that we choose to direct the firm, but we also have to carry forward each or every one of us the mission of the firm. The mission of the firm is to serve our clients on some of the most important issues, but also to develop and create an environment for some of the most talented people. The reason I take a moment to describe that is I think folks often experience McKinsey as, of course, consultants serving large corporations. Once that continues to be an enormous part of what we do and in the context of climate and beyond, we’ve started to spend more and more time working with clients who have the profile of high growth, who have the challenges of moving very quickly to scale. We are present in almost every geography in the world. we have over a hundred offices globally. We are nearly 40,000 people globally. Not all of those serving clients. Some obviously supporting the work that we do globally. We have a model which is extremely consistent in how we serve clients across sectors and across geographies.

John: Got it. So when you came back on board now eight or so years ago, was the climate practice just beginning? Was it the beginning of the journey when you joined onboard and you’ve helped now shape it?

Mark: That’s a great question, John. I am standing on the shoulders of some real giants in terms of my colleagues who came before me on the sustainability topic. Our journey in sustainability started about 20 years ago.

John: Wow.

Mark: I think a real point in time to focus on would be around 2007 to 2009. At that point some of my colleagues developed and published something that’s become known as the Mac, the marginal abatement cost curve for carbon. That sounds like a mouthful, but you may have seen it in many different forms now because it’s quite widely used. But the principle let’s look at every source of carbon emission or carbon abatement and reduction in the planet, and let’s be able to quantify it, both in terms of the cost per tone of CO2 to mitigate or remove. Let’s quantify in terms of the absolute volume of CO2 that it admits today or it has the potential to remove. Why is that valuable? It’s an extremely simple way of visualizing where and how to focus at a global scale in terms of the levers and the cost of each lever to reduce co2.Of course, that’s evolved. But the reason I reference when you talk about where did McKinsey start, the starting point for us was intellectual rigor. Let’s make sure that we can quantify and analytically understand where the priorities are, and then let’s focus our client work and our clients on having the greatest possible impact, recognizing that in most cases,, it starts with an economic problem to solve. Of course, is also a social problem or a social challenge, and it has, and multi-faceted challenge. But let’s at least bring the clarity around the economics of it. That was always our goal with that. So that was the genesis. It’s often what folks remember about the beginning of sustainability at McKinsey. We’ve developed a lot since then and I definitely have to credit my colleagues with having developed that back then.

John: But since you love technology so much and you’re involved with the Internet of things and other great technologies, and you like always being in that sort of leading edge technology forefront, mixed with your passion for climate change, where are we now today with regards to McKinsey’s platform for climate technologies, and how does that shape up now as we are in 2023 and in dire need of some big shifts?

Mark: Yeah, that’s a great, great, great, great question. So if I just give you the headline, we view basically 10 core technology areas that we believe are the greatest contributors to helping to deliver on the decarbonization of our current sources of energy and applications of energy, and deliver the future growth that we need in sources of energy and electrification. Okay. Some of those will be very, very familiar. Right? That’s, of course, you’ve got the core renewables that are at scale, solar, wind wave power, depending on your geography, and there are some important parts of the existing energy mix, nuclear and next generation nuclear technologies. But then we’d also include the very important levers for decarbonization that our technology enabled AgTech that enables decarbonization in agriculture. Carbon removals, which is something that I’m very passionate about, and hopefully I’ll talk about a bit more in this session.

John: Yeah.

Mark: Then water technologies, which it’s impossible to de-link both of course our challenges around water and water management, but also the close link of that to decarbonization and GHG impact. Our goal in creating this platform was to say, let’s be comprehensive around the technologies that in combination are an important part of the transition. Then secondly, let’s also be extremely clear about what the necessary scaling is and what it takes to scale each of these technologies. Now, of course, you can look at different scenarios where a blend of different technologies scale in different ways, but in general, you need we need all of these to scale. If we have any chance of a meaningful impact towards redressing our limited carbon budget today and getting anywhere close to a net zero future. The work that we’re doing is to establish a consistent understanding of where the technologies are today, both in terms of cost and scale, unit costs, being of course critically important, as you know. Then to very clearly with each of our client and our clients and our client engagements enable an acceleration down the cost curve so that as the technology’s become cheaper, they obviously become much more attractive to scale. Now, sometimes that isn’t just because of the unit economics, it can also be because there’s support from a policy perspective as well.

