A Guide to Building a Greener 401K with Zach Stein from Carbon Collective

In this episode of Liquid Assets, Zach Stein, the co-founder of Carbon Collective, discusses sustainable investing and the importance of aligning personal and environmental stability. He talks about building better 401Ks that are greener and how his company helps individuals and businesses invest in ways that are aligned with their mission. Ravi Kurani and Zach Stein also discuss the challenges of sustainable investing and how companies can define what a climate solution looks like.

• 🌱 The science is clear about what needs to be done to solve climate change. It's going to take investment and sustainable investing can drive change.
• 💰 Building a better 401K that is greener can help individuals and companies align their investments with their mission.
• 📈 Sustainable investing is challenging, but companies can define what a climate solution looks like and build strategies that way.
• 🌍 Aligning personal and environmental stability is key to building a better future for everyone.

Meet Zach

Zach Stein is the co-founder of Carbon Collective, a company that helps individuals and businesses invest in ways that are aligned with their mission. Before this, he founded a business that focused on the aquaculture space (Osmo). With a keen interest in environmental stewardship, Zach has always been passionate about addressing climate change and building a better future for everyone. He believes that sustainable investing can drive change and is working towards building a better 401K that is greener, helping individuals and companies align their investments with their mission. Zach's insights into sustainable investing and the challenges it poses make him a valuable voice in the fight against climate change.

Transcript

00:00
Ravi Kurani
Welcome to another episode of Liquid Assets, where we talk about the business of water. We look at water through the lens of business policy and technology. Today we have Zach Stein, a really old friend, and I think you'll have some really amazing stuff to listen to from Zach.

00:18
Zach Stein
Hey, Zach Stein here, co founder of Carbon Collective. We help companies like yours get a better 401K that also happens to be greener. So we help our clients get the fiduciary support of an advisor, unlimited HR support to deal with all of the issues of a 401K. So we get into the problem with you and financial education for your team, plus access to green portfolios. So if you're looking for help with your 401K, come talk to us.

00:46
Ravi Kurani
Zach, can you just give us a quick intro of kind of who you are, what you're up to?

00:51
Ravi Kurani
Yeah. Thanks.

00:51
Zach Stein
Ravi live in the Bay Area, multi type startup, co founder. We previously met with my last business, which was very similar to Sutro, but specifically focused on the aquaculture space. I imagine we'll talk more about the learnings from that. And now I run a business called Carbon Collective where we help individuals, but now primarily businesses invest in ways that are aligned with their mission. So if you're a sustainably focused business, you can make sure that your 401K has those type of options while also getting good things like employee education and stuff like that.

01:27
Ravi Kurani
That's super cool. And were talking about this a little while earlier before we hit the go button. And the really cool thing about Carbon Collective and putting your 401K money is you want to make sure that you're actually making a return, right? And so part of what you were talking about earlier is you guys have an entire portfolio of companies as a 401K would. And you kind of said if you were to give a Ted Talk that as this portfolio approach, you know, what water companies would be doing well, right? How do you guys look at that? Let's just kind of jump into that of like, what's your guys'metrics what water companies are doing well, what water companies are climate focused.

02:07
Ravi Kurani
Yeah.

02:08
Zach Stein
So that last question was the one that we really focus on to get background. The science is very clear about what we need to do to solve climate change. It's going to take investment. It's a problem we have to build our way out of. We need to be investing something like five to 9 trillion more dollars per year into climate solutions and stop investing in new fossil fuel expansion. We have enough. So we think that should be the definition of sustainable investing. And so that's what we specialize in. It's sustainable investing. We build our strategies that way. But that leaves the question of how do you define what is a company building a climate solution? And water companies was one of those industries that was really interesting to look at from that perspective because water, like providing water is, I think you could say more or less like ubiquitous good.

02:54
Zach Stein
There's certainly bad practices within it. And there's many companies that are water companies that focus on sustainability as a core piece of them. But for us to be defined as a climate solutions company, over half of the company's revenue has to be from products or services that actively solve climate change. And so that removes a lot of water companies. If you're monitoring water, that's important, but that's not solving climate change. And so where we really actually were able to drill into is the companies that were focusing in the recycling of water and those that were improving efficiency of transportation of water. Because those are the areas that is the carbon footprint of water. It's basically moving it. Whenever you need to move water, that's where the carbon footprint flap. So every single drop you can save from being wasted, that's going to make it more energy efficient.

