Speaker 1: Hi, This is Dana Perkins and you're listening to Switch
Speaker 1: It on the B and E F podcast. Today, we're
Speaker 1: going to welcome back to guests who have been on
Speaker 1: the show before, Maya Galdemar and Mallory to Gliano. They
Speaker 1: write about sustainable finance for us at b NF, and
Speaker 1: they're going to provide us with an update on what's
Speaker 1: going on in their space. One of the key developments
Speaker 1: since we spoke to them last are the proposed rules
Speaker 1: to enhance and standardize climate related disclosures by the U
Speaker 1: S Securities and Exchange Commission, or SEC for short. We
Speaker 1: go through some important aspects of the proposed rules and
Speaker 1: how this might play out in the coming weeks. We
Speaker 1: also discussed the EU taxonomy for sustainable activities and some
Speaker 1: of the recent updates regarding nuclear and gas. And we're
Speaker 1: going to end today's show with an overview of the
Speaker 1: Glasgow Financial Alliance for Net Zero. The next episode following
Speaker 1: this one will be part of a special series with
Speaker 1: external guests from our b NF summits and will include
Speaker 1: an interview with Mark Karney, the chair of the Glasgow
Speaker 1: Financial Alliance for Net Zero or g FANS for short.
Speaker 1: Note that b and EF does not provide investment or
Speaker 1: strategy advice, and a complete disclaimer can be found at
Speaker 1: the end of the show. If you want to read
Speaker 1: more of b NF sustainable finance research, clients can read
Speaker 1: it at b NF on the Bloomberg terminal, at BNF
Speaker 1: dot com, or via the BENF mobile app. If you
Speaker 1: get to the end of the show and you like
Speaker 1: what you heard and maybe you want to listen to
Speaker 1: the next one, don't forget to subscribe to our show
Speaker 1: on your podcast player. Now let's get to today's podcast
Speaker 1: on sustainable finance. Maya and Mallory thank you so much
Speaker 1: for coming back to the show and talk to us
Speaker 1: a little bit today about sustainable finance and regulations. So Maya, Hi,
Speaker 1: Hi everyone, and Mallory Hi, thanks so much for having us.
Speaker 1: We've got three female voices on here, so who wanted
Speaker 1: to make sure you know who was who. We've got
Speaker 1: a lot of ground to cover, so typically on the show,
Speaker 1: one of the things we do is we think about
Speaker 1: one piece of research that our analysts have covered in depth.
Speaker 1: We dive in and we get into some of the
Speaker 1: different things that were at up during that research. And
Speaker 1: today we're actually addressing three pieces of research, of which
Speaker 1: one is actually quite long, so we'll see how much
Speaker 1: ground we can cover. But well, let's start in the
Speaker 1: US because there's been some interesting developments and I'm going
Speaker 1: to be honest, I am not quite sure what they mean.
Speaker 1: So I hope you can shed light on that the
Speaker 1: SEC has proposed some regulations. I'm thinking that similar maybe
Speaker 1: in some respects to what the EU taxonomy is doing.
Speaker 1: Let's see if I'm right or if I'm wrong, what
Speaker 1: is it that the SEC is proposing. Basically, to break
Speaker 1: it down, the SEC has proposed a new rule, so
Speaker 1: it's not finalized yet, but they have voted to sort
Speaker 1: of bring forward a rule that would change the way
Speaker 1: registrants sort of filers with the SEC have to disclose
Speaker 1: things like climate related risk. And in my mind this
Speaker 1: is really a watershed moment because the US is not
Speaker 1: a super strong player as of right at all in
Speaker 1: terms of regulating setting policies for sustainable finance or e
Speaker 1: s g. Environmental, social and governance. You might hear that
Speaker 1: acronym a lot disclosure. You know, on a global scale,
Speaker 1: they're well behind regions like the EU. So what this
Speaker 1: new proposed rule would do if it comes into effect,
Speaker 1: in a similar form to the proposal, which is over
Speaker 1: you know, five hundred pages long sort of describing the
Speaker 1: reasoning for their decisions, and a lot of detail is
Speaker 1: it would require registrants. I'll use that word a lot. Basically,
Speaker 1: you know, folks that are registered with the SEC to
Speaker 1: a detailed existing and potential climate related risks, the impacts
Speaker 1: to their business, and sort of the oversight and management
Speaker 1: of those risks as they see. They'd also have to
Speaker 1: detail any transition plans that they've made. So like a
Speaker 1: company who set you know, a public net zero target
Speaker 1: for you know, meeting net zero emissions by saying or
Speaker 1: something like that, they'd actually have to sort of detail
Speaker 1: in their typical filing documents there, you know, what are
Speaker 1: usually financial risk related documents with the SEC, what those
Speaker 1: plans mean, how they're planning to achieve those goals over time,
Speaker 1: what they've been doing, whether they're using carbon offsets. You know,
Speaker 1: a lot of detail in there. And then one of
Speaker 1: the I think the most anticipated or unsure elements. You know,
Speaker 1: it's something that was really a bit more contentious going
Speaker 1: into this, although all of it is really quite important
Speaker 1: is that they'll also have to disclose their greenhouse gas emissions.
Speaker 1: And I mean that's a pretty big deal in my mind. There.
Speaker 1: You know, entities are going to have to start putting numbers,
Speaker 1: you know, into the public. Many already do, but you
Speaker 1: know they'll have to do it in a uniform of
Speaker 1: what they're emitting. Scope one really direct emissions. Scope two
Speaker 1: emissions which are more indirect things like you know, from
Speaker 1: electricity and heating, and then Scope three for most entities,
Speaker 1: will also have to be disclosed. Those are the super
Speaker 1: indirect emissions in many cases, you know, like what's being
Speaker 1: emitted by the products you know, put out by customer,
Speaker 1: or what's in the value chain, or emissions from travel
Speaker 1: of employees and and things like that. So there's there's
Speaker 1: a lot included in this new proposed rule. Then the
Speaker 1: proposal is still in some respects and its infancy, is
Speaker 1: it not? So when we're talking about Scope three, have
Speaker 1: they defined what that actually entails? And I know this
Speaker 1: is one of the more tricky things to measure for
Speaker 1: many companies. Oh yeah, And my understanding is that there
Speaker 1: was quite a lot of deliberation between the SEC commissioners.
