Sam Israelit About Why Investing Early in Carbon Removal is the Right Move 

Episode Preview

SAM ISRAELIT (00:00):

We should be taking carbon out of the atmosphere to help solve some of the problem. Don’t just wait until 2050. There was a quote I loved, which is carbon removals should be last, but not later. It should happen now. And I think that’s why we started investing in it. And it’s become a big part of our strategy.

Introduction

PAUL KENNEDY (00:27):

Welcome to Speaking in Tonnes, where the brightest minds and the coolest heads come together to discuss all things carbon removal. I’m your host, Paul Kennedy, Vice President of Carbon Solutions at 1PointFive. Today we’re in Vancouver, joined by Sam Israelit, Partner and Chief Sustainability Officer at Bain and Company. As Bain’s first CSO, Sam has spearheaded their sustainability strategy, including the firm’s move beyond net zero and its recent decision to purchase Direct Air Capture CDR credits from 1PointFive. Sam, welcome to the program.

SAM ISRAELIT (00:58):

Thank you very much for having me.

Reduction Starts at the Front Line

PAUL KENNEDY (00:59):

Sam, much of your career has focused on operations excellence and supply chain optimization. How has your experience working on supply chains informed your view of decarbonization and carbon removal?

SAM ISRAELIT (01:15):

Supply chains are complex systems, right? And if you really want to have change in a system that is complicated like that, you need to actually understand how the business works. Most companies’ emissions, their supply chains account for roughly 70 percent of their emissions, 70 to 80 percent. And so you really need to understand that supply chain and the broader value chain if you want to have an impact on driving carbon emissions down in a company.

That experience just taught me, go work with the front line, understand how the business works. And so we spend a lot of time talking to the stakeholders in our value chain about what we’re doing and what we need to do, and how could we do what we need to engage them and really get them to kind of start to get on board with what we’re doing.

The second thing it’s really taught us is just the importance of getting data and, be granular. If you want to understand the emissions in real detail, you really have to kind of invest the human effort as well as the technology resources to get a very granular view of your footprint. And that’s helped us a lot to kind of figure things out.

How Accounting Can Help Address Emissions

PAUL KENNEDY (02:19):

Are there lessons learned in the in the accounting world that we should be thinking about in the carbon accounting world, particularly as we think of some of those Scope Three supply chain emissions?

SAM ISRAELIT (02:28):

Yeah, I think that’s been a one of the a-ha’s for me. You know, the greenhouse gas protocol is like financial accounting, right. And so there are some issues with it. There’s lots of double counting. And if you look at the Scope One to Scope Three, and I think what we believe and what the market is starting to believe as well, or corporate players are getting involved in this, is that you have to almost treat it like managerial accounting.

And, which is something you have to do in a supply chain if you really want to optimize it. So, let’s look at managerial accounting for carbon and start to think about where are those, and what activities are really generating the carbon. That’s where you go address it. I mean, we have a good example.

We travel a lot and we will always travel for clients because in our business that’s really important. And so when we first started talking to people about decarbonization, they said, well, fine, but we’re always going to travel. You can’t do anything with that. That’s the kind of reaction you get. So, we dug into the data, and it was really interesting that when you looked at our travel footprint, 50 percent of it was internal.

And that’s something we can control, right. That’s not kind of affecting a client. And so we actually put in place a process for carbon budgeting. We worked with, roughly I think we had, something like 80 different functions across the firm, everything from recruiting, training all the way down to legal and marketing and everything else we do.

And we worked with each of them to say: How are you actually kind of planning your travel? Are you efficient? Are there meetings you can eliminate? Are there meetings you can piggyback on? Are there meetings you could do virtually? What are some of the other ways that we could hold meetings in different locations?And all of those things together, we ended up with about a 35 percent reduction in our internal travel.

So, big impact. It only came about because it goes to what I said earlier: We worked with the people at the front line. They said, yeah, this will work. This is something we could do.

Key Things to Look for in Carbon Removal

PAUL KENNEDY (04:25):

So, as part of all those plans, you’ve obviously been very successful at reducing emissions at source and through your supply chains, and you’ve also been a big supporter of carbon removal. So, when you think about durable carbon removal projects, what are the what are the key things that you look for in a project to be successful at doing?

