Speaker 1: Hello. You're listening to Kobie time, a podcast series on
Speaker 1: markets and economies from DBS group research. I'm camera big
Speaker 1: chief economist. Welcome to our 83rd episode.
Speaker 1: Today's guest or I should say return guest is winning
Speaker 1: money ceo of Singapore based Pan are key partners. A
Speaker 1: few years ago, money transition from a career in traditional
Speaker 1: by side fund management to setting up a firm that
Speaker 1: seeks to redefine the notion of wealth and its creation.
Speaker 1: We talked about all this and more in Kobe time
Speaker 1: back in 2020 and episode 16. I think both panicky
Speaker 1: partners and Kobe time have come a long way since then.
Speaker 1: In preparation for this podcast, I went back and listened
Speaker 1: to that episode to those of you who haven't please
Speaker 1: do by all means. It's a terrific primer on a
Speaker 1: company's purpose and when it really draws from history as
Speaker 1: well as economic and finance theory to underscore that point.
Speaker 1: And also in that podcast you will hear money delving
Speaker 1: into sustainability driven fund management, focusing on returns and progress
Speaker 1: on four forms of capital, human, social, environmental and financial.
Speaker 1: In today's podcast we will focus on the third capital,
Speaker 1: environmental and the investment side. Guys around that. With that
Speaker 1: context in place me welcome back to Covid time.
Speaker 2: Uh We're good to be back. It was like a
Speaker 2: long time ago.
Speaker 1: It was early days of Covid. Yeah, indeed. Um we
Speaker 1: had you in the show I think just a little
Speaker 1: more than two years ago. So what have you and
Speaker 1: Panicky partner has been up to during that time.
Speaker 2: Yeah, the last two years, uh as you know, it
Speaker 2: seems like uh during Covid, uh you know, everything kind
Speaker 2: of went silent and went very quiet, but I've got
Speaker 2: to say that while, you know, while the humanity humanitarian
Speaker 2: crisis that was happening unfolding both on a first one,
Speaker 2: on a professional level, it impacted many, many people. And
Speaker 2: and
Speaker 2: you know, even at hockey partners, sadly we had our
Speaker 2: own losses. Uh we had our co founder, christian droll
Speaker 2: passed away in a tragic incident.
Speaker 2: Um but you know, the team has come out of Covid,
Speaker 2: you know, stronger. I'm proud that we've kind of delivered
Speaker 2: on the the purpose that for which partners was built,
Speaker 2: we've been sort of diligently executing on our purpose of
Speaker 2: having a couple owners and users come together um to
Speaker 2: make a better place a better
Speaker 2: world. And then our own investing process has evolved since
Speaker 2: the last time we spoke and we've incorporated purpose into
Speaker 2: how our portfolio companies are judged. And I'm glad to
Speaker 2: say that, you know, that that's been a sort of
Speaker 2: a positive sort of, you could say progress for anarchy
Speaker 2: since we last met as a b corp
Speaker 2: We've been playing a very important role. We believe in
Speaker 2: building a sustainable investing ecosystem in Singapore. We've had almost
Speaker 2: 30 interns now with us over the last four years
Speaker 2: since we started, uh and and we were having our
Speaker 2: second Global Pandas Forum, so building and shaping the sustainable
Speaker 2: investing ecosystem not only in Singapore, and Asia is very important.
Speaker 2: And I think, you know, the last thing is and
Speaker 2: where we are right now is that that the team
Speaker 2: has actually broadened its investment focus from sustainable investing. And
Speaker 2: now we're focusing and moving towards investing with environmental impact.
Speaker 2: If you recall my team and myself have,
Speaker 2: I've got and and spend a lot of time on
Speaker 2: environmental capital, injustice call. And the team is now ready
Speaker 2: to help our clients deliver on some of the environmental
Speaker 2: ambitions that they have through their investments. So we're we're
Speaker 2: we're nicely placed in a world that most probably is
Speaker 2: not that nicely placed at the market.
Speaker 1: Indeed, uh I I would like to devote today's podcast
Speaker 1: instead in that context. And getting deep into the issue
Speaker 1: of climate investing. So, let's start by you helping us
Speaker 1: understand what is climate change in the context of markets
Speaker 1: and what is climate investing?
Speaker 2: Yeah. So, first climate change, in terms of the markets,
Speaker 2: if you recall last time when we spoke to me,
Speaker 2: we talked about externalities, you know, that was a big
Speaker 2: part of the conversation we had was that many of
Speaker 2: the externalities, human social environmental that were outsourced by companies.