John: Right.

Mark: But we want to be very clear about what’s required in each of those cases. What could be the factors that could accelerate that path down the cost curve, and what are the factors that can accelerate scaling? Because the cost is one unlocked, but it’s not the only unlock to do in that.

John: Understood. So how does the conversation start, big and small and medium companies approach you to help them start on this journey or to help also separate the wheat from the shaft, the misconceptions and the, charlatans and the real things that could really help them and make a real impact? How that factor to your practice?

Mark: That’s also a great question. I think there’s probably three parts to answering that. One where we’re engaged with clients today who already have a significant footprint, either because they’re in the energy value chain or they’re large consumers of energy, or they have materials circularity and sure renewable materials is another one of our technology areas. We’re often engaging with them across a broad set of topics. to your point, either because they are interested to engage in a conversation about sustainability broadly and the enabling technologies, or because we’re proactive with them we get into a model where we’re serving them and working with them to help them to understand what’s in their portfolio today, from a technology perspective, how should that develop quickly and effectively in order for them to be able to both grow their business, transition their operations, Help enable their business partners to make the shift to a lower carbon model. In some cases, it’s very exciting because they have real opportunities to grow and build new businesses. This is not just about the penalty of decarbonization far from it. One of the complimentary activities to our platform for climate technologies is something we call green business building.

That is where we partner with clients over typically the longer term in many cases over multiple years, to help them to build the business around either a new technology or a new opportunity that’s linked to decarbonization or a positive emissions business. For many of those large clients, that’s an entirely new business that are growing. That’s where we’ll bring the capabilities to help them to do that. Now, second part is what you also mentioned, and I talked about earlier. In some cases, we’re starting with much smaller companies who have usually strong potential from a technology perspective, may have already made the first steps. They may be well on their journey from a venture funding perspective. But for them, the big unlock is how do you operationalize it? How do you contemplate going from a pilot scale to having real plants that are at real scale? How do you go multiple geographies, enter different end markets? Those are things that we can bring real experience around and we can work closely with them to both augment the capabilities they have and build the capabilities and go faster. What we’ve found is that that model can be material in accelerating their whole path and also de-risk their path. I think one of the things that we all know is it’s hard when you’re starting out and you’re trying to build a team and you’re trying to figure out how to operate in geographies that may be unfamiliar. given the global footprint we have in the capabilities we have, we can help a lot in doing that.

John: Understood. Challenges, what keeps you up at night in terms of the challenges that are ahead on this transition? The transition both to net zero, the transition from the linear to circular economy, and the transition to making ESG part of our embedded corporate culture not only here in the United States, but around the world.

Mark: Yeah. I think you’re leading me with some of those statements.

John: [inaudible]

Mark: I mean, what really keeps me up at night is that we’re not doing enough of just a personal level.

John: Yeah.

Mark: The math suggests the same, right. Our own projections from a scenario perspective, of course, there’s different scenarios, but even in an aggressive scenario for technology adoption and decarbonization we have to believe that we’re going to move much, much faster than we have in recent history in terms of the funding, the scaling, and the deployment of these technologies. These technologies they’re some of the ones I’ve mentioned. They’re not like sitting on some research paper or we’re waiting to come out of some individual research or scientists brain. In most cases, past the stage of demonstration, and they’re looking viable companies to scale them. What I see as the challenge is how, in the way that the economy and the way that we have incumbent institutions today, we can adopt and then accelerate these at sufficient scale. And so the positive side of it is I see lots of opportunity, and I see the solutions. The challenge is how to make the mechanisms of support effective at scale and at a pace that is frankly, pretty unprecedented in terms of modern industrial history the last 200 years. I have two thoughts around what’s behind those challenges. One is the model by which we are used to financing and evolving businesses is well suited for. I mean, if I use kind of west coast where we’re [inaudible].

