Clean

What Donald Trump’s return means for US climate ambition

Published Jan 18, 2024, 5:00 AM

Tom Steyer is a hedge-fund billionaire who made his money investing in distressed assets, including fossil fuel projects. He’s also an avowed climate activist and a major donor to US politicians seeking to tackle climate change. After a short-lived run for president, Steyer in 2021 set up Galvanize Climate Solutions, a firm that invests in companies and technologies promising emissions reductions this decade. It recently raised $1 billion. 

Zero host Akshat Rathi spoke with Steyer at COP28 in December, to ask why he got out of fossil fuels, the consequences of bad carbon accounting, and what the return of Donald Trump would mean for global climate ambitions. 

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Welcome to zero. I am Akshatrati. This week Presidents, Billionaires and power.

Back.

In twenty twenty, nearly thirty people competed to be the Democratic nominee for president, all hoping to go against Donald Trump. One of them was Tom Stire. He spent ten million dollars of his own money on ads to drum up support to impeach Donald Trump, and then over the course of his presidential campaign, spent hundreds of millions of dollars more.

Join us and tell your member of Congress that they have a moral responsibility to stop doing what's political and start doing what's right.

Long story shot, Styre dropped out, Trump lost, and Joe Biden became president. But Stire was not just any billionaire frustrated with Trump. He entered the race with significant fundraising experience for Barack Obama, Hillary Clinton, and also from many environmental causes. He started a political group, Next Gen, that focuses on getting young people to vote for Democrats and environmental candidates. Tom's wealth comes from his decades as a hedge fund manager at Farallon Capital, which specialized in distressed assets, assets that people often sell at below market price for quick cash. Some of his investments were in big fossil fuel projects. Tom left Parallon Capital in twenty twelve before becoming a full time environmental activist and political donor. After the presidential campaign. In twenty twenty one, he announced a return to finance through Galvanized Climate Solutions. In September, Galvanis announced it had raised one billion dollars for its Innovation and Expansion Fund, which is designed to invest in companies that would have an immediate impact on reducing emissions. I spoke with Tom at COP twenty eighth in December to ask why he got out of fossil fuels, the consequences of bad carbon accounting, and what the return of Donald Trump would mean for global climate ambitions. Tom, welcome to the show.

Thank you so much for having me.

Your history coming into climate has been as an investor, and a lot of the money that you made when you ran in your hedge fund Firelong Capital was through things like constructing a four thousand acre coal mine in New South Wales. You've since left that firm and you've sold off your fossil fuel assets. But what prompted you to go from making money with fossil fuel assets to being a climate guy.

Well, let me say this. We invested in pharilhan in every industry, including fossil fuels. We were not fossil fuel investors. We were generalist investors across the board. In fact, I went back and looked, because of questions like that, to see what percentage of our investments and income came from fossil fuels, and it was substantially less than fossil fuels is a percent of industry, either in the United States or the world. But the truth is, starting in about two thousand and six, as a result of a trip to Alaska, I really got a chance to see physically what climate change looks like. And I made a decision, and our whole family made a decision that we were going to actually try and go after it. And so, starting in two thousand and six, I went through a series of revelations about what was necessary to do, what was possible to do, and what was critical to do. And part of it, of course, was getting rid of all my fossil fuel assets, you know, more than a decade ago. But really what it really was about is not so much of avoiding those problems. It's really about I say, it's not about devestment, it's about investment at this point. Really, what we have to do is make this transition. And so it's really a question of there's going to be some big emitting industries which are going to be a critical part of decarbonization because they're going to have to change their supply chains. So I look at this honestly, for everybody in the world, including you and me, we've all participated in a fossil fuel economy. I certainly have, and I think what's necessary to recognize is that's an economy which really can't continue to exist, and so we have to figure out how to make the transition in a way that's best for the people of this plane.

Well, we continue to participate in the fossil fuel economy because sometimes, well oftentimes we don't have the alternatives ready. We are here talking in Dubai, having flown from our relative homes to this.

This is the biggest emitting airport in the world.

Indeed, and so in September galvanized and now is that it closes its Innovation and Expansion Fund, which will invest in startups aiming to provide climate benefits in the next decade. Which companies have you invested in and why are you excited about them?

