Hemanth Setty - A Straight Line to Green Financing with Zero Circle

[00:00:00] Dominique: Hello, welcome to another episode of Green Champions.

[00:00:13] Adam: Thanks for joining us in a conversation with real people, making real environmental change in the work that they do. I'm here with Dominique, the sustainability expert.

[00:00:20] Dominique: And I'm so glad to be here alongside Adam, Social Enterprise extraordinaire. We bring you guests who saw the potential for impact in their job or community and has done something pretty cool about it.

[00:00:30] Adam: From entrepreneurs to artists, scientists to technologists, this podcast is a platform for green champions to share their stories and plant new ideas. 

[00:00:38] Dominique: Today, Adam and I are joined once again by Hemanth Setty. Last time we got to hear from Hemanth on the profitability of sustainability, ESG development strategies, the challenges, dangers and importance of reporting when it comes to ESG and sustainability. Today, he is the founder of Zero Circle, a B2B green finance marketplace that simplifies access to green capital.

So today we're chatting with Hemanth about his success in developing a sustainability program at Dun & Bradstreet, where he built a lot of ESG programming and we talked about product last time. But how that really ultimately led to his current startup with Zero Circle and how he's supporting companies that don't typically have access to afford sustainable solutions and why that matters.

So, Hemanth, welcome back.

[00:01:20] Hemanth: Pleasure to have meet you guys again.

[00:01:21] Dominique: So I think the first thing to kind of jump in here with is. 

Can you remind us a little bit about how sustainability became part of your role at Dun and Bradstreet? And just how that had a place in your role with product? 

[00:01:33] Hemanth: Yeah, so a big part of what we were doing at Dun & Bradstreet was risk and compliance solutions for large customers and enterprises. Essentially to engage with their partners and customers as part of working with them and doing business with them. More and more along with your typical assessments on financials and compliance.

They were also asking us about their ESG and sustainability assessments, and we really didn't have solutions for that at that time. So we started to go down kind of a customer discovery process to understand, "Okay, is this something we need to add into our portfolio of offerings?"

And as we, and we also spoke to a number of industry leaders in the space to understand that, "Okay, this is the writing is on the wall. This is not going away anytime soon." So we kind of had to figure out how we create solutions for that. So we started on a almost a three year journey to build by partner discussion with many companies in the space to figure out whether we can engage with somebody as in some other companies that are already doing these kinds of solutions or whether we build our own or whether we try to create a collaboration. But essentially we couldn't really find a good fit over that time, and we ended up just building our own product. And that was how we started. 

That was how my interest in ESG and sustainability started because I could see some of the challenges and opportunities in this space as part of that process and how the companies are going to evolve long term. I think, personally, how we or myself, we could help companies along this journey. So that was kind of my foray into getting into this world. 

And now, we now started Zero Circle about two years ago. Focused on creating these financial service solutions for climate companies.

Trying to incorporate energy reduction net zero programs into their business. And for us, helping them access to very specific funding programs and funding initiatives that can support those programs.

[00:03:27] Adam: I mean, you're looking at these ESG kind of assessments. What sort of things do they touch on?

[00:03:32] Hemanth: So a big part of it is always carbon footprint. That's almost table stakes now in terms of how you actually and analyze or do an assessment on a company. So, I know again, it's all relative, right? What is your footprint today? And then what is your objective and where do you meet over the next couple of years?

Some of it is regulatory mandated like for example in New York city for example, there's a specific rule for building owners to reduce their carbon footprint up to 80% by 2040. And they have a whole milestone for buildings and properties to be able to reduce that. There's a lot of various ways to do that, but that's pretty much table stake.

Carbon footprint is a big part of it. So when businesses and enterprises engaging with their suppliers, they need to understand what your current footprint looks like and are you meeting, net zero reduction, whether it's 30%, 50%, what do those numbers look like over the next five years?

That's a large component, but that's just one of the core components of it. Others are around water management waste practices, waste management practices social programs around, diversity, inclusion, that kind of thing. Biodiversity and whether you're not harming the environment from a biodiversity perspective. Those are some of the other factors that companies look at.

So it's very specific to the type of business you're working with. If you're a supplier to Starbucks as an example, they're going to look at biodiversity significantly because they're building coffee beans and they want suppliers that are sourcing, paper products and coffee bean products, right? And so they want to make sure that biodiversity is part of their assessment model. 

