Youssef Aroub: Cultivating Our Garden

0:00In a weird way, biodiversity is very bipartisan, right? Like if you just think about who started the EPA, mix it. And then if you just think about a lot of legislation that has happened, it has normally been bipartisan. Because you know what? If you go ask people, they want their water clean. They normally want their air clean. And they definitely do not want to live beside a polluting factory or industrial complex. I think that's universal.

0:36Welcome to the Future in Sound podcast. I'm your host, Jen Wilson. This is a podcast where we discuss people, planet, and profit. In each episode, we'll learn from world-leading experts who can help us see the future we want and our role in it.

1:02This is episode 38, Cultivating Our Garden.

1:10Youssef Aroub is Managing Director for Sustainable Investing at IMCO. He brings a decade of experience in consulting and operational roles, including strategic projects at BCG with investors and industrial companies on climate investment themes, decarbonization levers, ESG due diligence, digital enablement, and the list goes on. Yousef's previous experience also includes managing teams in operations at Rolls-Royce in the energy and aerospace divisions. More recently, Yousef served in a leadership role at BCG's Centre for Canada's Future, helping shape a national agenda around net zero across industries.

1:52He's also led research on topics including critical minerals, EV battery supply chains, carbon credits. Again, a very long list of important environmental topics. Now, Yousef also contributed as a thought leader on key climate and sustainability topics, co-authoring three flagship publications, including RBC's The Next Green Revolution, How Canada Can Produce More Food and Fewer Emissions, BCG's Climate Tech, the Canadian Venture Opportunity, and BCG's Canada Has an EV Edge, if it acts now. Yousef, welcome to the Future in Sound podcast. Thank you so much for having me, Jennifer. So one thing that I didn't include in your official intro is that you've also got experience with radio, with a Canadian Broadcasting Corporation.

2:45Yes. The CBC. This was now more than a decade. So your radio voice is perfect. It's not just content you selected for your radio voice. I guess that's part of it. I guess when they don't want you in front of the camera, they put you in radio. Hey, we're going to have clips. We got to do it all today, Yusuf. We've got to do it all. I'm a long way with that. Look, Yusuf, I heard you speak at the Super Return conference in Berlin about a month ago. I was really impressed by the lens that you brought to the topic of nature and private markets. and what that means for value creation, strategy, some really important themes.

3:24But before we get into nature and private equity, I'd love to just hear from you. You were at BCG. Why did you focus your career on sustainability? You know, I think like many people, it's by happenstance. It just so happened that I jumped on a project that had to do with climate investing and helping a pension fund shape its climate investing strategy. You know, we're talking 2019. This is when climate and the role of investors was becoming kind of paramount. And I just found working on a better hope for the world to be energizing. And then it just became the thing that I did. One of the great things you can do at a company like BCG is work on really important projects with really important clients.

4:11but actually learn from really, really smart people. And so with the Centre for Canada's Future, we worked on topics that were important to the future of Canada. And I think climate, nature, climate technology, entrepreneurship, productivity, and all these things that we wrestle with when we think of the future of Canada, well, they have a nexus at, hey, we need to invent a world that doesn't currently exist. and we need to do it in a way that brings a just transition for all and that brings hope. And so when you're working on those topics, it's really hard to be bored or be stressed. You're just thinking, I'm learning every single day.

4:54And so when I came to IMCO, actually part of the value creation team, well, one of the realizations was that sustainability plays a big role in value creation. And so I was asked to lead the sustainable investing team. And for the past two years, I've been doing that. So happenstance, finding the right people at the right time, and then just kind of taking those chances when they come. And it's been energizing. You learn always so much. I always feel like if I read for four hours a day, I feel like I should have read for another 20. There's just not enough time to stay up and keep track of everything that's happening in the field.

5:32Speaking of hope, one of the things that has really struck me in the past 12 months is the increasing focus on nature and biodiversity amongst sustainability and also non-sustainability professionals in private markets. And I'm really interested from your perspective, Yousef, why now? Why do you think that is? Well, I think we first need to acknowledge that it's been decades that we've been talking about the environment. this did not start in 2020 or 2022, right? When you talk about things like the EPA in the 70s, when you talk about national parks in the US in the early 1900s, I think part of it is that there's a realization that climate change, while being, I think, the biggest challenge that we have, cannot be solved in only that lens.

6:28You can't only think about carbon. And so you have to think about land degradation. You have to think about over-exploitation. You have to think about pollution. And in a weird way, I think it's more intuitive for people. I think we've seen it. I mean, we probably can all point to environmental disasters that have happened and impacts that they've had on companies, fines, shutdown of entire operations and bankruptcies. bankruptcies. So in a weird way, it's more intuitive to people. And it's a topic we've been dealing with. Any infrastructure investor has had to do environmental assessments for the past few decades, has had to get permits.