It’s very well suited for technology companies that where the real risk and uncertainty is around product market fit. then it’s. Then the scale take a software company or a SaaS company or a application-based business, right? If you get product market fit, great, you’re off to the races and you’ll get customers and the business will start to look compelling as long as it’s well run. That’s not always the case when it comes to some of the solutions in climate. They can be very effective, but they have to operate in complex environments in terms of feed stocks whether that’s waste gas or nature-based inputs in terms of the policy environments, in terms of the industrial operations, what it takes to build a plant and deploy infrastructure or mitigate the environmental impact of building in a certain location. I’m incredibly sympathetic too, that’s a really hard path. if we rely on the existing model of how we finance companies in order to get them from venture based startups through to at scale industrial businesses, almost every entrepreneur CEO team that I spend time with find that to be a challenge. I think that’s one of the things we have to solve. I think the recent federal actions and policies go a long way. There’s an enormous amount of money now that’s available.

John: Right.

Mark: Tax credits are a chips act. All many of these are going to be incredibly powerful in helping to pull forward these technologies. But equally, the scale that we have to achieve is well beyond even what’s on the table today. So I think to me that’s that’s one of the biggest challenges for us to get our heads around and solve. Then the second one would be people, talent and generational shift in how folks think about their careers, where they develop expertise and how they get comfortable with investing their educations and then their time to become part of a future that’s much more based around these technologies.

John: Is there an imbalance today for the talent that’s needed in sustainability, circular economy and ESG compared to where we were 10 years ago? Is there much more of a need and demand and a lack of a talent pool that’s ready for these roles right now?

Mark: Unquestionably, yes.

John: Okay.

Mark: I don’t think that’s anybody’s fault. I think that’s just what happens when something’s new and needs to happen at a scale that it hasn’t happened before. Right.

John: There’s just a lag.

Mark: It’s a lag. Exactly. But I think also there are an enormous amount of people who have the skills and capabilities that are required, but who may not have the orientation or be capitalized towards it today. Let me give you a great example. I mean, as you and I both know, so many of the challenges are around scaling infrastructure, whether that’s solar and wind deployment or moving into carbon removals. How are we going to establish large scale engineering solutions to remove CO2 scale? A lot of that is traditional skills around infrastructure, construction, engineering, design, process engineering, engineering validation, verification and permitting, those kinds of skills. We’ve got incredible talent pools who are doing those things today. They just may not be doing them in this context, and folks need to build enough of experience to be able to go to help scale this. So I think in some cases it’s a re-putting of talent as opposed to we just have a massive gap in the talent pool.

John: Right.

Mark: I don’t know about you, but I also see it in the form of professional services. Let’s not pretend that even for ourselves at McKinsey, right? We have massively invested and scaled up our capabilities in sustainability in the last five years. We’ve made it one of the highest priorities for us as a firm in our client service. We’ve explicitly invested behind it in terms of growth, And we have thousands of colleagues now who have both developed and, or we’ve hired with the right skillsets. But we’re just a microcosm of, I suspect every other sector and, and company.

John: But suffice it to say your climate technology division looks nothing today like it looked when you joined back to McKinsey eight years ago. Nothing

Mark: When I rejoined eight years ago, I think would be fair to describe our sustainability team or maybe it wouldn’t be fair. But I’ll say anyway, since they’re mostly my friends, or at least they are until I say this, we were a bit bash, right? We were sort of doing intellectual work, writing some papers, trying to build momentum amongst our clients. Now, this looks like broad-based across all of our sectors, across all of our capabilities, because that’s what we believe is important to be able to impact.

John: Well, probably the tide is turned. You’re no longer trying to build a momentum. You’re trying to literally respond to the momentum now and have enough experts and folks like you to respond to the momentum, which is now pulling you in that direction. Therefore your platform has grown to fill that also huge demand.

Mark: Yeah. I think that’s a big piece of it.

John: Yeah.

Mark: Of course it continues to be, look I hope that we continue to shape the agenda, I believe we have the last decade, and I hope we will continue to as well. But as you said, there’s a much broader set of clients that we’re engaging on the topic now across a broader set of challenges and opportunities. So you’re right, we’re responding to that.