03:47
Ravi Kurani
That's such an interesting way to look at it. And that makes so much sense given your guys'actual lens in which you're looking at climate investment anyways, right? So if were to double click into that around the recycling of water and the efficiency of transportation, if you look at the kind of world of water, right, and in terms of in your lens, what is climate positive versus climate negative water, are those proper terms to use, by the way?

04:13
Zach Stein
I think we could just go for it.

04:14
Ravi Kurani
Yeah.

04:17
Ravi Kurani
I get the fact around not having to invest in fossil fuels. And if you can take wastage drops off of the moving the actual drops of water through transportation or through actually recycling it, are there like interesting technologies there? Or is this just like seriously, like if I can make a more efficient pump or if I can figure out a way to not have water being trucked from one spot to the other, what do these technologies look like? What are these companies doing?

04:41
Zach Stein
Yeah, that's a really good question. There's more interested things happening in wastewater. So like wastewater recycling systems where you're able to take that and reuse that. There's obviously like when you go down into the micro scale, it's easy to see companies that specialize in gray water recycling or on a building level where you're able to use that same water. Again, there's also industrial water. So the companies that are making the purification technology is to take that industrial wastewater, which I think you just say like environmentally it's just a pretty big negative climate or otherwise and be able to recycle and use that. Then you're not having to bring in new water, which water almost you're using gravity. You have to move the water up somehow and that usually is pumping it. And then when you get to the straight up pumps, the more of that we can electrify.

05:30
Zach Stein
And this is kind of the climate movement broadly electrify everything. And then when you could do very interesting things, I mean, this is when you get kind of like the overlap between water and electricity. The different places that we could actually use water as battery or only pump the water when the sun is shining and when it's really bright or when the wind is blowing, we have that excess capacity. Then you can actually that's when the economics can start to also get very favorable, where we could integrate that with those times when electricity is just going to be really cheap. So just even converting from a system that uses fossil fuels, you're using diesel pumps or whatever this is to one that's electrified, that's already a system that is going to be set up to be climate friendly, even if the electricity going into it is still dirty.

06:18
Ravi Kurani
Super interesting. That's really cool. And when you look at do you know any of the statistics around the pie chart of, like, in moving water? Right. If we're looking at what is the actual impact or implication of focusing on these strategies versus something else, is it 90 ten? Is it like 50? Or is it the bulk of water and energy in the space is contained on this? It'd be kind of interesting to understand. How much does this touch?

06:47
Zach Stein
Yes. So I am looking at Project Drawdown, which is a library of climate solutions right now because I don't know the answer right off of the top of my head.

07:01
Ravi Kurani
Yeah.

07:01
Zach Stein
So pressure management and active leak detection are two major ways to reduce leakage.

07:06
Ravi Kurani
Yeah.

07:07
Zach Stein
Water oversupply is that piece.

07:11
Ravi Kurani
Yeah.

07:11
Zach Stein
I would probably need to this is not going to be very interesting podcasting of me just looking at this. But as a resource, I would direct people towards Project Drawdown, and they also have things on water heating. So like solar water and some of those other areas where it's just where do water and energy meet? That's the areas where we would be looking for climate solutions within it because we're just not going to get away from water.

07:38
Ravi Kurani
Yeah, definitely. Super cool. Yeah, it would be awesome just to even do a follow up as we write the blog post. We could even follow up with a smaller episode. I'm going to start this thing called the Drip Campaign, which are like smaller follow ups with folks that I've interviewed on things like Project Drawdown so we can actually open that up as a topic in itself.

07:58
Ravi Kurani
Yeah.

07:58
Zach Stein
Amazing.

07:59
Ravi Kurani
For another date and time.

08:00
Zach Stein
I always love good pun.

08:02
Ravi Kurani
Yeah, cool.

08:04
Ravi Kurani
That's super cool. And so if we zoom out of the waterfront, right, and we just look at Carbon Collective as a 401 provider. Walk me through kind of what that looks like. I think it'd just also be interesting to look at the broader scope of what you guys are working at as well.

08:18
Ravi Kurani
Yeah.