7:12And so I think what has happened is a realization from many investors that they need in the fight against climate change and in deploying technologies and capital to fight climate change. They need to broaden the horizon of what they're looking at, because you can't just solve for climate change. You must also solve for other things that are both drivers of climate change or have an impact on climate change, but also are tangential and just as important. And I've talked about exploitation and land use change. I mean, it makes sense why it's important now, but where to start? If you're a private market investor listening to this, okay, great.

8:01We've now got our scope one, two, three emissions. We have decarbonization plans, but this nature thing, it feels a little amorphous. How do I identify where to focus first? Yeah, that's a great question. So first, First, there's a bit of education. And whenever there's an education on a new topic, it feels as though you're adding something to someone's plate, right? Someone who, for example, manages supply chain at a company now must start thinking about the potential dependence on nature. And what does that even mean? And in a weird way, you have to bring it to language that they speak. So the resilience of the supply chain, for example, are you getting raw materials from some part of the world?

8:48And is that raw material at risk of either from pollution, from environmental decay, from climate change, right? Like if you're a food producer, this is something you've been probably thinking about for a long time, the sustainability and resiliency of your supply chain. You know, if you're choosing a location for a building or for a industrial park, for example, are you thinking about the location, both the impact that that building will have on the biodiversity that's near to it or on nature broadly? or again, and I think this is important, do you think of the dependence that it has? For example, are you in a flood zone and there's either deforestation happening around you that may actually reduce the resiliency of your building in the event of a flood?

9:46And so the way I think about it is for educate. Educate the people who are making decisions and educate them on what it is. And at first, everybody goes through the same thing. Another topic, another thing that necessitates knowledge of science, necessitates knowledge of sometimes local codes and environment. And what you soon find out is that there are people in your team that have always had to deal with this. When they got permits for your buildings, they were dealing. And you start to see that actually there's knowledge of how to think about resiliency. And you may talk to someone, for example, who's getting raw material from a part of the world.

10:26And if you ask them the right question, you start to see that they were considering some of this stuff, maybe not holistically and comprehensively, but they were thinking about the resiliency of the supply chain. They were seeing prices go up and down because of supply and demand. And they were dealing with the ebbs and flows of the market. And behind those ebbs and flows of the market, there could be events that, for example, constrain supply. And so first, educate yourself. Second, start to think about where do these decisions matter? Where am I making these decisions where considerations about nature, about the surrounding biodiversity, around my impact and my dependence on those is noteworthy and material?

11:10And then start to, you know, do more research. And a bit like climate change and emissions. Start by measuring and start to think about what do I need to measure that will flow into decisions I'll be making on the long-term success of my business. That's how I think about it. So it's not to me another thing. And I've said this many times. To me, it's just another filter and consideration on decisions you're making. And I would love to get deeper into, we have this supply chain team and there are other members of the team. I want to get into specific members of the team, the kinds of things that they should consider.

11:51But before we get there, Yousef, I'm really interested, what do you think is being missed when it comes to the biodiversity and private markets conversation? You know, there is a rich and evolving science behind it. There are things that we are working on to understand better. Things like invasive species, things like the impact of certain types of pollution. And so there's a stream of a very vibrant and ever evolving science. And it changes. And what always happens when science collides with industry on topics that are, I say, up to now, maybe tangential or only in some teams, it's that companies may not always be able to wrestle with all that complexity.

12:43which I always find funny because most companies' business model is underpinned by science and technology. And they seem to do a really good job at when it's their main product of bringing in science and technology and making it applied and then making it a value creator and a revenue enhancer. And so to me, what's missed is that this is just another type of scientific discussion, or technological discussion where there may actually be revenue opportunities. There may actually be product opportunities. And a simple thing could be an alternative to a product that is polluting, an alternative to a product that necessitates a raw material that is currently being oversupplied compared to its natural organic rate.

13:33And so in a weird way to me, I think the conversation misses this aspect that this is not the first complex thing that you deal with. And like any complex thing, the first thing you start with is where in my operations or in my decisions is this material? And the answer can be it's sometimes not. For some people, for some industries, some biodiversity consideration is less material than others. All right. But let's say you say my supply chain and I am buying cocoa or I'm buying a raw material that leads to deforestation. And that you know, if you look down your supply chain, it is a driver of deforestation.

14:19It is a driver of land use change and decay. Well, then you have to start asking yourself, well, I may be fined for it, as there are now governments who have, but you may lose competition. Somebody may literally come and then advertise a product that is more sustainable and go and take market share from you. And so to me, what's missing from this conversation is this is not another thing. This is part of making good decisions.

