1 00:00:00,360 --> 00:00:03,280 Speaker 1: This is Dana Perkins and you're listening to Switched on 2 00:00:03,680 --> 00:00:06,200 Speaker 1: the B and EF podcast. It's safe to say that 3 00:00:06,240 --> 00:00:10,000 Speaker 1: bank financing is a critical component of the energy transition. 4 00:00:10,240 --> 00:00:13,200 Speaker 1: If we want to decarbonize. In order to move forward 5 00:00:13,280 --> 00:00:16,680 Speaker 1: with a net zero future, low carbon technologies are going 6 00:00:16,760 --> 00:00:20,520 Speaker 1: to need to supersede fossil fuels as well the investment 7 00:00:20,560 --> 00:00:23,360 Speaker 1: in them. So where are we now and where should 8 00:00:23,440 --> 00:00:25,960 Speaker 1: we be in terms of this investment. Well, one way 9 00:00:25,960 --> 00:00:28,760 Speaker 1: to look at it is through ratios. For every dollar 10 00:00:28,840 --> 00:00:31,840 Speaker 1: that goes into high carbon sources, how much should we 11 00:00:31,840 --> 00:00:35,200 Speaker 1: really be putting into low carbon technologies. B and EF 12 00:00:35,240 --> 00:00:38,480 Speaker 1: took a look at this in our energy supply banking ratios. 13 00:00:38,760 --> 00:00:41,559 Speaker 1: In order to meet a climate scenario that is aligned 14 00:00:41,600 --> 00:00:45,239 Speaker 1: with a one point five degree warming real economy, investment 15 00:00:45,360 --> 00:00:48,440 Speaker 1: and bank financing for low carbon energy needs to meet 16 00:00:48,479 --> 00:00:52,720 Speaker 1: an average ratio of four to one. That's four dollars 17 00:00:52,800 --> 00:00:56,680 Speaker 1: of clean energy investment for every one in fossil fuels, 18 00:00:56,920 --> 00:00:59,480 Speaker 1: and that is over the current decade that we're in 19 00:00:59,680 --> 00:01:03,080 Speaker 1: right now. So what does the banking ratio look like? 20 00:01:03,560 --> 00:01:06,200 Speaker 1: When we first started looking into this in twenty twenty one, 21 00:01:06,400 --> 00:01:09,640 Speaker 1: it was at point seventy five to one. Our latest 22 00:01:09,680 --> 00:01:12,400 Speaker 1: report updates the numbers for twenty twenty two, and on 23 00:01:12,440 --> 00:01:14,800 Speaker 1: today's show, we are going to let you know just 24 00:01:14,920 --> 00:01:17,960 Speaker 1: how close we are getting to that four to one target. 25 00:01:18,120 --> 00:01:20,800 Speaker 1: I'm joined today by two of b and EF's sustainable 26 00:01:20,840 --> 00:01:24,720 Speaker 1: finance associates, Trina White and Ryan Lockhead. We talk about 27 00:01:24,760 --> 00:01:27,960 Speaker 1: the ratios and we also get into how energy financing 28 00:01:28,000 --> 00:01:31,000 Speaker 1: works in different parts of the world, and how geography 29 00:01:31,080 --> 00:01:34,280 Speaker 1: can have an impact on investment in low carbon energy 30 00:01:34,319 --> 00:01:37,600 Speaker 1: and fossil fuels given the backdrop of rising interest rates 31 00:01:37,640 --> 00:01:41,600 Speaker 1: and geopolitical tensions. We also get into how the energy 32 00:01:41,640 --> 00:01:44,360 Speaker 1: sector as a whole has been performing against the wider 33 00:01:44,400 --> 00:01:47,760 Speaker 1: market for debt and equity, and finally, building on that 34 00:01:47,920 --> 00:01:50,800 Speaker 1: four to one average ratio by twenty thirty, we also 35 00:01:50,880 --> 00:01:53,400 Speaker 1: discuss what we'll need to see in terms of ratios 36 00:01:53,440 --> 00:01:56,880 Speaker 1: in the coming decades. A summary of the energy supply, 37 00:01:57,160 --> 00:02:00,560 Speaker 1: investment and bank financing ratios twenty twenty two can be 38 00:02:00,640 --> 00:02:03,240 Speaker 1: found on our public site at BNF dot com, and 39 00:02:03,280 --> 00:02:05,920 Speaker 1: our subscribers will be able to get a more detailed 40 00:02:06,000 --> 00:02:09,720 Speaker 1: version alongside the EsBr web tool, also on bf dot 41 00:02:09,720 --> 00:02:13,200 Speaker 1: com and on BNF at the Bloomberg terminal. Right now, though, 42 00:02:13,320 --> 00:02:27,360 Speaker 1: let's jump into our conversation with Trina and Ryan. Trina, 43 00:02:27,440 --> 00:02:29,760 Speaker 1: thank you for joining today, Thank you for having us data, 44 00:02:29,840 --> 00:02:31,520 Speaker 1: and Ryan, thank you for joining the show. 45 00:02:31,600 --> 00:02:32,040 Speaker 2: Thanks Jan. 46 00:02:32,480 --> 00:02:35,800 Speaker 1: So we are here today to talk about energy supply 47 00:02:36,120 --> 00:02:40,239 Speaker 1: investment and banking facilitated finance ratios. That is a mouthful, 48 00:02:40,320 --> 00:02:44,360 Speaker 1: but as complicated as that phrase sounds, it's actually quite 49 00:02:44,360 --> 00:02:46,360 Speaker 1: simple when we get down to it in terms of 50 00:02:46,600 --> 00:02:48,959 Speaker 1: the problem that you were trying to solve and what 51 00:02:49,080 --> 00:02:52,280 Speaker 1: is the overarching question when you started doing this research 52 00:02:52,400 --> 00:02:55,120 Speaker 1: that was really guiding where you were going. 53 00:02:55,720 --> 00:02:59,440 Speaker 3: So we had two major questions with this research. Number 54 00:02:59,440 --> 00:03:03,280 Speaker 3: one is what is the role that banks play in 55 00:03:03,600 --> 00:03:07,960 Speaker 3: facilitating progress on climate change? The second is what are 56 00:03:08,000 --> 00:03:11,320 Speaker 3: banks doing right now in terms of financing the energy 57 00:03:11,360 --> 00:03:14,760 Speaker 3: sector and the low carbon transition? So what does financing 58 00:03:14,840 --> 00:03:17,400 Speaker 3: look like on both the low carbon side or the 59 00:03:17,440 --> 00:03:20,440 Speaker 3: sort of climate solution side, and then also on the 60 00:03:20,440 --> 00:03:24,280 Speaker 3: fossil fuel side, so the emissions creating side. 61 00:03:24,480 --> 00:03:26,240 Speaker 1: A lot of BNF coverage and a lot of what 62 00:03:26,280 --> 00:03:29,600 Speaker 1: we speak about on this show is focused around specific 63 00:03:29,639 --> 00:03:34,520 Speaker 1: clean energy technologies, power markets, and different decarbonization strategies. So 64 00:03:34,760 --> 00:03:37,720 Speaker 1: to set the scene on why we ended up in 65 00:03:37,720 --> 00:03:41,880 Speaker 1: introducing a metric like the energy supply banking ratios. Can 66 00:03:41,920 --> 00:03:45,240 Speaker 1: you help us understand what we've been seeing from banks 67 00:03:45,400 --> 00:03:48,240 Speaker 1: in the climate space in recent years, and really how 68 00:03:48,240 --> 00:03:50,840 Speaker 1: should we think about the role of banks in particular. 