Speaker 2: And uh and investors just took it as it was
Speaker 2: they were being internalized. One of the biggest externalities. The
Speaker 2: mother of all negative environmental externalities is climate change.
Speaker 2: Uh and I think that's where in the context of
Speaker 2: the markets, climate changes could be seen as a failure
Speaker 2: a failure of markets to incorporate internalize this very expensive
Speaker 2: cost that is now not only cost for the current generation,
Speaker 2: but for the future generations as well. And and I
Speaker 2: think that's an important sort of uh you know, uh
Speaker 2: realization that the world is having on various levels that
Speaker 2: Climate change is a market failure and the markets are
Speaker 2: now trying to sort of correct for it. And and listen,
Speaker 2: I don't want to be too hard on the markets.
Speaker 2: You and I have have been market participants for the last,
Speaker 2: you know, almost 30 years now and we do believe
Speaker 2: in the pot
Speaker 2: the value that markets bring. But this whole challenge of
Speaker 2: climate change, it is so broad and global in its nature.
Speaker 2: Most other externalities can be very, let's say localized regionalized
Speaker 2: and therefore the cost can be very focused and that
Speaker 2: the markets can become a lot more effective. But I
Speaker 2: think here the whole challenges that climate change, the costs
Speaker 2: are global and also political in nature.
Speaker 2: And that that is where climate change in in a
Speaker 2: way has been a market failure and for good reasons,
Speaker 2: it's just a very, very, very tough challenge to deal with.
Speaker 2: Um if you now move towards climate investing climate investing,
Speaker 2: it's relatively new. The concept of climate investing, there's no
Speaker 2: clear definition of climate investing if you can in its
Speaker 2: essence is basically investing to help with solutions around climate
Speaker 2: change and if you go a bit deeper into it,
Speaker 2: its base
Speaker 2: basically investing to help decarbonization, you know, removing carbon, uh,
Speaker 2: from the environment or reducing the output of carbon into
Speaker 2: the environment and various other emissions. So that is where
Speaker 2: climate investing has now uh, come to become a topic
Speaker 2: of discussion on various levels, especially within the investing community.
Speaker 2: It is all about
Speaker 2: investors. Also, the good news is the investors are moving
Speaker 2: from again risk and return to risk, return and impact.
Speaker 2: So that way, climate investing is different from traditional investing here.
Speaker 2: Many of the investors who are actually wanting to invest
Speaker 2: for climate change
Speaker 2: are coming with, with a, with a strong focus on
Speaker 2: genuine environmental impact towards climate. If you look at climate investing,
Speaker 2: I would say it's almost at its Gatorade moment, not
Speaker 2: What I, what I, what I mean by that is that,
Speaker 2: you know, if you look at sports drink drinks and
Speaker 2: the phenomenal round sports drinks, right. The first sports drink
Speaker 2: was Lucas aid in 1927 and that was almost athletes
Speaker 2: that were elite
Speaker 2: By 1965. When Gatorade came about, Gatorade was the first
Speaker 2: sports drink that was sort of popularized for average athletes, uh,
Speaker 2: for anyone doing any exercise. Gatorade became the go to
Speaker 2: drink for their sports sort of, uh, sort of needs.
Speaker 2: And I think where, that's where we are at now
Speaker 2: with even climate investing. Gatorade at that time, when it
Speaker 2: started in 1965, it actually was just sugar, salt
Speaker 2: and lemon juice to make it taste a bit better.
Speaker 2: But it's since then, you could say, as sport springs
Speaker 2: have evolved and become isotonic and also very customized. We
Speaker 2: are going to see that happen with climate investing as well,
Speaker 2: but at this point in time, it's still very early
Speaker 2: days when we're having this conversation in two years time,
Speaker 2: when you're doing your 150th copy time, uh, some of
Speaker 2: the questions you'll ask me, maybe my answers will be
Speaker 2: slightly different because it is evolving very quickly,
Speaker 1: so many as, you know, this is not necessarily a
Speaker 1: problem in the circle that you and I live in.
Speaker 1: But there is a huge community of climate skeptics out
Speaker 1: there who will challenge the first notion that there's a
Speaker 1: negative externality that manmade activities are causing the bulk of
Speaker 1: climate change, that some of it is, you know, something
Speaker 1: that's a constant through the history of this planet
Speaker 1: now, to those skeptics, I mean, do we just ignore
Speaker 1: them or there is a rational for even those people
Speaker 1: to be part of climate investing?