SAM ISRAELIT (04:46):

Yeah, there’s several kind of areas that we focus on when we do our diligence. So, the first of those, and probably the most important is additionality. And looking at, is the project in which we’re investing, having an additional an incremental impact? We want our investments to have an impact. If a project’s been going on for a while and it’s sustaining itself, it’s not as interesting to us. Because our investment isn’t going to help them that much more. We’re just incremental.

Whereas something that’s new, something like the deal we’ve done, that’s something that’s really interesting and our actual investment does have an impact there. And that leads to the second area really, which is around carbon accounting. And we do look at the lifecycle emissions very, very closely.

So, are they making assumptions that we don’t think are valid based on kind of what we find from benchmarks or other studies. And we really want to make sure that they’re including all the different sources of emissions as well. And is their life cycle analysis correct? So, that’s the second big area.

And then the third area is permanence. What are they doing with it? And there are some fairly crazy ideas out there of what you can do with some of the CO₂. But we like the ones where, something like this, like Direct Air Capture, where you can measure the carbon, or the CO₂ that’s coming out of the atmosphere. You know how much it is. You can weigh it, you can put it in the ground. You can monitor it so you know it’s there. So, it’s permanent. And that’s a very attractive proposition.

The Role of Science-Based Targets

PAUL KENNEDY (06:12):

It’s certainly a big a big part of of why we love being in the Direct Air Capture business. Because it’s a very straightforward thing to help people understand that measurability, that verifiability, of storage and keeping that CO₂ safely stored away. And speaking of people to answer to and external stakeholders, Bain has some very impressive near-term and longer term commitments under SBTI.

And with all of the discussion around the role of removals and SBTI, and the upcoming updates to the net zero standard, how do you see the integration of carbon removal into your strategy alongside SBTI?

SAM ISRAELIT (06:53):

Yeah, it’s a really good question and it’s something I think a lot of companies are wrestling with around SBTI and we set SBTI targets really because, as I mentioned before, we have two primary stakeholders, they are our employees and our clients. We started to hear from our clients that they wanted us to have science-based targets.

And if you want to set science-based targets, SBTI is really the only game in town, especially at that time. And so we said we’re going to set the short term targets. When you signed the letter, that said we’re going to do this, you end up committing to do long term targets as well.

And we ended up setting both of those. It’s primarily driven by clients. They expect us to have it. Now, how we approach that is up to us. And that’s really where I think our strategy has been very successful and as we talk to clients about it, they get excited. The short term targets, they’re really kind of, how can you reduce emissions in the nearer term like now to 2030, now to 2036 to 2035, how are you doing? It’s really a measure of how you’re doing on your long-term trajectory. The long-term targets are designed to be, except for the last little bit of emissions, without any type of carbon removal.

And I think that’s a great objective for us to decarbonize our value chain. We’re dependent on a whole lot of other companies, airlines and all the data companies that provide data to us, all of that, we’re dependent upon them to decarbonize. So, since I can’t affect that, what can I do in the interim?

Well, that’s where carbon removals comes in. I think it’s really hard to argue that durable carbon removal is not going to be part of the the answer in 2050. You’re going to have to have it. And if we’re going to get there, we need to start incenting that now, because it’s going to take 20 years to build the capacity that we’re going to need in 2050.

We very firmly believe that we should be investing in durable carbon removals now to help create the demand that says you should go out there and build the supply because we’ll buy it. I think there’s also some positive, positive movements from SBTI. Their latest guidance, is going to allow you to use carbon removals to make claims.

In the interim, we should be taking carbon out of the atmosphere to help solve some of the problem. Don’t just wait until 2050. There was a quote I loved, which is, carbon removals should be last, but not later. It should happen now. That’s why we started investing in it. And, it’s become a big part of our strategy.

PAUL KENNEDY (09:27):

And it’s really fantastic to see companies like Bain who have found a way to keep all the tools in the toolbox, because we need them all, and because we’re not typically asking companies to get to net zero tomorrow. We’re on a ramp, but everything needs to ramp, including including carbon removal.

