Avenues for Climate Tech? Industry Solutions, Innovative Product Structures and more

Published May 8, 2024, 12:00 PM

Technology’s role in decarbonization is evolving, with many developments still in the making. In this episode of the ESG Currents podcast, Shaheen Contractor, Bloomberg Intelligence’s senior ESG analyst, interviews Daniel Hanna, head of Sustainable Finance at Barclays, Kelly Becker, president of Schneider Electric UK & Ireland, Mikkel Bülow-Lehnsby, co-founder and chairman of Urban Partners and Chris Dodwell, global head of Policy & Advocacy at Impax Asset Management, at the Bloomberg Sustainable Business Summit in London. They discuss how climate tech can be deployed and the risks and opportunities ahead. 

PSG has become established as a key business theme at its companies and investors seek to navigate the climate crisis, energy transition, social megatrens, mounting regulatory attention and pressure from other stakeholders. The rapidly evolving landscape has become inundated with acronyms, buzzwords and lingo, and we aim to break this down with industry experts. Welcome to ESG Current, brought to you by Bloomberg Intelligence, your guide navigating the evolving ESG space, one topic at a time. I'm Shahan Contractor, Senior ESG analyst, and today we're recording this episode at the Bloomberg Sustainable Business Summit in London, which brings together leaders and investors to discuss some of the most pressing themes such as the changing political landscape when it comes to sustainability, and also topics like god, just and inclusive future. Now, the conference has a number of fantastic speakers and today we're interviewing four of them to take a little bit of a deep dive into the exciting world of climate technology. We're going to focus on technology enable decarbonization and how this can be deployed through various facets, particularly in how to abate sectors like steel or cement, and also through innovative products and structures. Now, for this exciting discussion, we're going to pick the brains of four experts. We have Daniel Hannah, the head of sustainable Finance at Barclays, Kelly Becker, the president of Schneider Electric UK and Ireland. Miquel the co founder and chairman of Urban Partners, and Chris Dadwell, the global head of Policy and Advocacy at Impacts Asset Management. So let's stick straight in with Daniel Hannah, the global head of Sustainable find at Berkley's. So danil movie give us a quick introduction into how sustainability factors into your.

Role well as the head of sustainable finance for Berkeleys, if you like, I've got two or three sort of significant mandates that I feel really quite honored and privileged to drive. One of which is we've made a commitment to mobilize a trillion dollars of sustainable and transition finance by twenty thirty. So we're rolling out new products, engaging with clients to really scale that up. We did sixty eight billion of mobilization last year. The second is that we're investing five hundred million pounds in early stage climate technology companies by twenty twenty seven, and we've already deployed over one hundred and twenty million into more than fourteen different companies around carbon capture, hydrogen reducing emissions in sectors like aviation. And the final thing is we're working very hard to align our financing towards a net zero pathway, and we set out a number of twenty twenty five and twenty thirty interim targets our energy what's called financed emissions. So the impact our financing has on emission generation and our clients has dropped forty four percent since we set that target in twenty twenty.

That's very interesting. So Daniel, I feel like in your role you have this bird's eye view into everything transition, finance, And my question is when it comes to climate tech, I think it's very clear that we need this new wave of technology is of course alongside renewables. So my question is what are these technologies that we need and where are they needed? If you could give me some examples also, that would be great.

It's a great question, and I think I mean a really bird's eye view, right, what we've got to do is in some ways simple. We've got to electrify what we can, we've got to power that by renewables, and then we've got to scale new climate technologlogies to tackle these hard to abate sectors. As you say, so these technologies where there isn't currently a commercial pathway to a technology that's really going to put them on a net zero trajectory. And so I think if you think about the types of technologies that we're seeing really come through, one is hydrogen for example. So we last year closed a two hundred and fifty million equity raise for a company called Omnium, which it's involved in the green hydrogen space. That was actually the fifth hydrogen deal that we've done in the last thirteen months. And obviously this is a big area of focus in the US with the Inflation Reduction Act. In Europe there's been a lot of talk about this as well, and hydrogen is seen as something that in these sort of hard to abate sectors can be deployed to move them further down if you like the emissions.

Curve like steel, right, I hear a large exactly.