So those are the kinds of things that, depending on who you are doing business with, they might have very specific focus areas in terms of what they might be interested in as a smaller business or smaller supplier working with these larger corporates.

[00:05:09] Dominique: You've hit on the topic of regulation and like risk analysis in this environment where like you're saying there is pressure, like there is policy like New York Starbucks. And I'm just curious, and this might be a hard question to answer. It definitely is tough. I think you're smart and I'm curious to hear what you're gonna say.

How do you explain the idea of ESG and its relationship with risk analysis? Which I know it usually is coupled with a lot of times often also coupled with like the financial side of an organization. But how do you explain the relationship between ESG and risk maybe for a community that doesn't have policy around it, or a company that has not felt those pressures yet? Do you just have any like good advice on how to think about why it's still important? 

[00:05:52] Hemanth: There's definitely a lot of industry analysis around it in terms of saying that, "okay, it is good business practice. It allows you to reduce your risk long term." So those things exist, but it's hard to make it more tangible. But things that are a little bit more, immediately identifiable specifically around climate migration, climate risks. People are seeing that in their backyards. Like you, you saw the storms happened in the Gulf Coast last few months, right? I mean, that's a massive, massive issue and people are seeing that there's wildfires, there's flooding, there's weird weather patterns that are happening and as an enterprise, if I'm buying something from a supplier, let's say, in that Gulf Coast region, for example, I need to know you are taking significant measures to reduce the impact of these weather events. If it may not happen today, but it might happen tomorrow. That is a big path approach in how risk is kind of at least communicated today.

It's less about risk and it's more about resilience is how things are, how people are talking about it. That's a better way to describe it because, and, and the same thing happened during COVID, actually, to be honest, right? Supply chains collapsed during COVID. Because there was not enough resilience built into the supply chain ecosystem. So all of a sudden I couldn't get products for weeks or some products just went off the shelf and never came back. And that has to do with selling these products to customers. Now, customers, you and I as consumers are still going to want some of those products. We can understand if it's not there or for whatever reason there's macro factors that are affecting it, but we still wanna buy bananas or we still wanna buy avocados or whatever they are.

And all of a sudden if the banana supply chain just gets disrupted due to weather pattern you know who's going to be on the hook? Walmart, Trader Joe's, they're gonna be on the hook for consumer issues that they'll have to deal with, right? So they want to make sure that the companies that they're buying from is not just less risky, but more resilient in their business process. So that's one way companies are at least converting , the message to say, "Okay, and I don't, I don't want you to be just less risky. I want you to be more resilient in case of these unknown events that we can't really control."

[00:07:51] Dominique: Can you compare and contrast for us small and medium sized businesses versus large corporations when navigating this landscape?

[00:07:59] Hemanth: That's a good question because a lot of it has to do with just knowledge. Like many of these smaller corporations don't even know where to start. The bigger you are, the more resources, and I guess both customer pressure, investor pressure, government pressure, regulatory pressure, you have to do something about it.

But as you go down the size of the companies ,those pressures don't exist and it's not quote your business at least, to start off with. A big part of the challenge we have is, even for us, I don't talk to customers about kind of meeting ESG requirements. I don't talk to 'em about that. I talk to them about, " Your customers are asking you to be more resilient. From your business standpoint, you need to be long-term profitable." And the types of businesses that are going to be more profitable and going to be more resilient long term are inherently sustainable businesses.

So, if I want to buy, let's say I want to kind of upgrade my facility and install a new heating system, for example the heating system that was installed 15 years ago to the heating system that I installed today is inherently more energy efficient today. There are better systems, there are better technology, it's already more energy efficient. But if you haven't installed your heating system from 15 years ago and still running the old system, you are inherently more, less resilient already.

And it's an easy way to say, "Okay, I need to just continue my business for the next 15 years, so I need to upgrade my heating system. Might as well get the benefit of being resilient and being net zero at the same time."

That's a good way to describe it. But to your point, right, is many companies, they just don't know where to start. Some of them are just being pressured by their counterparts. Like their enterprise part, customers that are buying, purchasing from them are basically saying, we need to figure this out. And there are resources that are available and I can't say we can solve everything. We are one part of the ecosystem, but there's a number of companies that are addressing this in various ways. There's companies that are focused on training solutions and getting people knowledgeable.

There's companies that are focused on reporting. There's companies focused on new types of innovation technologies that you can incorporate into it. 

