Capricorn Investment Group

overall Rating:

1.5

planets

Mia Warren
8/22/2021
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Capricorn Investment Group is an investment and financial advisory firm that aims to deliver sustainable investment strategies without compromising on profitability. The firm was founded in 2000 by Jeff Skoll, former president of eBay and current chairman of Participant production company. Capricorn is part of the Jeff Skoll Group which includes organisations like the aforementioned Participant Media group, the Skoll Foundation, and the Skoll World Forum. Capricorn Investment Group is seemingly part of a global movement towards socially responsible ‘impact investing.’ As the climate crisis continues to escalate, investors are increasingly demanding greater transparency and greener initiatives to minimise their impact on the environment. Broadly speaking, ESG (environmental, social, governance) strategies are supposed to “promote the greater good and provide … superior long-term financial performance.” However, as Robert Armstrong rightly points out in his NY Times article, ‘The Fallacy of ESG Investing,’ the whole notion that sustainable investing is more lucrative in the long-term is slightly ridiculous as ultimately no prospective investment will be profitable in a world that is totally uninhabitable. More importantly, Armstrong raises an even greater issue that relates to ESGs: companies tend to prioritise the short-term over the long-term. This myopic focus on profitability in the present means that the biggest corporations or wealthiest clients will not recruit the services of sustainable investment firms like Capricorn. This, I feel, is the greatest challenge a company like Capricorn will face moving forward; it is not enough to only deliver diversified, environmentally-conscious financial portfolios, but it is essential to also raise greater awareness of the viable intersectionality between profitability and sustainability.

what it's made of:

1.25

Capricorn offers a number of financial ‘products’ for its clients. The first of these products is its Technology Impact Fund. This fund facilitates venture capital partnerships in order to finance the growth and expansion of promising young start-ups that specialise in developing sustainable tech and renewable infrastructure. The scope of services and nascent technology being developed by these companies is very broad. One of the companies supported by this investment fund is Redwood Materials who specialise in recycling lithium batteries. Redwood Materials are developing strategies to manage the waste generated from electric vehicles and the lithium batteries from smart devices, thereby creating fully circular supply chains. In their own words, Redwood Materials believe “it is not too early to plan for the un-manufacturing of the million Gigawatt-hours of batteries being built today.” However, despite being proponents of EVs (electric vehicles) in order to transition away from fossil fuels, some of the most senior members of Redwood’s Management team have troubling ties to the traditional automotive industry. For instance, the current CFO of Redwood, Jason Thompson, formally worked for Ashland Global, a leading manufacturer of industrial chemical ingredients, and he even helped to facilitate the IPO (Initial Public Offering) of Valvoline Inc. petroleum. It is also worth noting that among Redwood Materials’ other investors is Amazon’s Climate Pledge Fund. It seems ironic that Redwood Materials would accept funding from a company that is so notoriously environmentally irresponsible, especially when you consider that in 2018 alone Amazon was responsible for emitting 44.4 million metric tons of carbon dioxide into the atmosphere – for context, that is around the same annual emissions produced by the entire country of Norway.

Another company that receives funding from Capricorn’s Technology Impact Fund is Joby Aviation. Joby has developed a prototype for an electric, vertical take-off aircraft, and has plans to begin commercial flights in 2024. However, while aviation is undeniably a major contributor to the global climate crisis that accounts for around 2.4% of global CO2 emissions, the companies that Joby has chosen to partner with to develop their electric-powered aircraft raises a number of questions about their supposed commitment to sustainability. Joby Aviation has had a long-standing financial relationship with Uber and has future plans to integrate their aerial ridesharing services with the Uber app. But, Uber has consistently faced criticism for its exploitation of drivers and has insisted on classing them as “independent contractors” rather than employees to avoid paying a minimum wage. Additionally, Uber has been accused of creating congestion problems in towns and cities because people disproportionately opt for ridesharing services over more environmentally-friendly means of transportation like cycling or public transport. Another major investor in Joby Aviation is Toyota, and according to Joby’s own testimonial, “Toyota has deployed dozens of engineers to work shoulder-to-shoulder with our team.” While it certainly makes sense that Joby Aviation would want to take advantage of Toyota’s vehicle manufacturing experience, the corporation has a history of greenwashing. In January of 2021, Toyota was fined a record $180 million for failing to comply with the Clean Air Act’s emissions reporting requirements. Similarly, Toyota has routinely discredited the viability of electric cars in favour of less efficient hydrogen-powered technology. In fact, the president of Toyota, Akio Toyoda, has publicly insisted electric cars were “overhyped” and even falsely claimed that “the more EV’s we build, the worse carbon dioxide gets.” For this reason, it’s clear that some of the companies vetted for Capricorns Technology Impact Fund have complicated relationships with other dubious corporations.