69 00:03:51,200 --> 00:03:53,760 Speaker 3: This is a really important question. Ran and I sit 70 00:03:53,920 --> 00:03:57,640 Speaker 3: on the Corporate Sustainability team here at BNF, and as 71 00:03:57,640 --> 00:03:59,960 Speaker 3: a whole, for the past around decade or so, we've 72 00:04:00,000 --> 00:04:02,960 Speaker 3: I've seen a lot of focus on corporations in what 73 00:04:03,000 --> 00:04:07,000 Speaker 3: we sort of call the real economy setting increasingly ambitious 74 00:04:07,000 --> 00:04:12,640 Speaker 3: climate goals, specifically emissions reductions goals. Nowadays, this is usually 75 00:04:12,680 --> 00:04:15,440 Speaker 3: in the form of a net zero goal, so a 76 00:04:15,480 --> 00:04:18,880 Speaker 3: company saying we're going to decrease our emissions profile to 77 00:04:19,040 --> 00:04:22,560 Speaker 3: zero by twenty fifty for example. So typically for a 78 00:04:22,640 --> 00:04:26,560 Speaker 3: corporation and the real economy, like a utility or a 79 00:04:26,600 --> 00:04:30,400 Speaker 3: consumer goods company, this would be focused around accommodation of 80 00:04:30,440 --> 00:04:34,320 Speaker 3: the carbon that they're directly responsible for emitting or associated 81 00:04:34,360 --> 00:04:37,760 Speaker 3: with their electricity usage or their supply chain. So I 82 00:04:37,800 --> 00:04:42,599 Speaker 3: want to differentiate that from financial institutions and banks, specifically 83 00:04:42,920 --> 00:04:47,279 Speaker 3: for financials, their climate or emissions impact, it looks a 84 00:04:47,279 --> 00:04:52,120 Speaker 3: lot different. It doesn't necessarily sit in their electricity usage 85 00:04:52,400 --> 00:04:53,880 Speaker 3: just in their office buildings. 86 00:04:54,120 --> 00:04:54,600 Speaker 4: Instead. 87 00:04:54,920 --> 00:04:58,680 Speaker 3: Financial institutions are super important in the transition because of 88 00:04:58,720 --> 00:05:02,640 Speaker 3: what they finance core you know, business activity, and that's 89 00:05:02,720 --> 00:05:06,360 Speaker 3: in the projects and the companies that they help access 90 00:05:06,400 --> 00:05:10,279 Speaker 3: financing so access capital. Because of that, there's been a 91 00:05:10,320 --> 00:05:13,560 Speaker 3: lot of focus on what we would call financed or 92 00:05:13,600 --> 00:05:17,800 Speaker 3: facilitated emissions with financial institutions. One of the major ways 93 00:05:17,920 --> 00:05:21,239 Speaker 3: in which banks and their stakeholders have been thinking about 94 00:05:21,279 --> 00:05:25,240 Speaker 3: measuring climate progress is in terms of putting a measure 95 00:05:25,360 --> 00:05:28,839 Speaker 3: of CO two emissions against, for example, of their loans 96 00:05:29,120 --> 00:05:32,680 Speaker 3: to a heavy emitting company, so a loan for a 97 00:05:32,720 --> 00:05:37,840 Speaker 3: gas pipeline or to Exxon Mobile, for example, and quantifying 98 00:05:37,880 --> 00:05:40,800 Speaker 3: what those financed emissions look like and then setting their 99 00:05:40,839 --> 00:05:44,279 Speaker 3: target against that. This has been a really important innovation 100 00:05:44,920 --> 00:05:48,520 Speaker 3: in terms of how we can separate out financial institutions 101 00:05:48,560 --> 00:05:50,880 Speaker 3: and the really important role that they play from real 102 00:05:50,920 --> 00:05:55,120 Speaker 3: economy companies. But in practice, when we focus exclusively on 103 00:05:55,240 --> 00:05:59,600 Speaker 3: financed emissions, the incentive that we're setting up is for divestment. 104 00:05:59,800 --> 00:06:03,839 Speaker 3: So if a bank were to reduce its financed emissions 105 00:06:03,880 --> 00:06:08,320 Speaker 3: to zero, that would incentivize them to sell off heavy 106 00:06:08,320 --> 00:06:12,680 Speaker 3: emitting assets, or you know, not offer lending to heavy 107 00:06:12,680 --> 00:06:17,600 Speaker 3: emitting companies. In practice, a financial institution that may have 108 00:06:17,800 --> 00:06:22,120 Speaker 3: less stringent climate targets or maybe less public in the 109 00:06:22,160 --> 00:06:25,200 Speaker 3: way it needs to report on its transactions, may sort 110 00:06:25,240 --> 00:06:28,360 Speaker 3: of pick up those pieces. In practice, we see what's 111 00:06:28,400 --> 00:06:33,279 Speaker 3: called transferred emissions from a big bank with these climate 112 00:06:33,320 --> 00:06:37,200 Speaker 3: targets to for example, a private equity firm. The other 113 00:06:37,279 --> 00:06:40,080 Speaker 3: two ways in which banks and stakeholders have been thinking 114 00:06:40,120 --> 00:06:44,200 Speaker 3: about climate progress is in the form of green financing targets, 115 00:06:44,640 --> 00:06:47,920 Speaker 3: so on the low carbon side, a bank like Bank 116 00:06:47,920 --> 00:06:51,279 Speaker 3: of America or JP Morgan each having a one trillion 117 00:06:51,320 --> 00:06:55,120 Speaker 3: dollar target for green or climate initiatives. And the last 118 00:06:55,160 --> 00:06:58,479 Speaker 3: way in which mostly external stakeholders have been thinking about 119 00:06:58,480 --> 00:07:01,200 Speaker 3: this is a fossil fuel phase out. So on the 120 00:07:01,240 --> 00:07:05,680 Speaker 3: dirty side, a lot of NGOs have been asking banks 121 00:07:05,839 --> 00:07:10,200 Speaker 3: to immediately phase out all of their financing for fossil fuels. 122 00:07:10,280 --> 00:07:12,480 Speaker 3: This has been the focus of a number of high 123 00:07:12,480 --> 00:07:17,360 Speaker 3: profile protests and interruptions at conferences and events, for example, 124 00:07:17,640 --> 00:07:22,080 Speaker 3: asking CEOs of banks to create a rule where they 125 00:07:22,160 --> 00:07:25,480 Speaker 3: wouldn't lend to a fossil fuel company for example. Now, 126 00:07:25,600 --> 00:07:29,200 Speaker 3: none of these approaches are perfect and in many ways 127 00:07:29,320 --> 00:07:31,280 Speaker 3: the work that we set out to do here it 128 00:07:31,400 --> 00:07:35,160 Speaker 3: seeks to address some of the shortcomings in existing metrics 129 00:07:35,240 --> 00:07:39,240 Speaker 3: and frameworks for thinking about progress for banks specifically. And 130 00:07:39,320 --> 00:07:41,880 Speaker 3: so we are trying to set this up in the 131 00:07:41,880 --> 00:07:46,160 Speaker 3: context of climate science and what climate scenarios say that 132 00:07:46,240 --> 00:07:49,000 Speaker 3: we need from financial institutions in particular. 