Every time I see companies that are engaged in this space, there's some cool stuff that's going on. It just needs to come to the market, just needs to come to them. And then I think we'd be able to address this long term.

[00:10:04] Adam: 

Back to d and BA little bit, where you were working on developing out these ESG assessments, how did that lead to what you're doing at Zero 

[00:10:10] Hemanth: I would say, two steps forward, three, two steps backwards kind of situation for us. Right? You try something and quickly pivot. So when we first started, our objective was to simplify the sustainability reporting for small and midsize companies specifically in the supply chain. That's kind of what we started the product with. 

And we launched our initial MVP of the product and we had, some initial interest in customers. But part of it, some of it was our timing was a little off. This was right when the inflation was kicking in at high gear and all the VCs were stopped on the funding cycle. So we were not getting good interest going with investors. And additionally, I think we were too early for the market too, because while the need is there, the demand is not there. It's like I said, it's yet under the reporting need right? As a small business, unless somebody's forcing me to do this reporting, why would I want to do yet another reporting? And I think that is changing. I'm not saying it's going over, it's not there. I think we're a little too early and I see some movement towards more and more companies doing this report.

But I think, we had to pivot at that time. We had to transition to something that was a little bit more fruitful as a business for us, right? We need to be sustainable as well in our business. But again, going back to product management and listening to their customers some of the customers we were talking to back then were struggling to get access to funding for some of the projects that they were trying to incorporate into their business.

And I had a financial services background, before Dun & Bradstreet, I was working in financial services for many years. And so I spoke to some of the people that I knew that and started understanding the landscape is like, "Okay, why are these people not able to get, these kind of funding programs?

[00:11:50] Adam: Yeah. 

And before you jump on that, like what does this green financing look like? What is that for companies?

[00:11:55] Hemanth: yeah, that's a good point. So basically, think of any financing, if you want to do get a business loan right for example, you can go to your bank today and get like a, 10 or 15% interest rate term loan. That's basically what a loan is, right? And there's other types of structures. There's grants and there's other things you can do from a financing perspective. 

What a green financing or green funding program is, is that if you can tie the use of funds to energy reduction or carbon footprint reduction or net zero commitments that you're trying to meet, you can get favorable incentives, you can get rebates and you can get creative structures that doesn't exist in traditional banking structure today. It requires you to go through a couple of extra hoops to quantify measurement and do all that reporting. But if you do that, you can actually have a much lower cost of capital to fund the projects that you were already planning on funding.

Like the HVAC example I gave you, it's been 15 years since I installed the HVAC system. I have to upgrade my HVAC. I might as well go and get a lower cost of interest rate rather than trying to go to the bank and get a term loan and because it's connected to energy reduction goals, you have certain types of funding programs that can support those objectives.

And that's kind of the core of what this is. As long as there's a sustainability link component to the funding that you're going to use it for there are specific types of funds and uh lending vehicles that you can get qualified for and essentially use it as part of your business.

[00:13:20] Adam: Great. And what you're saying is for small and medium sized businesses, like they really don't have the capacity to really understand all that or figure what they need in order to qualify? 

[00:13:29] Hemanth: Exactly. They don't know what they need to qualify. It requires additional data and reporting that, again, Zero Circle, pitching ourselves we try to help them with and kind of help them get qualified for those types of programs. And that's a big part of what we do is because you still need to do all your financial reporting and your P and I statements, cost user proceeds, your what do you call the amount of cash flows you have. All of those things are, are still the same. That doesn't change. 

But these additional elements around, " Okay, what's my carbon footprint look like? How much do you think I could potentially reduce?" And if it kind of meets certain criteria based on the funds that are funding these types of programs, you essentially can get better terms in the same type of proceeds to use for your business and who doesn't allow extra, extra funds for the business, right? You can get either more money or you can get less interest rate and you know that that helps the business long term anyway.

[00:14:20] Adam: I love that. So basically I done in Brad Street, you were like, "Okay, here's the ESG assessment. We're developing these out." And now with Zero Circle, companies are coming to you and they're like, okay, how do I actually do this?