So we've invested in about fifteen companies so far. I'd like to talk about a couple of them. In every case, what we're trying to do is invest in companies that can scale to meet a global problem, and in many cases we're in places where the problem is not the one that is the most obvious to everybody looking at climate. So, for instance, we invested in a company called Regrow, which really gives information to consumer package good companies, food companies about their supply chains so they can know actually what the emissions profiles are of the supply chains of the people who are growing the food, so they can figure out how to clean it up. From a scope three standpoint, this is an information based process. Agriculture is a critical part of the solution and the problem in climate emissions, and therefore having the information and making it available to the people who are really the end customers is something that we consider has to happen and has to happen in the next decade.

And you said a couple of examples, so.

Let me give you another one. One of the hard to abate sectors is concrete and cement and that's a worldwide industry produces about eight percent of emissions. It's one that has been very resistant to improvement. And what we're doing there is once again using information on a real time basis to change the mix of the cement and concrete without weakening it in any way, shape or form, making it less expensive to produce, and also reducing emissions by up to fifty percent. So when we look at these in every case, what our opinion is you have to be able to provide a better, cheaper, faster product in the marketplace that people will choose for its own sake, which also dramatically reduces emissions.

Over the past five years, we've seen a number of clients funds launched, especially investing in startups, and that's been really important for startups to get going. There's been a crowding in of capital, there's been a crowding in of ideas. But you're also doing something different beyond the traditional investing in startups. You are getting into real estate. You're going to as I understand by billions of dollars worth of assets. Maybe they're housing students, maybe they're warehouses, and you're going to make them more energy efficient and you're somehow going to make money from it.

Yes, we are. I mean this is a classic brown to green move that literally no one in the United States is doing.

So how is it classic though, Because.

What you're really doing is making investments to clean up the emissions profile of a building, which, as you said, could be a warehouse, it could be a manufacturing facility, it could be student housing. So you're making investments to clean up its emissions pro file, which will indeed save it money and increase its net operating income, make people more likely to want to rent it, therefore increase your income, get a higher multiple when you leave, and make more money as a result of it. And we need to do that to show other people in the built environment that doing this is a way to add return on an annual basis in a measurable and important amount.

Have you already bought those assets?

We have just done our first close as a matter of fact, I believe last month, and that gives us the ability to start closing assets. I don't know how much the people listening to this podcast know about American real estate, but American real estate is in huge flux as a result of the increased interest rates in the United States, and so as a result, what we're seeing is the beginning of a huge supply demand imbalance where a lot of people are going to be forced to sell and there are very few people with the money to buy. So we believe it's a very good time from a market standpoint. We're looking at a number of what we think are unusually anomalously attractive situations with much bigger spreads to the curve because people are forced to sell. We're probably in serious negotiation on about seven properties around the United States.

What you said you're doing with your real estate assets is trying to show that you can actually make money great.

More money, make more money from around that it's more profitable to do the clean thing.

But that's the case yet to be proven. What's the case that you have proven that would allow you to buy into this idea, which would be climate capitalism.

I started Galvanize with my old partner and old friend Katie Hall Catherine Hall, to basically do a series of investment activities all around impact. We have an impact team that looks at every single investment before we make it, monitors it after we make it to prove that in fact, it is making a difference in in terms of emissions. But long before Katie and I started Galvanized Climate Solutions, I had been investing in clean energy really for it at least a decade. So in fact, when I was looking at this, I know that what is called clean tech one point zero had a lot of issues. But two things happened. A we did really well and B if you look around the world and you look at what's happened to clean energy compared to fossil fuel energy in terms of costs, you can see that whereas people seem to think that solar and wind is more expensive than natural gas or diesel, in fact it's much cheaper. And we've seen the cost of storage go down by ninety percent and it'll go down another ninety percent. So when you say what's going to make it work, our attitude is people are going to buy things that are cheaper, better and faster.

Another area you've invested in is in carbon accounting. There is a whole mess around carbon accounting on corporate emissions because the way you count them their different scopes. They scope one, which is direct emissions from your own assets burning natural gas in your building. Scope two, if somebody is burning natural gas for you and providing electricity or scope three, which is essentially anything that your company touches. There's been an increase in the amount of disclosures that companies have made voluntarily in some parts of the world, including in California. There are now regulations coming in to require that companies tell the public how much they emit on all of those scopes. It's happening in the UK, it's happening in New Zealand. The EU at some point will come up with its own rules. But how far does just disclosure take you? Because it's not like financial accounting. If a company commits financial accounting fraud, they pay huge fines and sometimes even go to jail. With carbon accounting, none of that exists right now. We're only at the phase of requiring disclosures, and even there it's only really California.