133 00:07:49,480 --> 00:07:51,680 Speaker 1: So, since we're here to talk about the specific piece 134 00:07:51,720 --> 00:07:54,400 Speaker 1: of analysis that you and your team did, let's get 135 00:07:54,440 --> 00:07:57,760 Speaker 1: a little background on the report itself. Can you explain 136 00:07:57,880 --> 00:07:59,760 Speaker 1: what this report is and also isn't. 137 00:08:00,200 --> 00:08:03,760 Speaker 2: So the report analyzes the factors affecting both capital investments 138 00:08:03,960 --> 00:08:07,120 Speaker 2: as well as financing and updates or analysis and how 139 00:08:07,160 --> 00:08:10,520 Speaker 2: banks were facilitating the energy transition or not facilitating it 140 00:08:10,600 --> 00:08:14,120 Speaker 2: from last year. It's our way of assessing how financial 141 00:08:14,120 --> 00:08:17,560 Speaker 2: institutions are contributing to the energy transition. Previously, a lot 142 00:08:17,560 --> 00:08:19,880 Speaker 2: of the work that you might have seen assessing financial 143 00:08:19,920 --> 00:08:23,000 Speaker 2: institutions on this topic would have come from civic Society, 144 00:08:23,320 --> 00:08:25,600 Speaker 2: ng US, those types of organizations, and it really would 145 00:08:25,640 --> 00:08:29,239 Speaker 2: have focused on the volumes of financing going to fossil 146 00:08:29,240 --> 00:08:32,240 Speaker 2: fuels and not really looking at anything other than that. 147 00:08:32,520 --> 00:08:35,840 Speaker 2: And the results coming from those pieces of research would 148 00:08:35,840 --> 00:08:38,439 Speaker 2: have really just shown you that North American bulge bracket 149 00:08:38,440 --> 00:08:41,200 Speaker 2: banks were financing the most fossil fuels. That's true, We 150 00:08:41,280 --> 00:08:43,200 Speaker 2: find that as well. We also find that North American 151 00:08:43,240 --> 00:08:45,640 Speaker 2: bulb's bracket banks are financing the most clean energy. So 152 00:08:45,720 --> 00:08:47,960 Speaker 2: the outcome of that sort of research is really just 153 00:08:48,120 --> 00:08:50,920 Speaker 2: telling you that big banks are very active and doing 154 00:08:50,960 --> 00:08:55,320 Speaker 2: lots of deals. That's not totally revealing or particularly shocking. 155 00:08:55,360 --> 00:08:58,760 Speaker 2: So the report then takes this ratio of clean energy 156 00:08:58,800 --> 00:09:01,800 Speaker 2: to fossil fuel finance so that you can normalize and 157 00:09:02,040 --> 00:09:05,640 Speaker 2: actually compare a JP Morgan who is a behemoth, to 158 00:09:06,360 --> 00:09:08,760 Speaker 2: someone who's still pretty big but slightly smaller, like a 159 00:09:08,760 --> 00:09:11,880 Speaker 2: Golden Sox or Morgan Stanley or anyone else. So that's 160 00:09:11,920 --> 00:09:12,560 Speaker 2: how it started. 161 00:09:12,960 --> 00:09:16,040 Speaker 1: So here we've arrived now to the ratios. So what 162 00:09:16,320 --> 00:09:21,240 Speaker 1: are the energy supply investment and banking financing ratios? The 163 00:09:21,280 --> 00:09:24,000 Speaker 1: specific term that we use to describe what it is 164 00:09:24,040 --> 00:09:25,679 Speaker 1: that we're assessing in this report. 165 00:09:26,120 --> 00:09:29,240 Speaker 3: Because there are so many words in each of those 166 00:09:29,280 --> 00:09:33,000 Speaker 3: titles for each ratio, I'm going to quickly define what 167 00:09:33,040 --> 00:09:38,240 Speaker 3: we mean by investment versus financing. So for the energy 168 00:09:38,280 --> 00:09:44,240 Speaker 3: supply investment, we mean capital expenditures. So in this specific case, 169 00:09:44,280 --> 00:09:48,199 Speaker 3: we mean capital expenditures that real economy companies are spending 170 00:09:48,360 --> 00:09:53,880 Speaker 3: on energy supply infrastructure, whether that's a solar plant or 171 00:09:54,240 --> 00:09:58,240 Speaker 3: the infrastructure for extracting fossil fuels. When we talk about 172 00:09:58,440 --> 00:10:02,640 Speaker 3: bank financing ratios, we're discussing the capital that banks are 173 00:10:02,720 --> 00:10:06,880 Speaker 3: helping those real economy companies raise, whether that's for their 174 00:10:06,920 --> 00:10:10,960 Speaker 3: core business activities or also for specific infrastructure. So these 175 00:10:11,040 --> 00:10:15,400 Speaker 3: terms differ in terms of bank financing, that's the underlying 176 00:10:15,559 --> 00:10:20,440 Speaker 3: debt equity and project finance as opposed to literal money 177 00:10:20,440 --> 00:10:23,640 Speaker 3: being spent on a solar project. We'll dig into these 178 00:10:23,720 --> 00:10:26,480 Speaker 3: numbers much deeper in a few moments, but just to 179 00:10:26,520 --> 00:10:31,120 Speaker 3: provide the overarching results that we're going to expand upon, 180 00:10:31,440 --> 00:10:35,920 Speaker 3: real economy investment in twenty twenty two reached parity between 181 00:10:35,960 --> 00:10:40,560 Speaker 3: fossil fuels and low carbon supply. The ratio between low 182 00:10:40,600 --> 00:10:44,360 Speaker 3: carbon capital investments and fossil fuels in twenty twenty two 183 00:10:44,600 --> 00:10:49,160 Speaker 3: reached parity at about one to one. In contrast bank financing, 184 00:10:49,440 --> 00:10:53,199 Speaker 3: so the deals happening between banks and those real economy companies, 185 00:10:53,400 --> 00:10:58,480 Speaker 3: the ratio remained relatively level, but decreased slightly from about 186 00:10:58,520 --> 00:11:01,280 Speaker 3: seventy five percent low car urbon to fossil fuels in 187 00:11:01,360 --> 00:11:04,880 Speaker 3: twenty twenty one to seventy three percent low carbon fossil 188 00:11:04,920 --> 00:11:06,360 Speaker 3: fuels in twenty twenty two. 189 00:11:07,160 --> 00:11:09,880 Speaker 1: So help put this into context a bit, how should 190 00:11:09,920 --> 00:11:13,080 Speaker 1: we be considering the energy sector when it comes to 191 00:11:13,480 --> 00:11:16,880 Speaker 1: investment in the real economy versus investment well on the 192 00:11:16,920 --> 00:11:18,360 Speaker 1: bank financing side. 193 00:11:18,600 --> 00:11:21,040 Speaker 3: So what we mean by putting this in terms of 194 00:11:21,200 --> 00:11:24,640 Speaker 3: the broader climate context is we try to tie these 195 00:11:24,720 --> 00:11:28,800 Speaker 3: numbers to what the underlying climate scenarios that are consistent 196 00:11:28,920 --> 00:11:31,840 Speaker 3: with one point five degrees say we would need to 197 00:11:31,880 --> 00:11:34,480 Speaker 3: meet in terms of this metric. And so what we 198 00:11:34,520 --> 00:11:36,600 Speaker 3: did is we took a look at seven of the 199 00:11:36,640 --> 00:11:40,400 Speaker 3: most commonly cited climate scenarios that would get us to 200 00:11:40,440 --> 00:11:44,160 Speaker 3: one point five degrees. These come from climate modeling organizations 201 00:11:44,520 --> 00:11:49,040 Speaker 3: like the IPCC, the International Energy Agency, and the Network 202 00:11:49,080 --> 00:11:49,920 Speaker 3: for Greening. 