Another financial product offered by Capricorn is their Technology Impact Growth Fund. Ostensibly, this is very similar to their Technology Impact Fund except it focuses on companies in the later stages of their development rather than relatively young start-ups. One of the principal companies supported by this growth fund is QuantumScape, which conducts research into lithium batteries for EVs. After a merger with Kensington Capital Acquisition in 2020, the company received an astonishing $1 billion in funding from Volkswagen and Qatar’s sovereign wealth fund. This is significant as both Volkswagen and Qatar’s Investment Authority have been involved in various scandals in recent years. Notably, in 2015, the Volkswagen company faced significant public scrutiny after it was revealed that their diesel model cars had been fitted with software to falsify emissions reports so that the car’s environmental stats performed much better. In 2017, a US federal judge ordered that the car manufacturer pay $2.8 billion for their fraudulent emissions reports. In 2016, perhaps in an effort to deflect from their enormous emissions scandal, Volkswagen announced plans to transition towards electric and plug-in hybrid cars by 2024. While Volkswagen’s electrification strategy is a step in the right direction, it seems as though they were eager to repair their damaged public image, raising doubts that this ambitious plan could just be another corporate greenwashing tactic.

QuantumScape’s financial ties to the Qatar Investment Authority are also questionable. Qatar’s sovereign wealth fund has routinely been criticised for its lack of transparency. To make matters worse, articles published by the Sunday Telegraph in 2014 allege that the Qatar Investment Authority was responsible for funding ISIL (the Islamic State of Iraq and the Levant), however, these accusations are heavily disputed. The most damming evidence of Qatar’s financial ties to extremism come from a humanitarian worker, Yahia Sadam, who issued a statement in 2015 claiming that the country’s sovereign wealth fund had financed genocidal atrocities in Sudan. But perhaps the most baffling addition to Capricorn’s Technology Impact Growth Fund is Elon Musk’s SpaceX. While SpaceX’s Falcon Heavy reusable rockets are certainly an improvement from the single-use rockets that have long been used by agencies like NASA, this does not change the fact that space shuttle propulsion systems consume exorbitant amounts of fuel. According to stats provided by NASA, two rocket boosters consume around 11,000 pounds of fuel per second during lift off – for context, that’s 2 million times the rate at which fuel is burned by the average car. Aside from the high consumption of fuel, SpaceX’s heavy payload rockets have also added to the problem of ‘space junk’ with debris from failed space launches, maintenance, and satellites littering the Earth’s atmosphere. Even SpaceX’s launch site has been a source of contention; the area closely borders the Boca Chica National Wildlife Refuge and failed launches have deposited debris in the refuge, necessitating a huge clean-up initiative. The test site has not only proved disruptive to local wildlife, but also to nearby residents who have blamed SpaceX for brush fires, broken windows, and noise pollution. Therefore, I would argue that while the work carried by SpaceX is at the forefront of aeronautical innovation, it by no means qualifies as ‘sustainable.’

The final financial product offered by Capricorn is their Sustainable Investors Fund. According to Capricorn, the purpose of this fund is to partner with public and private asset managers who prioritise “sustainability as a key driver of investment returns.” One such asset management firm is Aristata. This firm is responsible for litigation funding – in other words, they cover the legal expenses in landmark cases relating to the environment, climate change, human rights, etc., in order to “drive systemic change at scale.” Fortunately, Aristata is completely transparent about the methodology they use to select cases. Aristata are committed to financing cases that meet the UN’s SDGs, particularly Gender Equality, Affordable and Clean Energy, Decent Work and Economic Growth, Reduced Inequalities, Climate Action, Life Below Water, Life on Land, and Peace and Justice and Strong Institutions. By using the SDGs as a framework to create a vetting process, Aristata has shown an understanding of the diverse range of both social and environmental issues that sustainability encompasses.

The only issue with using the UN’s SDGs as the guiding criteria for the selection of cases is that some of the goals themselves are not clearly defined and they also do not explicitly address the issue of racial justice. However, the financial support provided by Aristata is essential in addressing the “justice gap” whereby litigants are often unable to secure proper legal representation or pursue a claim because of the overwhelming costs involved. Another notable private equity firm in Capricorns Sustainable Investors Fund is the Center Creek Capital Group. The Center Creek Housing Fund is focused on delivering affordable homes to families while offering attractive returns for its investors. Center Creek’s main strategy is to buy and renovate single-family rentals in major cities like Atlanta, Birmingham, Tampa, and Jacksonville. The work financed by Center Creek Housing Fund aims to combat the burgeoning US housing crisis brought about by sky-high rent rates and a growing shortage of rental homes. Shockingly, according to data supplied by the National Low-Income Housing Coalition, the US has a shortage of approximately 6.8 million rental homes. Some of the worst affected areas include the state of Florida, which on average has only 28 rental homes per 100 low-income renter households – this likely explains why Center Creek has devoted so much of its attention to areas like Atlanta and Tampa. At a cursory glance, someone might question how the issue of housing relates to sustainability, but it is important to remember that one of the UN’s SDGs is to build ‘sustainable cities and communities’ by creating inclusive spaces. In order for cities to truly be ‘inclusive’ they must be livable for people from all socio-economic backgrounds.