So can I correct you? Yes, what California is requiring is that every company that does business in California, the fourth largest economy in the world yep, that does more than a billion dollars worth of annual revenues anywhere, has to report there in California. No a billion dollars of revenues anywhere in the world combined. So that's I think about five thousand companies. Right, then you have to report through Scope three. And when you think about it, so you're right, you say, Okay, there's no enforcement mechanism for people who lie, but for starters. You're forcing people to actually understand for themselves what the emissions profile are is of everything that they touch. So, from my standpoint, the ability to measure in a reliable way disclose and enable all all the good think you know, all the people who want to do this from a good standpoint, including the managers of the company, the people who are outside the company but want to see what's going on. So, for instance, if you and I each had a factory opposite sides of the street, and yours was very clean and mine was very dirty, then everybody in our neighborhood and everybody around the world can see that I'm not doing a good job and you are. And then, third of all, it enables policy in terms of certainly accounting, but much beyond that in terms of border adjustment and ability. Since this is basically, if you'll excuse my saying, so, an accounting flaw that people are allowed to pollute without paying for their pollution. Ye all this says is okay, now we know what your pollution is, sir. What we choose to do with that is definitely up in the air. But until we know, we don't have any ability to do any of the things I described.

Now. One topic that's being talked about is blended finance, which is the idea where different types of capital, philanthropic capital, government grants loans from multilateral development banks de risk a project in developing country, and then private capital can come through. You've signed the giving pledge, which is you're going to give all your wealth away.

I believe the pledge is actually half oh sorry for what it's worth, but I think the actual answer will be more than that.

But sorry, sorry. It says the majority of your wealthy, right majority. You've signed the giving Pledge, which says that you're going to give the majority of your wealth away. Have you considered using some of that to try and speed up the transition in developing countries, which is where currently the need is the greatest.

So let's just take a step back. I mean, I think the basic rule of climate responsibility is the less responsible you are for the problem, the more you're going to suffer. And so what you're directly alluding to is the fact that the global South by and large, has emitted a fraction of the greenhouse gases that are causing this problem and is suffering disproportionately, so that, for instance, I'm not sure of the exact numbers, but I know that Pakistan, a third of whom the population of was displaced by a gigantic flood, had emitted way less than one percent of all the emissions since this began. I mean I heard the numbers as low as one tenth of one percent. So that's shockingly unfair, obviously. And so the question is, how are we in fact going to deal with the cost the direct costs of the climate crisis in the developing world, and how are we going to enable the developing world to actually be part of the solution and to be I'm talking about making money and solving a problem, and how are we going to make sure that the developing world participates in that opportunity. So let's discuss a couple of things. One of them is what's really going on in the developing world. So, for instance, in eighty six percent of the net new electricity generation capacity was actually clean was renewable. The issue here is not really about the project, it's not really about the cash flows. It's really about sovereign risk. And so I know people talk about blended finance, and I know that they look at all those different levels and they think that they can in effect provide cheap first loss money from governments or nonprofits and that that will make it worth it for the people who are providing the private sector equity finance riskier finance. But the truth is, in my opinion, the critical part is to take away that sovereign risk, which goes through another that shows up in a number of different ways, and I've lived all of them, I promise you. But that is really the issue where if, in fact, I don't care if it's the World Bank or a government or the United Nations can take away that risk, then we just get back to the project, and then we just get back to the cash flows. And that is a place where private industry can be very aggressive when it comes to sovereign risk. If you think about it, when something goes wrong in a country, everything gets hurted, and it's not like the fact that there's first loss money is going to make you better. Yeah, the first loss, money's gone, so you.

After the break. While the youth vote is key to US climate policy, we are less than a year away from another US election, and pulls, you know, twelve months out. I don't know how much to believe them, but do suggest that Trump has a real chance of getting re elected. What would trump victory mean for progress on climate given the past four years under your.