Speaker 2: Yeah, I think
Speaker 2: if you want to sort of bring them on board,
Speaker 2: you cannot ignore them. And I think what you need
Speaker 2: to do is need to understand where that is coming from, right?
Speaker 2: And I think that is one of the reasons why
Speaker 2: climate change, climate investing is very politicized this whole issue
Speaker 2: of carbon is very political, is exactly that, that a
Speaker 2: lot of people who are skeptics are coming from either
Speaker 2: a fear of this transition of
Speaker 2: decarbonization, impacting and let's face it, decarbonization is gonna be
Speaker 2: challenging and expensive from on an economy on companies and individuals.
Speaker 2: And that's why we often talk about just transition. So,
Speaker 2: you know, the word just transition is also become very topical,
Speaker 2: especially in making sure that as we transition away from
Speaker 2: fossil fuels and let's say, other agricultural practices that are
Speaker 2: maybe not that
Speaker 2: positive for the overall environment, that we do it in
Speaker 2: a way that is just and fair for everyone, not
Speaker 2: just the global south, but also for the developed countries
Speaker 2: and the various industry that they're operating. And I think
Speaker 2: the skeptics either coming from a lack of, let's say,
Speaker 2: the knowledge around the science behind it,
Speaker 2: Which I think now the skepticism is especially around climate
Speaker 2: change is definitely a lot more reduced than it was,
Speaker 2: let's say five years ago, 10 years ago. It's pretty
Speaker 2: much an accepted fact. Now, the size and scale of
Speaker 2: it can be questioned. The timing of it can be
Speaker 2: questioned and the solutions are definitely going to be questioned
Speaker 2: but I think it's the few that are left the
Speaker 2: skeptics engaging with them, understanding what is their fear or
Speaker 2: the concern that is the one way to deal with this.
Speaker 1: So I think the two facts. money, what is number one,
Speaker 1: the earth is warming and number two, there is a
Speaker 1: linkage between human activities and global warming. Your point is
Speaker 1: that I think there's not that much room for debate
Speaker 1: on those who think the science is pretty solid in
Speaker 1: these areas.
Speaker 2: And even if let's say we are
Speaker 2: exaggerating it by 50% this whole idea that temperatures going
Speaker 2: to 2.5% is going to lead to serious, serious and
Speaker 2: and you know, there's been some studies done that done
Speaker 2: that if we don't, let's say no action is taken
Speaker 2: by the end of the century, the global economy is
Speaker 2: going to be lower than 18% and where it is now,
Speaker 2: just the economic damage that can be done is massive
Speaker 2: for those who want to put it in financial terms,
Speaker 2: for those who do
Speaker 2: I want to put, you know, the risk of climate
Speaker 2: change into financial terms, They just need to see what's
Speaker 2: happening around the world in terms of temperatures and climates
Speaker 2: and all the rest. And let's say, even if what
Speaker 2: we are doing now helps that incrementally, that should be
Speaker 2: a positive for everyone. So I think making it a
Speaker 2: binary event is gone. It's more, you know, it's it's
Speaker 2: a scaling issue now for many people in terms of
Speaker 2: time size effort, fear everything right there's a whole spectrum,
Speaker 1: how big is climate investing now? And even before you
Speaker 1: answer that question might follow up to the question is
Speaker 1: why isn't it bigger?
Speaker 2: Yeah. So climate investing, as I said, if you incorporate
Speaker 2: in the broader context, it is about decarbonization all the efforts, right?
Speaker 2: So if you add in all the government aspirations and
Speaker 2: ambitions and promises, then already we were talking in the
Speaker 2: trillions of dollars and even going forward, it's going to
Speaker 2: be trillions of dollars of investments.
Speaker 2: I think there was a Bloomberg uh article last year
Speaker 2: that said that for us to get to net zero
Speaker 2: by 2050 100 and $73 trillion have to be spent uh,
Speaker 2: in climate investing.
Speaker 2: Um, in the same vein, there was another research done
Speaker 2: by another research house and, and they had just china
Speaker 2: alone needs to spend 100 and $65 billion per annum
Speaker 2: to get to their carbon neutral 2060 target. So the numeric,
Speaker 2: from the government's perspective, a massive, even if you look
Speaker 2: at the Eu green deal, that the latest, uh, you know,
Speaker 2: the inflation reduction act of us,
Speaker 2: there's big chunks of these that I have got climate
Speaker 2: in it from the government's perspective. So if you look
Speaker 2: at governments and even companies that are transitioning their own
Speaker 2: models business models and the Capex that they're spending internally.
