Both governments and anyone with a retirement account can move their money out of climate problems and into solutions. The largest pools of capital are public pensions and sovereign wealth funds controlled by governments, but nearly all this public money is still investing in fossil fuel companies, unsustainable agriculture, deforestation, and big polluters in other industries, thanks to the tyranny of [not-so] modern portfolio theory. This needs to change through new laws and smarter climate investing policies. There has been some recent progress, with Ireland becoming the first national government to plan to fully divest from fossil fuel, states like California passing laws that incorporate climate risk into portfolio management, and cities like Chicago planning to fully decarbonize their investments. Over $70 trillion has signed onto the UN Principles on Responsible Investing, including many of the world’s largest investors, and trillions of dollars have also been pledged to Climate Action 100+, The Investor Agenda, and Divest-Invest. But high-level investor commitments still aren’t matched with substantial changes to where the money flows. Most people with retirement accounts are also investing in climate pollution, whether they know it or not, since most people hold broad index funds filled with everything, including dirty and irresponsible companies. It’s up to all of us to both push our governments to scale up climate investing policies, and lead by example by moving our own money into high-performing, climate-smart investments.
I had the pleasure to interview Ian Monroe. Ian is the founding President of Etho Capital, which was named one of the world’s “Most Innovative Companies” by Fast Company for showing how climate sustainability can drive better financial returns for investors. Ian also teaches about sustainability science and climate solutions at Stanford University, and he is the Founder of Oroeco, a leading technology platform that makes climate action easy, fun, rewarding. Ian’s passion for the planet has been fueled by his family’s small farm and his climate sustainability work in over 30 countries, and he continues to advise the United Nations, The Center for Carbon Removal, and the China Alliance of Social Value Investment.
Thank you so much for doing this with us! Can you tell us a story about what brought you to this specific career path?
I’ve been passionate about scaling up climate solutions for as long as I can remember, inspired by growing up on a small farm in a beautiful corner of Northern California. The first decade of my career was spent as a scientist, engineer, and international economics consultant, working with companies, nonprofits, and governments around the world to create more sustainable and efficient supply chains. While I loved my work, leading projects and writing reports still felt like I was missing a core problem: How do we re-engineer our economy to move money out of sustainability problems and into solutions?
I accepted an invitation to start researching and teaching at Stanford, which gave me an opportunity to think bigger. Many friends had gone into tech, and I started to wonder if our hyper-connected digital devices could be used to nudge us all towards sustainable choices and bottom up climate action. Sharing this idea with friends and a few amazing early investors led to founding Oroeco, which helped pioneer how tech can empower personal climate solutions while growing to users in over 170 countries.
The seeds of Etho Capital were planted when we started calculating the carbon footprint of personal investment portfolios for Oroeco users. We had a hunch that more “climate-efficient” companies might simply make more money for investors, since lower climate pollution generally comes from more efficient supply chains, along with smarter leadership. When we started crunching the numbers with one of our investors we saw strong relationships between climate sustainability and financial performance in nearly every sector of the economy. It was this “AH HA!” moment that led to the creation of Etho Capital and the ETHO ETF, when we realized we’d found a win-win recipe that could transform investing to help solve climate change alongside other sustainability and social equity challenges.
There’s a fierce urgency to scale climate solutions in finance, since we’re already passing dangerous tipping points. This was hammered home for me last year, when my family farm was devastated in the Redwood Complex Fire, one of more than a dozen unprecedented infernos that burned through California. Hundreds of neighbors and over twenty of my family members lost homes, and nine of our neighbors lost lives. If not for a heroic barking dog in the middle of the night, it’s likely most of my family wouldn’t have been trapped. The 200 foot wall of flame moved miles in minutes on hurricane force winds, blowing burning trees and power lines across roads and cutting off escape. Rebuilding our community will take decades, and the skies continue to fill with smoke from new record-setting wildfires nearby.
