Blackrock Vice Chair Philipp Hildebrand discusses the climate initiatives at the COP28 Summit, and the capital needed to fund solutions with Bloomberg's Francine Lacqua.
Today Climate Finance Day here at COP twenty eight, senior figures in the world of finance have really been calling for better data around emissions and of course the viability of green projects in order to unlock more investment. Well, I'm very pleased to be joined by Philip Hildebrand's advice chair of black Rock. Look, thank you for joining us.
I mean we always talk an afternoon.
That's so good morning for our London users because they're the ones that's tune in the most when you look at some of the climate initiatives here. I know there's a lot of questions about you know, phasing out of fossil fuel, there's a lot of questions on the carbon markets, on carbon credits. But then we have a loss of damage fund. So are you optimistic that you know, we're day four and we've already achieved something.
I think we've achieved something. I mean, this is like a huge Greek play with lots of different activists, so it's hard to tell, you know where it concludes or running concludes. We're about halfway through. I think there are some positive elements. To me. The most important one perhaps is we're beginning to see actual private capital formation designed to go into the world in order to invest in the in the climate transition. I think that's you know, to me, when you look at the overall challenge, if we can solve for that, then we won't make it. So this is the key piece of it. And now we've moved from just talking about it, recognizing it as a problem, to early stages, early signs of capital formation out of the private sector to be mobilized for the transition.
But then we need to put it somewhere so the capital form, like how hard is it to find the right projects at speed?
Exactly? So I think that you know, first was recognizing it as the main problem. Now various announcements from the hosts, from Singapore, from many other places we were involved in it, you're beginning to see private capital being kind of created. Formation of private capital now comes the big questions were the products. How do we make sure it goes into the right projects, into the weakest regions in a sense in this and that's going to be to me, that is the key message coming out of here. If we can solve for them, we're not going to tackle this, this existential problem of climate.
Change, but for how much of a chance is there that we do have some kind of comprehensive carbon markets, right, even language that holds together in the next couple of weeks.
I think that's difficult to me. You know, I was thinking in the car over here, what's kind of one of my future takeaways, and the carbon market is something we have to kind of wrestle with. I think the community as a whole, that's in a sense the next stage that has to be part of it as well. So we have all these elements. We have reduction of emissions, new technology, carbon markets, you know, air capture. Many people don't like this, but that is going to be clearly part of it. The involvement of industry. This was the first time that really you had heavy industry, including oil and gas that was part of this called those are positive science. But I think at the moment I want to kind of emphasize just the importance of getting capital to the emerging world, and here I'm beginning to see some progress. We need the project, as you said, and that's by the way, where the MDB reforms MDB discussions are going to be very important. The World Bank needs to think of itself not as a competing agent to the private sector, but as an enabling agent, same with the other MDBs, And there's some progress there, particularly at the regional level. That gives me some hope.
And it feels certainly like the new president of the World Bank has really put this at the forefront of what he wants to achieve, right identifying some of these projects. The problem is that Indonesia's very different from Vietnam. It has also local regulations. So do you think that we'll be able to manage the transition or at least the readaptation in time.
I hope. So, I mean what I'm a little worried about is that, you know, there's a lot of focus on the really big problem changing the capital structure of the World Bank. From my experience in the public sector, that's going to be really hard. So I would encourage him, and he's done a great job, you know in the first few months. Encourage him to look at the things that you can really change the mindset of the institution, getting out of the not competing with the private sector, but enabling empowering the private sector, making the projects they are close to. The MDBs are closer to the projects in many cases in the private sector, make those projects available now that we're beginning to see some formation of private capital. So you know, I would think it's important to think of the reform of the World Bank not just at the level of the capital structure and the stakeholders, but also at how do you change the internal kind of workings of the World Bank in that regard?
So how complex is this in a world that's ever changing where we're seeing huge rallies and then bets on fed rate cutch which could be imminent. I mean, the world is volatile, the world is evolving, So where does climate change finance and come into this.