14:50Hey, it's Jen. I just wanted to take a quick moment to let you know a bit about RICO and what we do. We're a tech-enabled advisory firm that helps private market investors and companies measure sustainability metrics using our software platform. We also help you to set targets and focus your efforts on sustainability areas that really matter for your business. And finally, we help clients to translate all of this work into your core value creation strategy or your business model. Check us out at re.co.com to get in touch. All right, now back to our conversation. I'm reminded of an example of a client that we work with.

15:32They do bridges, retaining walls, corrugated steel pipe, drainage solutions. And as you can imagine, that has an impact on biodiversity because you put a bridge in and maybe that's cutting off natural migratory patterns, for example. So the engineering team, it started probably 2010, between 2010 and 2015. The engineering team was pretty passionate. I'm sharing this example for listeners who are, you know, listening to this and thinking about examples. And so 2010 to 2015, Kevin, the engineer, says we should start thinking about all kinds of crossings. We should think about amphibian crossings.

16:20We should think about how can we use our bridges for wildlife crossings when we're going over a stream. actually for many years, more than the last 20 or so, the company had been thinking about fish crossings. So making sure that this, you know, the riverbed is protected when a bridge is put in. Now, this might sound like just environmental stuff or conservation stuff. But interestingly, the company was using its core capabilities in order to engineer products to be sufficient for, you know, crossings at a significantly lower price. So wildlife crossings. And all of a sudden the biologists got really interested because what they care about is, well, how can we put as many wildlife crossings in?

17:05This is on the Rockies in Canada. Yeah. Because basically people want to travel east, west and animals are walking north, south along the Rockies. And so collisions happen and people pass away. And so do animals. And so it started just with, you know, sort of a passion project. And then it turned into influencing some Canadian bridge and highway standards. Then all of a sudden, the biologists started sending ideas on how, where future crossings could go in, because it was a lower cost solution to their problem, which is we need more animal crossings and started leading to some really significant projects because they were known in the market as leaders for wildlife crossings.

17:51Now, this is not the natural strategic imperative you'd think of if you're building bridges and corrugated steel pipe. However, this is an example of real revenue uplift in line with consideration of biodiversity. I just wanted to share that, Yusuf. I don't know if that feeds into what you're sharing. Yeah, I love that. You know, there are two things that to me are clear from your story, which I'm trying to convey as well as one. More things to consider is harder for everyone, right? If you could design only on one variable, every engineer, architect, every member of the supply chain team would be happy.

18:32But we realized as a society that, no, there are many considerations, there are many constraints. And at first it's hard, but then it leads to innovation. It may lead to material innovation that makes something less polluting. It may lead to process innovation. And in a weird way, as our world grows in complexity, it grows in complexity because of innovation. And then we get better at innovation. And so maybe the only thing I'll add is beyond just, you know, revenue and dollars and cents, it's also a question about the values that we uphold and the importance in society as to what kind of society do we want to be?

19:14You know, in a weird way, biodiversity is very bipartisan, right? Like if you just think about who started the EPA, mix it. And then if you just think about a lot of legislation that has happened, it has normally been bipartisan because you know what? If you go ask people, they want their water clean. They normally want their air clean. And they definitely do not want to live beside a polluting factory or industrial complex. I think that's universal. And so there's also that part of it of, well, what citizen are you? What corporate citizen are you when it comes to these topics? When you look at examples of companies or examples of really taking into consideration both the values and the business case point that you made earlier, who's doing this well?

20:04The types of companies that do this well have put dollars and cents around measuring. have clear relationships across their value chain where these discussions are being had with the farmer, with the raw material producer, with the design engineers that are determining a location for a data center. They're thinking about how their net zero goal is not working against their biodiversity impact or dependence, right? They don't just have a tunnel vision, They consider a lot of factors and they know where to consider it. One of the most important element and the last thing I'll say about your question, and sorry, I'm kind of not answering who I think is doing it well.

20:49But if the CEO, the CFO, the COO understand and can articulate their sustainability or biodiversity or nature considerations and commitments in a way that you can't take apart from their strategy, you know that they're doing it well. Because they see it as part and parcel of succeeding. If they talk about it as go talk to my ESG person or sustainability person, then you know that it's a secondary consideration. And so if they talk about it as the health and safety of our people is literally part of how we employ, nurture, how we attract talent, then you know that it is a strategic importance. If they talk about managing their operations in a way to lessen their impact on the environment or on biodiversity, you know that it is of strategic importance.

21:52So I like to think more of characteristics of companies because every company will do certain things well and maybe other things less so. That makes a lot of sense. And so if we consider at a high level, we start talking about engaging supply chain managers and the conversation around biodiversity. who are if we go through you know some of the roles in a company the finance team marketing sales ops what are some of the other conversations that business leaders or investors should be having around biodiversity within their teams yeah so i think you know the first thing um is to really understand where in your value chain, I mean, across supply chain to all the way to, you know, packaging and where you sell through.