SAM ISRAELIT (09:44):

That’s right. And there’s some some longer term benefits to it as well, which is, if we waited until 2045 to start creating DAC supply, the DAC companies and all the engineered removals companies haven’t had time to come down the cost curve. And so by investing now, we can get the flywheel going so that you can start to come down the experience curve.

How Business Views Carbon Removal

PAUL KENNEDY (10:08):

Shifting a little bit to sort of how your clients think about this space. How are companies thinking differently about carbon removals than they were maybe four or five years ago?

SAM ISRAELIT (10:19):

Yeah, there’s been a pretty significant shift. You know, when we first switched to a removals only strategy, it was back in ’20, we started thinking about it in 2021 and really implemented it in 2022. And at the time, a lot of companies, a lot of people I talked to, and my peers were like, that’s crazy. You shouldn’t just buy removals, you should buy avoidance credits as well. They’re just as good.

And I don’t want a slam kind of avoidance or reduction credits. They play a very key role. But for us we really had a risk mitigation strategy. Removals for us were to minimize risk because it’s very hard to argue when you can actually physically weigh it, how we can measure it. We know how much carbon is in it.

And so for us, that was a risk mitigation strategy overall. Over the past probably three years, the majority of the leading companies that are investing in removals projects right now are also doing removals only. And I think a lot of the market has come to that same way of thinking is it’s risk mitigation.

And the Guardian article did a lot of damage to kind of the avoidance, the credibility of reduction credits. And I think because of that, a lot of companies shied out of the market for a while. And as they’re starting to come back in, they’re saying: Well, we need to be taking a much more careful investment posture here. And that’s leading to looking at removals, because I think the the quality criteria are much better defined for those types of projects.

PAUL KENNEDY (11:47):

Right. And are you seeing in consumer products, or some of these other sectors that are much more product-oriented, where a lot of their emissions could potentially be quantified through the products they sell? Are you seeing folks thinking about it from that perspective about how do I decarbonize this product instead of just sort of at the corporate level?

SAM ISRAELIT (12:08):

Yeah, we have been seeing that for a little while. I think there’s a lot of fear out there as well. These companies, the reason they’re not making big claims is they don’t want to be accused of greenwashing. But I think the the intent of a lot of these companies is pure.

They really do want to decarbonize. They get it, that climate change is a real thing, and the majority of them really want to do something about it, especially when you talk about food companies. Some of the consumer products companies around, electronics, some of the companies in apparel. They really do want to do something kind of to mitigate their impact on the environment.

And so their focus has been, a lot of their focus has been, on design. Because let’s face it, you design carbon into the product flow. And so if you really want to decarbonize you have to start in design. And where you go there is really around circularity. And so, can you create circular products that basically are using recycled materials that can then be recycled or reused or repurposed for something else.

Building a Better Carbon Removal Business

PAUL KENNEDY (13:03):

So, now if we turn the tables a little bit and get your perspective as somebody who interacts with carbon removal companies, what can project developers do to better serve early innovative buyers like Bain?

SAM ISRAELIT (13:19):

Yeah, there’s a few things that we look for in developers. First is transparency. Do you provide good documentation on what you’re doing? Can you help us understand it? Open the covers. We’ll sign NDAs and everything else to protect the IP. But we really want to understand what you’re doing at a very detailed level.

And I think that openness and willingness to share is the first thing that we look for. The second thing is really helping understand the financial aspects of it and this is a place I think a lot of developers struggle—putting together a cost model that shows here’s the impact to the experience curve and here’s how we’re going to be pricing over time.

How does that translate to the pricing we’re doing in this contract. And what’s the benefit? I’ve been very surprised when we ask: What’s your cost curve look like? And you see this big upward going curve and I’m like, it can’t do that for the next 20 years.

You should be coming down the cost curve. Every industry in history comes down a cost curve. And so if you’re going to keep going up, you’re not going to survive.