[00:14:30] Hemanth: Yes, exactly. How do I actually do this? Get me through this process and connect me with a bank or institution that can essentially fund me for these specific type of projects. So that's a big part of what we kind of help and build this marketplace and ecosystem to connect banks and institutions that are facilitating these programs with organizations that are trying to get qualified for these programs. And our small ecosystem, it's about financial education, less about sustainable education because again, we can't boil the ocean. So our objective is there are these sustainable funds that exist and here are all the things that we can help you with to get you qualified for those funds because we know the type of project you're doing, we know, we think you can get qualified, but you have to go through the assessments, right? You have to make sure you have enough profitability, your P and l, your, your cash flows, all of those are good. And here's what the footprint looks like and here's what the energy reduction means and what kind of criteria those funds are actually looking for. And then we basically connect all the dots and create a qualification engine to get them pre-qualified, if you will for those programs.

[00:15:30] Dominique: You clearly clarified the problem, and I'm curious about like your competitors in the space. One of your special factors, this finance education, or how else are you like just set apart as someone who's not in this space to understand like how unique this is?

[00:15:45] Hemanth: I think it's a combination because personally, and this is again my product philosophy, if you will. Right. I didn't create this, this is something I stole from Apple, Steve Jobs had this saying I think I really like, which is " The best products are created at the intersection of two different domains." and in our domain, in our kind of product philosophy is it's a intersection of financial services, technology and small businesses, right? That's kind of our intersection where we are saying, "Okay, how can we create an ecosystem with these three kind of pillars and how do we support the problem statement for them", right?

And the problem I see in the industry today is most of them are vertically aligned in the sense that there are companies that do solar development like, for so let's say solar installation, right? You're installing a solar [inaudible]. So they will figure out, "Okay, here is what kind of project we can do." these are project developers that can build let's say a million dollar solar install in your facility, for example, right? They have a couple of banking partners that they work with to help fund those projects. They'll actually install the project. And they'll actually monitor the performance of that project over time. It's a very vertically integrated solution, and that's how many companies operate today. 

The problem is that cannot be scalable beyond a certain domain or beyond a certain geography, because if you are a service provider, I can do it in the New York area, for example, but unless I infuse a lot more capital and set up like 50 different centers across the country, I won't be able to scale this effectively.

Then there are other types of companies that are doing this primarily on the financing side, but they're much more transactional. Think of these as like, your investment bankers or your commercial small green banks that do what we do at a simplistic level. But they're much more transactional, again, localized. It's not scalable.

We are coming in from a technology angle and we are trying to take a horizontal approach to the problem. There are different types of projects, solar real estate, logistics, EV, other types of green agriculture. There's multiple types of projects. There's different types of funds available for different types of projects, and we want to create a financial layer to qualify different projects for different funds and hand it off to the bank without data, without analytics, and without assessments. So the banks can just take over from there. And what that enables us to do is essentially scale it with different domains, with different geographies, with different partners, and make it potentially a global scale platform. And that's kind of how we are trying to differentiate ourselves from some of the people in this space today.

[00:18:09] Dominique: Yeah. And I, I just love how accessible this idea is of like, I think that comes along with any technology or digital tool, but in this space especially, that feels very powerful. Considering the communities that are affected by sustainability, climate change, all these topics. If someone's listening and maybe they, they own a company and they've not thought about green financing relating to their business. And I think it's cool because you were making something as accessible and is wide reaching. What would you say to someone who maybe is like, "That's cool, but it doesn't relate to me."

How do you think about evaluating if this is relevant to your business or not? 

[00:18:42] Hemanth: Yeah, some of it we can help in making that decision, right? It's okay. Does this make sense? Is it a green project? We can help with that. But the end of the day, I still think not everybody's going to be a good fit for us. So we almost have to, pick our battles and choose our customers as well from a business perspective. So, we know the kinds of projects we can support, we can kind of communicate that and, market that from our perspective. If it fits into that mold, we can help. But if it doesn't fit into that mold, we are probably not the right partner for you to kind of engage with us. Right? That's one element.

Second element to it is, is this project even green? Right? That's the bigger question is like, "Okay, I'm trying to do something. Does this qualify for green funding? Is this the kind of thing that makes sense?" I mean, to be honest, that's a hard question to answer. And we will have to engage with them to kind of at least do a high level analysis and says " The kind of things you're doing, it actually does qualify for green funding and we can probably help that" right?

But they need to be educated about it. And at some point, once we grow bigger, we can get the word out to a lot of companies that we are trying to engage with and build a brand around it. And so people can at least come to us and do that initial kind of assessment, if you will. 

One of the things we are doing slightly differently is our sales strategy and go to market strategy, it's focused on supply chains of large enterprises. So the reason we are doing that is we know the large enterprises we are working with already have sustainable objectives that they're trying to meet with their suppliers.

