Anirudh Damani: 'Applying ESG filters before understanding the problem is like putting the cart before the horse'

As a fourth-generation entrepreneur and second-generation investor, Anirudh Damani has carved a path across a multitude of industries but has a particular passion for making a difference through his investments.

From investing in a company that renews old smartphones for in-need Africans to facilitating funds into the wind, solar, hydro, and bio-power renewable power projects, Damani clearly has an affinity for making impactful and sustainable investments.

However, interestingly, he has an aversion to traditional environmental, social, and governance (ESG) practices.

Through his family office, Artha India Ventures, Damani's expertise in identifying opportunities – bolstered by nearly two decades of energy experience and a double major in economics and business administration from Austin College – has marked him out as a savvy and open-minded business leader.

Ahead of speaking at the ClimateTech Investing Forum 2022 – a cutting-edge event linking innovative companies with family offices and family foundations held in Lausanne, Switzerland, on December 6 and 7 – Anirudh Damani talks about his reasons for not applying an ESG mandate, next-gen impetus and a tax on polluting industries.
 

Questions of how cutting-edge technology and innovative creations can help fight the climate crisis loom large at the ClimateTech Investing Forum this year. As the founder of Artha India Ventures and a speaker at CTi, what are you hoping to get out of the forum?
ClimateTech is very close to me. I've been in the energy space for almost 17 years, but we've never really had an ESG mandate; we've only had the mandate to invest in things that people need.

We're looking at the new opportunities available and showcasing the companies we have in ClimateTech. I'm actively involved in investing in renewable energy. I look at it not because it's renewable energy but because it's a great investment vehicle if you want consistent long-term cash flows at a more than decent internal rate of return [IRR].

I'm interested in finding like-minded people we could work with and hoping some synergies and business could be done.

What are the aims of the Artha Venture Fund?
We invest in companies at a unique inflection stage. First, we come in at late seed, i.e., early-revenue stage, and then we double down on those companies up to Series A. Now with our latest ‘Winner's fund’, we will double down on our best companies in their Series B & C rounds.

The ventures we invest in should meet our four core principles, starting with number one, are they solving a real human problem? What is the problem that is getting solved? Who are you solving it for? Is it the bottom of pyramid or the top of pyramid focus? Finally, are people willing to pay for this problem to be solved?

That leads to our second principle. What are the unit economics, and can the venture scale? You might have something unique and important to solve, but the market is tiny. Venture investing is all about scaling quickly, and that's where the valuations will flow.

Thirdly, we want to see businesses that have a significant moat. I'm not talking about IP-led moat; even though we have several deep-tech companies in our portfolio, we want to know why customers would keep coming back again and again and what the switching cost would be for them. For example, if you look at Apple, It used to be difficult to transition from Apple to Android. Now, Android has made it easy to port over from Apple to eliminate high switching costs. However, Apple continues to command 40% of revenues and 75% of the global smartphone market operating profits despite holding a less than 15% market share in the total mobile phone shipments. That is a moat I'd love to have invested in, which is why Apple is a $2 trillion market cap company!

The fourth and final principle is technology. Technology is a tool; it is not the backbone of the businesses we invest in, so we like to see companies use innovative technology to make things cheaper, simpler, faster and more accurate, but not as the core reason for the business's existence.

Those are the four core principles we've built our portfolio on, and they've held us in good stead over the years.

If you give people a more balanced choice, they will probably choose things that are good for themselves and the planet.

You have invested in high-yielding renewable energy projects and early-stage startups. What are the ESG filters you apply to prospective investments?
Applying ESG filters can be like putting the cart before the horse in that you try to meet the filters before you look at the problem.

Because we've gone after solving real-world problems, we've developed a reasonably wide startup portfolio, ranging from microlending, circular economy and employment generation to communities for women in leadership roles. For example, we've got one company that collects flowers offered to the Deities in Indian temples and converts them into incense sticks instead of being thrown in the water bodies – they've become a significant gifting platform because the smell is so good. There's a fantastic story behind the brand. This investment wasn't made with any ESG mandate; however, they've taken a small amount of money and delivered an excellent result for us – monetarily and on ESG parameters!

Because we don't have a mandate and never consciously applied a filter, we figured out, looking backward, that we were delivering a solid ESG return without us having to apply one.

Family offices around the world are reporting an increased interest in sustainable investing, and this trend is thought to have been driven by next gens. Is this generation the one to make the changes that are so urgently needed?
I think we're a lot more aware. I think this generation is probably better travelled than our parents were. We've been to a lot more places, and we're more aware of the global challenges that are going on.

In my lifetime, I've definitely seen and experienced the effects of climate change. For example, I've seen how hot Mumbai has become in the summer and how cold it's getting in the winter; it never used to be like this. Also, as a scuba diver, I've seen bleaching events in different seas and oceans, and I can see the urgent action that has to be taken.

As a next-gen family member yourself, do you feel that your voice is heard within family business decisions? Especially those decisions with an ESG/Impact focus?
Definitely, but I think we also must earn it. I don't expect anyone to just take my word for things. For example, I took the bet on investing in a windmill, and there were many pushbacks from within the family. We hadn't done that business before, so I was taking a reputational risk. However, when that risk pays off, you start proving yourself, and you get to earn your voice.

We are in the midst of a major generational transition in which trillions of dollars are changing hands. Do you think this transition will slow down or expedite the positive investment that's required?
I think it's going to accelerate things. This generation is vastly different; they've grown up with the internet and all this access to knowledge in the palm of their hands. They've understood quickly and early in their lives that this is one globe and we all have to live in it together. This generation is aware, and they're not going to fight for a reason but they'll die for a cause.

According to Oxfam's Climate Billionaires report, released at the start of COP27, the world's top ultra-high-net-worth people collectively emit greenhouse gases at a level equivalent to the whole of France. Where do you stand on the calls for a wealth tax?
I think it's unfair to tax the ultra-wealthy. Instead, I think there should be a policy of 'Polluters pay'.' If you want to pollute the planet, you should pay for it. And the people that are not polluting should get monetary credit for their choice to be environmentally friendly.

Things currently don't work the way they're supposed to. How you adjust that I leave to the better minds, but sustainable products are now more expensive, and polluting ones are cheaper. So we need to flip that by adding a taxation policy on that polluting product, as they did with cigarettes, and give credits to make sustainable products cheaper. Then the consumer can make a natural choice… 'Do I want something that pollutes, or do I want a sustainable product?'

If you give people a more balanced choice, they will probably choose things that are good for themselves and the planet.
 

Anirudh Damani will speak at Campden Wealth’s ClimateTech Investing Forum 2022 in Lausanne, Switzerland, on December 6 and 7. 

For more information and to book a place, visit www.climatetechinvesting.com.

To participate, email Anton Paul via antonpaul@campdenwealth.com.