203 00:11:49,600 --> 00:11:50,840 Speaker 4: The Financial System. 204 00:11:50,960 --> 00:11:53,920 Speaker 3: All of these scenarios take into account very different assumptions 205 00:11:54,120 --> 00:11:57,320 Speaker 3: and so when you translate them to what they mean 206 00:11:57,360 --> 00:12:01,200 Speaker 3: in terms of energy sector investment up with very different 207 00:12:01,280 --> 00:12:05,520 Speaker 3: total levels required over each decade. We split all of 208 00:12:05,559 --> 00:12:09,360 Speaker 3: these estimates into low carbon versus fossil fuels to look 209 00:12:09,400 --> 00:12:13,199 Speaker 3: at the relationship between both sides of the climate solutions 210 00:12:13,320 --> 00:12:17,040 Speaker 3: versus the sort of climate problem. All of these scenarios 211 00:12:17,160 --> 00:12:19,520 Speaker 3: tend to converge when we look in terms of that 212 00:12:19,640 --> 00:12:23,400 Speaker 3: relationship the ratio between low carbon and fossil fuels. So 213 00:12:23,520 --> 00:12:27,880 Speaker 3: across those seven commonly cited scenarios, the ratio required to 214 00:12:27,880 --> 00:12:30,600 Speaker 3: be met to be consistent with one point five degrees 215 00:12:30,880 --> 00:12:34,440 Speaker 3: is a minimum of four times as much low carbon 216 00:12:34,559 --> 00:12:38,720 Speaker 3: investment as fossil fuels this decade, and this increases really 217 00:12:38,800 --> 00:12:41,760 Speaker 3: dramatically over time, so we get an average of six 218 00:12:41,840 --> 00:12:44,600 Speaker 3: times as much low carbon in the twenty thirties and 219 00:12:44,720 --> 00:12:47,559 Speaker 3: ten times as much low carbon in the twenty forties. 220 00:12:47,800 --> 00:12:50,680 Speaker 3: So when I say that the ratio of real economy 221 00:12:50,720 --> 00:12:54,559 Speaker 3: investment is at about one to one in twenty twenty two, 222 00:12:54,960 --> 00:12:58,360 Speaker 3: and was at about zero point seven to one for 223 00:12:58,520 --> 00:13:02,280 Speaker 3: bank financing, this is there is really nowhere close to 224 00:13:02,280 --> 00:13:04,720 Speaker 3: what we would need to see in terms of a 225 00:13:04,840 --> 00:13:10,000 Speaker 3: necessary target consistent with one point five degrees celsius of 226 00:13:10,280 --> 00:13:14,400 Speaker 3: warming globally. That's why we calculate these ratios. We want 227 00:13:14,440 --> 00:13:18,320 Speaker 3: to see a metric that is more closely tied to 228 00:13:19,120 --> 00:13:23,080 Speaker 3: what the underlying climate science says instead of just quantifying, 229 00:13:23,120 --> 00:13:27,320 Speaker 3: you know X dollars of financing is going to fossil fuels, 230 00:13:27,440 --> 00:13:30,520 Speaker 3: and there's no context there. Of course, we know that 231 00:13:30,559 --> 00:13:33,480 Speaker 3: we need to see low carbon investment increase and fossil 232 00:13:33,520 --> 00:13:36,440 Speaker 3: fuels decline. But when we're able to actually take that 233 00:13:36,480 --> 00:13:40,960 Speaker 3: relationship and compare it to those seven climate scenarios, this 234 00:13:41,000 --> 00:13:42,520 Speaker 3: is a much more useful metric. 235 00:13:42,920 --> 00:13:44,679 Speaker 1: So I'm just going to pause for a second and 236 00:13:44,720 --> 00:13:48,319 Speaker 1: reiterate what I feel like is really, in its simplest sense, 237 00:13:48,559 --> 00:13:51,280 Speaker 1: the biggest takeaway from this is that if we're at 238 00:13:51,320 --> 00:13:54,240 Speaker 1: a one to one investment ratio, we needed to be 239 00:13:54,320 --> 00:13:57,679 Speaker 1: four to one right now, six to one in twenty thirty, 240 00:13:57,800 --> 00:14:01,240 Speaker 1: and ten to one by twenty forty. Is some work 241 00:14:01,280 --> 00:14:03,800 Speaker 1: to be done. Now we do this report, well it's 242 00:14:03,840 --> 00:14:06,640 Speaker 1: their second time doing this report and looking at this information, 243 00:14:06,880 --> 00:14:08,280 Speaker 1: and we put it out at the end of twenty 244 00:14:08,320 --> 00:14:11,120 Speaker 1: twenty three, which is why we're quoting twenty twenty two numbers. 245 00:14:11,280 --> 00:14:15,360 Speaker 1: So when we compare twenty twenty two with the previous 246 00:14:15,440 --> 00:14:18,800 Speaker 1: version looking at the twenty twenty one numbers, did we 247 00:14:18,920 --> 00:14:22,840 Speaker 1: see a rise in low carbon capital investments when looking 248 00:14:22,840 --> 00:14:24,400 Speaker 1: at these two years. 249 00:14:24,120 --> 00:14:27,000 Speaker 2: The short answer to that question is, yes, we did. 250 00:14:27,160 --> 00:14:29,920 Speaker 2: And that's regardless of the source that we used to 251 00:14:29,960 --> 00:14:33,440 Speaker 2: count or truck that investment. Louke carbon investment is going 252 00:14:33,480 --> 00:14:36,160 Speaker 2: up on equivocally. The extent of fossil fuel investment, on 253 00:14:36,280 --> 00:14:38,040 Speaker 2: the other hand, is a bit of a mixed picture. 254 00:14:38,080 --> 00:14:40,680 Speaker 2: It's gone up since twenty twenty year on year, but 255 00:14:40,760 --> 00:14:42,640 Speaker 2: if you look a little bit further back, it's still 256 00:14:42,840 --> 00:14:46,720 Speaker 2: trending downwards. As Trina mentioned earlier, what's being revealed is 257 00:14:46,840 --> 00:14:50,800 Speaker 2: that when looking at energy supply investment volumes, low carbon 258 00:14:50,880 --> 00:14:53,880 Speaker 2: investment is now on a parity with fossil fuel investment, 259 00:14:53,920 --> 00:14:57,240 Speaker 2: and that's about one trillion dollars each. We've looked at 260 00:14:57,280 --> 00:14:59,480 Speaker 2: the IA for those numbers, and if you look at 261 00:14:59,480 --> 00:15:02,920 Speaker 2: the IA world energy outlook, those aren't necessarily the numbers 262 00:15:02,960 --> 00:15:04,720 Speaker 2: you're going to see. And the reason for that is 263 00:15:04,760 --> 00:15:08,640 Speaker 2: because the IA is including the broader energy ecosystem, if 264 00:15:08,640 --> 00:15:12,000 Speaker 2: you like, which includes both energy supply things, so anything 265 00:15:12,040 --> 00:15:15,160 Speaker 2: that's generating or storing electrons or being drilled out of 266 00:15:15,160 --> 00:15:17,600 Speaker 2: the ground, as well as anything that's used to consume energy, 267 00:15:17,640 --> 00:15:20,880 Speaker 2: so transport, energy efficiency, anything related to the demand side, 268 00:15:20,880 --> 00:15:22,840 Speaker 2: if you like. So our analysis stripped that out just 269 00:15:22,880 --> 