Transcript
Speaker: This is HSBC Global Viewpoint, your window into the thinking, trends and issues shaping global banking and markets.
Speaker: Join us as we hear from industry leaders and HSBC experts on the latest insights and opportunities for your business.
Speaker: Thank you for listening.
Speaker: This is Financing Future Cities, a podcast series created by HSBC to examine the complex and evolving role of urban hubs through the lens of banking and finance.
Speaker: With more than half the world's population living in cities, and this number only expected to grow,
Speaker: Urban hubs are increasingly the global drivers of prosperity, serving as models for sustainability and incubators of innovation.
Speaker: Join us now as we look to the future of sustainable urbanization and learn about the power and potential of future cities.
Speaker: Hello and welcome to today's episode where we'll be discussing urban technology.
Speaker: Thanks for tuning in.
Speaker: My name is Greg Clark, Group Advisor for Future Cities and New Industries at HSBC.
Speaker: Today I'll be talking to Lucy Yu, CEO of the Center for Net Zero and Martin Richards, President of HSBC Ventures.
Speaker: To briefly introduce our guest today, let me tell you that Lucy has more than 20 years of experience in technology, policy, and regulation.
Speaker: She's led teams in the UK government, the United Nations, and worked for some of Europe's brightest startups.
Speaker: Lucy is currently the CEO of the Center for Net Zero, Octopus Energy's data-driven research lab.
Speaker: Centre for Net Zero focuses on how technology, behavioural change, policy and place leadership can combine to drive a faster, fairer and more affordable global energy transition.
Speaker: Martin Richards is Executive Vice President and Global Head of Sustainable Finance, as well as President for HSBC Ventures at the HSBC Group.
Speaker: He's responsible for enhancing HSBC's sustainable finance solutions towards net zero ambitions, extending its product set and capabilities, and delivering those to HSBC's commercial banking clients across the firm's global networks.
Speaker: As part of this, he's responsible for providing flexible capital to growth-oriented businesses, furthering their innovation and their expansion objectives.
Speaker: Martin, Lucy, thank you both very much for joining me today.
Speaker: I'm really looking forward to the discussion.
Speaker: Thanks for the invitation, Greg.
Speaker: Thank you for having me, Greg.
Speaker: Great.
Speaker: Well, let's get started.
Speaker: Today, more than 50% of the world's population live in cities, with 10% living in the top 30 metropolises.
Speaker: As we look forward to how our future cities will operate, the growth of urban tech
Speaker: The new digital technologies and platforms that involve AI, the Internet of Things, facial and movement recognition, and much more, can aid the transformation of citizen services in both the public and the private sectors, and they can help optimize the benefits of urbanization for people and for planet.
Speaker: Lucy, let's come to you first.
Speaker: What are the defining attributes of urban tech as you see it?
Speaker: And what's driving the evolution of urban tech now?
Speaker: Thanks, Greg.
Speaker: Maybe if I take the attributes first, I think there are a few things to highlight here.
Speaker: First of all, urban tech is something that's a solution or a benefit to some sort of real problem or need in the urban realm.
Speaker: And so that could be, for instance, relating to housing, to transport, to energy, the environment or wellbeing.
Speaker: Secondly, it is something which is heavily data-driven.
Speaker: And in fact,
Speaker: might even be built on multiple sources of data,
Speaker: The third thing to really bring out here is that I think the best examples of urban tech actually serve the interests of what I sometimes call a kind of golden trinity of customers, or perhaps beneficiaries might be a better word.
Speaker: And in this instance, that golden trinity is the general public, is the city governments, and then the actual provider of the technology.
Speaker: And that's normally a commercial provider, but perhaps not in all instances.
Speaker: And then finally, another attribute is maybe just to say that in a lot of examples, urban tech is perhaps actually quite likely to generate some uncharted questions that lie at the intersection of tech and society, and in particular questions that pertain to ethics and equity.
Speaker: So to come on to the second part of your question, which was what's driving its developments,
Speaker: I think there are a lot of different things driving the development of urban tech.
Speaker: One is the urgency to decarbonise and to do so in an affordable way.
Speaker: We know cities and dense urban areas are going to be crucial in the fight against climate change.
Speaker: And one of the things tech can help us to do is to use our existing infrastructure in different ways to use them more efficiently, to optimise how we use infrastructure and
Speaker: to help monitor and audit and manage and reduce activities that generate greenhouse gas emissions.
Speaker: So that's an enormous driver.