08:19
Zach Stein
Again, this all kind of goes back to that fact that climate change is a solvable problem. So many of our world's issues don't seem that solvable, but climate change like it really is. We have the past, we have the technology we need. It's just a problem of deploying it fast enough. And this is a part of our problem of probably your listeners are pretty familiar with ESG and what that acronym means. This is Wall Street's answer for sustainable investing and it just does not whatsoever align with the science behind it. And so our theory of change, and this is kind of like similar Tesla model, is like, well, you just have to build a better car. So it's like, how do we make a better 401K that also happens to be greener? And so we help companies, we not only give them the fiduciary support of being another advisor on the 401, which is pretty common once a company passes 100 employees here in the US.

09:11
Zach Stein
But we also give their employees access to financial education from real coaches and we give unlimited support to their HR teams. We do that plus then a series of portfolios from sustainable to ESG to traditional to customizable. So nobody's being forced to invest in. We're just trying to bring options where they haven't been historically.

09:32
Ravi Kurani
That's such a smart Trojan model for implementing a 401K. Right. Because if you think about employees, they don't have that education or know what to invest in or like the HR and man, that's brilliant. That's brilliant that you focused on giving it's the premium model.

09:48
Ravi Kurani
Right.

09:48
Ravi Kurani
You give away the free HR services and the education around to your employees and then you get hopefully the big dent you're going to make in that five to $9 trillion by moving that capital from corporations back into more sustainable companies.

10:03
Zach Stein
Absolutely, exactly. Retirement for us just always made a sense as a place to start because I'm 33, thank you. And I are a similar age and so it's like, I want to be retiring in the that's the decade that people talk about of like, I swear on this podcast.

10:23
Ravi Kurani
You can swear on the podcast.

10:24
Ravi Kurani
Yeah.

10:24
Zach Stein
Okay. That's kind of the decade where it's like, we either really will know if we've gotten our s*** together or not.

10:31
Ravi Kurani
Yeah.

10:32
Zach Stein
And so it's just like this deep alignment, especially for people like us who are like, I'm a millennial in my 30s, really starting to think about my long term future. And it just coincides with this key climate decade of like, if we don't change path significantly, we'll just all retire into a world of ever escalating warming.

10:55
Ravi Kurani
Yeah.

10:56
Ravi Kurani
And not to even say that a lot of millennials are now having kids. Right. And you're also putting your kids in a society or a place that a world that we don't really know what the outcome is if we don't fix it today.

11:11
Ravi Kurani
Yes.

11:11
Zach Stein
And it's like that's the point of my retirement savings is so that I can have money to live off of with stability when I stop working.

11:21
Ravi Kurani
Yeah.

11:21
Zach Stein
And so to us, it just makes a lot of sense to kind of have those two goals actually be aligned of environmental stability and my personal stability. And what's fortunate now, it's like very different than what this was ten years ago, is that it's not charity. The economics are behind these technologies. Solar power is the cheapest form of electricity in most places in the world. And pretty soon, solar plus batteries will be the cheapest form of electricity in most places in the world. If you like money and you like electricity, you're going to want to do solar plus batteries regardless of what you think about the climate.

12:01
Ravi Kurani
Yeah.

12:02
Ravi Kurani
You're just going to be able to get alpha returns off of these technologies. It's just the most efficient and the most cost effective way of moving forward entirely.

12:09
Ravi Kurani
Yeah.

12:09
Zach Stein
So it's like our bet over the long term is like we are in the middle of a complete overhaul. Technology change.

12:16
Ravi Kurani
Yeah.

12:16
Zach Stein
And it's like, would you rather be invested in the technologies that are being replaced or those that are replacing them? Same thing. I just don't think we talk about the electric car transformation enough. I know this is a little bit off the topic of water, but it's interesting. 50% of global oil today is used on our roadways. It's used in cars and trucks. So that's half. And most of that is light duty vehicles. Like that sits in your driveway.

12:45
Ravi Kurani
That's huge.

12:47
Zach Stein
That is half of oil's market share is being disrupted by a superior technology.

12:53
Ravi Kurani
Yeah.

12:53
Zach Stein
Electric cars, they are faster, safer, they do everything you like in a car, just better. They're more convenient, so they're quieter and they're much cheaper to maintain and they're going to be cheaper to buy in the next couple of years up front.