So I think it's the be a little bit of caution around this, because hydrogen is not a magic bullock that's suddenly going to solve everything. But as you say, I think in certain technologies like for example, steel, and we've seen in Europe H two green steel being set up, the use of hydrogen can combined with recycling and electric arc furnaces, you know, significantly reduced emissions from where we are seeing and I mean we're talking about sort of ninety percent reduction. So the question is can we get that to a scalable price that actually then becomes commercially competitive, or can the greenium if you like, the amount that people are prepared to pay on top of normal steel, can that be increased, or whether we see these sort of carbon prices evolving. So that's quite a good example. But we've also seen other areas like cement. I think last year we saw almost three billion deployed into low carbon cement in energy efficiency. And then I think one of the other areas where we've seen a significant ramp up is in carbon capture. And so where the technology really isn't there at the moment to decarbonize, what can we do to capture the carbon that is being emitted and sequester it away in a robust and stable place that can really get monitored. And actually one of the companies that we've directly invested in through our early stage climate technology effort is called NOADA, which uses technology to try and provide a cost efficient way of capturing carbon in industries where they're still using chimney pipes. So obviously you prefer that they didn't and that there wasn't any but in that absence, deploying something that's cost effective and quick, you know, can make a difference in terms of trying to reduce emissions.

And Daniel, I guess when it comes to these technologies, what are the challenges holding them back? I think you mentioned one like you know, scalable price for hydrogen, But what today have we not sold for and what do we need to do today?

No, it's a great question, I mean, I think actually only if you think about the IA net zero pathway, thirty five percent of the emissions reduction implied in that relies on climate technology that we need to scale so that we haven't scaled, so it's solar wind sort of the maturer industries around. Nerle absolutely plays the critical role, but beyond that, you start getting to these questions like you've raised around how do you get either a new technologies that can.

Get so the rest is all new technology.

Well, this thirty five percent absolutely is absolutely key to that pathway. And so we have some technologies, but they need to be proven at a price that people are prepared to pay, and so they need to like we've seen in the significant reduction in solar come down in its deployment, we just need to see that in other technologies but ideally happening quicker and in some of their areas. We actually need to discover the right technology as well. And so I think one of from a from a finance perspective, what we see a lot with our clients is actually at the moment, there is actually quite a lot of venture capital out there. So for really early stage ideas, you know, with the right with the right products, with the right technology, you can find money. And at the more mature stage, at the you know, once you've really got to scale. Actually, if you look at these infrastructure funds, the amount of dry powder, so the amount of money that they've got in their funds but they haven't spent, went up last year and so you've kind of got capital at the beginning and capital when you're really scaled. The challenge is this middle and we sort of see a missing middle of capital at the moment where you've gone through your early stage, you've got the technology kind of largely de risked, and now you need to scale it. And one entrepreneur said to me, it's like scaling the dunes of doom, because with climate tech it's so capital intensive. You do your first plant, then you've got to do five more, Then you want to do ten more, then you've got to do fifty more, and so the amount of capital that you're deploying just is grown almost exponentially. And in some ways, the finance industry has kind of got stuck on scaling facebooks and social media, where the incremental amount of capital required for someone like a social media company to add to go from ten million to one hundred million users actually is marginal, whereas in climate tech to do that actually it's a really significant ramp up. And so there I think we need almost a new way of thinking about how we do that. From our perspective, it's partly working with public sector partners. So we recently closed a fifty six million round for Giapora, which s is the UK's largest producer of green hydrogen at the moment with UK investment back infrastructure banks sorry, and we're working with in the tax credit space in the US. We did a very large tax credit deal in Louisiana recently, so looking at what sort of government support is there and then how you can blend it with commercial capital to come in. But beyond that, I think we need to think about how we can play the insurance industry in I think we need to look at, particularly in saying some of these earlier technologies, how do you help what's called the off take, so where that product is being sold to, how can you strengthen the credit quality of that So can we look at guarantees for off takes and others. So we're looking at a number of different ideas around how we can kind of sort of structure these things to bring more capital and to tackle this missing middle.

And we're also looking at how we can bring in different types.

Of investors, so in solo and wind for example, but let's pick on solar for a second. There's also been a lot of focus around the impact of renewable companies and their valuations in terms of interest rates, and we've seen significant impact there. We are now moving into thinking about how we can use securitization to open up different types of investors. And actually we've recently closed Europe's largest abs securitization in the solar space. And so I think again it's sort of taking either traditional types of financing that haven't been applied in this space before, or looking at whole new structures.

And I want to dig into that a little more, this space of securitization. So I keep hearing of different instruments like transition bonds, and then they're more complex structures like you know, bonds that pay out with conservation things like that. So should we be creating such structures? And I guess what products are the need of the art today?