So there is an inherent assumption that these suppliers at least need to do something. So we can engage with them directly and we have a corporate sponsor or corporate partner that can engage with their partners. If we have to go to every single business and try to do that. It's a huge education lift for us and it's not worth our time and effort at this point to think about a direct go-to-market strategy yet.

So working through the corporates that are already engaged with their partners in this domain. So we know there is an inherent need that already exists with their partners. It's a closed ecosystem of companies that we can engage with. Saying you are working with the, XYZ corporation.

They are asking you to reduce your footprint or become net zero. We have some financing options. We have some partners we can work with. And let's start a discussion, to see if there's anything that makes sense. So that's just us because we need to figure out how to scale. But it's like you said, I think the problem does exist is not many people know where to start with and whether you know what they're doing is going to be qualified for a green project or not.

 at the end of the day, I think you kind of have to constantly evaluate where your business is. Almost look at your own company from the outside end and I try to do that certain times and so as, actually I'll give you a very good example.

This happened recently, so the election happened, right? Trump is now president. I don't know what it means for us yet. Right? That's an outside perspective. Because my hypothesis is that the US is probably going to get outta the Paris Accord like they, like he did last time, which means at a international scale, we are probably going to slow down on our sustainable commitments at a federal level or whatever that is, right?

Now things might be different this time. The market dynamics is very different this time than the last time, so I had to kind of evaluate it kind of outside in. Okay, where does Zero Circle fit into this new, new world? How does it, does it still meet the needs? What do I think might happen in this new administration? Right? Based on what I'm reading, what I want, what people are saying about it. So I have to kind of pick up all these signals and essentially connect all these dots myself and make a decision what it means for us, right? And that's a little bit of an outside perspective. 

And so kind of going back to the timing question is like, "Okay, does this help me? Does this hurt me? Is this going to benefit my timing? Does things get elongated a little bit?" Things get shortened a little bit. I don't know the answers to any of this, right. Until we go through this and, take baby steps about it and, and kind of make a decision around that as well.

Some of it, I spoke to some of my advisors who have been in this space and above their feedback and perspective. And then it's up to me as kind of the CEO and founder here is like, "Okay. What do I think is gonna happen?" Because at the end of the day is my call to see how we kind of navigate this landscape, right? And so it's a perfect scenario of how external factors and things that are outside of a control can impact your business. I kind of have to take those steps to kind of, figure out what my next step is. Do we continue down this route? Go down a dead end or am I still going down the right route?

But I may have to kind of pivot a little bit, move, one step here, one step there, but I'm still in the right direction. It's a part of the entrepreneurship journey. You never know the right answer until, until you look back.

[00:23:09] Adam: And I think that's a great reason for companies to reach out to you because you're continuing to evolve and explore that. I love that. And this has been such a fun, it feels like a little masterclass on ESG. Assessments and green financing, both hearing your journey at Dun & Bradstreet, like what you did to develop this and how that's supporting both large corporations and small businesses to how they actually implement it and what the incentives are for them to do that. So thank you for going through all of that. That's really exciting. 

[00:23:38] Hemanth: Awesome. Well, thank you for having me. It was a real pleasure to talk chat with you guys. I love this topic. As you can see, I've been it's part of the reason why I started the company was, there's, you gotta have passion for what you do. And part of the reason why I started this is I think, I, this is where I wanna spend the next 5, 10, 15 years of my life.

So it's, it's good to talk to people who have the same interest in this space as well.

Yeah, we can reach us out on our website, zerocircle.eco and when we are active on LinkedIn. So if you wanna reach out to us on LinkedIn as well, you can connect us out there as well.

[00:24:07] Dominique: Thank you again Hemanth for sharing about Zero Circle and joining us today. 

[00:24:10] Adam: Thanks for joining us. As always our guests have found a unique way to champion sustainability. We are here to put real names and stories behind the idea that no matter your background, career, or interests, you really can contribute in the fight against climate change.

[00:24:24] Dominique: You can find our episodes at thegreenchampions.com. If you wanna stay in the loop, give us a review and follow us in your favorite podcast platform. If you have questions about climate change or sustainability, you can reach us on our website, thegreenchampions.com.

Our music is by Zane Dweik. Thanks for listening to our episode of Green Champions will be digging into our next sustainability success story in the next episode.