13:10
Ravi Kurani
Man, that's huge. What kind of hits me back to the relevance of the water conversation, and I don't even know if either of us have answer for this, but I wonder what's the analogous to water. Right? Like there is this face change shift of vehicles that use fossil fuels that are being kind of leveled up to electric cars with mobility. As like the headline. If you take that same argument and bring it over to water, I wonder what that looks like. Right. What is the electric car analogy to water?

13:45
Zach Stein
I'm curious what you think as being in the space more fully then I'll add anything to it if we're not thinking the same thing.

13:53
Ravi Kurani
Yeah, you know what, it's actually kind of funny because if I was last looking at where water is used the most, I think nobody quote me on this, but I think it's like 60 or 70% generally used for industrial and then like farmland and like agland. And from like the agriculture and farming standpoint, I think if we can figure out how to make farms more efficient. If we can make food more efficient, we can probably affect a big chunk of what's happening with water.

14:18
Ravi Kurani
Right?

14:18
Ravi Kurani
I think, like, efficient showers and all this stuff is great. I think it's really great work. But I think if we're going to do if we're going to run the Pareto principle and we're going to follow 80 20, I think if you can take your biggest chunk from agriculture, food production and also meat production, you might end up at a more sustainable water use, like writ large. I think, again, don't quote me on that.

14:40
Zach Stein
Yeah, I would agree with that largely. I think especially as we see water become a more variable resource, that we're just going to see the economics of efficiency and recycling become clearer and clearer. We're seeing this just right now in electrification. Like a friend of mine, they have a company where they're helping a major REIT, like a real estate investment trust, that's lots of single family homes, and the best IRR that they could get was electrifying their home fleet and putting better insulation. It was the best return on capital that they could find to do, was significantly in creating the energy efficiency and switching everything over to electric console for that. And so I could see the similar types of investment because that's just the beauty of efficiency. It's capital upfront, but then it's off x. In some ways, it's like the best parts of capitalism.

15:43
Zach Stein
You do this thing up front and then you're just way more efficient. Your margins just get better and it could be very predictable. And I think with the new technologies that are coming online and with many that exist, the economics will just increasingly pencil out. And as we're seeing part of what we saw with electricity and particularly natural gas, with what happened in Putin's invasion and things like that pushed so many more people towards renewable energy because they're like, oh my God, what is happening to these prices? I can't predict my electricity prices anymore. And as a business, that's a lot harder to run versus if you have a 30 year contract for that, obviously water rights and stuff like that complicate this. The politics of water is different than electricity, but I could see for certain areas, especially ones that might have historically not had that problem, just the economics of efficiency can make a ton of sense.

16:37
Ravi Kurani
I think an interesting point to make on what you just said is like, the politics of water are different than electricity, but electricity once used to be very similar to the politics of water, right? You used to have these centralized coal processing plants or energy processing plants, and you would then, from this centralized place, send energy out, right? And what did solar do? It decentralized it. And so I just wonder back to my first question of what are the similarities in the energy world and the telecom world and in other facets that we could potentially build case studies on the water side.

17:13
Zach Stein
I wonder there's something that's rising in electricity is micro grids, where when you have a macro grid you can imagine like a whole city is covered by a single utility or a whole region and everyone's sharing energy with each other. And even if you have solar panels, you're still plugged into the grid for at night. But the micro grid is you do that all with a few buildings and you have battery backups and you're all just sharing from that. I wonder if we could end up seeing a similar thing from water and seeing those type of micro grids where you might be doing the type of capturing or recycling on site and then being able to reuse that completely.

17:53
Ravi Kurani
And this goes back to the initial point that you just mentioned of water recycling companies and transportation being the best investments you're seeing right now in Carbon Collective. And if you take those two ideas of limiting transportation and recycling water, you end up with this micro grid. Right, because you don't have to move water from one spot to the other, and you can then take the water you've been using and recycle it or refresh it multiple times over, which kind of gives you that interesting micro grid example as well, based off the investments you guys are making today.

18:26
Zach Stein
Yeah, I think it's going to be really interesting to see. I think that there are some interesting analogies of what's happening in the energy space and that overlap into water.

18:37
Ravi Kurani
Yeah, cool.