Speaker: And there's also a lot of potential to avoid costs there.
Speaker: A second driver is just better digital infrastructure.
Speaker: coupled with real step change advances in general purpose technologies.
Speaker: When it comes to urban tech, some of the types of applications we are seeing in development are things like autonomous vehicles in the transport space, a little bit more prosaically, things like better traffic network forecasting.
Speaker: So really helping to understand those complex and quite unpredictable systems in cities.
Speaker: When it comes to artificial intelligence and perhaps a combination of quantum computing, applications like buildings, energy modelling.
Speaker: So having a much more sophisticated view of what the energy use in a building or a collection of buildings looks like and how we can optimise that.
Speaker: Another driver is changes to the way that we live.
Speaker: And so this means that we may start to use our land buildings and the transport system all very differently in the future.
Speaker: And tech has a role to play here.
Speaker: So for instance, we're already seeing some examples of the disused transport hubs and former office buildings starting to be repurposed for businesses like Vertical Farms.
Speaker: Finally, I might just quickly say a greater focus on local resilience.
Speaker: This is something which we will all no doubt be talking much more about in the coming decades.
Speaker: We're seeing all sorts of different pressures through supply chain,
Speaker: through things like energy security, through some of the macro effects of climate change.
Speaker: And again, technology can help us to be more locally resilient, more self-sufficient within local boundaries.
Speaker: Lucy, thank you so much.
Speaker: I mean, this is a very compelling proposition you've put together.
Speaker: And if I was to summarize what I understood very simply, it's how technology and new computational power comes together with our climate emergency and our concern for planetary resilience and the urbanization and indeed aging of our population.
Speaker: to produce a new set of technologies and platforms that enable us to use our systems better.
Speaker: And I don't know if that's quite right, but tell us, Lucy, how can city governments optimize the functioning of these kinds of technology tools and platforms?
Speaker: And how do they support net zero at the local level?
Speaker: If I start by talking about optimizing the functioning of these tools and platforms, I think there are a few important points here.
Speaker: Perhaps the first one to bring out is that
Speaker: I think one of the things that city governments can do is to really help to support approaches that co-design some of these technology products and services with citizens.
Speaker: This is one of the things that I think is behind a lot of the most successful examples of urban tech, is that they haven't been designed unilaterally, but they have brought in heavy involvement of the actual citizens and the city governments.
Speaker: And I think the city government can also play a role in that when new urban technologies are in development and actually kind of out in the wild, so to speak, they can play a role in ongoing public engagement to actually improve and raise awareness of those technologies.
Speaker: So that's the first thing.
Speaker: The second thing is that the city government is often in a privileged position to support the sharing of data,
Speaker: that's important for a lot of urban tech solutions.
Speaker: So in some cases, the city government actually collects that data or has a relationship with an organisation that does collect that data.
Speaker: And they can certainly have a role to play in helping that data to be shared, but also in standardising the data itself.
Speaker: So maybe defining some of those standards, working with other organisations and
Speaker: and also ensuring that it is shared in an interoperable format.
Speaker: The other thing I'd say around optimisation is in the instances when a city government is actually perhaps procuring some kind of service or some kind of solution where technology is going to play an important role, the city government should focus on the outcome, but not on prescribing the actual methodology or prescribing the system or the solution itself.
Speaker: Because this means there's the most possibility for innovation.
Speaker: I think cities are, of course, customers of some of these urban tech companies.
Speaker: And it's important that the way that they procure enables enough flexibility for innovation.
Speaker: In terms of supporting net zero strategies, every city, every urban area is going to be different.
Speaker: And so the sort of optimum or the best strategy for different places is going to be different.
Speaker: And so I think making as much information as possible, sharing as much data about the local emissions profile is going to be an important move by cities.
Speaker: Maybe the final thing I'd say is that I think city governments can act as a cross-sector convener for urban tech solutions.
Speaker: I think some of the best solutions are actually going to be at the boundary between different sectors.
Speaker: So, for instance, at the boundary between housing and energy, as one example.
Speaker: These are maybe sectors that historically haven't worked closely together before.
Speaker: Lucy, thank you so much.
Speaker: This is, again, a really comprehensive and really helpful answer.
Speaker: And what I've understood, in a sense, is the climate emergency and the technology provide the opportunity.
Speaker: City governments have to become much more intelligent about how they operate in this space, both as a contractor and a convener.
Speaker: But, of course, they then need a huge range of companies that are willing to provide these advanced kinds of solutions.