Unfortunately, bigger, faster, and more frequent firestorms are exactly what climate scientists have been predicting for decades, alongside more deadly hurricanes, floods, droughts, famines, disease, and violent conflict. The longer we wait to solve climate and end our fossil fuel addition, the more homes and lives will be lost. My family’s experience losing everything has only sharpened my resolve to push change in the right direction. The hope that my work can help others avoid tragedy gets me out of bed every morning.
What is the mission of your company? What problems are you aiming to solve?
Etho Capital’s mission is to empower everyone to make more money by investing in a just and sustainable future. We are aiming to show that investing in the most efficient and sustainable companies in every part of the economy is better for people, the planet, and portfolio performance. So far, we’re off to a pretty good start, as our indexes and ETFs have been some of the top performing diversified equity strategies in the world since they launched, with investors of all sizes helping our low-fee funds quickly grow to over $200 million in assets.
Of course, past performance can’t guarantee future results, and our funds move up and down with the market, but given economy-wide shifts towards pollution pricing, electric transportation, renewable energy, and overall social and environmental responsibility, we think our deeper analysis of supply chain impacts and efficiency will only become even more essential for investors moving forward. We’re helping investors cut through marketing propaganda to invest in true sustainability leadership, which has been a challenge for earlier attempts at sustainable investing. The only way to shift trillions of investor dollars out of climate problems and into solutions is to show that smarter sustainability makes both dollars and sense.
Can you tell us about the initiatives that your company is taking to tackle climate change? Can you give an example for each?
Climate sustainability is central to everything we do at Etho Capital. To build our indexes and funds, we start by calculating the climate pollution footprint for about 7,000 of the most commonly traded public companies, then we compare companies with their competitors to find the climate leaders in each industry, followed by a deeper dive into each potential leader to ensure that the company fulfills our larger social, environmental, and governance criteria. Unlike other climate strategies, our process isn’t just about taking out fossil fuel companies (which we also do), it’s about a deeper dive to find a broadly diversified mix of companies that are reducing pollution in their supply chains, implementing innovations, doing more with less, and staying ahead of the competition.
We’ve developed quite a complex process, informed by the type of life cycle assessment science I’ve been teaching at Stanford and using in industry consulting for years, but we’ve found it’s worth it because our deeper analysis can add substantial advantages for investors, as well as ensure true value alignment. We’ve also found our climate efficiency and overall corporate responsibility screens can provide early warning signs that help investors avoid losses from bad actors. Our analysis removed Volkswagen and Monsanto long before their pollution and toxicity issues hit the mainstream media, and we also removed PG&E far ahead of record shareholder losses and billions in liability from the utility’s role in starting more than a dozen wildfires, including the one the destroyed my own home.
The reason that we launched our first funds as ETFs is that we want to empower all types of people to invest in climate and overall sustainability values, not just create exclusive strategies accessible to wealthy individuals and institutions. We’re proud that investing is as easy as putting in the “ETHO” or “ETHI” tickers in whatever investment platform most people are already using, and that we have retirees and college students investing less than $100 at the same time large investors put in tens of millions.
While our indexes and funds include hundreds of climate leader companies, we’re also exploring ways to engage with the thousands of companies we analyze to help them clean up pollution and decarbonize their own supply chains. We’re currently working on a sustainability rating system for companies, which will include opportunities for crowdsourced sustainability feedback from experts out of academia, nonprofits, and industry, as well as concerned citizens. The prototype technology platform looks a bit like Yelp or TripAdvisor for company sustainability ratings. We’re now starting to recruit beta testers to contribute their thoughts on what companies are doing right and wrong, and plan to make the platform freely available to the public soon. Our hope is that by making sustainability data more transparent and democratic, we’ll empower a diverse range of voices, encourage more investors and customers to pay attention, and create virtuous cycles of competition where companies focus on real improvements rather than “greenwashed” sustainability marketing.
Last but certainly not least, we’re now collaborating with HIP Investor to include our climate-friendly funds in their 401(k) retirement plans, so we’re starting to reach out to companies to encourage them to let their employees chose to invest in their climate values, and we encourage any of your readers who want better options to reach out to us through www.ethocapital.com.
What was the most difficult thing you faced when you first started your company/organization? Can you share how you overcame that. This might give insight to founders who face a similar situation.