18:39
Ravi Kurani
I want to take a quick right turn back to kind of how we met. You were the co founder and CEO of Osmo.

18:46
Ravi Kurani
Yeah.

18:46
Ravi Kurani
I'd love to talk a little bit about Osmo's vision. I know you're at Carbon Collective now, but for the audience out there, and then just kind of one walk us through the promise that the vision that you had with Osmo, what problem you were trying to solve. And then also I think it's interesting for a lot of the audience are startup founders and people that are trying to start ventures in the water space. The second question is just kind of around your startup journey, what did that look like and any sort of learnings.

19:13
Zach Stein
Yeah, so many learnings. So Osmo Systems was a water monitoring company and it was founded around some potential insights into more efficient ways of doing optical sensing of water.

19:32
Ravi Kurani
What?

19:33
Zach Stein
I joined my co founder for It, who eventually it ended up not working out with him, but we continued with someone else who's kind of the initial inventor of this technology when I was 23. So like ten years ago, I was like fresh out of college, didn't really know much, and I think that informed a lot of what was challenging about what were doing. The problem that were working on was pretty cool. In land based aquaculture, which is like primarily shrimp farming is where most of that business is, but there's also other species like tilapia and catfish and things like that. What happens in your water quality is really important. It could impact the health of the fish, it could impact the flavors. And what we're seeing is especially shrimp farming is one of the most resource intensive ways, like pound per pound to raise animal protein.

20:21
Zach Stein
And so we're saying, how could we leverage this technology to help this industry that is not going anywhere, be more efficient? And part of the problem is by not knowing what's going on in real time, the farmers were always in this position of overcorrection. So it's like, oh, we just measured our dissolved oxygen, it was low, let's turn on the paddle wheels. So you're running a diesel generator for doing that, or you're pulling power from the grid at maybe not the right times and things like that run them longer than necessary or things like that. So it's not kind of like just in time or in demand. Same thing for feed, same thing for chemicals and stuff like that. So that was kind of the promise of what were building and be able to do, of being able to have affordable, reliable, real time sensing, a very similar thing to what you're doing at Sutro.

21:09
Zach Stein
And we talked many a time about how maybe the move to aquaculture can make sense, but just with a different kind of approach technologically. So that's where we started. We ended up raising venture dollars from some awesome investors to go out and do it and pretty quickly ran into the fact that the technology that were underlying building this on was like, it was a lot further closer to the lab bench than we realized. So we go out and do field tests and just get these results. And so we ended up kind of moving into these different ways of looking at it. Initially taking very basic light sensing and then moving into computer vision and then trying to add kind of a machine learning component on it. But it was ultimately for us, I think what was challenging is we just never got around the fact that our risk tolerance just that the stack was really high because were analyzing chemistry using computer vision and machine learning and a highly bioactive system.

22:13
Zach Stein
It's just like a number of things that could go wrong about.

22:15
Ravi Kurani
Yeah.

22:16
Zach Stein
As I'm sure you could appreciate, it's like yeah, what you built was really hard and it's like in a system that's full of chlorine.

22:23
Ravi Kurani
Yeah.

22:24
Zach Stein
So imagine something that's deliberately the opposite. So that's kind of what ended doing us in where were one of those startups that just it was ultimately the technology itself was the reason that we didn't make it.

22:38
Ravi Kurani
Yeah, man, it's so important to hear those stories too, because, I mean, hard tech hardware is hard, and it just exponentially requires way more capital to actually deploy sensor systems that then have layered on machine learning, artificial intelligence, and you're then trying to solve this problem, like you said, of overcorrection in the actual market. And if you screw that up, you could kill a bunch of millions of dollars with a shrimp or something. That could be really bad.

23:12
Zach Stein
It could be really bad. It could be really bad. So very big potential for it. But it was just especially as for a company that was like, it might take us five to seven years just to get to market, and we did not have that type of time.

23:26
Ravi Kurani
Yeah.

23:27
Zach Stein
So it was just like it was a misalignment of the speed at which this type of capital required a return on.

23:36
Ravi Kurani
Yeah, entirely.

23:38
Ravi Kurani
Cool.