Speaker: And
Speaker: As you said, the solutions are not always obvious.
Speaker: So, Martin, let me turn to you, if I may.
Speaker: Which companies does HSBC work with within its venture debt portfolio that are relevant here?
Speaker: And how do they support urban tech and the drive for future cities?
Speaker: Thank you, Greg.
Speaker: Let me start by giving a little bit of background.
Speaker: We have a billion-dollar venture debt fund.
Speaker: It's global in focus.
Speaker: We've done transactions,
Speaker: primarily in the US and Europe, but we are looking around the globe.
Speaker: And even the companies that we do back in the US and Europe have a global footprint and a global ambition.
Speaker: We're a fund that's focused on all kinds of technology, later stage growth companies after the technology risk has been worked out, but are definitely in a point where they're scaling fast.
Speaker: And we have a subsector fund focused on climate tech,
Speaker: within our venture debt portfolio.
Speaker: And something I'm very proud of, we just recently launched a smaller fund focused on women and minority founders.
Speaker: Obviously, that's an area that is underrepresented in venture capital around the globe.
Speaker: And we feel like a focus and effort there can really help some of these founders scale at a quicker pace.
Speaker: Within our existing portfolio, we've got about $400 million either closed or funded, and it covers a gamut of different names.
Speaker: We started off in the software as a service space, moved into fintech, transit tech, cybersecurity, consumer wellness products, supply chain, and obviously climate tech.
Speaker: You didn't hear, Greg, urban tech
Speaker: at all there.
Speaker: But I would tell you that when I look at our portfolio, it really represents and to kind of echo a comment that Lucy made, it echoes how people live.
Speaker: And how we live in cities is what's driving technology and the kinds of companies that are succeeding today.
Speaker: So an example might be our cybersecurity company helps people work from home.
Speaker: This was a trend that was happening before COVID.
Speaker: But what we've seen kind of across the gamut is
Speaker: Every trend has been accelerated and what would have taken potentially five years has taken five months because of the COVID endemic.
Speaker: And therefore, with more people working from home, there's more focus from companies and employers on making sure their cybersecurity is super tight.
Speaker: Secondly, it might be our consumer products companies, our wellness company.
Speaker: It's not just not going to work that we don't like to do.
Speaker: This is a company that actually helps you exercise at home.
Speaker: And again, it's something that probably would not have scaled us fast without COVID, but has been a trend for a number of years.
Speaker: It's now accelerating.
Speaker: And lastly, maybe I could touch on our transit tech company, optimizing public transportation.
Speaker: We're not going to be able to stay at home all the time, forever.
Speaker: And as we leave the house and venture into the office, we really want to get there in the most efficient, effective way.
Speaker: As Lucy said, the climate emergency is really driving COVID.
Speaker: a lot of funding in the venture space, about 14% of all total venture capital is going to climate tech right now.
Speaker: And as of now, there are 43 unicorns, climate tech unicorns spread across the world, and that number is growing fast.
Speaker: What we're seeing, particularly in the climate tech space, is that everything happening in this space is really related to urban technology.
Speaker: And a good example might be mobility, whether it be micro mobility, scooters, e-bikes, all the way up to electric vehicles.
Speaker: The trend of as a service, instead of owning an asset, you rent that asset.
Speaker: And that could be a house, that could be a car, could be software, could be hardware or technology.
Speaker: It could be solar panels on your roof.
Speaker: We're also seeing, as Lucy again mentioned, vertical farming.
Speaker: Used to be that farming was not something anyone ever talked about when they considered urban technology.
Speaker: But now we're bringing that farming into the city.
Speaker: These are things that are not going to transition quickly.
Speaker: So a lot going on in space, Greg, that may not be titled urban tech, but certainly are getting driven in the city by the trends that Lucy identified.
Speaker: So, Martin, in addition to focusing on the environmental transition and the new technologies, what else are you prioritizing within the portfolio?
Speaker: I would say, as well as our financial metrics, we're considering and looking at transition equity as we move to a more net zero environment.
Speaker: We obviously have to all get there, but we need to make sure we don't leave people behind.
Speaker: It's very easy right now, particularly in San Francisco, where I live, to put solar panels on your roof if you own your house.
Speaker: But if you live in an apartment, it isn't quite as easy.
Speaker: So community solar microgrids, et cetera, et cetera, are things that we think are a big piece of the solution for this transition to net zero.
Speaker: Martin, thank you so much.
Speaker: It's a hugely exciting portfolio of companies that you've assembled there.