Well, I think, I mean it's a great question because I think in some ways you don't want to create huge number of completely new products that can be overly complex, that could create some confusion, maybe lead to some greenwashing concerns. But at the same time, we've clearly got a financing gap. So how do you kind of, I guess, do both of those things at the same time deal with both those types of issues, and so the one area where we spent a lot of time is around transition finance. So I think at the moment sort of everyone understands and has a pretty good idea. I think of what green finance looks like and social finance, but there's a lot less agreement around what decarbonizing these hard to abate sectors really can be. And there are some understandable concerns around greenwashing and the likes that you know, are you and so how do you tackle that? So we've put out with the first major bank to put out a transition finance framework that says, quite transparently, these are the types of activities which are aligned to an IA at zero pathway that we feel confident if we're financing we can call transition because we need to grow that space, and we're starting to see more and more kind of that sort of concept being brought into different transactions. So for example, we work with SNUM Italy's gas company to do the first EU taxonomy aligned transition bond as well. So I think how we can sort of merge a sort of robust definition around transition with access to capital markets is going to be an important tool in how we tackle this decarbonization challenge.

That's interesting, Daniel, thank you for being on. I think my biggest takeaway was that you know, when it comes to this climate climate tech, we have to not only discover the right technology, we have to scale it at a reasonable price that people are willing to pay. But then your comments also on the financing gap and how you know securitized products will fill that but still without greenwashing risks. I guess that was one of the biggest takeaways for me. But thank you so much for being on.

Thank you very much.

Thank you. Our next speaker is Kelly Becker. Kelly is the president of Schneider Electric UK and Island. Kelly, thank you for joining us.

Thanks for having me Gene.

Kelly, maybe just a quick brief introduction and how sustainability factors into your role.

Yes, so I have responsibility for all of our operations in the UK and Ireland and sustainability is really everything we do. So you could imagine from our own factories and facilities and how we think about sustainability and working on our own decarbonization journey. And then obviously sustainability is a huge part of the business. So on the client side, we're certainly looking at clients that want to look at their sustainability from a fifty thousand foot view and then getting into much more detailed solutions and services and products very close to an end user process.

That that makes sense. So, Kelly, I think it's very clear that Schneider works very closely with industry right to further decarbonization. So I'd love to get your thoughts in the use of such technology and enabling decoganization and any examples, okay, studies you have would be great.

Yeah.

So I think data is really changing the way we approach our sector and we approach sort of the broader energy challenge, and so this topic of digitization and being able to see how a process actually works or a building is functioning is a huge piece of our business now, very much driven by software platforms that relate then to services and what we're able to offer our clients. One good example would be Tottenham Hotspurs, which is the football club based here in North London. This is a great client and they've been a client, you know, at this point greater than ten years when they started planning that football stadium, and then we worked very closely with them as their energy partner to ensure not only were they designing really the first sort of net zero football stadium, if you will, but also how would they then run that facility in the long run. So we worked with them along the new construction side, but then now we continue to work with them on optimizing the use of the building. So how they use the facility for a football match is really different than how they use it for other partner events or a concert. And so we have teams embedded at Tottenham alongside their own staff to make sure that we're always optimizing and using the data that the stadium is putting out to make better choices and ultimately to drive more energy efficiency for the club.

That sounds interesting, So it's a big focus on, you know, the use of data in doing this. Absolutely. I guess is there any other you know, big opportunity or a market force and play that you think could really ramp up this decoorganization effort or ramp down.

I think what we're seeing is a huge amount of work in public and private partnerships. You know, in the past, I think large corporations sort of did their own thing and you know, publish their results. Governments, you know, certainly are here to make policy and regulation, and certainly in some sectors you saw huge overlaps, and I wouldn't have said our sector was that, But certainly as governments set long term net zero targets, the conversations are becoming quite deep around what do private corporations need to do? How do we work alongside public entities? What are those conversations? What are the different types of places that governments are having to drive and make decisions. So in our world that might be regulations around a new building, and you know, how does that need to be driven. It also might be help and interest in the transportation sector, and these are the kinds of very regular conversations. I would say. The other piece of that is collaboration is really happening a lot with all sorts of corporations, alongside startups, alongside SMEs, alongside governments, because the challenge around climate change is so vast it's going to take everybody's great brains makes a fact actually solve this together.

Yeah, and you mentioned policy and regulation and that comes that brings me to my next question. So do you think we have the policy mechanisms in place today or do you think policy is going to help further this or derail this, and you know what is the need of.

The r Yeah, I think you see you're seeing around the world governments take different approaches to net zero and decarbonization, and progress is absolutely being made depending on where you look around the world. Certainly the US has had its approach, the EU has its approach, the UK is having its approach, and they've all taken a little bit different view on how they want to go about it. But the end game is the same, which is around solving the climate change topic. You know, specifically in the UK, I think we've seen a lot of work done around electric vehicle implementation and the infrastructure associated with that. The utility in the UK are doing a tremendous amount of work around making sure the grid is ready for the future because what's coming with sort of this all electric world of the future is a different way that the grid has to operate as well, and so it's a critical topic. And then I think you're seeing governments work alongside big companies that are investing in their regions like data centers, to be very clear on what's acceptable in a certain geography and how do we do that. So I would say there's progress. There's certainly more that could be done, and we will continue to push and drive on that front to help be a part of the solution that makes sense.