PAUL KENNEDY (14:24):

Yeah. Makes sense. And we can certainly see even in our own capacity curves. Those key break points of 2030, 2035 where it’s clear that customers have some hard commitments that they need to meet. And thankfully, people are starting to talk more about delivery date than vintage year. I think when we talk about engineered removals, I always think the market largely thinks in vintage year, but we’re starting to see people, particularly as they go to their CFOs ,where they have specific target requirements, who are starting to say: Okay, actually, what matters to me is the delivery year, and I’m okay if you deliver me two or three different vintage years, as long as it shows up by this date. And does that resonate with you like this idea of focusing more on when the delivery happens?

SAM ISRAELIT (15:18):

Yeah, it’s something that we’ve been increasingly focusing on. I know those credits are going to be created in that period, and I want them delivered. And there’s a lot more risk associated with delivery at that point, especially with some of the developers that aren’t as mature. They’re more startups. I don’t think most people think about it.

And one of the things that we do is look at the duration of our portfolio. What is that duration now? And how are we matching that with the duration of our expected demand? We don’t want to be too far in front of it because then we’re losing some of the pricing flexibility. We don’t want to be too far behind it, because then we’re losing some maturity of supply.

And so I think you need to kind of take a balance there.

“Cool Takes”

PAUL KENNEDY (16:02):

So Sam, thanks for all of that. We’re going to move to the next segment, which is called Cool Takes, where we revisit something that you’ve said in the past and get your perspective on either how that holds up today or what it looks like to you in the current environment. You once said: We want to manage our carbon in a way that’s inspirational to our people, inspirational to our clients, and something that differentiates us from other companies.

And so, how do highly measurable and verifiable removals like DAC work into that or help create that differentiation for Bain, and and how do you see that view today?

SAM ISRAELIT (16:41):

It has largely played out. I think, we’re really proud of what we’ve accomplished from a carbon management program perspective. The most effective feedback I’ve gotten has really been from clients. Increasingly, clients are starting to build decarbonization requirements into contracts, or they have expectations of certain levels of emissions. They want us to have goals for net zero.

They want us to help reduce the emissions from the work we’re doing with them. And it’s funny because frequently we will get a call from a client team somewhere saying: Hey, our client wants to talk about our sustainability program because they have all these requirements that are really hard and they don’t think we’re going to meet them.

And we get on the phone and it’s usually it starts with the client saying: We have all these expectations. And we know this is hard, but we’ll really require you to do it. And we stop and we say: Okay, well, let us tell you what we do, and we start going down the list of all the things we’re doing, including all the carbon removal.

By the end of it, almost every single one of them has been like: How do you do that? Can we copy that? Some of the things we’ve done that are important for that, you know, you mentioned measurability. We’ve built the capability to actually prepare on a monthly basis, we could give a client a carbon accounting report that says these were the emissions that we generated from these teams, working on your projects in this time frame.

And we can do it monthly. It goes into our GRI report. It goes in our California report as well. You can see what we buy in the quality of the removals we purchased. And that’s gone a long way to kind of make clients go, this is great. We’re never going to win on sustainability. That’s not why clients hire us, but it is something that is differentiated and it is something that clients will tell us. That’s pretty cool. We like that.

“The Point”

PAUL KENNEDY (18:40):

So, the last segment is called The Point. You have 90 seconds, what’s the one thing that that CSOs need to understand about the current state of the carbon removal market?

SAM ISRAELIT (18:49):

The advice I’d give to another CSO is that a robust carbon management strategy, your sustainability strategy, has to include carbon removals and a strategy for how you’re going to deal with the carbon market. It is early. It is nascent. The companies that are involved, though, there are some very, very good companies there. You need to build the capabilities to define what are good fits with your strategy, and then go start making those investments.

You need to learn. This is not something you can put off until 2050 or the night December 31st, 2049. It’s something that you actually need to build capabilities in, and that’s going to take some time. So, start investing now.

PAUL KENNEDY (19:28):

Sam, many thanks for taking the time to talk to us today. Your thoughtfulness and clarity of purpose really show through, and I hope this episode inspires other people on their carbon removal journey.

SAM ISRAELIT (19:39):

Excellent. Well, thanks for having me. I appreciate the opportunity.

PAUL KENNEDY (19:42):

Thanks to you for watching. We’ll be back soon with more conversations about what it takes to scale carbon removal with the people helping to shape the market. Until next time, thanks for watching us.