Speaker 1: There's four Commissioners right now there I think can be
Speaker 1: a max at five. They were really trying to tease
Speaker 1: out whether or not to include Scope three, and to
Speaker 1: whom they've put in place some nuances, you know, like
Speaker 1: a gradual phase in period for these different types of disclosures,
Speaker 1: and Scope three would come a little bit later for
Speaker 1: entities than Scope one, sort of helping ease into the
Speaker 1: process by level of difficulty. But it's still very ambitious,
Speaker 1: and they use a lot of existing frameworks to sort
Speaker 1: inspire this proposed rule, Things like the Test Force on
Speaker 1: Climate Related Financial Disclosures often called the tcf D just
Speaker 1: sort of a voluntary guide for disclosure that is widely
Speaker 1: adopted and in some cases, you know, used as a
Speaker 1: basis for mandatory disclosures in in different regions, and also
Speaker 1: the Greenhouse Gas Protocol. They use that to sort of
Speaker 1: base their definitions of what is constituted as Scope three,
Speaker 1: and it would include a lot of activities. To your
Speaker 1: point about its infancy, yes, it's it's still unsure the
Speaker 1: final form that the rule will take, but I think
Speaker 1: it's anticipated that it will be somewhat similar in many
Speaker 1: ways to the current proposed rules. So basically what happens
Speaker 1: is they voted, the rule was sort of moved on
Speaker 1: to the next stage. It's now in a public comment period.
Speaker 1: They'll get those comments back at least through May twenties,
Speaker 1: if not a longer, and then they will sort of
Speaker 1: take those into consideration. How it out amongst themselves, reformulate
Speaker 1: sort of the typical process for putting out rules with
Speaker 1: the SEC, and then they will you know, put out
Speaker 1: and vote on a finalized rule. We could see that
Speaker 1: as early as the end of the year. So the
Speaker 1: US Security and Exchange Commission is voting on this and
Speaker 1: then putting it out for what did you say, no, no,
Speaker 1: you're good, so for public comments. So basically they have
Speaker 1: formulated this proposal amongst the different you know divisions of
Speaker 1: the SEC through the drafting process, and then there was
Speaker 1: a public meeting and they almost sort of presented publicly
Speaker 1: the details in a shortened form of the proposal. And
Speaker 1: then they the commissioners sort of those those members who
Speaker 1: vote on on the proposed rule. They sort of lead
Speaker 1: the SEC and they're appointed by the President and they
Speaker 1: sit for a term. They all sort of gave reasoning
Speaker 1: behind their support or opposition of the proposed rule. And
Speaker 1: then they voted and it passed through three to one,
Speaker 1: and so now, yes, it it's going. It's it's open
Speaker 1: to the public. Anybody can read the document and submit
Speaker 1: a public comment and then that will all be taken
Speaker 1: into consideration before things are sort of rehashed and finalized
Speaker 1: by the SEC. So maya, how does what the SEC
Speaker 1: in the US is proposing to do? How does this
Speaker 1: stack up with some of the existing regulations? It maybe
Speaker 1: do rate more highly. We we actually have a policy
Speaker 1: scoreboard where we actually look at countries and the different
Speaker 1: policies they have in place in comparison to one another.
Speaker 1: So that's something we look at it being how does
Speaker 1: what the US is proposing to do in the future,
Speaker 1: where does it get them in terms of stacking up
Speaker 1: with perhaps the European Commission for example. Yeah, so what
Speaker 1: we're seeing right now with the US is that it's
Speaker 1: just the necessary first step to kick off the wider
Speaker 1: strategy the US is really behind and and to be
Speaker 1: completely honest, and we agree on that with Malorie as well,
Speaker 1: this first step there's nothing compared to the EU A
Speaker 1: gent down sustainable finance and the strategy that we're seeing
Speaker 1: here in the EU it's an important and necessary first step,
Speaker 1: but for now it very much looks like mandatory tcs
Speaker 1: D reporting tcf D being what Mantery explained, which is
Speaker 1: the Task Force on Climate Related Antrol Disclosure, which basically
Speaker 1: forces company to look at the risk and opportunities that
Speaker 1: are linked to climate change and and this is due
Speaker 1: to many reasons. The first reason is the fact that
Speaker 1: the SEC, the mandate of the SEC, only allows them
Speaker 1: to look at what is financially material, then look at
Speaker 1: and create a great regulations or legislation to basically protect investors.
Speaker 1: So their mandate is much more refined and smaller than
Speaker 1: the one of the European Commission and all the Europeans
Speaker 1: pre isory authorities plus the European Central Banks, because all
Speaker 1: the regulations were seeing in the in the European Union
Speaker 1: come from everywhere. So for now, the US isn't the
Speaker 1: tier in the third tier of the G twenty country
Speaker 1: that countries that we rent so far, and it's most
Speaker 1: probably going to remain in the tier three because this
Speaker 1: is just one legislation looking at one type of organizations,
Speaker 1: which are corporations as a whole, like older registrants to
Speaker 1: the SEC. But it might probably push them to the
Speaker 1: top of that tier three, because at the moment they
Speaker 1: were more at the bottom. All right, So then now, ay,
Speaker 1: I want to ask you whether or not you think
Speaker 1: it's actually even going to happen, because one of the
Speaker 1: things I have learned over the years from discussing different
Speaker 1: regulations in the US is that you have things that
Speaker 1: are proposed and then a new administration comes in in
Speaker 1: in Washington and then things get rolled back. Is there
Speaker 1: any risk that that will happen and that any changes
Speaker 1: in the White House will have an impact on the
Speaker 1: way the SEC is actually functioning? You know, as of
Speaker 1: right now, I think it's pretty likely that it will
Speaker 1: get through. As I mentioned, there's four commissioners right now.