00:15:25,640 Speaker 2: through that we were looking at the supply side of 270 00:15:25,920 --> 00:15:28,320 Speaker 2: the energy equation. And that's so we've got through this 271 00:15:28,360 --> 00:15:30,520 Speaker 2: one trillion to one trillion. Even if you look at 272 00:15:30,520 --> 00:15:35,040 Speaker 2: other sources so penof certain etiit Energy transition investment trends 273 00:15:35,080 --> 00:15:38,320 Speaker 2: or renewable energy investment trends, the investment into low carbon 274 00:15:38,560 --> 00:15:40,760 Speaker 2: is trending very much the same way, even if the 275 00:15:40,840 --> 00:15:44,360 Speaker 2: volumes change, as the methodology is not quite the same. 276 00:15:44,800 --> 00:15:47,960 Speaker 1: So we're pivoting the conversation back and forth between the 277 00:15:48,040 --> 00:15:51,440 Speaker 1: real economy and then what's happening within the finance industry 278 00:15:51,480 --> 00:15:54,920 Speaker 1: on public debt and equity issuances. Can you talk about 279 00:15:54,960 --> 00:15:58,520 Speaker 1: the energy sector and how it performed against the wider 280 00:15:58,520 --> 00:16:00,880 Speaker 1: market when we're looking at debt and equity. 281 00:16:01,200 --> 00:16:04,400 Speaker 2: Sure, So this research took on a bit of a 282 00:16:04,640 --> 00:16:07,840 Speaker 2: different lens this year because it became not just the 283 00:16:07,880 --> 00:16:09,720 Speaker 2: story about what banks were choosing to do, but it 284 00:16:09,720 --> 00:16:12,480 Speaker 2: also became a story about energy linked capital markets. And 285 00:16:12,520 --> 00:16:15,840 Speaker 2: when I say capital markets, what I mean is publicly 286 00:16:15,840 --> 00:16:21,440 Speaker 2: traded debt instruments that bonds and equity issuances through channels 287 00:16:21,440 --> 00:16:24,960 Speaker 2: like IPUs and initial public offerings. What bonds and equity 288 00:16:24,960 --> 00:16:28,720 Speaker 2: issuances are their ways for large entities and corporations to 289 00:16:28,760 --> 00:16:31,400 Speaker 2: borrow money on the market. It is essentially a big 290 00:16:31,440 --> 00:16:33,960 Speaker 2: loan split up into even chunks, which then instead of 291 00:16:33,960 --> 00:16:37,160 Speaker 2: a bank providing the capital, the capital is provided by 292 00:16:37,160 --> 00:16:39,400 Speaker 2: investors in the wider market, and you've got access to 293 00:16:39,440 --> 00:16:41,440 Speaker 2: a much bigger pool of capital, and therefore you can 294 00:16:41,600 --> 00:16:43,840 Speaker 2: get it on better terms than you on a bank loan, 295 00:16:44,000 --> 00:16:46,520 Speaker 2: generally speaking. And where banks come into that is they 296 00:16:46,560 --> 00:16:48,880 Speaker 2: underade it, and that means they price it and they 297 00:16:48,880 --> 00:16:50,640 Speaker 2: bring it to market. They're the buyer of first and 298 00:16:51,160 --> 00:16:53,600 Speaker 2: last resort. So that's what we mean when we're talking 299 00:16:53,600 --> 00:16:58,280 Speaker 2: about bank facilitated financing. Broader capital market activity has fallen globally. 300 00:16:58,560 --> 00:17:02,840 Speaker 2: Fixed income security issue decreased from twenty seven point three 301 00:17:03,040 --> 00:17:05,520 Speaker 2: trillion dollars in twenty twenty one to twenty two point 302 00:17:05,560 --> 00:17:08,440 Speaker 2: five trillion dollars, almost a five trillion dollar fall. It's 303 00:17:08,480 --> 00:17:12,440 Speaker 2: quite it's quite something. Equity issuances were even more drastic. 304 00:17:13,040 --> 00:17:15,040 Speaker 2: There's quite a lot in the news. If you read 305 00:17:15,040 --> 00:17:17,679 Speaker 2: Bloomberg News, they talk a lot about the darth of 306 00:17:17,720 --> 00:17:20,520 Speaker 2: IPOs recently. Well, that's what we've seen as well. It's 307 00:17:20,560 --> 00:17:23,080 Speaker 2: fallen from about one point one trillion to zero point 308 00:17:23,080 --> 00:17:27,479 Speaker 2: four trillions, sixty percent fall. It's pretty stark. Blue carbon 309 00:17:27,880 --> 00:17:31,959 Speaker 2: energy capital markets fell roughly in line with the wider market, 310 00:17:32,160 --> 00:17:34,600 Speaker 2: so they fell by about seventeen and a half percent 311 00:17:34,680 --> 00:17:37,399 Speaker 2: from twenty one to twenty two, which is on the 312 00:17:37,400 --> 00:17:40,320 Speaker 2: fixed income side, which is similar to the wider market. 313 00:17:40,440 --> 00:17:44,560 Speaker 2: Equity issuances where not as badly affected as the wider market, 314 00:17:44,680 --> 00:17:47,679 Speaker 2: by about twenty eight percent. Fossil fuel energy supply capital 315 00:17:47,720 --> 00:17:51,000 Speaker 2: markets sort of defied the decline seen in the wider market, 316 00:17:51,320 --> 00:17:55,240 Speaker 2: so fossil fuel linked fixed income issuances experienced quite a 317 00:17:55,240 --> 00:17:58,440 Speaker 2: modest drop of ten point three percent, and equity issuance 318 00:17:58,440 --> 00:18:01,360 Speaker 2: actually grew by about three percent as well, so completely 319 00:18:01,480 --> 00:18:05,560 Speaker 2: changed the sign not just more resilient. Possible explanation is 320 00:18:05,600 --> 00:18:09,320 Speaker 2: that fossil fuel companies have sought to exploit higher share 321 00:18:09,359 --> 00:18:12,760 Speaker 2: prices seen in the industry versus market movements for global 322 00:18:12,960 --> 00:18:17,240 Speaker 2: sector neutral equity indices on blue carbon energy firms also 323 00:18:17,320 --> 00:18:20,360 Speaker 2: saw stock markets fall, so this is why these sort 324 00:18:20,400 --> 00:18:23,080 Speaker 2: of movements against the wider market have been transpiring. 325 00:18:23,480 --> 00:18:28,080 Speaker 1: So did the bank financing volumes for energy supply really 326 00:18:28,359 --> 00:18:32,400 Speaker 1: track alongside the real economy capital investment when we looked 327 00:18:32,400 --> 00:18:33,280 Speaker 1: at twenty twenty two. 328 00:18:33,840 --> 00:18:39,840 Speaker 3: So these are two fundamentally different quantities, and they are linked, 329 00:18:40,119 --> 00:18:44,080 Speaker 3: but they're not sort of expected to be precisely aligned. 330 00:18:44,359 --> 00:18:49,040 Speaker 3: So factors that would cause real economy capital investment to 331 00:18:49,240 --> 00:18:53,440 Speaker 3: differ from bank financing volumes include the fact that spending 332 00:18:53,640 --> 00:18:59,640 Speaker 3: and financing decisions of companies they change according to market conditions. 