The biggest challenge we continue to face is overturning outdated ways of thinking by professional investors who think filtering companies based on social and environmental criteria will lose money. Since 1952, most professional investors have been indoctrinated in business school with “modern portfolio theory,” which asserts that the way to make the most money is to maximize diversification. It’s true that broadly diversified index strategies generally outperform active stock-picking, which is why Etho Capital only creates broadly diversified indexes and funds. But what makes conventional invest-in-everything theory thoroughly antiquated is the failure to recognize that not all diversification is good. It makes zero financial sense to invest in inefficient and dirty companies with substantial social and environmental risks, as well as dying industries like fossil fuels, which are being replaced by the cheaper and cleaner alternatives we need to solve climate change.
Individual investors tend to be quicker to grasp all the data showing that smarter sustainable investing means investing in better companies that have better chances of success, but some of the largest institutional investors and financial advisors are still investing like it’s 1952. Some investors also have their decisions clouded by the ridiculous politics around climate change, which keep them blind to the risks and opportunities of the fundamental shifts in our economy. We’ll never reach all investors, but we’ve been tackling this challenge by focusing on avoiding risks and the benefits of efficiency, since virtually everyone can agree that companies are better off when they avoid negative headlines and focus on doing more with less to stay ahead of the competition.
Many people want to start a company to tackle environmental issues, but they face challenges when it comes to raising enough money to actually make it happen. Can you share how were you able to raise the funding necessary to start your organization? Do you have any advice?
My advice for getting a social venture off the ground is to cast your net wide and follow every potential opportunity. Crowdfunding, grants, competitions, and accelerator programs can energize an idea into reality. Oroeco’s first chunks of funding came from crowdfunding and the government of Chile through the Start-Up Chile program, then we won grants from U.S. Department of Energy, Elemental Excelerator, and Echoing Green, attracting a few amazing angel investors along the way. Etho Capital was a bit easier because of the success of Oroeco and the obvious business case for better performing sustainable investments, but it has still been a process of following many leads to bring in the right partners and angel investors. My network from Stanford and high-level international work have certainly also helped, but I’ve seen many others succeed without the same advantages.
Regardless of where you’re starting from, the most important keys to startup funding success is to combine a compelling vision and sound business model with unrelenting push to follow every lead and find creative paths forward. There’s a good chance that 99% of conversations will lead to dead ends, but if you have a viable concept and you explore enough roads you’ll eventually find one that takes you where you want to go.
Do you think entrepreneurs/businesses can do a better job than governments to solve the climate change and global warming issues? Please explain why or why not.
We need all of the above. Climate change is the biggest collective action problem humanity has ever faced, and the only way we’ll solve it is if governments, businesses, investors, and individual citizens are all working together to scale solutions as quickly as possible. This will only happen when information and incentives are put in the right places, which is what Etho Capital is doing for investors, while Oroeco focuses on empowering all of us as citizens and consumers.
We should certainly also all vote for leaders and policies that penalize pollution and accelerate cleaner technologies, but we won’t get government action to scale to where it needs to be until investors, citizens, and better businesses are overpowering dark money from polluting industries. Whether we’re an investor, business, or just concerned citizen, we’re all already voting with every dollar we spend or invest. It’s time to know and own what we’re voting for, since where money and minds move, governments will follow.
What are some practical things that both people and governments can do to help you address the climate change and global warming problem?
Both governments and anyone with a retirement account can move their money out of climate problems and into solutions. The largest pools of capital are public pensions and sovereign wealth funds controlled by governments, but nearly all this public money is still investing in fossil fuel companies, unsustainable agriculture, deforestation, and big polluters in other industries, thanks to the tyranny of [not-so] modern portfolio theory. This needs to change through new laws and smarter climate investing policies.
There has been some recent progress, with Ireland becoming the first national government to plan to fully divest from fossil fuel, states like California passing laws that incorporate climate risk into portfolio management, and cities like Chicago planning to fully decarbonize their investments. Over $70 trillion has signed onto the UN Principles on Responsible Investing, including many of the world’s largest investors, and trillions of dollars have also been pledged to Climate Action 100+, The Investor Agenda, and Divest-Invest. But high-level investor commitments still aren’t matched with substantial changes to where the money flows.