Speaker 1: Three of them are Democrats and one is Republican. The
Speaker 1: one Republican commissioner Hester Perse, She voted no, but the
Speaker 1: other three voted yes. And basically the appointments of the
Speaker 1: commissioner are put in place by the President and then
Speaker 1: they serve a term. One of the appointees Alison Heron Lee,
Speaker 1: who previously served as the acting chair. Her term is
Speaker 1: coming up for a close in I believe June, but
Speaker 1: she has sort of put a statement saying that she
Speaker 1: will be stepping down at the end of her term
Speaker 1: once a successor is confirmed. So it's unclear exactly when
Speaker 1: she'll be departing from the SEC. But given that you know,
Speaker 1: Joe Biden is the president and he is you know,
Speaker 1: of the Democratic Party, and there's room for more commissioners
Speaker 1: with and without commissionerly, I think it's you know, pretty
Speaker 1: much likely that whoever is or is not appointed before
Speaker 1: this finalized rule gets voted upon, because you know, you
Speaker 1: could see more commissioners appointed before that time, or or
Speaker 1: perhaps not, that it will get past in a form
Speaker 1: that is probably pretty similar to what it is now.
Speaker 1: I don't anticipate them pairing it down too much because
Speaker 1: I think the biggest hurdle was them actually putting a
Speaker 1: lot of this like scope three emissions disclosures in the
Speaker 1: proposed rule and sort of putting that out there, so
Speaker 1: you know, it kind of behooves them to to put
Speaker 1: it through. To One concern in terms of things like
Speaker 1: rollbacks is legal action. So there have already been threats
Speaker 1: for lawsuits to you know, challenging the SEC, which would
Speaker 1: happen after the rule is finalized, so it wouldn't be
Speaker 1: happening in this form because the rule is not complete yet,
Speaker 1: and you know, challenge whether or not it violates the
Speaker 1: mandate of the SEC. As Maya mentioned, you know, astuteley earlier,
Speaker 1: the SEC you know how is sort of regulating things
Speaker 1: that pose material you know, financial risks, and that's something
Speaker 1: that I didn't mention earlier. Some of these disclosures are
Speaker 1: subject to to that sort of materiality clause here. That
Speaker 1: buzzword a lot, but basically it's you know, meaning that
Speaker 1: a reasonable person would think that information is financially important,
Speaker 1: and so it's you know, it's a very strong rule
Speaker 1: in my personal opinion, but it does leave you know,
Speaker 1: some of this quote unquote materiality of what to disclose
Speaker 1: or not disclose up to the discretion of the disclosure,
Speaker 1: you know, which can you know, pose those questions are
Speaker 1: not I'm stealing so of Maya's European pessimism, but for
Speaker 1: for this, you know, I think that you know, analyses
Speaker 1: have shown that it's sort of likely that even if
Speaker 1: a lawsuits were to be waged, the rule will probably
Speaker 1: survive in you know, the form without being completely paired down,
Speaker 1: strip down, you know, to to its nuts and bolts
Speaker 1: and get through, which you know, I think would be
Speaker 1: a pretty big deal. It remains to be seen how
Speaker 1: things will go in the future, but you know, current
Speaker 1: concerns are whether or not you know, the greenhouse gas
Speaker 1: emissions disclosure components, for example, you know, violate the rule. Uh,
Speaker 1: you know, the mandates from Congress so that established the
Speaker 1: SEC of having to disclose financially material information, and whether
Speaker 1: it's sort of oversteps by requiring them to disclose too much.
Speaker 1: There's also concerns over whether it violates the Constitution's First
Speaker 1: Amendment of free speech, because the SEC is sort of
Speaker 1: allowed to compel speech to promote transparency from companies, but
Speaker 1: there have been questions over whether or not this, uh,
Speaker 1: this oversteps that that first Amendment as well. So we'll
Speaker 1: see the like. You know, it's likely that lawsuits will
Speaker 1: be waged, but I think it's also equally likely that
Speaker 1: the rule will come through sort of unabashed and and
Speaker 1: make it in a final form that looks very similar
Speaker 1: to what it is now and sort of in supreme
Speaker 1: for for quite a while now for a very short break,
Speaker 1: stay with us. So well, then let's go back to
Speaker 1: Maya and that you are calling it European pessimism. But
Speaker 1: I think she's just giving it a good dose of
Speaker 1: critical thinking and realism on some of these and she
Speaker 1: applies it to Europe as well. So let's then talk
Speaker 1: about the EU taxonomy. There have been some changes on
Speaker 1: that side and some discussion around incorporating gas and nuclear.
Speaker 1: Now I know that you have some strong opinions regarding
Speaker 1: what this may do to Europe's climate goals. So Maya,
Speaker 1: why don't you lay out what what is what is
Speaker 1: the problem here, and what is your critique of gas
Speaker 1: and nuclear in the taxonomy. So ney's try to make
Speaker 1: it short because we don't have three hours in front
Speaker 1: of us and a long debate, you know the French way,
Speaker 1: like everything hands and stuff. Anyway, I'm going to play
Speaker 1: devil's advocate here too, ready for that. So they two
Speaker 1: very different points. The inclusion of nuclear and natural gas
Speaker 1: have come together into the taxonomy. But this is more
Speaker 1: because of like diplomatic and political like reason is the
Speaker 1: fact that some countries were pushing for one some so
Speaker 1: others were like, you know what, if you're pushing for one,
Speaker 1: we're pushing for the other. So the taxonomy has been
Speaker 1: the first thing that people need to know is that
Speaker 1: the taxonomy, the first texts have been approved, they've been
Speaker 1: signed off, they've been passed, they came into force this year.
Speaker 1: Companies have been reported their inligibility percentage to the taxonomy
Speaker 1: and it's going to be full alignment next year. But
Speaker 1: then in December one, the European Commission proposed and put
Speaker 1: out an addendum to the taxonomy to basically create conditions
Speaker 1: under which nuclear and natural gas could be considered green
Speaker 1: in the taxonomy within the framework of the tex ME.
Speaker 1: And so after that the Platform and UM and the
Speaker 1: Europe of the Platform and the member states have reviewed
Speaker 1: this these conditions, and then after there was another point
Speaker 1: where the European Commission has actually approved the text that
Speaker 1: was that was proposed at the end of December without
Speaker 1: any changes, despite the despite the analysis from the Platform
Speaker 1: and the member state. So the two facts are the
Speaker 1: inclusion of nuclear in the in the taxonomy is where
Speaker 1: any new built nuclear but also maintenance of installation. The
Speaker 1: main issue with the inclusion of nuclear in the taxonomy,
Speaker 1: according to being if analysis is being at finds out
Speaker 1: that basically there is no issue in terms of like
Speaker 1: announcing the de carbonization potential of nuclear. Nuclear is a
Speaker 1: very low carbon source of electricity, well below the hundred
Speaker 1: grams seal too perclude our that is requested from any
Speaker 1: power generation plants within the taxonomy. So nuclear depending on
Speaker 1: the estimates, we range between ten grams and sixty grams.