Speaker: As you said, covering buildings, mobility, energy, utilities, health, leisure, and lifestyle, all in one portfolio.
Speaker: So when you talk to our companies in the portfolio,
Speaker: How is it that they work with city or municipal or provincial or state governments?
Speaker: And how do those governments pay them for their service?
Speaker: What's the business model, Martin?
Speaker: Let me start with the overall strategy.
Speaker: And I think climate tech is a good lens to look at this view.
Speaker: We obviously want our climate tech companies to do well, bank them.
Speaker: We hopefully partner with them, bring the best financing that we can to the table.
Speaker: But we also want our existing clients, whether they be governments or whether they be corporates, to be able to transition from where we are now to a net zero environment.
Speaker: We've made a commitment as a firm that we will be net zero in our scope one and two, which is our own usage and our own power usage by 2030.
Speaker: And by 2050, our scope three, which is our financed emissions, will be down to zero.
Speaker: And to do that, we need to engage with our clients, not divest of our clients.
Speaker: And to engage, we're really bringing these technology companies to partner, assist and collaborate with our existing portfolio to help them get to net zero sooner than they otherwise would.
Speaker: I think a good example of that is our climate or transit tech company that I mentioned, Greg.
Speaker: They enable cities and municipalities to optimize and manage their transportation.
Speaker: They have software that includes routing, vehicle tracking, dynamic scheduling and data collection.
Speaker: Pull it all together in a central dashboard to track vehicles, change routes, analyze network traffic, and in real time help governments and municipalities reduce their emissions by eliminating unnecessary routes.
Speaker: as well as encouraging riders to use public transportation over their personal vehicle.
Speaker: But I would say the other key factor, as you think about governments and municipalities, it takes up, they have long sales cycles and you really have to have, I would say, a pristine public reputation.
Speaker: Venture-backed companies are driven to grow fast.
Speaker: We've seen that in a number of spaces where companies have grown in a very, very
Speaker: fast pace.
Speaker: If you're in this space, growth is great, but your reputation is everything.
Speaker: Martin, there's a huge amount in what you said, but three things I took from it very particularly is that these kinds of technologies don't just make the systems more efficient and decarbonized.
Speaker: They actually really incentivize citizens to engage.
Speaker: They increase ridership.
Speaker: They improve take-up.
Speaker: They, of course, have the effect of really incentivizing the consumer to use the product or the service.
Speaker: The second thing you said is that the companies tend to have very short, fast costs.
Speaker: growth cycles, but they have to operate on the basis of long-term relationships and long-term reputation building.
Speaker: So there's a kind of dual track between the pace of growth, but also the quality of the relationships that they're growing.
Speaker: And Lucy, I want to turn to you for a minute and say, listening to what Martin has said, do you have anything to add to that?
Speaker: Does that strike you as the right way to understand these kinds of firms?
Speaker: Yeah, I think...
Speaker: Both of you have made the observation in different ways that tech companies can move and innovate at incredible pace.
Speaker: And I think I've heard a few people suggest or maybe make the argument that technology has caused all of our lives to speed up.
Speaker: I think that's a philosophical debate we don't have time to get into right now.
Speaker: But I certainly do think it's true that
Speaker: these companies can reinvent themselves extremely quickly and respond to changing environments around them.
Speaker: So perhaps the other thing to also mention is that, of course, these urban tech companies, they have their own impact on the climate themselves.
Speaker: They have their own carbon footprint.
Speaker: But actually, again, I think they are in best position to monitor that, to measure that and to address it in the most efficient way.
Speaker: I think there's just a huge piece here around future cities, climates, but also how we implement solutions that are the best solutions for the future.
Speaker: Thank you, Lucy.
Speaker: I mean, it sounds like there's a new generation of leaders really emerging here, and many of them are the kinds of companies in the portfolio that Martin's talking about.
Speaker: And Martin, in a few minutes, I want to come back to you to talk more about their financing and their investment needs and how they can best be met.
Speaker: But before we do that, Lucy, why don't you just look into the future,
Speaker: for a few minutes with us.
Speaker: And I really want to ask you, what are the technologies that are emerging now for the future of cities, the ones perhaps we haven't heard of yet?
Speaker: And is there anything else that excites you particularly about this arena that we're discussing?
Speaker: In many ways, I think you could argue that any technology that's emerging now is a technology that almost certainly will have some application for future cities.
Speaker: In terms of things I'm particularly excited about, I have huge interest in the concept of digital twins.