333 00:18:59,840 --> 00:19:04,320 Speaker 3: They may have raised financing but decide to spend it 334 00:19:04,400 --> 00:19:07,400 Speaker 3: at different times, or they may decide to spend their 335 00:19:07,440 --> 00:19:11,960 Speaker 3: own capital if they are highly profitable and they're making 336 00:19:12,000 --> 00:19:13,600 Speaker 3: a lot of their own money that they can spend 337 00:19:13,640 --> 00:19:16,320 Speaker 3: off of their own balance sheet. So, to answer your question, 338 00:19:16,680 --> 00:19:20,080 Speaker 3: in twenty twenty one, it's perhaps sort of a coincidence 339 00:19:20,119 --> 00:19:24,119 Speaker 3: that we actually did see bank financing track similar to 340 00:19:24,160 --> 00:19:28,320 Speaker 3: the real economy, both in terms of volume and slightly 341 00:19:28,400 --> 00:19:32,200 Speaker 3: less in terms of ratio. In twenty twenty one, the 342 00:19:33,119 --> 00:19:36,679 Speaker 3: volume of bank financing in the energy sector ended up 343 00:19:36,760 --> 00:19:40,720 Speaker 3: mirroring pretty closely real economy. The key message for twenty 344 00:19:40,760 --> 00:19:44,000 Speaker 3: twenty two is that we actually saw a divergence in 345 00:19:44,119 --> 00:19:47,439 Speaker 3: terms of the volume and the ratio between bank financing 346 00:19:47,720 --> 00:19:52,280 Speaker 3: and real economy investment, So the banking ratio fell slightly 347 00:19:52,520 --> 00:19:56,000 Speaker 3: from about seventy five percent low carbon to fossil fuels 348 00:19:56,200 --> 00:19:59,399 Speaker 3: to seventy three percent low carbon to fossil fuels, whereas 349 00:19:59,440 --> 00:20:03,600 Speaker 3: the investment ratio had gone up slightly from just about 350 00:20:03,720 --> 00:20:06,439 Speaker 3: zero point ninety eight to parody one to one in 351 00:20:06,480 --> 00:20:07,320 Speaker 3: twenty twenty two. 352 00:20:09,000 --> 00:20:13,040 Speaker 1: So twenty twenty two saw interest rates rise, and this 353 00:20:13,080 --> 00:20:15,919 Speaker 1: has been a theme across several of the shows that 354 00:20:15,960 --> 00:20:19,800 Speaker 1: we have actually had. How have interest rate rises impacted 355 00:20:19,960 --> 00:20:20,919 Speaker 1: energy financing? 356 00:20:21,320 --> 00:20:23,800 Speaker 2: Yeah, as you mentioned, this is this is a theme 357 00:20:24,240 --> 00:20:28,320 Speaker 2: not just for capital markets, but across the entire economy globally. 358 00:20:29,200 --> 00:20:32,440 Speaker 2: It's a well trodden path. But buck in twenty twenty two, 359 00:20:32,880 --> 00:20:37,680 Speaker 2: when Russia invaded Ukraine, energy and energy crisis led to inflation. 360 00:20:37,960 --> 00:20:40,000 Speaker 2: How most central banks decided to deal with that was 361 00:20:40,040 --> 00:20:42,480 Speaker 2: to put up their base rates, and then that translated 362 00:20:42,520 --> 00:20:46,080 Speaker 2: to the most part two higher yields on bondihuentss, which 363 00:20:46,280 --> 00:20:48,800 Speaker 2: in Leman's language, that just means borrowing money is more 364 00:20:48,800 --> 00:20:53,680 Speaker 2: expensive and therefore to most clients in the wider economy 365 00:20:53,720 --> 00:20:56,440 Speaker 2: and in the energy sector, going to the capital markets 366 00:20:56,160 --> 00:20:59,359 Speaker 2: for debt or equity is not as attractive as it 367 00:20:59,560 --> 00:21:03,760 Speaker 2: was was previously. So we tracked and we did a 368 00:21:03,800 --> 00:21:06,720 Speaker 2: bit of a regression analysis on how interest rates moved 369 00:21:06,840 --> 00:21:09,320 Speaker 2: for nearly every region. And we've done at a regional 370 00:21:09,400 --> 00:21:13,160 Speaker 2: level where interest rates had gone up, and we talk 371 00:21:13,200 --> 00:21:15,600 Speaker 2: about interest rates, we measured the change the relative changing 372 00:21:15,720 --> 00:21:17,960 Speaker 2: ten year government bond yields where they had gone up 373 00:21:18,080 --> 00:21:23,040 Speaker 2: almost universally, energy supply financing volumes had fallen. Conversely, this 374 00:21:23,280 --> 00:21:25,879 Speaker 2: sort of narrative where interest rates went up around the 375 00:21:25,920 --> 00:21:28,679 Speaker 2: world isn't technically true, and there's a big exception to 376 00:21:28,720 --> 00:21:31,680 Speaker 2: this rule. And in China, ten year government bond yields 377 00:21:31,720 --> 00:21:35,240 Speaker 2: actually fell, and where they fell, China's the only region 378 00:21:35,400 --> 00:21:38,639 Speaker 2: we're financing of the energy supply sector actually actually rose. 379 00:21:38,720 --> 00:21:41,200 Speaker 2: So it's pretty clear to us from this work that 380 00:21:41,359 --> 00:21:44,960 Speaker 2: the energy sector and energy capital markets are sensitive to 381 00:21:45,400 --> 00:21:47,960 Speaker 2: interest rates. Now that might seem intuitive to most of 382 00:21:48,000 --> 00:21:50,480 Speaker 2: the Bloomberg audience, but now we actually have evidence to 383 00:21:51,000 --> 00:21:52,040 Speaker 2: say that it is true. 384 00:21:52,600 --> 00:21:55,439 Speaker 1: So there was a change where there was a gap 385 00:21:55,520 --> 00:22:01,200 Speaker 1: that actually occurred between the capital expenditure and financing. Why 386 00:22:01,200 --> 00:22:04,840 Speaker 1: has this occurred and where has the money really come from? 387 00:22:05,240 --> 00:22:08,920 Speaker 2: Yeah, we've spent many many hit nights in the office 388 00:22:08,920 --> 00:22:10,800 Speaker 2: in the last few months trying to explain that question 389 00:22:10,840 --> 00:22:12,760 Speaker 2: because we sort of assumed after the first time we 390 00:22:12,800 --> 00:22:16,520 Speaker 2: did this report that the two were pretty intrinsically linked, 391 00:22:16,680 --> 00:22:19,840 Speaker 2: and where financing goes up or capital investment goes up, 392 00:22:19,920 --> 00:22:21,840 Speaker 2: so does the other one. That wasn't the case this 393 00:22:21,920 --> 00:22:25,119 Speaker 2: time around, So we had to take a bit of 394 00:22:25,119 --> 00:22:28,359 Speaker 2: a deep dive into our company universe, and we're talking 395 00:22:28,359 --> 00:22:31,080 Speaker 2: about around fifteen thousand companies who are linked to the 396 00:22:31,200 --> 00:22:34,160 Speaker 2: energy supply sector in any capacity and start looking at 397 00:22:34,240 --> 00:22:37,240 Speaker 2: where could they possibly have found the capacity to invest 398 00:22:37,760 --> 00:22:40,040 Speaker 2: in twenty twenty two, because we're pretty sure it didn't 399 00:22:40,080 --> 00:22:43,600 Speaker 2: come from borrowing on the capital markets. So what we 400 00:22:43,840 --> 00:22:47,120 Speaker 2: did manage to uncover is that the cash flows from 401 00:22:47,160 --> 00:22:49,320 Speaker 2: operations from these companies, and by that we mean the 402 00:22:49,359 --> 00:22:51,879 Speaker 2: cash that they generate just through their normal business activities. 