And I guess my last question is you know, what have we solved for and what have we not solved for? In other words, you know, what is the challenge today? What is the need of the eye to as you mentioned progress? Thanks further, I think.

I think the topic is a little bit overwhelming for people.

It's a lot, it's a lot.

And you know everybody, uh well not maybe not everybody, but people are trying to solve solve climate change in their own ways, and they're approaching it in different ways based on their starting point. And I think what we need to acknowledge, both as industry and governments is any start as a good start, and where you start from is not necessarily you know, relevant to me. What's important is that as a business, you get started and you move and what makes natural sense. And I think most businesses that's why we see that. Certainly, I would say on the buildings side, which you know accounts for an enormous piece of the usage in the UK, old and efficient buildings and some of the historical buildings.

That we love and problem is a pretty.

Significant issue because of certainly so many of the rules and regulations around that, and we'll have to continue to evolve, and I think the government is very engaged in making sure that all buildings are driving. I would say the easiest thing is to change regulation so no new building is built without what you want it to look.

Like for the future.

And is that happening in some places? It's definitely, it's definitely starting. I wouldn't say that there's that clear cut regulation everywhere. Certainly the EU is driving a lot around building regulation and requirements and they are rolling that out very fast.

Okay, very interesting, Kelly, Thank you so much for joining us. I think my main takeaway was your point on the use of data in you know, approaching these decombanization challenges. And I think that goes a long way because you're a data company.

Yeah, data, data should drive your path and should decisions that direction forward, and so much of the technology and the market today can provide you with that data and help pull it out of buildings and industrial sites.

And that's just freshing, yes, And we'll leave it on that positive now. Thank you, Kevin, Thank you for having me. So next up we have Michel Budhau. Michuel, maybe just a quick introduction for us.

Yes, well, I am an entrepreneur.

I'm the co founder and today the executive chairman of Urban Partners. We are a large European investment platform that invests in the urban value chain, driven by a purpose and a belief that we can outperform by solving problems I eat, making better green driving cities.

Nice, So, Miguel, and past conversations, we've focused on the use of technology to decorbanize industry and these you know, these hard to abate sectors like steel. But you know, as you mentioned, you're an expert on cities, so I'm keen to better understand how can we use climate tech to aid decobanizations within cities and within urban planning. Any examples you have would be great.

Yes.

So, you know, we've been working on a Nitzero strategy for quite a few years by now, and in our work we realize that in order to create net zero buildings, which is obviously a requirement to create net zero cities, there is just a lot of things that needs to be done differently, and you know, really you can look at buildings from a carbon perspective, on an operational basis, and then on an embodied carbon perspective. So the reason why buildings have a negative carbon contribution is either through the use of it, the use of the energy, the up keep of it, or when you build it that the material you use consume a.

Lot of CO two.

And what's very interesting, one of my favorite sort of what I always make people aware of is I have this slide when I talk sometimes where you can see people in Egypt building, you know, three thousand years before you know BZ, and then I have a picture of people building in Bristol last year and you can see the exact same scaffolding they accept, same brick layering. And I think the point I'm trying to get across is that this industry, of some odd reason has really not innovated. And if you look at most other industries then you would have seen prouctivity improvements over the last fifty years. If you look at the construction industry, you've actually seen prouctivity decline. And what's fascinating is that a big reason of that when you look at what's been the driver of productivity improvements in most other big industries that have really experienced big productivity improvements, it's been technology. You know, it's been digitization, it's been you know, doing things in a more automated fashion, and that has not really happened in our industry. And therefore, I think the question on technology is that you just need to find new ways and new materials in terms of ensuring that buildings eventually end up becoming a positive contributors to the carbon accounting and ideally also biodiversity.

And this is really possible.

It's a design, it's a design, and it's a supply chain problem. And you also asked for, you know, a few examples, so you could say, you know, we've launched a company called twenty one fifty. It's a venture capital company where we use our knowledge of what are the big problems that we're lacking to solve to then identify technologies that address these.

Okay, do you have any examples? I do? I do?

I mean, so, you know, for example, we've invested into a company.

So if you look at what.

It's the biggest problem from a carbon perspective in the build environment, it's it's concrete.

So okay, yeah, cement exactly, know.

Because the way you create camandas you take lime and chalkstone and you burn it at eighteen hundred degrees and that uses a lot of energy and it releases a lot of suits.

One of the most govern intensive industry.

Yeah, it's accountable for roughly eight percent of the annual C two emissions in the world.