23:38
Ravi Kurani
Well, thank you for sharing that. And we're coming up close on time here, but one of the things I always love to talk about with founders are there origin stories. I feel like there's always something in the way that if you look back, hindsight 2020, growing up, your parents, the place you lived, your friends you had, the classes you took in high school, when you look at your track record of being at Osmo and starting Carbon Collective now, you were at Urban Worm before. Why did you do all these things, and why do you do it now? Is there anything that you look back on now that does have a through line? Like, do you see a thread there?

24:22
Zach Stein
I feel like you could appreciate this phrase, which is not original. I've heard it once, but life is only linear in the rear view mirror.

24:30
Ravi Kurani
Yeah.

24:31
Zach Stein
Where it's like, I could not have been 18. Been like, oh, that's where I'll be when I'm 33.

24:38
Ravi Kurani
Oh, my gosh.

24:39
Ravi Kurani
Yeah.

24:40
Zach Stein
No way.

24:41
Ravi Kurani
Yeah.

24:42
Zach Stein
I think there's definitely through lines of growing up in a house that was focused on environmental stewardship. It wasn't the sole focus, but that was certainly a piece of it. I remember very distinctly my parents bringing me to see, oh, my God, this is my tired dad brain. An Inconvenient Truth, in theaters when I was 14. And I remember walking out of one of those daytime showings, and I walked out of Super Days, and I was, like, terrified. I don't know if everyone's parents was doing that.

25:14
Ravi Kurani
Yeah, my parents definitely didn't. I know that for a fact.

25:17
Ravi Kurani
Yeah.

25:17
Zach Stein
So it's like, I think I had that basis. But up until 2016, I still thought climate change was a problem for my grandchildren. And it was. Being in the Bay Area when you were here, when fire season became a thing seemingly out of nowhere, it was just like, year after year, having grown up here, there was never fire season. It was like, oh, my, this is here. And that kind of paired with the challenges that we ran into at Osmo. It's like, all right, this is actually the right time for me to look at what could I do with my professional energies to help address this problem, because it's not my kids problem or my grandkids problem. It's my problem.

26:05
Ravi Kurani
Wow, I love that. That's cool. I actually didn't know that, zach, that's like, really impressive.

26:10
Ravi Kurani
Yeah.

26:14
Ravi Kurani
Awesome.

26:15
Ravi Kurani
Cool.

26:15
Ravi Kurani
Last question that I have is, are you reading any interesting books or do you have like, a book that people should read that's changed you? Or a TV show or a Netflix show or a movie?

26:28
Zach Stein
Oh, my God. I'm a big audiobook file right now. I go in phases and I'm either like, all podcast, all fiction audiobooks, or all nonfiction audiobooks. And I'm right between fiction and nonfiction right now, and I'm reading a very delightful but not very serious series about it. Have you ever heard the term competence p***?

26:54
Ravi Kurani
Competence p***?

26:55
Ravi Kurani
No.

26:55
Zach Stein
For describing. You'll recognize it? It's like the type of book where it's like the main character is just so good at what they're doing. It's like, really satisfying. Like the thief who could outsmart everyone and you're just like, oh, so good to read.

27:07
Ravi Kurani
Yeah.

27:07
Zach Stein
So it's like that, but that's often like a male character.

27:10
Ravi Kurani
Okay.

27:11
Zach Stein
And so this is a female character in the late 18 hundreds in England, and she's like a natural historian and is like, super badass and is incredibly witty and is like this very kind of liberated character in a world that was built to not have women be liberated whatsoever. So it's called the Veronica Speedwell series and it's kind of just like it's like detective mystery things and I've just been like, blitzing through those.

27:35
Ravi Kurani
That's cool. Did you ever used to read Nancy Drew?

27:40
Zach Stein
It's like a much more adult version of that.

27:44
Ravi Kurani
Okay, cool. I'll have to definitely check it out.

27:47
Ravi Kurani
Yeah. Awesome. Cool.

27:49
Ravi Kurani
Well, thanks for coming on the pod, Zach. We'll definitely need to do a follow up episode on the project drawdown.

27:55
Ravi Kurani
Yeah.

27:56
Ravi Kurani
But for all of you listening out there, this is Zach Stein from Carbon Collective. You can find liquid assets wherever you find your podcasts and we'll see you guys, hear you guys, watch you, talk to you next time around. Thanks for listening.