Wide Well, I know that what you're driving at is the idea that mister Trump, in a second term as president, would go after the Inflation Reduction Act, would go after all of the climate related policies, And in fact, the Heritage Foundation wrote up a long profile of exactly how to go after every climate related government investment and program. So I think that is a starting place for what people worry about. But I actually don't think that's the biggest risk. I think the real risk here is that for us all, not just Americans, but people around the globe to come together and solve this problem, we basically have to acknowledge not just that we have a problem, but that we have to solve it together. I think the biggest problem with mister Trump would be that as he moves much more towards a selfish autocracy trying to literally raw walls around the United States as well as figuratively. That sends a message to the rest of the world to do the same. Since this is a global problem. If we decide every country is in it for itself only itself and has no interest in participating together and working together, that shoots a hole in everything we're trying to accomplish.

And yet the US in general has been a problem for the world when it comes to climate When the world has been united on trying to do something about it, the US has in the past been the exception. So it does matter. I agree that the global risk of a more protectionist world is a big one, and of course we're talking at a time when the US has just hit a new record on oil and gas.

Production, biggest oil and gas producer in the world. Correct highly aware it will also point out to you that what I consider to be the most significant cop achievement was probably the Paris Accords twenty fifteen, which really began a year earlier with a direct bilateral agreement between the US and China, then the US and India, then US and Mexico. So in fact, what I was trying to say to you, was it's really critical in this that the US be part of the solution, you're saying, Tom, When they aren't part of the solution, it really sucks. Yes, yes, check, I got that, and that was my voyt. Yes. When the US is part of the solution, then people feel like everybody's linking arms and dragging together. When the US pulls back and says no, we have oil and gas interests, we have coal interests, we're in it for ourselves, good luck, everybody else says the exact same thing, and the world can't progress. That's why I said to me, the biggest risk isn't the IRA. To me, the biggest risk is how we relate as countries, both bilaterally and across the board.

You have used your money to try and move the ball on climate, and so what are you doing to ensure, regardless of the political outcome over the next twelve months, that the gains made on climate stay continuous and maybe grow.

Well. Look, so, first of all, there are two things that I believe in that scale around this problem. One is government, which I've just made a long, impassioned argument for, which basically sets the rules. You know, when you were saying why even measure it? It's like you measure it, so you're going to have a framework to actually manage it in a policy way as well as in a corporate way. So that's one thing we can definitely do. And the other thing that we can do is we can really drive down costs and provide better, cheaper, faster stuff that happens to be clean. So what am I doing about it? For one thing, I believe that when you look at US elections over the last decade, the critical factor about who wins is youth turnout. People between the ages of eighteen and thirty five, biggest generation in American history, most diverse generation in American history, most progressive generation in American history, voting at half the rates of other Americans when they turn out progressives. When when they don't turn out progressive louse period the act.

And currently the polls say, given what's happening in Israel, and.

So we started the largest youth registration and engagement organization in American history in twenty thirteen, which still remains the largest youth registration engagement history organization in American history. I know what the polls say. Believe me, I understand we probably generate those polls to be exact. So I'm very concerned about how this will turn out for a variety of reasons. But I believe this is a very progressive generation. I believe that we will get back to a place where Democrats' win seventy percent of those votes. And if that's true and we go over fifty percent turnout, we're going to win.

You held a fundraising event for Joe Biden recently. How much of your own money are you giving to Democrat candidates over the next year.

First off, of course, I don't know, but that's not really what I'm doing politically. What I'm doing politically is trying to make sure that we have a representative democracy, including young people. And to me, if we get a fair turnout of people across the board, I believe that we'll get the right answer. I really do. And I think that the issue here is not about convincing people. It is really not. It is really a question of are we It's who shows up to vote. I mean in the United States, I always whenever people are talking about persuasion, I would say, to let me ask you one question, have you ever persuaded one Trump voter? To flip one time.

Well, this is the other question I wanted to ask. Then I know that kind the politics in America is polarized and polarizing, and I don't know how far apart it continues to go. But there are still some Republicans who get it, who understand climate change.