John: For our listeners and viewers who’ve just joined us, we’ve got Mark Patel with us today. He’s a senior partner, McKinsey and Company, to find Mark and his wonderful colleagues in the important work that they’re doing in the climate change world, in climate technologies in the race to net zero, please go to www.mckinsey.com. Mark, one of the few truths that I’ve learned in business and in sports over my career is that for the great ones, it comes down to pattern recognition. Whether you’re Tom Brady, whether you’re Tim Cook, Jeff Bezos, Tiger Woods, it comes down that they’ve done so many reps in what they do and what they’re great at, that the pattern recognition allows them to think faster and move ahead of where everybody else does in their chosen profession or field. Now, let’s put you as one of the climate experts of the world. You’re sitting at McKinsey, one of the greatest platform companies and facilitating companies on this planet, and let’s not be shy about that. You are a real expert. Not only are you an expert because you’re classically trained, you’ve been on the other side of the board, you’ve been in the startup world as well.

So you get to have expertise that you get to converge now in technology startup world, and also sitting in a platform, thought leadership position. So you’re in a room now either with large corporation, small corporation or startup, and you are trying to convince any one of these three groups the ROI on leveraging the recommendation McKinsey is making. As you and I know, sometimes the ROI is very tangible. Sometimes it’s somewhat soft, and sometimes it falls in that soft area as well. To me it’s a trilogy, and you’re trying to have them grasp it. I know the receiver, you’ve got to read the room, but how does the room change for you when you walk in and you’re having to always toggle between giving them the hard ROI, the soft ROI, and the grey ROI, and trying to help them understand the importance of all, because truly, we’re all stakeholders in this, one big planet, and this is a borderless problem, that if someone’s polluting over here, it’s going to affect even the people that are doing the right thing over there. How does that work, given that you are the expert with the pattern recognition in these rooms on a regular basis?

Mark: Yeah, that’s a great question. Very, very good question. I think, John. Many business problems, I’m going to state this super obvious

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John: Yeah.

Mark: Many business problems you walk into a room and you’re looking to solve it either top line or bottom line.

John: Right.

Mark: With all of your experience, I’m sure your intuition immediately takes you to that no matter what business you’re looking at. I got to add in the room discussions, I would add two more dimensions.

John: Sure.

Mark: Whenever we’re talking about this. One is risk, which you’d argue that any thoughtful business leader in organization leader is also always thinking about. That’s probably true. But in this case, the risk is at multiple levels. It’s what is the risk that I’m exposed to from a financial markets and from a stakeholder perspective around the actions that I’m taking rather to my competition? That could be a bit of way to think about it. Secondly, what am I exposed to operationally from a climate risk perspective, which could be material depending on where and how I’m operating and what my value chain supply chains look like. Then I think thirdly, for those that are already advanced in their thinking, this is often where we get to quite quickly. It’s how does the future model for my business success actually materially evolve under what is a range of risk scenarios that are a function of climate. it’s not just because the environment’s going to get hotter, and maybe that means it’s harder for people to work. That’s the first order this gets to, how am I going to access capital? Am I going to be perceived as being on the right side of this? Is my cost of capital going to increase? Is it going to be harder for me to recruit people because I’m not seen as being generationally on the right side of this? Those are all in that risk bucket. Then the fourth dimension, I think, is much more personal. Is it a business leader that we’re talking to who’s already made the start on their personal journey of understanding and then translating that into their own personal and professional lives. That sounds like a soft floppy thing to talk about. But actually I think it’s deeply material when we’re in the room and in the discussion. It’s not the only factor, but I think it sits for those other three.

John: I fully agree leadership matters and who the leader is matters. I totally agree with you on that. But like we said, you deal with massive, huge companies. I mean, multinational BMOs, and you deal with startups, again, defining success is so hard, I would love to be a fly on the wall in one of those meetings with you in terms of how you describe success and how is it working? I mean, is your meetings constantly evolving this year compared to pre COVID? Explain that a little bit, like has the leadership awakening and transition happened and COVID is one of the catalysts of that you think

Mark: Now you’re making me smile when you say kind of like you write large companies to very small and early one.

John: Yeah.

Mark: The reason I’m smiling is because I have to reflect that’s a privilege, right? I don’t take hundred percent privilege of the position I’m in and how special it is to have the privilege to work with companies, both scales and the folks in those companies. The pre COVID post COVID certainly we’ve seen an acceleration of the understanding of the challenges around the both the energy transition and the broader climate challenge. I don’t know that that was uniquely triggered by COVID. I’m curious what your experience has been as well.