Speaker 1: But whatever the the exact number, it's for a bit
Speaker 1: of the freshials that are imposed in the taxonomy. So
Speaker 1: from the angle of what we call substantial contribution, we're fine.
Speaker 1: It has a potential for the carbonizing the grid. The
Speaker 1: problem that BNFC is in the inclusion of of nuclear
Speaker 1: is the aspect of doing no significant harm. So for
Speaker 1: for those who listen to us often, we did a
Speaker 1: session with Data and Mark back in the days to
Speaker 1: to explain how the taxonomy works and for the taxonomy
Speaker 1: not an issue. You prove that you're green by substantially
Speaker 1: contributing to to an environmental goal like plane to change mitigation,
Speaker 1: but you should also prove that you're not harming any
Speaker 1: other environmental goal such a protection of of econsistent but
Speaker 1: what are use waste management annicating things? So you can't
Speaker 1: You need to ensure that you're not only decarbonizing, but
Speaker 1: you're also not harming the rest of the environment, and
Speaker 1: with nuclear this has been highly contests so that was
Speaker 1: the main reason why eyebrows were raised with the inclusion
Speaker 1: of nuclear. Because of nuclear waste, because of military safety
Speaker 1: issue as we're seeing right now in Ukraine for instance.
Speaker 1: So there are a lot of points that raise eyebrows,
Speaker 1: but the main point that being at raised about the
Speaker 1: inclusion of nuclear is that whether nuclear is labeled green
Speaker 1: or not won't make change in terms of if we
Speaker 1: are financing nuclear. So whether nuclear is including in the
Speaker 1: taxonomy or not, nuclear will get financed if needed. The
Speaker 1: reason why nuclear is not finances because it's far too
Speaker 1: expensive and it's far too lon to build. So so
Speaker 1: so basically we're all saying at benish and that's the
Speaker 1: point of our report is to say, well, you've been
Speaker 1: pushing for the inclusion of nuclear, there are some big
Speaker 1: caveat in the way that do no significant harmony structured.
Speaker 1: We don't like being a doesn't put doesn't push back
Speaker 1: on the fact that it's it's a low carbon in
Speaker 1: a source of energy, but it's the risk, it's the
Speaker 1: associated potential for the two arms. I think that's an
Speaker 1: important distinction. It's potential, but not necessarily it just depends
Speaker 1: on circumstances exactly, and the criteria that we're stepped out
Speaker 1: to ensure to reduce that potential. We're two weak according
Speaker 1: to the platform and according to being a research but
Speaker 1: for it being if our angle was much more pushing
Speaker 1: around the fact that it doesn't make sense whether it's
Speaker 1: labeled ring or not. So that's the point in nuclear.
Speaker 1: The concern with nuclear is that potential for there to
Speaker 1: be harm. And you referenced actually what's going on in
Speaker 1: the Ukraine and some concerns over actually nuclear power stations
Speaker 1: being taken over. Also related very much to this, in
Speaker 1: particular in a European context, but actually very much globally,
Speaker 1: is what's happening with gas prices, which we're already high
Speaker 1: before that conflict kicked off, and now there is concerned
Speaker 1: around the security of supply of natural gas. Europe is
Speaker 1: very dependent upon natural gas at the moment, and it
Speaker 1: is in many respects. I know we don't love this term,
Speaker 1: but many have referred to it as a bridge fuel
Speaker 1: or something that can provide assistance with providing seven access
Speaker 1: to clean energy when you don't have the supply coming
Speaker 1: from either wind or sunshining at certain parts of the day, month, year.
Speaker 1: What is the issue with incorporating natural gas and the
Speaker 1: important role that it plays within you know, providing security
Speaker 1: of supply and so you know, I know, Maya that
Speaker 1: right now what you're going to talk about is really
Speaker 1: I mean an opinion that we have put forward being
Speaker 1: and yet as a house view regarding where this fits
Speaker 1: in there. And we can talk, like you said, for
Speaker 1: three hours about whether or not it should or should
Speaker 1: not be included. So within the stance that we've taken,
Speaker 1: if we press that a little bit, what is the
Speaker 1: b NF house view on why gas maybe shouldn't be
Speaker 1: included in the U taxonomy? Like all the your remarks
Speaker 1: are great remarks, and they are the ones that are
Speaker 1: pushed onto us at the moment and that are pushed
Speaker 1: onto the platform. So the taxonomy is a grain taxonomy.
Speaker 1: It's a standard to define what we call green in
Speaker 1: the European Union. It means that whether you're in the
Speaker 1: taxonomy or not in the taxonomy, you'll still get access
Speaker 1: to financing. The main stuff that it ensures is the
Speaker 1: fact that what's in the taxonomy has the potential to
Speaker 1: have access to preferential rate so that we can accept
Speaker 1: narrate the transition, right. It's not saying we're gonna make
Speaker 1: for now like the europe Incordition doesn't have the plan
Speaker 1: to create like a list of what we should stop financing,
Speaker 1: and that actually can be a different podcast at different
Speaker 1: points in time because we're also thinking about that. It's
Speaker 1: not about that. So the inclusion of natural gas in
Speaker 1: the taxonomy is out of context because nuclear is a
Speaker 1: needed source of power. I mean, for those of you
Speaker 1: who are listening to us and and know our new
Speaker 1: energy outlook, who know the European energy transition outlook, you
Speaker 1: know that from our own scenarios there is a role
Speaker 1: for gas to play in the transition to look carbon
Speaker 1: look carbon economy. So that's no no question asked on that.