Okay, just so you know, there's a as I mean, I may in fact follow this more closely than you do. Yes, there's a Pew report out earlier this week which basically said, Look, Republicans know climate change if you ask them. Somewhere, depending on how you ask the question, between mid fifties and mid seventies of registered Republicans acknowledge climate change, acknowledge its human cause, and would like to move to clean energy. Check that's not how American politics works. Yes, if you ask Democrats is this important issue? By and large, they say yes, and a pretty high number of them say it's a critical issue. If you ask Republicans if this is an important issue, they say absolutely not. It's our nineteenth issue. So the fact that they agree is one point, but they don't vote on it. And if you don't vote on it, then it doesn't matter to the person who's running for office. And that means that the other things that matter around an issue are the things that actually determine what office holders do. And let me use an example that's not climate I think something like ninety percent of Americans would like to have much stricter gun rolls. We're all sick of it. We all get it, everyone gets it. Most hardly any of that ninety percent votes on it. Of the ten percent to disagree, they all vote on it. So if you're running for office, you sit there and go like, Okay, I can get ten percent for free and lose nothing, or I can do the right thing and lose ten percent. We don't have good gun roles.

But going back to the Inflation Reduction Act, one of the things that's baked into it, which is the money it gives out largely is going to Republican states. Have you been working with some of these Republicans to ensure that the money that they are getting will be more that they can continue to get, that they will continue to use the Inflation Reduction Act and not destroy it.

Look, the experience of people on in American politics is that when a plant goes into their district, they support the plant no matter what including clean tech plants, including EV plants in very very conservative red states. So do I believe that they're actually going to yank everything from the inflation? No? You ask me what am I worried about, and I told you global cooperation. Am I. I didn't say anything about IRA because from my standpoint, by the time we get there, it will be largely baked in in terms of the deployment aspects.

Now, there are things in politics that are sometimes not said. A lot of said, but sometimes things are not.

Settings are not said.

You know Joe Biden very well. What do you think is a thing that he hasn't said that you wish he would have said or you would say for him?

The issue with Joe Biden running for president in twenty four is all about his age. You know. I think when people look at the job that he's done, they will say, by and large, he's been an excellent president that across the board he has actually produced, you know, very very well, put together a really good team, make good decisions. The economy is doing well. I think the issue with President Biden is that people are worried about and the Republicans go after him in terms of his being old and I can say this having spent some time with him. He's very smart. People do not understand. There is no doubt in my mind that intellectually he is just fine. He has never been somebody who's been a great public speaker, and I think that people therefore take that and suggest that he's not a good thinker. But I think if you spend any time with him personally, you realize, oh my god, this guy's sharp, honest to goodness, and that's what I think. He can't say that, but that is the truth.

So bringing this back to Galvanized, then you're looking for near term impact. You're only just started, like fifteen companies.

Well, we're doing it, but as you said, we're doing a number of different investment activities and we're going to keep doing more.

But what is it that you hope you would have achieved by the end of this decade with Galvanized.

I would hope that what we're doing is that we're a serious financial player. Every single investment has real impact, and we can measure that impact, and we want to do that in a number of areas to show that. In fact, this is the way that people seem to think that there's a trade off between impact and returns. We want to prove the opposite. I think the oil and gas industry makes about two and a half trillion dollars a year. They get one and a half trillion dollars of hard subsities. If you inclose indirect subsidies, they get seven trillion dollars a year. It's like we're a place where the lines have crossed, the lines have cossed, and we're not even charging for pollution. The smart money is moving away from oil and gas. The smart money is moving to the future of a much cleaner, more sustainable world.

And in your own journey, what would be the places where you would check yourself, where you may have a time horizon and you may want to evaluate whether what you're doing is working, whether it's paying off.

I've been working on climate for more than fifteen years. I spent eight years making no money, but in fact pouring money into the idea of changing the way Americans thought about climate and trying to get us to win the argument so that in fact we wouldn't be disappointing you when we went to different cops around the world. But we're showing up with vigor and gusto to do the right thing, and I've been trying to show that. Now we're at the execution phase where we have to get it done. So is there anything that is going to prevent me from continuing on that journey? I guess either I could die or we'd win. Either of those would make me stop.

Thank you, tom My Pleasure. Thank you for listening to Zero. If you liked this episode, please take a moment to rate or review on Apple Podcasts and Spotify. Share this episode with a friend or a hedge fund billionaire. You can get in touch at zero pod at Bloomberg dot net. The producer of this episode is Oscar Boyd and senior producer is Christine driscoll Our. Theme music is composed by wonder Lee. Special thanks to Kira Bindram, Tiffany Choi, and Todd Woody. I'm Makshatrati back next week.