John: Yeah

Mark: But we have definitely coincided with it, right? I think it’s fair to say 2020 was a big year in terms of you mentioned Larry Fink, right? We were honored to be credited by Larry in his letter to shareholders as one of the sources of which enlightened him and his organization on the topic. That was right around the timing, I think, where we’d say both his organization and others, like it got the message around this in a way that [inaudible] went beyond even where they were before. So I definitely think there was a coincidence with COVID. I’ll use a very specific example, and it’s something I’m extremely passionate about. Also that we as a former supporting, which was in some ways catalyzed by COVID. We saw one thing that was incredible. We saw a global rallying around the potential for a vaccination as a model to return to normality. And we saw this incredible focus in funding engaging and somehow pulling in the timelines to deliver those vaccines. I don’t intend to get into whole debate around vaccines, but what model of the advanced funding to accelerate development we’ve translated that into the Climate Challenge and McKinsey’s one of the five founding institutions for a new institution called Frontier which you may be familiar with, which specifically targets the acceleration of technologies by making advanced purchase commitments for carbon removal.

As one of the colleagues here at McKinsey who took us into this model, I’m incredibly passionate about the potential of that can be. I was already proving to be, I have to credit our collaborators at Stripe. They really were the ones who brought McKinsey, meta Shopify Google into, or Alphabet, I should say, into the model with them. But as the five founding institutions, we made an almost billion dollar commitment to say, we’re going to pre-purchase and make advanced uptake commitments for carbon removals that have yet to be engineered and delivered. We’re willing to pay a premium in the short term in order to help those companies advance their technologies and scale their projects so that we can create both a reliable and a well-developed market, and we can accelerate the scaling of carbon removal globally. That really was born out of the advanced market commitment model that came from vaccinations and from the pharma and healthcare world. So I don’t know that COVID was uniquely the catalyst, but it was definitely a big part of how we got inspiration for that model.

John: That’s so interesting. So maybe not catalyst, but maybe the accelerator maybe.

Mark: Totally, and definitely the spark that said, Hey folks have shown what can be done in the last couple of years in terms of pulling in what were five year timelines into a matter of months. Shouldn’t we be able to do that as well for technologies for carbon removal, and that’s basically the story.

John: Yeah. We talk about Larry Fink 2020, your group is one of the great advisors to him to get BlackRock on that path. Arguably the largest investment institution in the world. when they move, again, markets move. Let’s go now to the other side the government side. Let’s book in Larry Fink’s letter with the investment recovery act. In combination, has that become a terrific and undeniable force with regards to driving the new green economy domestically speaking here in America, and also a bellwether for others to follow around the world?

Mark: So I’ll ask you a question. I think it has become a tremendously impactful force even in the matter of months, which is incredible. The reason I say that is the evidence is clear. I see more of our clients large and small, motivated to move faster because of it.

John: Right.

Mark: That’s has it been a force for other parts of the world? I think most definitely, and in fact, I shouldn’t even say, I think factually the European Union has attributed and credited their increased pace and their efforts to increase spending with what they see in the United States as a trigger. They were already setting a good pace, as you said earlier. I think we see actions in other parts of the world also. Of course, comparing the scale and saying, how do we compete against that? How do we both set a compete but also set a similar level of aspiration against that? So to your question , has the combination of the capital markets and then the government funding sources being a catalyst? No question. is it a tremendous force? I think it certainly is proving to be one that folks are trying to mobilize around. At the same time, we’re still relatively early in the disbursement. So what we have to do, I think, is focus on how do those funds get spent in a way that they are maximizing success?

John: Got it.

Mark: Of course, there’s a level of that which is about leadership and about management within individual companies. I think there’s also an element of how do the government continue to be a great partner in helping to direct those funds to the most impactful opportunities.,

John: Great point. Mark, one of the biggest issues that I’ve had trouble grappling with over the recent years is, there’s debate on carbon credits and carbon trading. Where are we in that journey and how is that going to play out from where you sit?

Mark: Here, again, with all due deference to my colleagues who are much, much deeper on this topic, I’ll stay at my appropriate level.

John: Yeah, yeah.