So it's a it's the biggest sinner.

And there we for example, made two investments, so one into a company that's using fermentation to achieve the same. So I, rather than burning lime and chalks done, you ferment it with bacteria.

So rather than blasting it.

Yes, okay, because in reality, all you're doing when you are when you're like putting it through the kiln, is that you are re orchestrating the molecules.

You know, how the molecules connect somewhat, Yes.

And so what these guys have figured out is that in reality you can achieve the same through bacteria.

Bacteria.

What bacteria does is it reorganizes molecules, you would say. Another example within the same sector is a company called carbon Cure that essentially injects carpin into the creation of concrete and allows it Like so when you do that at a certain temperature and certain pressure, then basically you can substitute cement with carbon, so you use less cement and you even capture some CO two as another example.

Sounds cool, Yeah, And I guess when it comes to these technologies, what is the biggest challenge we face in you know, scaling it or or what is just the biggest challenge?

I think that there are three big challenges. Actually, interestingly enough, I don't think the biggest challenge is the innovation or the invention of new solutions. I actually think the biggest challenge is what prevents the solution from being scaled, and it's typically supply chain problems because you could say, when you look at the construction of a normal building, you know, then this whole supply chain for creating the building is a supply chain that's been created over the last hundred years. And it's an industry that this incentivized, say, this incentivizes in reality for innovation because you know, construction to low margin business, so R and D is not something that you know, construction industry has the lowest R and D of any industry you can think of, apart from farming, and that means that you're not. There is a very little inclination to try new things. So that's one big problem. The other problem is when you do new things, you need to create a new supply chain that can actually you know, ensure that this new solution is scalable. Like we, for example, some of the first in the world to construct you know, multi residential a large project in Copenhagen where we you know, used ninety percent waste materials, so we basically used building waste to build new you know, so we recycled and that was a beautiful thing. It was great to show that this was possible to do in a commercially viable way. The problem was just that all this waste that we found, you know, was not readily available for us to repeat it. So when I went out and tried to convince let's do it like this, then any logic developer would say, but hey, have you like where you're building materials like you need to find them first.

That's too risk, you know. So that's one big problem.

It's the whole It's all about creating the new supply change that enables circularity and enable basically new materials, you could say. And then the other challenge is legislation. So you know, for good reason, often or not always, but often for good reason, there is opposite legislation that is in place in order to avoid building collapsing.

You know, I mean like quality control.

Quality control, you know how the materials you know, can can concrete, you know, do the carrying load that it needs. So there's lots of regulation that has been developed over the last a gene hundred years. And again you know, the regulation is not incentivizing use of new materials or new solutions. So really what we need is we need to both have a regulatory environment that is supporting doing things in a new way, in a better way than's happening today. And then we need in reality capital that is willing to front run the innovation of new supply chains. Because you know, when we build this building out of waste materials, again we did it at commercially sort of viable terms, but here I have not included the extra time that we used as a company to source these materials for example. So so every time we do something in a new way, well obviously it's more costly until you eat scale. And there we need abously capital that's willing to essentially, you know, invest in reaching that tipping point, and that's for example, we do with with with fifty you could say, you know, and that's also what we do then in our own construction. So we obviously try to be also a demand generator of of these new solutions.

Nice, I think you already answered my next question, but it was around policy and how policy can either help inhibit or progress this. I think you already spoke about how it's inhibiting this. Yes, any other thoughts.

Obviously, the best.

Way that it can support is is to you know, in particular, when we speak about carbon it's to make a carbon tax.

I see, yeah, super simple.

Now that the problem.

You know, I've always been a big fan of Markhani, and he wrote this book called Values, which I think very simply describes why we have a problem. And because the simple problem is that the financial system, which is essentially is the world's largest reward system on centiviization system, was set up, you know, after the Second World War with an objective you could say, that's different than the situation where now, because back then there was not an awareness that you know, the world's resource of plans. Resources are limited, but they are no and that means that the financial system we have today, you know, only puts a value on the amazonas if it's chopped down. But you know, I think it's very clear for us human beings on this planet that we actually value the amazonas not being chopped down. But we have a financial system that actually incentivizes to be shopped down. So it's quite simple. We need to make sure that these negative externalities on how we value things are fixed and carbon you know, tax is one very very simple measure that makes sense.

And I guess my last question is, you know, when I think of cities urban planning, I think a lot of as you might know, like government and public private dough what is it called partnerships? Yes, So what is the rule that you know, those such mechanisms play in furthering this or not furthering this.