Speaker 2: That's fairly big already. Now, that is one form of investing.
Speaker 2: But for the purposes of today, let's say, what we're
Speaker 2: talking about is private individuals, institutions investing in, let's say
Speaker 2: carbon and, and, and, and climate
Speaker 2: here. The dollar values are still very relatively low. Morningstar
Speaker 2: had a number in april this year that there's roughly
Speaker 2: 860 funds or E. T. S. That are out there
Speaker 2: in the market that are climate, or probably called climate related, right?
Speaker 2: And the total value in that is about $408 billion
Speaker 2: according to Morningstar. And that number has doubled in the
Speaker 2: in 2021. And it's about 7 to 8 times what
Speaker 2: it was in 2017.
Speaker 2: But 408 billion is not very big. It's still very small.
Speaker 2: It's still very early days. And, and, and, you know,
Speaker 2: you ask also, what is the reason it's being held back?
Speaker 2: I think there's two bottlenecks here. One is, the first
Speaker 2: is that, as I mentioned for climate investing, investors are
Speaker 2: looking for environmental impact as much as they're looking for
Speaker 2: risk adjusted returns,
Speaker 2: the impact, environmental impact data that people, institutional investors, even
Speaker 2: individual investors are having at this point in time is, uh,
Speaker 2: still coming slowly. It's not
Speaker 2: well identified and structured enough for these institutional investors who
Speaker 2: are so used to their risk return frameworks to incorporate
Speaker 2: that into it. So, I think the impact, the more
Speaker 2: over time as we get more and more environmental data
Speaker 2: that can support the impact that investments are making, the
Speaker 2: more money we're going to see in into this space, Right?
Speaker 2: And so that's the first bottle, like it's just not
Speaker 2: enough data to prove that they
Speaker 2: impact and investment is having, is there? That's one. The
Speaker 2: second one, I would say, is also a lack of
Speaker 2: genuine climate funds and investment vehicles, even though there were
Speaker 2: 860 climate or climate related funds. And E. T. F.
Speaker 2: As I mentioned very the whole spectrum, if you look
Speaker 2: at the if you break them down and look at
Speaker 2: the kind of climate of actions they were taking,
Speaker 2: some could argue they were not impactful enough and therefore,
Speaker 2: the investors were not sort of enamored with them. So
Speaker 2: I think over time, as more and more genuine climate
Speaker 2: funds come through people like myself and my team can
Speaker 2: deliver environmental impact data points that are supportive of investing
Speaker 2: in climate,
Speaker 2: you will find that there's gonna be more, As I said,
Speaker 2: we're at the Gatorade moment of climate investing, we need
Speaker 2: to get to the isotonic very quickly and that will
Speaker 2: happen in the coming years, so that they're the two
Speaker 2: bottlenecks why climate investing, I think has still been a bit, uh,
Speaker 2: you know, it's growing, but from a very low base
Speaker 2: and will continue to grow.
Speaker 1: So I'm sure you're aware that this whole E. S. G.
Speaker 1: Complex and climate is of course the integral part of
Speaker 1: that has received criticism over recent years. You know, the
Speaker 1: greenwashing aspect, to your point that there are lots of
Speaker 1: funds out there that are preferably investing in green activities,
Speaker 1: but when one looks at the stocks that they hold,
Speaker 1: it doesn't look that impressive. And then we have famously
Speaker 1: had Elon musk of Tesla come out and criticized
Speaker 1: because in certain perspective his companies are are not as
Speaker 1: climate friendly as one would think, given that they make
Speaker 1: electric cars and other you know, climate friendly products. So
Speaker 1: gives a sense of where you stand on this issue
Speaker 1: that some backlash about the E. S. G. Ratings, the
Speaker 1: backlash around um you know, which companies should be, you
Speaker 1: know rated highly or low and so on.
Speaker 2: Yeah, it's interesting you say that Tamil because again, if
Speaker 2: you know, listening back to our conversation two years ago,
Speaker 2: one of the things that I predicted then was the
Speaker 2: term E. S. G. May not even exist in 5
Speaker 2: to 10 years time, Right? And more recently we saw some,
Speaker 2: you know, articles on E. S. G. Being cut into
Speaker 2: pieces and then this is what's happening now, right? So
Speaker 2: it's actually I got it wrong, it's it was much
Speaker 2: faster than I thought.