403 00:22:51,880 --> 00:22:55,400 Speaker 2: So if that's producing parts for the power sector or 404 00:22:55,440 --> 00:22:59,159 Speaker 2: if it's generating electricity, they had seen quite a spike, 405 00:22:59,359 --> 00:23:01,520 Speaker 2: which meant that they were left with kind a bit 406 00:23:01,560 --> 00:23:03,840 Speaker 2: of cash leftover which they could then use to invest. 407 00:23:04,000 --> 00:23:06,360 Speaker 2: And even when we take into accounts sort of non 408 00:23:06,400 --> 00:23:09,920 Speaker 2: capital expenditure cash light flus so share it by bikes 409 00:23:10,160 --> 00:23:13,040 Speaker 2: debt servicing, debt repayments. They were still left with quite 410 00:23:13,080 --> 00:23:15,280 Speaker 2: a bit of money leftover, and that would have been 411 00:23:15,320 --> 00:23:18,239 Speaker 2: mainly generated just by the spikes and commodity prices and 412 00:23:18,600 --> 00:23:21,480 Speaker 2: oil and gas power prices in twenty twenty two relative 413 00:23:21,520 --> 00:23:23,600 Speaker 2: to twenty twenty one. It's not clear that that's going 414 00:23:23,640 --> 00:23:26,240 Speaker 2: to happen again because those prices have fallen back, dying 415 00:23:26,400 --> 00:23:29,440 Speaker 2: considerably since their twenty twenty two highs. But it really 416 00:23:29,600 --> 00:23:32,760 Speaker 2: it did fit almost quite nicely, that there's this unique 417 00:23:32,760 --> 00:23:36,080 Speaker 2: combination of macro and microeconomic factors that led us to 418 00:23:36,600 --> 00:23:37,640 Speaker 2: explain these results. 419 00:23:38,040 --> 00:23:40,119 Speaker 1: So one of the things we did as a part 420 00:23:40,119 --> 00:23:44,360 Speaker 1: of this was a bit of analysis on the specific banks. 421 00:23:44,520 --> 00:23:47,439 Speaker 1: Can you give me an idea of who some of 422 00:23:47,480 --> 00:23:50,840 Speaker 1: the top banks were by energy financing volume? 423 00:23:51,440 --> 00:23:54,680 Speaker 3: Yes, So we looked at over one thousand banks which 424 00:23:54,800 --> 00:23:57,840 Speaker 3: engaged in some form of energy supply. 425 00:23:57,840 --> 00:23:59,720 Speaker 4: Underwriting in twenty twenty two. 426 00:24:00,119 --> 00:24:03,720 Speaker 3: Of those one thousand banks, the top ten by volume 427 00:24:04,000 --> 00:24:06,960 Speaker 3: are you know what you might expect. They're the major 428 00:24:07,000 --> 00:24:10,719 Speaker 3: banks in the US, like JP, Morgan, Bank of America, City, 429 00:24:10,800 --> 00:24:13,520 Speaker 3: Wells Fargo, and then some of the major banks in 430 00:24:13,840 --> 00:24:19,400 Speaker 3: Apac and Europe. So MUFG BNP Pariba et cetera, et cetera. Now, 431 00:24:19,400 --> 00:24:22,800 Speaker 3: I think it's a lot more interesting to a look 432 00:24:22,840 --> 00:24:25,840 Speaker 3: at the change in volume between twenty twenty one and 433 00:24:25,880 --> 00:24:29,440 Speaker 3: twenty two, and then also to zero in on the ratio, 434 00:24:29,520 --> 00:24:32,680 Speaker 3: so the energy supply banking ratio. In terms of volume, 435 00:24:33,000 --> 00:24:36,480 Speaker 3: most of the major banks in the US and in 436 00:24:36,520 --> 00:24:41,880 Speaker 3: Europe saw financing volumes decline hugely. So with JP Morgan 437 00:24:42,040 --> 00:24:44,720 Speaker 3: just as an example, since it's the top underwriter in 438 00:24:44,800 --> 00:24:48,160 Speaker 3: both years, it saw a bit drop in volume from 439 00:24:48,320 --> 00:24:52,480 Speaker 3: over ninety billion in twenty twenty one to about seventy 440 00:24:52,520 --> 00:24:53,840 Speaker 3: billion in twenty twenty two. 441 00:24:54,440 --> 00:24:55,160 Speaker 4: In terms of the. 442 00:24:55,320 --> 00:24:59,240 Speaker 3: Ratio of these top ten banks that are financing so 443 00:24:59,440 --> 00:25:04,840 Speaker 3: much of the energy sector, only two banks had more 444 00:25:05,040 --> 00:25:09,199 Speaker 3: low carbon financing than fossil fuels. That's Bank of America 445 00:25:09,359 --> 00:25:13,560 Speaker 3: at about parity one to one and BNP paribat in 446 00:25:13,640 --> 00:25:17,240 Speaker 3: twenty twenty two one point four times as much low 447 00:25:17,280 --> 00:25:20,560 Speaker 3: carbon financing as fossil fuels. Now, I'm just going to 448 00:25:20,640 --> 00:25:24,119 Speaker 3: tie that again to what we said, the climate scenarios 449 00:25:24,200 --> 00:25:26,680 Speaker 3: show us we would need to be at again, that's 450 00:25:26,800 --> 00:25:29,840 Speaker 3: an average of four to one over the course of 451 00:25:29,920 --> 00:25:30,640 Speaker 3: this decade. 452 00:25:30,920 --> 00:25:31,800 Speaker 4: The twenty twenties. 453 00:25:31,960 --> 00:25:35,880 Speaker 3: So if we're seeing just the top performers among those 454 00:25:36,080 --> 00:25:42,040 Speaker 3: large energy supply financers only at one point four one 455 00:25:42,080 --> 00:25:46,560 Speaker 3: point zero, most of these banks less than parity between 456 00:25:46,600 --> 00:25:50,480 Speaker 3: low carbon and fossil fuels, that's really concerning in terms 457 00:25:50,480 --> 00:25:54,040 Speaker 3: of meeting our climate targets. And I actually did want 458 00:25:54,080 --> 00:25:57,080 Speaker 3: to point out this is based on our research of 459 00:25:57,680 --> 00:26:01,480 Speaker 3: deal level data and transactions that we're seeing between specific 460 00:26:01,520 --> 00:26:05,040 Speaker 3: banks and companies, but it actually does track some of 461 00:26:05,080 --> 00:26:09,000 Speaker 3: the self reported figures from banks themselves on the green side. 462 00:26:09,040 --> 00:26:11,280 Speaker 3: So I had mentioned that a lot of these large 463 00:26:11,280 --> 00:26:15,520 Speaker 3: banks are setting targets around how much climate finance or 464 00:26:15,600 --> 00:26:19,000 Speaker 3: sustainability green finance they want to do, and they report 465 00:26:19,000 --> 00:26:22,959 Speaker 3: against this in their yearly ESG reports. So from some 466 00:26:23,040 --> 00:26:26,800 Speaker 3: of these same banks, like JP Morgan, their own reported 467 00:26:26,840 --> 00:26:31,600 Speaker 3: figure for broader green financing outside of just energy declined 468 00:26:31,680 --> 00:26:34,840 Speaker 3: thirty four percent from one oh six billion in twenty 469 00:26:34,880 --> 00:26:38,680 Speaker 3: twenty one to seventy billion in twenty twenty two. That's 470 00:26:38,760 --> 00:26:41,840 Speaker 