Well, I think that's what I'm why I am so fond of city exactly because I think the city you can if you want to create a green, thriving, will functioning, holistic, inclusive city, then that is a very very aligned project with the municipality. Yes, and it can only be solved together with the municipality. And I think that part of the reason why our industry has not been so good at This is because in many parts of the world, real estate has been seen more as an asset for an institutional investor than a product for the users of the city. And when you approach real estate as an asset, then you're not aligned with the municipality.

And my view, that approach.

Basically kills like Ruin's value also financial value. So an example, if you create a whole new part of town and you engage with a lot of individual developers who each are creating an asset for a pension fund, then they will all want to create an office with a fifteen year lease with Price Waters Coopers. Having a city with twenty of those buildings is not a particularly wonderful city to be in. Whereas a city where you have a kindergarten, you know, where you have an ocean bath, if it's at the ocean, where you have social housing, we have mixed use, is a much more appealing place to live in. Actually, it turns out there's tons of research on this, but again it requires that whoever creates this actually has a long term perspective and actually, you know, is positioned in a way that they can also reap the benefits of creating that much more valuable student. And that is what you need to do in partnership municipalities who for example, rather than trying to sell the land to the highest bidder, but where whereby there's less you know, actual financial capabilities to build something fantastic on top, maybe goes into a joint venture with this and say, hey, we contribute the land and then we can use all the resources on just you know, solving these problems holistically to create a better, holistic city. So public private partnership, in my view, is essential for creating green, thriving cities. And it's a discipline which is fairly under developed.

That makes sense. Michael, thank you. This has been very, very interesting. I think my biggest takeaway was your point on the construction industry not innovating enough, and I guess maybe the role of legislation which requires some more incentives, and the rule that carbon taxes can pay and just you know, furthering this long.

So thank you those two three things.

Nice.

Spread that work and let's make the change.

That's what we're here for. Thank you so much.

Thank you, Gene.

Next we have Chris Stardwell, who's the global head of policy and advocacy at IMPACTS Asset Management. Chris, I'd love to focus on energy policy and how this can drive all these climate technologies that we've been talking about today. So my first question is to you, is you know when it comes to innovative climate technology, what aspect of energy policy can enable this and also derail it? And sorry, you can give a quick introduction before I forgot to ask.

Sure, it's great to be here, so I just by way of introduction, so I spent twenty years working on climate policy in the UK government and then helping to support a range of countries around the world both develop and implement their Paris climate commitments.

And I have been at IMPACTS, which.

Is a specialistasset manager for focused on the transition to a sustainable economy for the last four years. So I think it's a great question. And the way we think about the sort of policies that are going to affect the energy transition is we sort of break them into three buckets. So there's one set where they're already cost competitive and ready to kind of move out at scale, things like renewables, electric vehicles, you could even say home energy efficiency measures in the home, but there are barriers to things happening at scale, and policy needs to kind of needs to kind of get those rails running smoothly so that we can move further and faster to try to hit our climate goals. The second one is areas where the technologies are not yet cost competitive, but we kind of know we need them, but it's a balance of kind of chicken and egg supply and demand. How do you actually create enough demand out there and you end users off takers for the technologies to accelerate production to the level at which you start to get economies of scale and the cost goes down and then it becomes cost competitive. So in that area you're talking about kind of government grants, subsidies, you require mandating a certain share of something to be done by a particular thing, or in some areas, coalitions of buyers the globe, the kind of first movers coalition that's committing to buy green cemental, green steel. And then the third area is kind of almost like the known unknowns, the ones that we haven't quite got to grips with and we don't really understand what the funding model's going to look like. And you could put into that area some of the nature based solutions where people have got ideas around carbon credits, but they're very much in their naissance and generating revenue from those, but also some other things like geoengineering direct air capture. So coming back to your question though, I think are really interesting example of where things can come unstuck in the first case is around community acceptance of those technologies.

So the real.

Issue we've got at the moment with renewables is planning and permitting and also grid connection. How do you make sure that you've got or investment in the grid. How do you make sure you've got a big enough grid and a grid that can get the renewables from.

Wherever they're generated to the users.

And the issue there is that that probably is going to involve pylons going across other people's land, or it's going to involve the building of solar farms on farm stuff that's currently farms. So you've got conversion of land and local communities who are affected by that conversion. But it's and that can cause resistance unless you work out a way of getting their buy in. So another area that is linked to that is around just trans and how do you ensure that someone whose job was in an old fossil fuel based industry and is now becoming potentially there's another job, but it's in something different. How do you get over that? It looks fine on paper and from an economic perspective, but how do you deal with the people factor? So I think it's that people factor. Great example in the UK at the moment is the Portal but Steel Works where they're switching from a blast furnace to a more efficient electric art fares and it's going to take a three year process and there's tens of thousands of people whose lives are affected during those three years.

What do they do?