Speaker: I think it means slightly different things depending on who you're talking about and the particular application or use case that they're interested in.
Speaker: As a very general concept, trying to come up with some kind of digital mirror of a real world system, I think has a huge amount of potential, not just in terms of maybe a sort of a real time representation of a system today, but.
Speaker: which I think has got a lot of potential for situational awareness, understanding an environment, understanding a system, but also in terms of possibility to forecast and make predictions about the future.
Speaker: And I think particularly in my world of energy, that's very exciting.
Speaker: And in the broader world of climate as well, talking about that kind of forecasting and predicting,
Speaker: Actually using these kinds of things to design buildings that haven't yet been built, but to really sort of say if I were to use these materials, design a building according to these parameters, put it in this location, have these occupants and these types of activities within the building, what could I expect the energy use, for instance, to look like?
Speaker: Also, I talked earlier about augmented reality.
Speaker: I think we hear a lot of talk about virtual reality, but I actually think this kind of hybrid of using some digital to actually enhance real world in the short term certainly has more potential for cities and future city environments.
Speaker: And so very personally excited to see some of the applications that might start to spring up in that area.
Speaker: One that's slightly more controversial is live facial recognition technology.
Speaker: Now, this has been debated for a number of years in different countries.
Speaker: I think what's particularly interesting to me is that we're starting to see more use of this in other areas.
Speaker: So I'm thinking of things like checkoutless supermarkets, of which there are now several in my city of London.
Speaker: It's very interesting, I think, to see how accepting or not people are of these types of environments, because it is very easy to imagine how these general technologies could be applied in other senses.
Speaker: So I think that's certainly one to watch.
Speaker: And then probably more generally, as a bigger sort of topic, very interested in Web3 and how that might actually disrupt this whole sector.
Speaker: So I think we're probably at quite the early stages of this, but I think it could be extremely fundamental in the way that it shapes the next 10, 15 years of urban tech.
Speaker: Lucy, thank you very much.
Speaker: So we've got to look out for augmented reality, the next generation of digital twins, the role of live facial recognition and creating cashless checkoutless supermarkets, but also, as you said, very importantly, Web 3.0.
Speaker: and how that will change ownership structures and transition structures in the new economy.
Speaker: So, Martin, coming back to you then and thinking about how do we finance and bank and invest in these new business models, what do you think the needs are going to be and how can they best be met, Martin?
Speaker: Well, I think it's an evolving area.
Speaker: I sit here in San Francisco and historically the venture capitalists here funded a lot of
Speaker: SaaS and software companies, which are primarily funded by venture capital equity, maybe with some venture debt.
Speaker: And then as they grow and expand and scale, they go public with an IPO.
Speaker: As you've looked at some of the climate tech companies, there's really hard tech here, whether you're a battery recycling company or a car manufacturer or a micro mobility company, you're actually making some piece of hardware.
Speaker: And because of that, there's a lot more capital involved.
Speaker: and equity may not be the primary source in later stages.
Speaker: So we're looking at things like first of a kind financing, which is a blended finance of blending some equity with maybe a government guarantee and some debt to be able to put a scaled facility in place and prove that that technology is commercially viable.
Speaker: We're also looking at project finance and some of the larger entities
Speaker: And then you've seen a trend in de-SPACing, where a climate tech company merges with a SPAC to go public, probably earlier than they may have done if they were a software company.
Speaker: But because of that hard tech area that they're focused in, they do need more capital.
Speaker: Martin and Lucy, there's been so much in today's conversation that I'm grateful for.
Speaker: It's been a really fascinating discussion.
Speaker: And these interesting developments that you've both spoken about in the final point, I think, give all of us kind of new stars to look out for in the future sky.
Speaker: So I just want to say thank you, Lucy.
Speaker: Thank you, Martin.
Speaker: Thank you for being part of the Financing Future Cities podcast.
Speaker: And to our listeners, thank you.
Speaker: Thank you for tuning into this episode of Financing Future Cities.
Speaker: If you enjoyed this discussion, then listen to the full series as we take a deep dive into key topics on the urban decarbonisation journey of cities and their ecosystems.
Speaker: If you're interested in learning more about how HSBC can support you in your transition to net zero, visit the link in the episode description.
Speaker: Thank you for listening today.
Speaker: This has been HSBC Global Viewpoint Banking and Markets.
Speaker: For more information about anything you heard in this podcast or to learn about HSBC's global services and offerings, please visit gbm.hsbc.com.