Mark: Rather than trying to represent everything put in a couple of ways. One, the concept of a carbon credit and the mechanism by which it is established and traded, whether that is because you’re in an industry where it’s compulsory or where there it’s in a voluntary market, that concept I think is an incredibly important, it’s not new, right? We’re now over a decade into the concept of it, and as a way of normalizing public sector, private sector, global counterparties into the understanding that there is a carbon cost associated with what they do or what they might do. I think it’s been incredibly important, and it’s not perfect by any means, but it has been incredibly important, at least in getting us to that level of awareness and enabling some model for it. of course, for many industries, they’ll tell you,

Mark: This is a part of how we do business, and it’s something that’s mandated and regulated, and it’s not new to us. Of course, what’s newer for many is this concept of voluntary carbon markets where companies are participating voluntarily in the commitments that they make, and then participating voluntarily in what they buy in order to meet those commitments. I think this is a great example. We do that. We made commitments of our goals by 2030, which are aggressive and ambitious, and we’re working towards those. Of course, the challenge is the variability in what those credits are attached to.

John: Right.

Mark: I think it’s probably what you and many of the other folks that would say, which is it’s been incredibly hard for, in some cases to know whether or not a credit is of high quality. Whether the provider of that credit and the source of the carbon offset is genuinely something that is going to have a climate impact. I think we’re on a journey there globally. The true cost of either mitigating or removing a tone of carbon is now much better Understood. We can create more transparency around that. And as we do so, we get much more astute and understanding whether a credit is a high quality credit or not. I think we can anticipate that over the next few years there’s going to be some rebalancing. Some folks will have bought a portfolio of offsets that may not be as good as they thought it was. Others are educating themselves and saying, no, we want to go to the highest quality. That means we’re only going to buy high quality removals and they cost a lot today, like hundreds of dollars a tone, but that’s where we want to go so that we have a high quality portfolio. I think the sooner we sort through that, the better because then the risk is always that you discredit something in the process of sorting through it. And I hope that we don’t do that. Hopefully we can get to a high quality global view of [i audible]

John: Excuse my ignorance on this Mark, but is that part of your advisory services helping your great client base figure out the frauds in the charlatans from the good quality credits that should be getting the right attention and staying away as much as possible from the more specious ones?

Mark: Certainly helping them to understand what should be in their portfolio at what point in time, and then how to think about the planning for their portfolio, yes. The avoidance of the kind of the, what I would call the lower.

John: Lower quality.

Mark: I am saying lower quality is a polite euphemism, and you’re saying there’s some species stuff out there. You’re right. I think in most cases the market is cleared for those and that we won’t have that challenge anymore. Certainly with most of our clients, they’re student enough to know.

John: Right.

Mark: But a big part of it is how do you plan for the evolution of your portfolio because I didn’t mention in this whole picture is we do have, of course, independent bodies, which are, helping companies to plan and to make their commitments from a future carbon footprint perspective. And those institutions are also providing the very clear guidelines around what needs to be achieved in terms of quality of offsets and type of offset over time. So achieving your goals and targets and getting accredited for those means that you have to be thinking about that.

John: Mark, I know besides your passion for climate change, climate technologies net zero and all things green and good, you have a huge passion for the internet of things. How does sustainability and good environmental policy and practices intersect with the rising boom in the internet of things that we’ve all seen become ubiquitous to all of our lives over the last 20 somewhat years?

Mark: Well, I, first of all, thanks for asking about that. I’m delighted that it’s something that you and I share I think .

John: Yeah, we both are [inaudible]

Mark: Maybe we’re the only two people with common bond

John: Yeah. Two nerd got together.

Mark: Exactly. I don’t know if you feel the same way, but for me, IOT has been through a hype cycle, right? Let’s just be blunt. Some folks will roll their eyes and say, we’re still talking about IOT? For me personally, it’s like remove the acronym of IOT and it’s about where digital meets the physical world. To me that’s what we mean when we say the Internet of things. The reason I was always excited about that was if you open your imagination to it, that’s incredible. And when we first started talking about it, we didn’t have autonomous vehicles and we didn’t really have remote health or wearable health monitors and smartwatches and things like that. These are all things that have happened in the last eight, nine years that we’ve been talking about this. To me that’s a lot to celebrate in terms of the IOT.