22:48To think about what is my differentiation factor? Like where is my right to play and my right to win? And then think about where in my operations do I have impacts or dependencies? And it could be at a location level, right? Because these considerations will change depending on if you are operating in the Amazon versus if you're operating in downtown Toronto. And so you have to think about, as I look through my operations, what decisions am I making and where am I operating that may have dependence and impact? So a great example would be if I'm a bank and I'm financing companies and I'm financing new development, you know, what potential criteria may I have to discern between one where there's elevated risk of potential biodiversity?

23:40And it could be transition risk. It could be as simple as they may get fined. The project may not go forward because they may not get permits. It could be something as simple as I am mining a certain type of metal in a protected area and that operation needs to have certain safeguards that maybe another operation doesn't and therefore my cost will be higher. So then how do I think through marketing? How do I market my product? if I use a more sustainable version of the raw material, how do I think about the story I'm telling my consumer when they make the choice of buying my product? Is it a story?

24:22And there are a lot of people who do this very well. It's a story of potential sustainability. Well, okay, show them the receipts. Tell them about how you're doing it. Some companies, for example, that are known for this could be Patagonia, right? In organic procurement of raw material, right? And so people buy into the ethos of a company. Now think through, marketing can impact the ethos of a company. The decision around where you're going to operate and how you're going to operate. So the chief operating officer needs to think about these criteria because once you build something and you start operations, it's really difficult to change them.

25:02And to make it very concrete, you know, once you've built, let's say, a data center, and you've decided that you're going to use water cooling, and you've decided that you're going to be in an area where there's high risk or high stress water, well, not only do you not have physical risk, if you're not getting your water cooling, but you also have transition risk, if for some reason, your water rights are being challenged because of potential drought. And this has happened, you know, TSMC, huge fab and chip manufacturer in Taiwan has had days where they had to shut down or they even had their own build of their factory made late because the government saw that obviously there are drought conditions.

25:45And there were a lot of protests by even Taiwanese folks around, hey, the fab uses a lot of water and we are in high water stress times. And so when you start going against what I think is of the most foundational in our society, water, air, pollution, there's no company that can defend itself from that transition risk because it's foundational. Just people will not give up or sacrifice their clean air or their clean water. And so that's how I think about it. every single part of the operation will have a say, will make decisions, and it's giving them the tools and the knowledge to understand when to consider these things and how material they are.

26:39All right. Well, I'm sure that we have listeners who are feeling inspired to look at how they rely on nature and how they contribute to impacts on nature with a new lens. As you said at the beginning of the conversation, Yousef, it just feels like it's impossible to read enough. We could read all day, every day, and still feel like we're not catching it all on the topic of sustainability. And I'm wondering, what do you read and listen to to stay up to speed? So a lot of podcasts. And the way I think about it, there are some great climate tech podcasts, There's Catalyst, which is a great kind of VC, early stage climate tech podcast.

27:22I listen a lot to the Bloomberg NEF podcast. I listen a lot to, and I think this is important for any sustainably person, is to not only just listen to sustainably stuff, but economics, trade. And so I try to stay, you know, keep track of the news and sort of different news podcasts. And I speak French, so I also listen to a lot of French podcasts and European podcasts on this. So, I mean, there are many outrage and optimism. There's the Responsible Investing podcast. And so I try to just stay abreast of these conversations and how people are talking about it. And then on reading, I try to devour any scientific or value creation, let's call it, adjacent sustainability publication.

28:10And so, you know, responsible investor is a great one. There are other ones that come out, obviously, whenever a report comes from, you know, Copernicus, IPCC, all these things. I like to get to stay as close to the science. because I think sometimes we obviously have to take the science and talk about it in a more layperson term because we're dealing with people obviously who don't, we're not steeped in this. But it's important to me to not be saying things that just feel easy but are actually a lot more complex and a lot more difficult. So I try to read as much of scientific literature. And there's an annual review of climate that comes out.

28:50I think it came out actually in June that I love to read every year. Those are great tips. And one of my favorite questions to ask on the podcast is, if one book most shaped the way you think, what book would it be and why? So I find this question to be really difficult. But for the topic we have, when I was 14, I had a teacher that used to push certain students to read more. And he made me read Voltaire and made me read this book called candib and in it there's a sentence that says one must cultivate their garden and the idea being that you know one has to be realistic and responsible for one's own growth and one's openness to the world and and one's knowledge and so i think it's very apropos when we talk about biodiversity and nature that that sentence which at the age of 14 just felt like the right time when you're turning into the teenage years that one must cultivate their garden.