Speaker 2: So, so the E. Part is being now separated, The
Speaker 2: s the social side is being separated. G. Has always
Speaker 2: been there. So I'm not surprised that there's been uh
Speaker 2: you know, uh breakdown of E. S. G. Into its
Speaker 2: components and rightly so, so
Speaker 2: anything that is new and evolving is gonna get flak
Speaker 2: is gonna get questioned. And and E. S. G. And E. S.
Speaker 2: G funds and E. S. G. Investment strategies are rightly
Speaker 2: being questioned, you know, and and and but only to
Speaker 2: make them better. So, you know, if you look at
Speaker 2: various regulators globally, again, just focusing on the E. S. G.
Speaker 2: As an investment class, if you want to call it,
Speaker 2: if you look at all
Speaker 2: the regulators globally from europe with S. F. D. R.
Speaker 2: Article 89 rules that have come in to even M. A. S.
Speaker 2: I think a week and a half ago, two weeks
Speaker 2: ago came out with new E. S. G. Fund disclosure requirements. H. K. M. A.
Speaker 2: Had theirs last year Australia as it came up with
Speaker 2: this last month as well. We are finding that investors
Speaker 2: and invest in E. S. G. Strata,
Speaker 2: even climate strategies are being monitored now as an investment
Speaker 2: class and therefore being required to step up and no
Speaker 2: longer can be sort of green washed and and you know,
Speaker 2: rainbow wash as people often say. So, so this is
Speaker 2: this is part and parcel of an evolution of an
Speaker 2: investment class as a class that is required. I've been
Speaker 2: uh you know, I welcome it. I think it's great,
Speaker 2: it's making sure that
Speaker 2: fund managers who are claiming that they are spending time
Speaker 2: and effort like we are at an occupied doing and
Speaker 2: spending time on uh
Speaker 2: the environment side, social human capital side that that they
Speaker 2: can prove it and and people who are not, or
Speaker 2: have no intentions of that, they don't then participate in
Speaker 2: the space. So it's a welcome space. I'm not fearful.
Speaker 2: Most genuine E S. G, or e investors are not
Speaker 2: fearful if anything welcome this. Um, so, yeah, it makes
Speaker 2: us makes the whole process a lot more christmas and
Speaker 2: correct and accurate.
Speaker 1: Yeah, I mean, the part of the data that you
Speaker 1: talk about, I think it is useful and and relevant
Speaker 1: to measure companies
Speaker 1: carbon footprint and the steps it's taking to ameliorate that
Speaker 1: mixing that up with its human resource practices or diversity. Um,
Speaker 1: I think, you know, we would all like every company
Speaker 1: to be noble and do the right thing. But as
Speaker 1: far as climate change is concerned that the environment doesn't
Speaker 1: really care about your human resource practice or the diversity
Speaker 1: for staff. So I think that, you know, as you said,
Speaker 1: that it's getting sliced up in a way, it's probably
Speaker 1: the right thing to do that. You know, if you
Speaker 1: are an activist investor who really cares about
Speaker 1: the s and the g part, it doesn't have to
Speaker 1: be attached to E and he should not be like
Speaker 1: a company like Tesla, which arguably is doing a lot
Speaker 1: for reducing our carbon footprint should not be mixed up
Speaker 1: with it. Again, you know, workplace environment and so on. Um,
Speaker 1: so if I'm an investor, where should I focus on
Speaker 1: as a climate or a carbon investor.
Speaker 2: Yeah, so it's it's, uh, as I said, the whole
Speaker 2: idea of climate investing is about decarbonization. Right? So, and
Speaker 2: when people think of decarbonization, the go to, uh, let's
Speaker 2: say focus areas for investors tends to be
Speaker 2: the cost of carbon, uh, or the price of carbon itself.
Speaker 2: And the second area that people go to its technology.