So that's where governments actually need to kind of take ownership of those problems and work to help get communities and come up with solutions that solve for it. So I would say it's about clarity of direction, but also a proper fully understood policy that deals with the broader consequences of the change, doesn't just think about the technology, but thinks about how you take society with you.

That's interesting and I guess just a follow up to that is is policy at a place where we're doing that right now? Or is it you know, is that something that's needed that.

So interestingly, I think people are now really starting to focus on some of these problems and how we address them. I think the difficulties is that going to be It's going to be quite tricky. It's going to need a lot of political commitment and political nerve, and hopefully if you've got cross party support for things, that will make it much easier, because if you don't, then people will make mischief with that potential division. One of the things I was just talking about in the talk downstairs was about Rishie Sunak's speech last year, where everyone was saying, oh, he's doing a U turn on all of these policies. There were some upfront policies that were actually, you know, we're being delayed. But actually, if you read to the end of the speech or you listen to the end of the speech, he was he was really advocating that idea around permitting reform planning, how do you speed things up so actually you can decarbonize the grid. So you kind of need to look at the detail of this stuff. And there is a recognition of this, and you'll see the same thing in Labor Party manifesto. There's a whole bunch of financial sector figures that have been coming together putting forward ideas, and this is one that everyone's agreed on them.

I never thought about that community aspect and how much of a role I guess policy can play. So that's that's really interesting. So my next question is on the ESG backlash, which I think enlightened day. I don't know if it enlightens your day, but so, how do you see this backlash shifting policy priorities today or in the future.

Yeah, I suppose the first thing to say is that we kind of think the backlash is maybe a little bit overplayed. Our conversations with investors in the US have much convinced us that almost all of the things you would be doing under a label of ESG are being done.

You know, people are.

Thinking about physical climate risk and how it's going to affect their future, that the future investments, they're thinking about the pace at which the transition happens, they're thinking about social issues, and you know, the degree to which they're material for financial So there's there's it's still going on. It's just it's just kind of if you talk about ESG, they're dropping the they're dropping the as.

Yeah, definitely, that's what I heard.

And the other thing is that even in even in the US, again that the politics of this are that proposals have been suggested, but when they actually get through to the legislation gets through to sort of state legislatures, and they've realized that what they're doing is they're restricting their options on things they can invest in that might actually mean they make less money for the pensions, they've rejected them. So you know, there's a lot of rhetoric but actually less action that The problem I think we've got is that if you start to politicize an issue like this, then you start to create tribes that will follow different issues. And if you start to treat climate, which is a really serious issue, as a sort of political expediency, then you know, we could go the same route as we did with Brexit, where effectively you've got people sort of camping out and families arguing about an issue that really shouldn't should shouldn't be politicized. So that's where I'm That's where I'm concerned. How does it differ. It differs, you know for every country, because every country has a different approach to these issues. You know that you're seeing quite a lot of pushback from farmers in Europe at the moment, which maybe suggests that the message around the role of farming and how they can be supported hasn't been particularly well played in those countries. In China, you know, actually China is just moving forward, you know, regardless, they're like, without a doubt, doing more than anyone else to kind of address climate change and the technologies that they're investing in the amount they're investing in it. In India, it's a different story, and you know, there's quite an entrepreneurial aspect of these issues in India and green technologies and the solar expansion part of it driven by self interest because of energy security concerns. Yeah, so you know, that's a fascinating thing about this. So I used to work on the international climate negotiations and it was just amazing to understand what the real interests were of different countries and then to sort of think about how that affected their negotiating positions.

And I think, how different.

Yeah, we see the same The transition will proceed in different ways at different paces in different societies, and we have to you know, be sophisticated enough to deal with that.

That's interesting and I like your point on you know, the backlash being overblown because we find the same thing. You know, people are doing the same thing. They're not just they're just not shouting it out from the rooftops.

I guess, okay, so, and I guess the last thing I would say is that we're increasingly seeing opportunities for investment in emerging economies, so that is, you know, the transition is gaining pace there as well, despite these policy barriers. The economics of doing that taking forward these actions are pretty uncontroversial, and consumer behavior is changing globally, which is creating demand, so you have it's just that things would move faster if they had policy support. Question is happening is just happening in a clunky way rather than a way that could be smoothed by policy.

And it's interesting you say, the economics of this as still you know, working and there are opportunities. So I guess my next question is what are a few major investment implications from this changing policy landscape? And if you have any fun examples of case studies.