Speaker 1: The main question there is is to label a for
Speaker 1: sale fuel as a sustainable investment as a green investment,
Speaker 1: and it's mixing up everything in the investors of you
Speaker 1: because what being I found out is that first the
Speaker 1: criteria that are set in the taxonomy, despite potentially being
Speaker 1: hard to meet, some of them has to have such
Speaker 1: strong caveat that the it makes them weak. So for instance,
Speaker 1: there is there is an annual capacity level of carbon
Speaker 1: and carbon emissions that is set for a certain guest
Speaker 1: power plant that is a twenty year average. But you
Speaker 1: need to report your taxonomy alignment every year. So that
Speaker 1: does that mean that you basically upload or offload all
Speaker 1: your greenhouse gas emission at the beginning of the life
Speaker 1: cycle of the power plants for ten years, and then
Speaker 1: after you'll be like, okay, after ten years, basically I'm
Speaker 1: gonna be neutral in terms of greenhouse gat shin and
Speaker 1: therefore overall over the twenty years, I'll meet that average.
Speaker 1: This is impossible to check you here on here. So
Speaker 1: maybe we're going to have assets that are going to
Speaker 1: be labeled as green at the beginning of their life
Speaker 1: that are not necessarily green because you'll feed just on
Speaker 1: the on the big steme of the twenty years. That's
Speaker 1: one example. The problem is that it's as if they
Speaker 1: had pushed to get natural gas into the taxonomy for
Speaker 1: many different reasons why it's not necessarily in that text
Speaker 1: that it should be so in in our note, for
Speaker 1: instance benf analysis, the fact that this the role that
Speaker 1: gas has to play could be regulated by other sorts
Speaker 1: of regulations, but not by the taxonomy. The taxonomy is
Speaker 1: a sustainable like a green and roamentally friendly green framework
Speaker 1: for investor for them to be a no brainer and say, okay,
Speaker 1: if it's a line with the taxonomy, me if in
Speaker 1: my portfolio I have a line with the taxonomy, means
Speaker 1: that I had all of my investments are a line
Speaker 1: with the Paris Agreement. And now it creates doubts. While
Speaker 1: at the same time, at the beginning of this week,
Speaker 1: the European Platform and Sustainable Finance, which is the expert
Speaker 1: group that like responds to the European Commission on these topics,
Speaker 1: has just put out a transition of taxonomy. So why
Speaker 1: can't it be that because, as you explain rightly, Diana,
Speaker 1: it's a bridge fuel, it's a fuel that we need
Speaker 1: for a certain period of time. So your argument is
Speaker 1: that there is a separate taxonomy. They can take this
Speaker 1: into consideration but walk back confusing things. I don't think so.
Speaker 1: I think right now the main discussion and the reaction
Speaker 1: from from from investors what BNFC is that investors are
Speaker 1: are just saying they don't understand anymore. The taxonomy was
Speaker 1: supposed to be this kind of pure grain list that
Speaker 1: they could follow without asking themselves the questions because most
Speaker 1: of them don't have a scientific background. Most of them
Speaker 1: don't have an engineering background. They don't necessarily know when
Speaker 1: hydrogen is green, when cement's green, and that was supposed
Speaker 1: to be our common methodology, and now in the middle
Speaker 1: of all of that you have a fossil view. So
Speaker 1: it's better to have different sets of rules being I
Speaker 1: think that this came up as well because one of
Speaker 1: the biggest criticism against the taxonomy was the saying that
Speaker 1: it didn't have a shaded approach. It was either your
Speaker 1: in or you're out. So hence the need for the
Speaker 1: transition tacconas exactly. This is why the Platform and Sustainable
Speaker 1: Finance and the European Commission still have a lot of work.
Speaker 1: How much work to do? So much sure to do. Okay,
Speaker 1: so there's that that's sober looking up. So we've talked
Speaker 1: a bit about Europe. We've talked about the u S
Speaker 1: and some developments there. Let's add one more thing into
Speaker 1: the show today, which is the Glasgow Financial Alliance so
Speaker 1: g FANS, which is fairly new and it would be
Speaker 1: useful for us to just kind of quickly go over
Speaker 1: what it is, what it isn't, because it is going
Speaker 1: to be a new force within all of these different
Speaker 1: frameworks for companies and governments to look at. Absolutely, and
Speaker 1: maybe I'll jump in on that because I think it's
Speaker 1: a perfect secret data, almost as if it were by design,
Speaker 1: because you know, Maya's talking about, you know, the need
Speaker 1: for transparency and green activities and and every great point
Speaker 1: that she's just brought up, and it's the same you know,
Speaker 1: with the SEC, investors have been asking for a long
Speaker 1: time for more transparency. That's part of the impetus for
Speaker 1: putting forward any type of rule like this, you know,
Speaker 1: whether it's a taxonomy or SEC regulation or anything you
Speaker 1: know that runs the gamut is that people are saying, hey,
Speaker 1: you know, we need more information if we're going to
Speaker 1: make prudent financial or other decisions related to asks, opportunities, decisions,
Speaker 1: what have you. And the same is true, you know
Speaker 1: for the g fans, the Glasgow Financial Alliance for net zero.
Speaker 1: It is sort of like a I like to think
Speaker 1: of it like a coalition of coalitions. Basically, a group
Speaker 1: or groups rather of the financial participants, whether that be banks,
Speaker 1: asset managers, insurance companies, asset owners and many others have
Speaker 1: sort of come together in different coalitions to sign on
Speaker 1: to achieve net zero emissions by or earlier, and there
Speaker 1: are different types of, you know, additional goals that go
Speaker 1: along with that, and you know, oftentimes you hear about
Speaker 1: things like me for setting interim goals, not just saying
Speaker 1: see you in t like you know, we'll meet you there,
Speaker 1: but like you know, things coming you know, every five
Speaker 1: years or so, or at least you know, one interim goal.
Speaker 1: There's different elements of these sort of voluntary standards, but
Speaker 1: generally the gist is let's all get to net zero
Speaker 1: by and the g FANS, which was initiated I believe
Speaker 1: in April, sort of coalesced these coalitions, brought them all
Speaker 1: together under one roof for umbrella so that things could
Speaker 1: be streamlined. So basically you have all these financial institutions
Speaker 1: saying yes, net zero, me too, and then they're all
Speaker 1: working in tandem under sort of a similar umbrella to
Speaker 1: figure out how they do that. So, whether that means
Speaker 1: you know, figuring out how to call for more regulation
Speaker 1: like we've been talking about as a group, say we
Speaker 1: need more info, or whether it's about figuring out how
Speaker 1: to identify and calculate the pathways that they're going to
Speaker 1: do that. The g FANS has set up several sort
Speaker 1: of work streams or priority areas, and they released this
Speaker 1: at the time of COP last October slash November UM
Speaker 1: and you know, now they're sort of working on helping
Speaker 1: to enable that transition that many of these companies have
Speaker 1: signed onto and and they're still signing onto these These
Speaker 1: initiatives are growing. I believe at the time of COP
Speaker 1: it was announced that there were four hundred and fifty
Speaker 1: participants or you know sort of sign on across the
Speaker 1: institution types. And this is something that I think we're
Speaker 1: seeing more and more. Is you know, I like to
Speaker 1: think of it as like a bit of a wave.