Speaker 2: There are two things people think, okay, I can either
Speaker 2: invest in carbon itself, the cost of carbon or I
Speaker 2: can invest in technology that helps reduce the carbon
Speaker 2: footprint and the carbon. But I think there's a third
Speaker 2: element to that, which is maybe less talked about, and
Speaker 2: I think very, very important without it, you cannot as
Speaker 2: an investor make money on technology or on just pure
Speaker 2: following carbon prices. And that is policy, uh, carbon policy
Speaker 2: that countries have, as I said, and these carbon policies
Speaker 2: of countries are still very national, uh, nationally focused
Speaker 2: at best, regionally focused in the case of Eu, but
Speaker 2: most of it is uh, nationally focused. Now, if I
Speaker 2: to show you what I mean by this first, if
Speaker 2: you look at carbon price. Uh, and, and the cost
Speaker 2: of carbon. People often look at the carbon cost of
Speaker 2: an industry as a proxy for the investment opportunity. And
Speaker 2: that is mathematically, carbon price, times volume, volume is
Speaker 2: for carbon is now identified underscore 123, you can do
Speaker 2: it for a country, you can do it for a company,
Speaker 2: you can do it for sector, you can even do
Speaker 2: it for you? And I write carbon volumes is fine,
Speaker 2: It's a carbon price. That is very broad spectrum. So
Speaker 2: you have anywhere from carbon taxes of $2.50 in Mexico,
Speaker 2: 230 in Sweden. You know, you can have carbon prices
Speaker 2: that are under the compliance markets at 80
Speaker 2: euros in europe where you can have under the East
Speaker 2: Coast R. G. D. I initiative at 6 to $12.
Speaker 2: So you have carbon prices that are very broad range
Speaker 2: even though we know the volume. So people who are
Speaker 2: looking at carbon cost in totality as an investment opportunity
Speaker 2: or focus area, I think what they need to do
Speaker 2: is they need to move it around and say, who
Speaker 2: is willing to pay for the cost of the carbon,
Speaker 2: is
Speaker 2: what I mean by here is the people who are
Speaker 2: paying for decarbonization are again, either the governments through their,
Speaker 2: let's say, the eu, uh, carbon border adjustment mechanism for example,
Speaker 2: or tax, uh, government taxes or even, let's say regulators
Speaker 2: like the California Air Board, Air Resources Board, they're paying
Speaker 2: for carbon decarbonization with their credit systems.
Speaker 2: Even let's say, companies who have regulated carbon taxes, they
Speaker 2: would be willing to pay for carbon offsets because they
Speaker 2: know they've got taxes to pay for. So for for
Speaker 2: for for most investors, I think one needs to look at,
Speaker 2: who are the decarbonization payers, what is their size? What
Speaker 2: is their ambition and what is their ability to pay?
Speaker 2: Because you as a carbon investor don't want to be
Speaker 2: relying on someone who is promising you a price for carbon,
Speaker 2: who then disappears in six months time. And I'll give
Speaker 2: you a live example of that. Is that if you
Speaker 2: have a look just last week, uh, India decided that
Speaker 2: they're not going to allow for any carbon offsets to
Speaker 2: be exported
Speaker 1: right.
Speaker 2: That means all carbon offices in India are to be
Speaker 2: kept in India. So anyone who is relying on the
Speaker 2: carbon offsets or investing in carbon offsets from India to
Speaker 2: be exported to the rest of the world. Now that's gone.
Speaker 2: That opportunity is gone because guess what it was? The
Speaker 2: policy around carbon dictated what the carbon market was doing
Speaker 2: in India.
Speaker 2: So that, that, that sort of reminded me. And by
Speaker 2: the way, India was one of four countries that in
Speaker 2: the last few months have decided to stop their allowing
Speaker 2: their offsets to be exported. Indonesia being 11 of them
Speaker 2: papa new guinea, another Uruguay another. So, so again, carbon
Speaker 2: policies superseded any kind of carbon pricing that you could
Speaker 2: get from a carbon market. Now, if you look at
Speaker 2: technology again, technology in a
Speaker 2: carbon policy vacuum does not work. Um, but where there's
Speaker 2: a carbon policy or let's say carbon related or climate
Speaker 2: related policy is to encourage technology. It can, it can flourish.
Speaker 2: And a prime example of that is hydrogen electrolyzers.