how it's made:

0.75

Frustratingly, through conducting my research into the Capricorn Group, I was able to uncover very little about the process they undertake to vet different companies or asset management firms for their investment funds. While Capricorn proudly boasts its impressive $8 billion in multi-asset class portfolios and commitment to the “most rigorous standards of … accountability and transparency,” it does not exercise this same transparency when it comes to their own screening process for selecting corporate partners. In fact, Capricorn uses very non-specific language to describe its investment strategy, and simply explains that it employs a “long term approach to identify investments across all asset classes.” Furthermore, the company routinely emphasises the importance of finding investment opportunities that offer big returns as well as a positive impact on the environment, but isn’t clear how they balance out these two issues or to what extent they’d be prepared to compromise one for the sake of the other. I feel Capricorn would greatly benefit from publishing a detailed outline of its investment methodology to not only deliver on their promise of transparency, but to also attract new clientele. Perhaps Capricorn is reluctant to disclose the criteria it uses to vet prospective business partners because this would involve actually defining ‘sustainability’ – this is a particularly contentious issue because sustainability is such a broad term. By providing a clean-cut definition of sustainability perhaps Capricorn is concerned that this would limit their scope for prospective investments; by being deliberately cryptic in its wording, Capricorn has the freedom to exercise greater discretion on a case-by-case basis. It’s clear that Capricorn doesn’t rely on sustainable certifications to determine whether or not a company meets their standards as many of their partners are still pending their B Corp certification. This is understandable given that many of these certification schemes simply award flimsy qualifications based on “watered down standards in order to get stakeholders on board” and lull consumers into a false sense of security.

who makes it:

2.25

The Capricorn Investment Group is the brainchild of Canadian business magnate and philanthropist, Jeffrey Skoll. Formerly the president of eBay, Skoll has since turned his attention towards supporting social entrepreneurship and climate action. Alongside his philanthropic initiatives, Skoll is also the founder of the Participant Media production company and has devoted much of his time to producing “movies with a message.” Participant projects like Spotlight, Judas and the Black Messiah, and Roma, often dominate the Hollywood award seasons. In this way, Skoll is able to bring attention to crucial issues which might otherwise go overlooked by engaging with general movie-going audiences. Participant Media received its B Corp certification in 2017 and is the largest company to exclusively produce SIE (Social Impact Entertainment). I do not think the impact of Participant Media’s filmography can be overstated; in total, their films have collectively earned 82 Academy Award nominations and grossed over $3.2. billion. The projects produced by Participant Media and their sensitive handling of important social justice issues is an impressive testament to the power of entertainment – in a world where media is ubiquitous, it is encouraging to see a company take advantage of this ubiquity to incite positive change. The list of Skoll’s philanthropic ventures is extensive; he gifted the Skoll Foundation for s=Social Entrepreneurship approx. $1 billion in eBay stocks. Furthermore, Skoll is also part of a collaborative philanthropic fund called Co-Impact alongside the likes of Bill Gates, Richard Chandler, and the Rockefeller Foundation, which supports social programs in low-to-middle income countries. Skoll has also been hailed as a pioneer of ‘impact investing’ and in 2016 joined forces with Bono to finance a $2 billion social-impact fund called The Rise Fund with the aim of delivering “a measurable positive social and/or environmental impact” around the world. With all these bold initiatives taken into consideration, it seems as though Jeffrey Skoll is genuinely a force for good in the international climate justice community and has used his vast wealth to actualise positive change.

According to statistics provided by Linkedin, the Capricorn Investment Group has 49 employees across 2 different offices. Considering Capricorn manages an astonishing $8 billion in assets, this is a relatively small team. Of these 49 employees, 9 (around 18% of their total workforce) were educated at a top 10 or Ivy League school. While it’s understandable that Capricorn would want to employ high-achieving graduates from well-respected schools, this speaks to a much greater issue: top employers tend to over-recruit from these universities. For instance, an article published by Forbes in 2019 highlighted that companies such as Facebook hire more than 80% of their workforce from so-called “elite colleges.” In my opinion, sustainability should also be understood in terms of diversity and inclusion, therefore companies should aim to build a team that represents a broad cross-section of society. This diversity of thought is necessary for the innovative problem-solving our world needs.