John: It is.

Mark: And then the future of that only looks amazing and bright, doesn’t it? I mean, we’ve just experienced in those two examples is the starting point, think about what the next 20 years look like in terms of truly integrated sensing automation and the integration of the digital twin and the virtual environment with the physical environment. So that’s why I continue to have a lot of passion for, and I also you prompted me on it, but I continue to believe that will be an important part of how we understand what’s going on globally around the world, and translate that to both measuring and then acting from a climate perspective

John: And someone simple like me. So you’re saying the application of AI to predictive analytics is coming, it’s here and it’s going to only accelerate in the years to come?

Mark: Yeah, I think so. I mean, what does the IOT give us? Gives the ability to instrument a physical environment and then to make prediction and automate in that environment.

John: Great.

Mark: In Amazon fulfilment center that looks amazing today, right? They have a full digital twin fulfilment center and they’re able to plan it and optimize it. Well, fast forward a little bit we don’t like to talk about it, but we are going to also have to deal with the adaptation of our working environments because of climate change. And from an agricultural perspective, from folks who have to work outside, I want to be able to instrument an environment and automate it so that humans aren’t exposed to that risk more than they need to be, but we still maintain the productivity That could mean we’re creating digital twins of construction sites, of farms, of whole places geographies that we want to instrument and then be able to predict and respond better, reduce the climate risk to our productivity in our economy, and to humans whilst also being able to deliver on the adaptation that’s necessary. So I see the IOT and the combination of AI.

John: Inexorably tied together.

Mark: Ably[?] linked, and then linked in a big way, particularly to the adaptation that’s going to be necessary around climate change. Yeah.

John: Mark we’ve talked a whole spectrum of issues today, so I’m going to leave you with this question, and I would love to hear your thoughts on this. Just like any great democracy, just like any great startup, and just like any great trend that is undeniable and unstoppable, like we believe sustainability, circular economy, ESG and climate technologies and the race net zero are here. Where are we? If it’s a baseball game, are we in the bottom of the first, the top of the fifth? Where are we, Mark in this journey?

Mark: I think we’re just going into turnstiles, aren’t we?

John: I’m with you.

Mark: We’re waiting for the players to show up.

John: I love it.

Mark: And I think the biggest thing that we have to remember is that our imagination and creativity to solve the problem is going to be the biggest unlock. Not everything we understand today is going to be the solution goes beyond everything that we understand today. There will be.

John: I love it

Mark: Social and technological change to find a solution.

John: Well, Mark, since we’re going through the turnstiles, that means we have many innings to play, and that means I you to know that you are invited back on this show anytime you want to give a recap of the first inning, the third inning, or anything else you want to talk about, because it’s more than fun and fascinating to speak with you because I put you in Brady’s category. You are a climate technology expert with a lot of pattern recognition, and the world needs more of you. The world needs more of what McKinsey’s doing. For our listeners and viewers to find Mark and his colleagues in all the important work they’re doing in climate change, net zero, sustainability, please go to www.mckinsey.com. Mark Patel, you are a Rockstar. You’re making important impacts on this planet, which I’m very grateful for, and I’m also super thankful and appreciative for your time today. Thank you. And I hope you do come back one day and share the journey in climate technologies at McKinsey.

Mark: Thank you. It’s been an honor. I can only thank you for the opportunity and right back at you. Everything that you just said, which was very complimentary, I have to say you’re catalyzing us all by making this happen possible. So thank you.

John: This episode of the Impact Podcast is brought to you by co2.com. Companies today are trying to figure out how to achieve high quality climate credentials. co2.com is the easy button for any business to go beyond offsetting and fund truly impactful projects across carbon, nature and community. CO2 provides verified metrics that can be used in reporting and messaging, have confidence in demonstrating your climate leadership. Go to co2.com to access quality climate credentials you can trust on the road to net zero and nature positive. This edition of the Impact podcast is brought to you by ERI. ERI has a mission to protect people, the planet and your privacy, and is the largest fully integrated IT and electronics asset disposition provider and cybersecurity focused hardware destruction company in the United States and maybe even the world. For more information on how ERI can help your business properly dispose of outdated electronic hardware devices, please visit eridirect.com.