Speaker 1: It's like you start out with something like you know,
Speaker 1: green Finance or the Call for Disclosure, and it's a
Speaker 1: few voices and it's you know, not necessarily put into
Speaker 1: action very quickly, a couple of people are sort of
Speaker 1: crying out in the wilderness saying we need more of
Speaker 1: this or we need to set just in that little
Speaker 1: tiny voice too, I'm really I hear that from the
Speaker 1: financial services community exactly. That's how they speak outward. Yeah,
Speaker 1: and then it like swells, you know, all of a sudden,
Speaker 1: all these voices join on. It becomes more of a roar.
Speaker 1: I'm not going to do that voice preserved some of
Speaker 1: my dignity while we discussed this. But basically, then you
Speaker 1: have this sort of swell where a lot of d
Speaker 1: these are calling for the same thing. Maybe they're setting
Speaker 1: out frameworks, they're trying to figure out their footing. Us
Speaker 1: they paved the way toward the future, and it becomes
Speaker 1: a bit confusing. So you start out with not enough guidance.
Speaker 1: You get to everybody wants the same things. So there's
Speaker 1: all these different avenues and now we're sort of in
Speaker 1: the last part of the wave where it's starting to
Speaker 1: funnel down again, but with more clarity. So you take
Speaker 1: all of those voices, all of these frameworks, all of
Speaker 1: these coalitions, and you're putting it under one roof so
Speaker 1: that you're not having everybody doing things with a different methodology,
Speaker 1: which is super important. You have to, you know, make
Speaker 1: sure that calculations are similar, otherwise things will be completely
Speaker 1: incomparable and will sort of wind up with, you know, chaos.
Speaker 1: Now for a very short break, stay with us. Yeah,
Speaker 1: it makes it impossible for the investment community to compare
Speaker 1: different companies within their portfolio to one another and make decisions.
Speaker 1: And for Emmy and for us the public as well,
Speaker 1: that's exactly right, And something like the g FANS serves
Speaker 1: as a funneling exercise like that, it takes a bunch
Speaker 1: of coalitions and says, hey, let's get on the same page.
Speaker 1: Because you can also imagine one financial entity, you know,
Speaker 1: bank for example. You know, they might have an asset
Speaker 1: management arm. It makes sense for them to be doing
Speaker 1: something that is comparable across their different types of activities,
Speaker 1: so that calculations are similar. And that also takes away
Speaker 1: some of the burden of things like reporting and trying
Speaker 1: to meet goals because everybody is sort of on the
Speaker 1: same page, and even if it's between entities, it's not
Speaker 1: the same entity. It just like you said, it helps
Speaker 1: folks that are on the outside understand what things mean
Speaker 1: and things like a taxonomy so that everybody's on the
Speaker 1: same page about what is or is not considered green
Speaker 1: SEC regulations, so everybody's sort of disclosing information the same
Speaker 1: way instead of just here and there with different parts
Speaker 1: included in different units, you know, in there in there.
Speaker 1: It helps read that level of transparency that then will
Speaker 1: help us understand not only what the goals are things
Speaker 1: like net zero, but also how far are we on
Speaker 1: the way to get there because we can sort of
Speaker 1: come pair as a group. So actually, I I have
Speaker 1: a question for both of you who really spend a
Speaker 1: lot of time thinking about sustainable finance. That is that
Speaker 1: is the job after all. So my question is, actually
Speaker 1: we're talking about g FANS, which is trying to consolidate
Speaker 1: and look at different frameworks. Invariably, the TCFD was looking
Speaker 1: to do the same thing. There are not the same thing,
Speaker 1: but was also looking to consolidate various different frameworks that
Speaker 1: are driving to an end. We are at a place
Speaker 1: where there are these moves to consolidate information data frameworks
Speaker 1: create alignment as we head into world where E s
Speaker 1: G is becoming less niche and becoming more mainstream. And
Speaker 1: the main question within this is is this consolidation happening
Speaker 1: quickly enough that we will be able to capitalize on
Speaker 1: the amount of energy and interests that is coming from
Speaker 1: the financial services community at the moment because there are
Speaker 1: so many companies that are looking to better under stand
Speaker 1: what their E s G strategy should be going forward
Speaker 1: and probably formulating their own methodology, they're buying data, they're
Speaker 1: coming up with their views. All of these frameworks going
Speaker 1: to get there in time. Will they be additive or
Speaker 1: will they be a moment too late. I think that's
Speaker 1: the main issue. I was actually having a moderating and
Speaker 1: conferences today on the topic, and I think that's going
Speaker 1: to be the main concern of everyone, because, let's be honest,
Speaker 1: we create all these data sets, and we build all
Speaker 1: these new regulation so that financial market participants can act
Speaker 1: on it, so that corporations can act on it, but
Speaker 1: in particular investors and lenders, and ensuring that they take
Speaker 1: into account social and environmental. In this particular case, whe
Speaker 1: we're mostly talking about environmental, but there is the whole
Speaker 1: part on social. They've taken too account environmental impact of
Speaker 1: their investments. Not only do they take into account the
Speaker 1: risk that the like climate change fairs on their investments,
Speaker 1: but all their investments is bearing on the environment as
Speaker 1: a whole. And the problem we're seeing is that the
Speaker 1: same way we've been talking about the EU taxonomy, but
Speaker 1: at the moment we're talking about this taxo mania, because
Speaker 1: so many taxonomys are created around the world. Is that
Speaker 1: the technical term for it. Tax so Mania. It's a
Speaker 1: term that has been like spreading in the in the
Speaker 1: in the market. Yeah, the one that has been used
Speaker 1: and basically that that tax so Mania. It's great because
Speaker 1: it shows that we're creating this common language, but there
Speaker 1: are some small discrepancies between one country and another, like
Speaker 1: we saw the Russian taxonomy or the China taxonomy, EU taxonomy.