This is very hard. Hard things are hard. You look at these kind of newspaper articles to talk about, you know, how little progress we've made. But we've had a pandemic, we have a war in the middle of Europe, we have another war, you know, in this region. So this is this is really hard to do all this to ensure that it's fair and just that we have growth. Industry has to be part of this. I don't see how you do it any other way. So this discussion by definition is difficult. It's hard, and we have to just chip away at it day by day and make progress where we can again. To me, the core is we have got to mobilize private capital for the emerging world to fund this transition. If you look at the need, I mean we need about a fifteen to twenty four times increase let's say, a twenty fold increase in the investment flows into the emerging world. That's not going to be funded by the public sector. The private sector has this that been private capital has to be mobilized, and I think to me, that's you know, at least the first few days, there's a hopeful message coming out of this.
I mean, I guess maybe it was difficult as interest rates kept on going up. Do you think we've reached peak rates?
Well, I think we're probably close to it. What we're going to struggle with now is we have a lot of production constraints globally. The geopolitics are fragmented, graphics are putting constraints on it, which means in my mind that it's going to be harder for es central banks. They're going to have biggert, They're going to face more difficult trade offs between output and inflation. So we'll probably have more more volatility in markets, will have less trending markets, Beta will be less of a force. So the macro environment, I would say, is going to be in a sense more challenging than what we've seen during the Great Moderation. And in all of that, you know, lower trend growth, higher volatility, higher interest rates. That's going to make this this climate fight more difficult, there's no question about it in mind.
But lower trend growth, not a recession.
Yeah, I don't think that's so important in a sense. You know that that it looks like we can avoid a recession. But I think now that that we've mostly normalized the post pandemic distortions, inflation has come way down, is still coming down, interest rates hopefully have peat. But you know, the next challenge is now how do we operate in the world that is constrained on the production zite globally, which leads to I think bigger tradeoffs for central banks, more difficult trade offs, probably lower trend growth and higher interest rates and at the margin stick your inflation. That's going to make the policy challenge more difficult.
Do you think the Fed will I mean, the market is definitely pricing in FED cuts, maybe earlier than the FED governors or you know, they're kind of pushing back into the markets quite a lot, Like how they've been pushing back for the last six months. Every six months there's like a fear in the market. They get kind of topped off, ledge it's fine, and then after six months there's always this fear.
Yeah, this is a lot of this. In my mind, I would be skeptical on the sort of rapid you know, rate cut story, mostly because I think a lot of people in the market are still thinking in terms of the old world. So we're gonna, you know, get into weak growth. Therefore central banks can cut. My message would be, you know, we need to be prepared for a different type of overall macro environment, global production constraints, more difficult trade, Also central banks less ability to respond to weakness by immediately cutting interest rates, higher rates on average, lower growth. So we need to think of not a return to the old business cycle model, but kind of a new world that is shaped by these production constraints. Now, if we can resolve them, if we can resolve the wars, if we can you know, make progress on the transition, that will help to expand the production capacity of the global economy. That's the key objective in a way for if you look at it in a broad policy sense, So.
What does that look like? And also I was looking at you know, figures of nshoring and investment in the US. I mean they've gone through the roof. I mean you literally have a chart that was flat and then it's just taken out.
It's think of it as a rewiring of the global economy that you know, unbounced leads to higher costs, which leads to more production constraints, which leads to higher inflation on average, lower growth. And so this is a more i would say, a more challenging world. That doesn't mean there are no opportunities. Investors are going to find great opportunities in this, but we're going to see less trending markets, more volatility, and for the policy world, more difficult trade offs. Which is why it's not as simple as to say, oh, growth is weakening, therefore central banks will be able to cut rates rapidly. I think that's too much anchored in the previous world. We're now in a new regime which is a different one, and so I think, you know that's what we need to kind of wrestle with this new environment.
Yeah, you have these competing forces. Philip hasil always thanks so much for joining us as Philip Hildebrand. They're the vice chairman of black Rock