3: consistent also with you know Bank of America as an example, 471 00:26:42,040 --> 00:26:46,359 Speaker 3: who reported just fifty percent as much low carbon or 472 00:26:46,520 --> 00:26:50,000 Speaker 3: green financing in twenty twenty two as in twenty twenty one. 473 00:26:50,359 --> 00:26:53,760 Speaker 3: We had a number of conversations with banks, both their 474 00:26:53,800 --> 00:26:58,080 Speaker 3: sustainability teams as well as their infrastructure financing teams prior 475 00:26:58,160 --> 00:27:01,520 Speaker 3: to publishing this report, and they sort of reiterated a 476 00:27:01,560 --> 00:27:05,199 Speaker 3: lot of the macroeconomic factors and challenges that Ryan was 477 00:27:05,320 --> 00:27:07,800 Speaker 3: just speaking about in terms of, you know, what was 478 00:27:07,880 --> 00:27:11,840 Speaker 3: actually going on and why their low carbon business didn't 479 00:27:11,960 --> 00:27:14,320 Speaker 3: grow in such a way that they actually would have 480 00:27:14,440 --> 00:27:15,520 Speaker 3: hoped that it would. 481 00:27:16,119 --> 00:27:18,880 Speaker 1: Can we take a moment to actually talk then about 482 00:27:18,880 --> 00:27:22,919 Speaker 1: a specific high carbon technology, So that's coal, which has 483 00:27:23,040 --> 00:27:25,679 Speaker 1: a different role to play in different parts of the world. 484 00:27:25,800 --> 00:27:28,720 Speaker 1: So you look at countries like the US where coal 485 00:27:28,760 --> 00:27:32,800 Speaker 1: retirements have really caused the energy sector to rapidly decarbonize, 486 00:27:32,840 --> 00:27:35,280 Speaker 1: and meanwhile in other parts of the world, let's say 487 00:27:35,520 --> 00:27:38,880 Speaker 1: India or South Africa, new coal fired power stations are 488 00:27:38,920 --> 00:27:42,560 Speaker 1: going in. How on the financing side of things, how 489 00:27:42,640 --> 00:27:45,200 Speaker 1: is coal being seen and how what do the ratios 490 00:27:45,240 --> 00:27:47,840 Speaker 1: tell us about the investment in coal when we think 491 00:27:47,880 --> 00:27:52,280 Speaker 1: about a low carbon future and other fossil fuel sources 492 00:27:52,359 --> 00:27:55,760 Speaker 1: in what might be in store when we're thinking about financing. 493 00:27:55,960 --> 00:27:59,159 Speaker 3: Yeah, I'm glad you brought this up. Obviously, the overarching 494 00:27:59,240 --> 00:28:02,200 Speaker 3: ratios that we tell about our low carbon to the 495 00:28:02,240 --> 00:28:05,080 Speaker 3: total of fossil fuels, But like you said, that there 496 00:28:05,160 --> 00:28:08,800 Speaker 3: really is a distinction to be made, particularly in terms 497 00:28:08,880 --> 00:28:13,000 Speaker 3: of the climate impact of these different types of fossil fuels. 498 00:28:13,240 --> 00:28:15,399 Speaker 3: And so this year it was actually new that we 499 00:28:15,520 --> 00:28:19,919 Speaker 3: broke out oil and gas financing from coal financing, and 500 00:28:20,080 --> 00:28:24,159 Speaker 3: also tracked that similarly against what climate scenarios say that 501 00:28:24,200 --> 00:28:26,760 Speaker 3: we would need to get to in terms of those metrics. 502 00:28:26,800 --> 00:28:31,240 Speaker 3: In particular, in twenty twenty two, we saw coal financing 503 00:28:31,480 --> 00:28:37,400 Speaker 3: at about thirteen percent of the total amount of fossil 504 00:28:37,440 --> 00:28:40,640 Speaker 3: fuel bank financing that we measured in twenty twenty two. 505 00:28:41,160 --> 00:28:46,160 Speaker 3: Both in terms of real economy investment in coal infrastructure 506 00:28:46,320 --> 00:28:49,240 Speaker 3: and in terms of bank financing, we need to see 507 00:28:49,240 --> 00:28:54,160 Speaker 3: that decline much more rapidly than oil and gas, just 508 00:28:54,200 --> 00:28:58,880 Speaker 3: because of how much of the climate consequence of coal 509 00:28:59,160 --> 00:29:02,360 Speaker 3: is much much more dramatic than for oil and gas. Now, 510 00:29:02,440 --> 00:29:05,720 Speaker 3: the vast majority of the coal financing that we saw 511 00:29:05,840 --> 00:29:09,560 Speaker 3: in twenty twenty two was in China, and so a 512 00:29:09,600 --> 00:29:13,840 Speaker 3: lot of the solution around managing the phase out of 513 00:29:14,200 --> 00:29:17,800 Speaker 3: coal powered assets but also stopping that pipeline of flow 514 00:29:17,880 --> 00:29:20,959 Speaker 3: of new financing is going to happen in China. 515 00:29:21,720 --> 00:29:24,760 Speaker 1: So one hundred and thirty five banks have committed to 516 00:29:25,560 --> 00:29:28,800 Speaker 1: net zero financed emissions by twenty fifty and have joined 517 00:29:28,840 --> 00:29:31,960 Speaker 1: the Net Zero Banking Alliance. Can you explain a little 518 00:29:32,000 --> 00:29:33,280 Speaker 1: bit more what this is. 519 00:29:33,640 --> 00:29:36,600 Speaker 3: Yes, So I mentioned at the at the beginning of 520 00:29:36,640 --> 00:29:40,760 Speaker 3: our conversation that banks have started jumping onto that overarching 521 00:29:40,840 --> 00:29:44,520 Speaker 3: trend of companies setting net zero commitments. So this is 522 00:29:44,680 --> 00:29:48,560 Speaker 3: an alliance of banking institutions that have said they're going 523 00:29:48,560 --> 00:29:52,200 Speaker 3: to reduce their financed emissions to zero by twenty fifty. 524 00:29:52,360 --> 00:29:55,080 Speaker 3: This is under kind of a wider umbrella called the 525 00:29:55,120 --> 00:29:58,960 Speaker 3: Glasgow Financial Alliance for Net Zero or the g FANS, 526 00:29:59,080 --> 00:30:04,400 Speaker 3: which includes other financial institutions like asset managers, asset owners, insurers. 527 00:30:04,680 --> 00:30:09,000 Speaker 3: This came out of cop in Glasgow in twenty twenty one, 528 00:30:09,200 --> 00:30:14,520 Speaker 3: and so these banks have that strong overarching climate commitment, 529 00:30:14,560 --> 00:30:17,080 Speaker 3: and so it's interesting to see whether or not the 530 00:30:17,160 --> 00:30:20,560 Speaker 3: banks that have made that commitment look different in terms 531 00:30:20,640 --> 00:30:24,200 Speaker 3: of this metric, the energy supply banking ratio, than the 532 00:30:24,240 --> 00:30:25,640 Speaker 3: banking community writ. 533 00:30:25,480 --> 00:30:29,040 Speaker 1: Large Trina Ryan, thank you very much for joining us today. 534 00:30:29,160 --> 00:30:39,600 Speaker 4: Thank you for having us in Thanks Dana. 535 00:30:39,800 --> 00:30:42,920 Speaker 1: Switched On is produced by Cam Gray, with production assistance 536 00:30:42,960 --> 00:30:46,680 Speaker 1: from Kamala Shelling and Lushi Karunarete. 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