Speaker 1: Now we're going to have the UK taxonomy. South Africa
Speaker 1: is working on one's well, like so many I don't
Speaker 1: even have enough time to talk about it. But it's
Speaker 1: also going to be harmonizing all of that and ensuring
Speaker 1: that investors can compare one with another. That's gonna be
Speaker 1: really like difficult the part on corporate disclosure. They could
Speaker 1: do a big effort in harmonizing all of that, and
Speaker 1: I think initiatives like I S, S, B G funds,
Speaker 1: TCND really need help with the harmonization and standardization of
Speaker 1: the type of data that we're capturing. But also I
Speaker 1: hope that could bring a bit of like ambition, you know,
Speaker 1: I don't want them to just don't do something because
Speaker 1: you're scared that the other one is not going to
Speaker 1: do or something like that. I hope it can feel
Speaker 1: like a healthy competition to ensure that we get more
Speaker 1: and more data on the e s G. Performance of
Speaker 1: companies and organizations as a whole. Yeah, it's certainly not
Speaker 1: fair to say, well, then we should do nothing because
Speaker 1: other people are working on it. There's definitely need. I
Speaker 1: was playing Devil's advocate there in a few different respects.
Speaker 1: Is invariably Idea. Definitely do see and understand the need
Speaker 1: for harmonization in this world of lots of different taxonomies.
Speaker 1: So final thought on what the SEC is doing in
Speaker 1: the US, this seems like an excellent step forward. Let's
Speaker 1: let's play both sides of this coin. Actually, so malory.
Speaker 1: How about you say, is this a good initial step?
Speaker 1: And what do you see is the change that it
Speaker 1: may spur in the future, And Maya do, where do
Speaker 1: you see this falling in terms of what additional steps
Speaker 1: do need to take place in order for the US
Speaker 1: to really be competing, if you will, with other countries
Speaker 1: with more sophisticated or let's say, developed frameworks in place.
Speaker 1: Thanks so much, Dana, I love that question because Maya
Speaker 1: and I often love to debate these kinds of things. So,
Speaker 1: you know, putting one of us on one side, one
Speaker 1: of us on the other side is is a great exercise,
Speaker 1: So thank you. I think it's a great first step.
Speaker 1: And you know, Maya mentioned earlier that we ran company
Speaker 1: excuse me countries as UM part of you know, want research,
Speaker 1: you know, research insights. We have sort of a tool
Speaker 1: ranking the G twenty on there sort of sustainable finance
Speaker 1: and E s G disclosure regulatory landscapes, and the US
Speaker 1: falls pretty low. One of the things that we found
Speaker 1: in that analysis is that often times, what for for
Speaker 1: countries or markets that you know have been developing sustainable
Speaker 1: finance related than the SU disclosure regulations. Over time, there's
Speaker 1: sort of a natural progression at the beginning picture sort
Speaker 1: of like a graph with years on the x axis,
Speaker 1: you know, looking over time. The beginning is usually across
Speaker 1: countries starting with UH corporate E s G disclosure, just
Speaker 1: like what you're we're we would be seeing with the
Speaker 1: with the SEC proposal, and then over time you see
Speaker 1: sort of a shift. There's no more of a need
Speaker 1: to put forward new policies within a given country on
Speaker 1: UM on just disclosure from co Brits because that's already established.
Speaker 1: And then you start with more investor disclosure, and then
Speaker 1: you start with mandating the incorporation of E s G
Speaker 1: into investment decisions, you get things like taxonomy. Is if
Speaker 1: we're thinking about different types of policies, you start with
Speaker 1: something usually like a corporate sue disclosure, and then you
Speaker 1: build from there. I'm not saying that, you know, this
Speaker 1: couldn't be leap frogged or incorporated into a big policy,
Speaker 1: but it seems like we're seeing something very similar in
Speaker 1: a nascent climate policy world, that is the US. You know,
Speaker 1: we're starting out with something like that that's just corporate disclosures,
Speaker 1: and they're gonna move from there. It is pretty ambitious
Speaker 1: in my mind because it's requiring that scope three and
Speaker 1: to disclose on transition plans. So it's doing a lot
Speaker 1: more than just saying like, hey, if you think you
Speaker 1: know a climate risk is important, you know, disclose it.
Speaker 1: It's it's giving more specific guidelines that help that transparency
Speaker 1: and that comparability, which we were just talking about a
Speaker 1: question or so ago. So you know, I think that
Speaker 1: this is ripe as a first step because we've seen
Speaker 1: this in other markets as well. But one of the
Speaker 1: benefits of you know, being a latecomer, even though it's
Speaker 1: not good in terms of climate stuff, is that you
Speaker 1: already have examples in place to build off of. So
Speaker 1: you know, when the EU taxonomy was being developed, there
Speaker 1: was no other you know, big taxonomy to look at
Speaker 1: as a as an example and build off of. But
Speaker 1: now we see that other taxonomy's that are arising across
Speaker 1: across the globe are hearkening to the EU version because
Speaker 1: they don't have to reinvent the wheel. There's something that's
Speaker 1: been established and they can you know, they can get
Speaker 1: through it quicker because it's already been done somewhere, and
Speaker 1: the US can leverage its position as a bit of
Speaker 1: a laggard in terms of setting sustainable finance policies because
Speaker 1: many other jurisdictions have done it already and they can
Speaker 1: use that to their advantage. I think it would be
Speaker 1: actually very prudent to look at what other regions are
Speaker 1: doing and say, okay, now we now we sort of
Speaker 1: know the landscape, this is what we're gonna do, this
Speaker 1: is what're I'm gonna do, try, you know, tried and
Speaker 1: tested by others, because it helps again not reinvent the wheel,
Speaker 1: but it also promotes that comparability, it helps you look
Speaker 1: at other regions and nowhere to align. And then the
Speaker 1: other side of that coin, I think is a bit
Speaker 1: of the SEC proposal and something they should do more
Speaker 1: of is using existing well established frameworks, whether that be
Speaker 1: mandatory or voluntary, so not just in another country's taxonomy,
Speaker 1: but also something like the tcf D. Many people already
Speaker 1: use that. You know, number of tcf D supporters goes
Speaker 1: up and up over time. And when you establish based
Speaker 1: off of a well understood and respected um, you know,
Speaker 1: something that is comprehensive and thought of as being very
Speaker 1: reasonable and sound framework, even if it's voluntary, you're sort
Speaker 1: of already ensuring some buy in because there's recognition at
Speaker 1: the beginning. You're not starting from scratch. So I think
Speaker 1: that's those are a couple of good points in favor
Speaker 1: of you know, what the SEC has done, you know,
Speaker 1: in addition to just the fact that they brought it forward,
Speaker 1: which I think is a good thing for promoting transparency
Speaker 1: for investors and companies of and other financial participants alike,
Speaker 1: but also they should leverage their position as one of
Speaker 1: the bottom third countries that we rank and use it
Speaker 1: in a way, you know, as as you know, a
Speaker 1: benefit to get ahead in the future. I think we
Speaker 1: should have sort of a race to the top in
Speaker 1: terms of making ambitious policies that coordinate and at the
Speaker 1: most recent cop for you know, when countries came together,
Speaker 1: there was a dedicated finance day, So I think you know,
Speaker 1: I'll say this word again, but coalescing around country level,
Speaker 1: company level, you know, whatever else it is, investor level
Speaker 1: initiatives will only help promote the future sort of skyrocketing
Speaker 1: of these types of institutions because everybody will be working
Speaker 1: in tandem. The question here really has to do with
Speaker 1: is it enough like essentially what the US is doing,
Speaker 1: and not only is it enough, like what else needs
Speaker 1: to really trace place take place? Where do you see
Speaker 1: the gap between what the SEC has put forward and
Speaker 1: what is happening potentially in Europe and other parts of
Speaker 1: the world that are have been more developed in terms
Speaker 1: of their stance on a lot of these things. Basically,
Speaker 1: what is the gap? What is the gaptical? It's a
Speaker 1: great first step, and one thing I've realized by working
Speaker 1: with Malory is that it was a difficult one to
Speaker 1: get in the US. Let's let's put it into context.
Speaker 1: Under the Trump organization, the Trump administration, we were talking
Speaker 1: about preventing pension fund to promote E S G investing,
Speaker 1: and we're like, and now we're moving to an administration
Speaker 1: that is trying to do stuff. Even if what Mathery
Speaker 1: explained it's probably going to pass at the SEC level,
Speaker 1: there is a litigation risk afterwards. Like it's a whole
Speaker 1: different world from what's happening in the EU, where we
Speaker 1: have like like a market that is eager to see
Speaker 1: these relations coming. But yet, even if that's the circumstances,
Speaker 1: I still can't say for me that it's enough and
Speaker 1: it's big. I agree with the scope three emission, but
Speaker 1: it's only if there are material So I'm sure there's
Speaker 1: going to be a lot of like playing with the
Speaker 1: words like who it's not. It's almost like a complex
Speaker 1: complier or explain kind of legislation. It's not for everyone.
Speaker 1: So that's already like a big caveat for me. And
Speaker 1: the other thing is then what I want to see
Speaker 1: is that indeed, great first step, amazing, it's a strong
Speaker 1: first step. But now we need this to move to
Speaker 1: the investor side first and the bank side, because right
Speaker 1: now it's mostly looking at registrants, which are they're going
Speaker 1: to be reporting at the company level, So even if
Speaker 1: you're an investor, you're you're like report as an investor,
Speaker 1: but as a company, which is completely different than having
Speaker 1: legislation that are really going to force them to integrate
Speaker 1: it into their investment process, integrate sustainability in their investment process,
Speaker 1: and also stop seeing sustainability just as a way to
Speaker 1: head yourself against the risk. So what I would love
Speaker 1: to see is also having legislation like what we saw
Speaker 1: in the in the you with and s R and
Speaker 1: in the UK with s d R having legislation that
Speaker 1: says you need this angle of double materiality. It sounds
Speaker 1: like a swear word, but basically what it means is
Speaker 1: that how the US as on the first part, which
Speaker 1: is how is sustainability risk impacting your investment impacting your business? Well,
Speaker 1: at the moment they just looked at the business. In
Speaker 1: in the EU, they look out through at your investments
Speaker 1: and your lending, but how is this impacting therefore your
Speaker 1: future profits ability? And then the second angle is like
Speaker 1: how are your investments, how is your company impacting the environment,
Speaker 1: impacting the sustainability of social matters for instance, and that's
Speaker 1: the point that I wanted to and then after that
Speaker 1: having central banks stepping in the e TB. The European
Speaker 1: Central Banks just announced that they are thinking of putting
Speaker 1: capsula look like capital requirements on the back of climate risk.
Speaker 1: That is a massive step. And I wish we could
Speaker 1: see the same in the US because once the US
Speaker 1: will move oll like, it would show that everyone can move.
Speaker 1: So let's see, let's play with the different mandates of
Speaker 1: the different regulators. The SEC has one one day, it's
Speaker 1: maybe like the the executive power will play another role,
Speaker 1: and then the the US like the Federal Reserve will
Speaker 1: play another role. Like there are so many levers that
Speaker 1: we can back on. All right, We'll continue to watch
Speaker 1: these countries and the different developments they make on these
Speaker 1: different frameworks. It's sustainable finance, but it's this fusion between
Speaker 1: sustainable finance and really policy in so many ways, and
Speaker 1: how it's all interrelated that is so fascinating eating at
Speaker 1: the moment, and it does feel like there is this
Speaker 1: sense that there is change afoot all around as people
Speaker 1: are organizing and looking at E s G and taking
Speaker 1: it more seriously. So Maya and Mallory, thank you very
Speaker 1: much for joining and being giving us such clear views
Speaker 1: on what is coming down the pipe and what we
Speaker 1: should be watching in terms of a few of the
Speaker 1: changes that are taking place in the US and Europe,
Speaker 1: and well, I guess with g fans, which is in
Speaker 1: many respects global. Thank you, so thank you so much,
Speaker 1: Dana for having us. Today's episode of Switched On was
Speaker 1: edited by Rex Warner of gray Stoke Media. Bloomberg an
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