Yeah, I mean, I guess one of the one that immediately springs to mind is has to do with home energy efficiency and the degree to which we've seen even in the UK as a result of policy change. About ten years ago, we switched to a new policy called the Green Deal, which whereas we did have a policy that subsidized things like loft insulation and those sorts of activities, and you know the same policy would be applying to heat pumps now, but it shifted instead to a oh no, now you've got to borrow money, and you have to borrow it from the government, and you have to then secure it on your house, and it just created lots of barriers to behavioral to that behavioral change, you know, it was it was just about a place where people were willing to do it, even though it sounded a bit dull. You know, heat pumps and insulation are never going to be sexy topics.

But it now it just failed it.

Back then, it failed to get off the sofa test, and we saw that sector collapse by ninety percent, you know, almost in a year, and it's not recovered since. So what we really need is to get this to move up. And there's lots of really good solutions out there and businesses that will provide them, but you need to invest in skilled supply.

Chain, You need to have.

You need to have the materials available in the country, and people need to know there's demand going to be coming from the UK and in the absence of having that strong and people need to have the information to know what to buy and what's the sensible thing to buy and get that advice from government. Unless you have policy coming in, all those investment opportunities are going to fail and the UK will still not address a major source of its emissions. So I think that's a really good example of one where we're currently failing. But there are places in the US, Like in the US, you know, solar panels on rooftops, you get tax exemptions for it. Doing the same thing to your house. It's really it's much easier to access that finance there.

That's true. And Chrissia mentioned that you know, each country is on its own transition path kind of. So I guess my last question is when it comes to, you know, all these reporting regulation, are we ever going to have a convergence and if not, how does an analyst or an investor navigate this patchwork in a global society that we have to do.

So I think we're in terms of kind of financial and corporate regulation on ESG. I think we are at the moment of sort of mass confusion and mass divergence.

That's a study, you know, like that mass diversions.

Yes, So we started with a and with ideas about problems that we wanted to address, and well, let's start with impacts is experience. So we twenty five years ago Impacts started up looking at this stuff and we were we were doing it. We knew why we were doing it. So we developed a taxonomy because we wanted to identify a whole swathe of companies that we could invest in because we were setting up an environmental markets fund we developed we wanted to look at the risks associated with those investments. With that understanding of physical climate risk and of transition risks, so we've applied that. We wanted to report back on our engagement with our companies, so we developed methods for that then. So we were doing all the methodology stuff and then we get asked to disclose it by our clients. So what we have are these things called beyond financial return reports that we did that broke all.

Of this stuff down for every strategy.

Quite complicated, but at least we knew what the use case for it was we understood it, and then along came policymakers coming, Oh, we need to it's the wild West out there, We've got to regulate all of this. But I think what what we've had is we've gone from this blooming of many flowers into a world where suddenly, with all those flowers blooming, the regulators went, yes, let's capture a whole bunch of these metrics and require everyone to report. And now we're all sinking under the way of reporting lots of data that isn't necessarily decision useful.

It's about exactly So.

I think if we came back to this question of use cases and we really thought, why is it that we are asking people to report this data and how is it then going to be used in making an investment decision, I think you'd come up with a much less onerous regime. Whereas at the moment what we've got is the European Commission kind of rushes ahead and does everything, whereas you know, say the UK or the US are being a little bit more principal base, and that allows a bit more flexibility so that you know, you can decide what's material yourself. The answer probably lies in between the two. But I think if we could, if we could identify those sort of common but important metrics and focus on those, then I think that would be the route to a sort of interoperable regulatory systems.

That's a good middle ground. I guess, Chris, thank you so much. I think my biggest takeaway was the community acceptance and the role that policy pers Like I said, I never put those two together, so that was my mistake away.

Let's hope that that's an inspiration.

For people to.

Yes, thank you so much, thanks so much for having me. And that brings us to the end of our episode here at the Bloomberg Sustainable Business Summit in London. Just some quick key takeaways. When it comes to climate technology, there is a financing gap that new innovative securitized products can fill. However, we need to do this while avoiding greenwashing. Today we have a lot of data and analytics to enable decorganization. I think that's you know, a positive thing that we see today. And then lastly, when it comes to the ESG backlash, I think many people find that we're continuing to do what we do, which is you know, sustainability risk and looking at opportunities but perhaps we're doing it with a different label or without the label, And those are really at least the key takeaways for me here at the summit. You can find more information on climate themes and more by going to BI SG on the Bloomberg terminal, which opens up Bloomberg Intelligence or Research Dashboard. If you have an ESG quantary, a burning question you would like to ask bi's expert analysts, please send us an email at ESG currents at Bloomberg dot net. Thank you everyone for listening

In 1 playlist(s)

  1. ESG Currents

    79 clip(s)

ESG Currents

ESG has become established as a key business theme as companies and investors seek to navigate the c 
Social links
Follow podcast
Recent clips
Browse 79 clip(s)