Most people with retirement accounts are also investing in climate pollution, whether they know it or not, since most people hold broad index funds filled with everything, including dirty and irresponsible companies. It’s up to all of us to both push our governments to scale up climate investing policies, and lead by example by moving our own money into high-performing, climate-smart investments.
None of us are able to achieve success without some help along the way. Is there a particular person who you are grateful towards who helped get you to where you are? Can you share a story about that?
Wow, it’s hard to know where to start. There are hundreds of people whom I’m forever indebted to for sharing their wisdom, inspiration, connections, love, and support. First, there’s my mom, a teacher, farmer, and amateur ecologist who gifted me a love for the natural world, along with core values of honesty, compassion, and life-long learning. Then there are all the family, friends, teachers, colleagues, investors, and mentors who’ve inspired and helped me along the way. I don’t know if I’d be able to weather the literal and metaphorical fires of life, without my beautiful and brilliant wife, Susan, whose support and witty wisdom helps me keep perspective. Finally, there are the hundreds of thousands of climate change-makers who’ve either used Oroeco or invested with Etho Capital. Without our users and investors we wouldn’t be anywhere.
What are your “5 Things I Wish Someone Told Me Before I Started” and why. (Please share a story or example for each.)
Lead with compelling storytelling, not facts and figures. Most people respond much more to powerful stories than data-driven truths. It’s essential that your stories are based on the truth, but start with a good story. I struggle with this, given I’m a scientist and data geek at heart, so I’m still working on becoming a better storyteller!
Treat others how you want to be treated, but realize different people have different needs. This is particularly true when managing a team. I try to live by the golden rule as much as possible, but my working style is naturally independent and self-motivated, and I’ve realized that what my teammates need can be a different mix of communication and support without crossing into annoying micromanagement. It’s also important to have compassion for circumstances when life throws your team curveballs.
Trust but verify. This Cold War strategy is also essential in business. I’m naturally trusting, and entrepreneurship requires lots of leaps of faith, but it’s important to monitor progress to ensure teammates, investors, partners, and clients are fulfilling your expectations. You will be let down at times, even when you think you’re fully mission-aligned, so it’s important to strike the right balance of planning for success while preparing for setbacks, and it’s essential to monitor key relationships to catch and correct issues as soon as possible.
The best opportunities can come from unexpected places. Etho Capital’s partnership with Future Super in Australia came out of a random conversation I had during the Paris Climate Agreement negotiations, and Oroeco wouldn’t have gotten off the ground without funding from the Start-Up Chile program.
Talent, connections, and brilliant ideas help, but persistence is the biggest driver of success. Stay optimistic, despite inevitable entrepreneurial ups and downs, and keep pounding on all doors until one opens.
You are a person of great influence and doing some great things for the world! If you could inspire a movement that would bring a great amount of good to the world, what would that be? You never know what your idea can trigger. :-)
If we all move our money out of problems and into solutions, then push our governments to do the same, we will create the healthy, just, sustainable world that the vast majority of us want. It’s easy to point the finger big polluters and scold them for corrupting politicians and destroying our planet, but ultimately we are the owners of these companies, through our personal investments, our taxes, and our pensions.
We need to have the courage to recognize and fix our own hypocrisies when it comes to investing in our values, then encourage our friends, family, and employers to do better. Laziness, institutionalized inertia, and misinformation are bigger enemies than greed, since there’s a mountain of compelling evidence showing cleaner and more responsible companies are simply better investments.
There’s already a growing movement to align our money and daily choices with the change we want to see in the world. I’m proud that our Etho Capital team is helping this movement forward for investors. There’s a long way to go, and our current climate catastrophes can be heartbreaking. But we now have all the technology and financial tools we need. It’s up to all of us to accelerate change in the right direction.
What is the best way for people to follow you on social media?
Here are a few place to start: