E650 | Patrick Odier (Lombard Odier & Building Bridges) & Enrique, Chi Impact Capital: Three systemic plays to underwrite now

0:00Welcome back to another EUVC episode. Today, we continue our focus on how we can finance and drive systemic sustainable transitions. Only two weeks have passed since Building Bridges 2025 and the conversation from Geneva already shaping real actions across the ecosystem. Today Enrique said let's bring on Patrick Odier, chairman of Building Bridges. Patrick has been leading the voice in redefining finances role in the transition, moving from exclusion and risk management to investing in opportunity and system redesign. Under his guidance, Lombard Odier has advanced the wild to click framework, reframing the economy shift from wasteful, idle, lopsided and dirty to circular, lean, inclusive and clean.

0:40So with that said, today's discussion is going to center entirely on how investors can finance the shift and not just as philanthropy, but actually as a model of value creation and competitiveness. Welcome to the podcast, both of you. Before we start the show, a quick note. If you're building or running a fund, you know it takes the right partners. At EUVC, we only work with sponsors we truly believe should be part of your tech stack. Please do take a moment to hear about them. And if you do, reach out, mention EUVC. It's the best way you can support what we do. Thank you so much. Starting off, HSBC Innovation Banking.

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3:15Tear down this wall. It's more than just an alliance. This is a union of values, Let's start acting. This show is not investment advice and the hosts of this episode may be invested in the funds and companies featured. Thank you very much, Andres. It's always a pleasure to speak to you about circularity and the people that we believe that are actually making that shift from a linear perspective to something that has a more long-term vision in terms of the development of products and services, especially in finance in this case. I think that there is no one better than Patrick that can tell us what is that transition in finance and how actually building bridges is becoming the soul of this attractiveness for financial people and impact people.

4:12And the agenda of circularity is part of it. So I was super happy when he accepted to be with us to really deconstruct a little bit and see how the different financial companies and also institutions are actually engaging with this discussion through the building breaches and through their agendas. So, Patrick, I don't know, maybe it's after the different editions, what have you seen that is moving in terms of circularity and especially in the building breaches? Well, thank you very much for having me today. It's a pleasure to be discussing these issues, especially after the sixth edition of Building Bridges.

4:54The red thread, if you wish, is that while there's been a number of headwinds about sustainability in general, and sustainable finance in particular, linked to many things that all your audience knows about, there is a definite train on the track with regard to the transition of the real economy. And I think if it is the case, it is, of course, of utmost importance that the financial sector continues to follow very narrowly what's happening in this transition. And circularity is one of the pillars of the transition. Calling circularity as it should be, it's basically a business reason to do things differently, a business reason that is driven both by cost consideration, and in particular with regard to the ratio input outputs, but also by risk consideration with regard to, of course, the way resources are being extracted, exploited, and wasted at the end of the cycle, which could create, in terms of risk, a number of not only physical, but also legal and perhaps reputational risks.

6:04So I think circularity is, and if you took the examples through which, for instance, non-validation went through, circularity is one of the probably two or three most interesting areas to look at from an investment perspective. The other ones being perhaps the transformation and electrification of the industry, transformation of the energy sector and electrification of the industries in general. The second, it could be perhaps the major system change that had to happen in the nature space and the related space. The third one has probably to do, before even calling that circularity, with the materials and the way those materials are basically extracted, exploited, and reutilized or not.

6:49And I think in this respect, there is a universe of investment opportunities that is extremely wide and has increased along the years because of new technologies and because also of partnerships between the financial sector and the real industry itself. That's why I think, you know, looking at circularity as an investment space, as an investment universe is so interesting today. It is not very different from the rest of the sustainability universes that one can look at in terms of investor. Sustainable investing has only one reason to be, which is to achieve excess, or at least market risk-adjusted returns.

7:32And from an industry point of view, to make sure that the economic model is adjusted to the risk I just described. It really belongs to the general responsibility of the investor to look at circularity as one of the most interesting universe, simply because not looking at it would make us miss a number of interesting opportunities and also mismanage a number of potential big risks. Could you, and we should dive into everything you just said more deeply, could you, before we go there, just describe your own journey coming to where you are today? And on your journey, did you realize that the importance of sustainability could no longer be overlooked?

8:17Yes. Well, I think that, first of all, we all start by being citizens of this world, and we all observe a number of changes, trends that do affect our daily lives, whether it's as citizens and whether it's as businessmen. I think we owe it to our stakeholders to do it or to our family to do it. If you look at my particular experience, I've been in the business for a number of decades of investing for the benefit of our clients and investors, families, entrepreneurs, institutions, etc. So I really felt that my and our fiduciary responsibility was precisely to make sure we don't miss such trends as the one I'm just mentioning.

8:57When we started looking at sustainability, it was really for the reason of hearing from the investors community that there were a number of concerns about how business models were developing that would probably have an impact on how investors will allocate capital. This allocation of capital could lead to a number of different consequences, one of them being the cost of capital. And that's why, as a fiduciary, looking at some investment opportunities, two, three, four decades, even perhaps not four, but at least three decades ago, we started going to our investee companies and asking them questions about their sustainable strategies, because we felt that some of them could lead precisely to perhaps debates with the investors community and hence to different types of allocation decisions different from the ones at least that they would expect.

9:49That was the first step. At the time, we were talking about trying to exclude certain areas of investment. This was the years of the 90s, trying to have industries described as being non-investable for more ethical or responsible reasons. Then we moved into, I would say, other models of looking at sustainability. And in this respect, best in class was probably the approach that the industry did adopt, looking at different sectors, the 160, 70 sectors, industrial sectors in the world, and trying to decide what basically was acceptable from a risk adjusted return point of view, but also from perhaps from time to time and ethical or other reason.

10:36That led little by little by the definitions of more standards being available in order to drive this sustainable trend, at least from the financial sector, into the right direction. We participated in establishing those standards, which basically had to do with defining what were the criteria to accept or not accept that a company would behave in a sustainable or not sustainable way and to construct a portfolio with those that we felt were more sustainable. And there I should make a little parenthesis. Why at all look at only companies that would respect some sustainable criteria? Well, this was probably done and probably at this stage done through the review of our global macroeconomic model.

11:24Looking at the global macroeconomic model is, of course, the essential basis on which any investment decision should be made. And looking at this macro model led us quickly to define the limits of certain of the trends that the macro model was offering. And these limits translated into different types of concepts. One of them, for instance, was the planetary limits that everyone is talking about, which we've breached. out of nine, seven of them being now at least, if not breached, on the verge of being breached, meaning that the way the economic model globally seen as a firm appeared to us as being implying a number of big risks, including an existential risk for the planet and for its inhabitants, but also a number of risks with regard to the economics of some of the investing companies.

12:16And that's when, little by little, the approach has specialized into an approach that instead of trying to qualify an investment as being sustainable or not, green or brown, we decided to look at how would certain types of investments contribute positively or negatively to the reaching of these limits that I was just alluding to. And of course, try to favor in our portfolios the companies, and I will come to the asset classes, and try to favor companies that were in their own sector standing out in terms of avoiding some of the bid risks that others were taking by not adjusting their business model.

13:03So in terms of how to do, in tools on how to do that, take, for instance, the COP21-2015 types of decision to set a matrix for measuring the dangers with respect to reaching climate limits, the one and a half to two degrees Celsius not to be exceeded by the end of the century. If you look at this very element, this has been tremendously helpful, for instance, for those investors that were interested in climate protection investments, or at least in mitigating some of the climate risks that were identified. Why? Because we could, through some methodologies that were widely encouraged by McCartney and his team at the time and the TNFD team, portfolio implementation team, we could define methodologies, for instance, describing how a company can contribute to the elevation or the reduction of the temperature on the planet by its activities and or by its business model.

14:06Choosing the ones that were contributing to reducing the temperature of the planet was probably the bet that would be taken by those who had a sensitivity with regard to sustainability, because these would be the one winning, ultimately, both in terms of avoiding risk, in terms of surviving, in terms of attracting talents, in terms of avoiding liabilities and or legal difficulties. And I think this was basically the time where, coming back to your question, where moving from those best-in-class and other types of approaches, we really resultantly and with determination started to look at basically the transition of the business models in whatever sector we had an interest.

14:53And this across asset class. So that's a bit of a story that led us where we are today. And that's why we're not describing investment universes as being investment universes that are sustainable or not sustainable. We're saying if a business has to be successful, it is because it's going to be sustainable. And if an investment decision has to be successful, is that because choosing business models that are sustainable will bring additional returns. And this of course impacts as an example. if we take big oil as the boogeyman that we all have been used to in the impact frameworks as not liking, if you're doing good transition work and you're being sustainable and thoughtful in how you're producing the value you are as a big oil company, then it still makes sense.

15:48And it It allows you to invest, I expect, across every sector, not label anything as something you cannot do, but rather you say, within this field, we invest in the companies that are on the right trajectory, that are taking the right steps, that are moving in the right way. Is that correctly understood? Yes, Andreas, you're spot on. That's exactly it. That's why there's no sector per definition. There are rare sectors where you could, for business policy reason, avoid investing, of course. But if you look at the sustainability filter, the oil example, the oil industry example is a good one, actually.

16:31Because we know that we are in an energy sector transition. We know why. and we know where we go because technologies have led us today to have other means to produce electricity, which is highly needed for all the reasons we know, than extracting oil. And I think in this respect, what is interesting is to see if part of the sector that is today fossil-driven will adjust its business model with its experience of producing energy services and ore products for the benefit of the more renewable energies. There's no genius idea in the concept of saying those who have been in energy producing yesterday, according to yesterday's models, are probably the best position to adapt to produce energy tomorrow with the right new tools and technologies.

17:23And that's why there's been this debate of excluding or not excluding oil investments in some of the more sustainable portfolios. And I've always been saying, you know, we're going to correct what has to be corrected probably much more effectively by investing in some of the hard to abate sectors and trying to convince them to adjust their business model by way of investing or allocating capital more or less, depending on their decision. then we're going to do it by excluding from our portfolio what will probably be taken very easily by another portfolio. So I think this is the answer to your question.

17:59Indeed, we're looking at all sectors that don't exclude with rare exceptions that are probably more of a moral reason. Some sectors that we see should not belong to any investment portfolio. Very curious to hear then, because you said we're going to get to asset classes. And I think that that's the natural next big step, because one of the things I tend to say is, well, I love tech because it's almost whatever you do in tech or in venture, you're probably advancing the world to a better place. Then some would say sometimes we get it wrong and create a Facebook and other companies that many today are saying, well, maybe we should have had more guardrails from the beginning.

18:40But as a whole, I think that we can conclude that venture is actually a good asset class for the world. But I do feel that sometimes I get headwinds when I say that to impact people because many say that, well, I actually think that we've done many wrong things in venture as well. I love your, like, if you could look at that, because it is also we have a big GP audience, so VC audience, to whom I think it is awesome to hear from someone with your vantage point. How would you describe venture in the set of asset classes? Because it is important armament when talking to limited partners, of course.

19:20Yes, it was pleasure. And in all humility, I mean, there are different approaches. And I think the way I personally see it is that, let me step back one step. First, technology is one of the most important levers of the transition and or transformation we were just discussing. So it happened that the acceleration of the technology developments in the latest decades has been second to none. and of course have led to an unequal number of new opportunities to transform, transition, call it whatever you want, whatever process you could imagine. And that's why the ability to invest in those technologies by one mean or another has been essential to exploit that lever for the transition.

20:07Quickly said, the other levers that could be very effective would be you and I, consuming or not consuming certain types of products and services, or it could be the regulator telling you that if you continue to do that, you're going to be out of business. But I think that in general, capital is one of the fundamental reasons why things may change because our world, our industries, are in the need of more funding and capital in general to exploit all those good ideas, including those tech ideas that are emerging. That's where today, if you take the different asset classes through which this sustainability lens can be applied as investors.

20:46I think the venture class is probably a very interesting one because it takes the initial risks to create the wider universe in a short and medium term. And I think that's, of course, always, whether it's from a global multilateral institutional point of view or whether it's from a private investor's point of view or a big pension fund point of view, It's always this notion of mitigating risks that will make the difference in these transformative types of investment opportunities. And venture capital is here, of course, of the essence because venture capital, by definition, is willing to take some of that risk.

21:26So that's why I personally think that perhaps widening a little bit the issue outside of venture capital, I think the private asset market, asset class in general, is probably one of the most interesting asset class to be exploited by investors, not only for sustainability reasons, but in particular also for sustainability reasons, and within which, of course, venture plays a key role, which is precisely to somehow mitigate that initial risk period that needs to be mitigated in order to unlock massive capital into those ideas and solutions. For the audience, and we have a bunch of impact investors, of course, so could you maybe just talk a bit about how you either personally or with the building bridges or with a Lombardier lens, look at impact as a sub-asset class within venture, or maybe even impact more broadly.

22:20Because as an example, there's a big discussion about how returns-driven is an impact investor. Where do you fall on that lens? Is it important that your first and foremost returns and then after that impact, or is it the other way around? and say a bit about where you think that it's wise that managers fall on that spectrum. Yeah, if you distinguish philanthropic capital from investors' capital or investment capital in general, I think one, willingly or not, has to recognize that the return expectations are a sine qua non condition to an investment. And the particularly good news of the times of today is that these returns expectations do not contradict impact expectations anymore.

23:12i.e. there was a time where impact had to do probably more with philanthropic types of activities, narrowly defined projects in emerging or new frontier markets that were hard to be reached by the mainstream investors, both for regulatory and for information purposes, perhaps also liquidity issues. Today, the notion of impact has come to be embedded in probably many more portfolio decisions than it was in the past. I wouldn't say it's completely mainstream now because it's, frankly speaking, not. And Building Bridges is trying through its convening power to make sure all the stakeholders around the table can see at what condition could impact be embedded in practically all of the decisions that have to do with investing.

24:03but we're not completely there. Let's recognize it. And one of the reasons why impact is not completely embedded, it's because impact is simply difficult to measure. And why is it difficult to measure? Because there's no single common impact measurement across sectors, for instance. So I think one of the interesting current developments that I can see and sense around our stakeholders community, particularly at Building Bridges today and particularly in the academic circle, is a lot of research is being done in trying to create a toolkit that allows now comparability between sectors when it comes to measuring impact.

24:41And, you know, we owe it to the community of investors, retail clients also, when it comes to other than venture capital, of course, solutions. We owe it to our investors' community, globally speaking, to put some order in this universe of impact investment that remains particularly attractive. So impact is, I think, today much more part of the decision, but it's not to be opposed to return. I think it comes with return. And of course, the aim is to have a triangular approach to an investment decision that will go through a risk, impact and performance, but not sacrificing one against the other.

25:21I would like to give our audience a perspective on these opportunities of investments, right? So we are saying that we have these technologies that are always emerging and they are a way to find solutions to challenges. But then there is a specific investable solutions like energy systems that we were discussing before to decarbonize and storage and distribute energy in different ways. the food and agriculture, also with the regenerative models, the soil health, the agritech, multi different ways to support and develop food production and waste, food waste, and materials, right? like materials as plastics that can be used in a more circular way, designed in a more circular way, reuse models that advance the way we are consuming and make this loop between the consumers and the producers a more engaged structure that we are all part of it.

26:33If you take the materials, which is probably the better approach to this also circularity issue, We are absolutely convinced of a few basic elements, one of them being that there are materials that we don't like because they are creating lots of collateral damages, especially in the growing economic model, such as cement, such as plastic, such as steel, aluminum. We know that these materials will continue to be highly useful to ensure stable and continuing growth and until further notice that there have no replacements. And technology has not yet successfully been in a position to replace these materials, including to take plastic for the most vital needs, which have to do with some of the medtech instrumentation that we're using to live longer.

27:28And I think in this respect, that should lead us to think about what could we do better than simply observe that these materials that are creating huge damage to the planet and nature in general, why could we do otherwise to make sure that we handle this necessity to continue to produce with them in a better way? And I think there, we clearly set ourselves in plastic, for instance, the objective to reduce the plastic waste, which is an impact measurement, which is possible to size, I think, in a not too complicated way. And if you take that impact, which has to do with how can you minimize plastic waste, I think you can attach it to target returns that make it a great investment area.

28:19Why? Because there are many, many solutions that are today possible through some new technologies to either lower carbon for the plastic value chain or to use mechanisms that help us to perhaps avoid too quick utilization or warning out of those plastics. Think about refill models of repair industries and chain of productions. Think about reusing models for plastic-made types of products. Then there's also a huge value chain part which has to do with recycling those materials and creating new products out of old ones, etc., etc. So I think in general, some of these areas that are linked to materials do offer, by different types of segments, a wide universe of new opportunities that technology allows us to consider.

29:18And I think that's why, for instance, in plastic, we have seen, and that was particularly the case with actually the Lombardier's approach, we've seen an interest in talking with the industry, which is the best position to tell us what could be done and what could not be done. In other words, trying to team up with those producers of plastic materials in order to try to identify both for their interest and our interest as investors, what could be the solutions either in this part of, you know, better using the plastic as today and trying to avoid too much extraction or to recycle by sorting properly first and then recycling correctly second the materials.

29:58In this respect, this is an investment universe that was barely visible 10 years ago. You know, this is something that is quite new and it's becoming the case in other materials. So that's why I think plastic is highly interesting. Perhaps there was too much enthusiasm too quickly because as we saw, ending plastic waste is from a political point of view very difficult. We cannot get to those international agreements on how to do that as quickly as we should, despite all the efforts by the United Nations and others. But at the same time, nobody said that industry has always waited for those international treaties to find innovation and try to finance innovation.