Speaker 2: We know hydrogen electrolyzers, whether it be from fossil fuels
Speaker 2: or renewables have been working perfectly fine for the last
Speaker 2: 100 years. But guess what? Green hydrogen now is considered
Speaker 2: as one of the energy and sort of transition for
Speaker 2: for for energy. And that is purely because of the
Speaker 2: last decade and a half, we had some serious policy
Speaker 2: incentives given to so
Speaker 2: and to wind and other renewables that brought down the
Speaker 2: prices of renewables, which then can be deployed into green
Speaker 2: hydrogen or to create green hydrogen. So technology was there
Speaker 2: for 100 years, we needed industrial policies to be ramped
Speaker 2: up to bring the input price cost down. And now
Speaker 2: there's plenty of also if you go to Korea who
Speaker 2: wants to become the hydrogen hub of
Speaker 2: the region, is industrial policy that is incentivizing technology to
Speaker 2: be deployed. So to answer your question, when people are
Speaker 2: looking to focus their investments, climate investing, just focusing on
Speaker 2: carbon prices or focusing on technology by itself is not
Speaker 2: good enough. One needs to focus on who are the
Speaker 2: decarbonization payers
Speaker 2: and who are reliable, what is their size and ability
Speaker 2: to pay and then also what is the carbon policy
Speaker 2: that is being deployed in different areas and different regions
Speaker 2: and different sectors. That to me is another to go
Speaker 2: to place for focus for carbon investors.
Speaker 1: So it is very important given that, you know, we
Speaker 1: are in this nation world, the gatorade moment, if you will,
Speaker 1: that the policy environment is something that investors should keep
Speaker 1: an eye on. So let's say, you know, go around
Speaker 1: the world a little bit and talk a bit more
Speaker 1: about the policy environment. So, you mentioned some degree of
Speaker 1: climate nationalism out of India.
Speaker 1: Um, I have seen the chinese do a lot of
Speaker 1: work with the Europeans in recent years, whether it is
Speaker 1: taxonomy or getting their emission trading system going by looking
Speaker 1: at the experience, the Europeans and so on. And to
Speaker 1: your point about the recent bill passed in the US
Speaker 1: ostensibly called inflation reduction act, but really the focus there
Speaker 1: seems to be used on climate change. So, are we
Speaker 1: seeing a lot of tailwind with respect to climate regulation?
Speaker 1: And are the regulations going in the right direction?
Speaker 2: Um,
Speaker 2: it's interesting Climate regulations have been going back and forth,
Speaker 2: back and forth, back and forth in most countries, in europe,
Speaker 2: europe has been in fairly much consistently in one direction. Yes,
Speaker 2: the back and forth is much smaller, but if you
Speaker 2: go to places like Australia or places like America, you've
Speaker 2: seen big back and forth, right? And that will continue. Uh,
Speaker 2: but if you look at somewhere like europe, I think
Speaker 2: the consistency and the momentum has been made
Speaker 2: and even with eu taxonomy and the green deal and
Speaker 2: even some of the laws now that I mentioned in
Speaker 2: the article 89 for investment vehicles, this consistency for climate investing,
Speaker 2: climate change uh policy making carbon pricing the C. B. A. M.
Speaker 2: That was brought into place. All of these things seem
Speaker 2: to be inconsistent. But I think one thing people need
Speaker 2: to keep in mind that europe is only 8 to
Speaker 2: 9 per se
Speaker 2: total carbon footprint so they can get to net zero
Speaker 2: for themselves. That's only 9% of our problem. There's another 91%
Speaker 2: that and a big part of that which is coming
Speaker 2: out of Asia is still growing is still growing. Even
Speaker 2: if some of the climate ambitions that were announced by
Speaker 2: Asian countries through their nationally determined contributions. NBC's last year
Speaker 2: in Glasgow cop 26
Speaker 2: incrementally they were good incrementally they were positive even though
Speaker 2: the let's say the more ambitious environmentalists would say was
Speaker 2: not good enough but incrementally India saying they're going to
Speaker 2: be net zero by 27 70 china saying they're gonna
Speaker 2: be carbon neutral by let's say uh 2060 even Australia
Speaker 2: coming back into the into the game and saying that
Speaker 2: they're going to reduce under the new Labor Party they're
Speaker 2: gonna they're going to reduce
Speaker 2: their carbon emissions by 40% relative to 2005. These are
Speaker 2: all positive incremental steps. So I think the the ambitions
Speaker 2: for most countries have definitely gotten stronger where I think
Speaker 2: there's a disconnect still especially in asia if we and
Speaker 2: I'm going to just maybe focus on Asia where the
Speaker 2: disconnect is is the policies that are gonna be there
Speaker 2: to support and deliver some of these N. D. C.
Speaker 2: S are not there.
Speaker 2: There's a massive disconnect massive gap in industrial policy design tools,
Speaker 2: frameworks that need to be created within Asia. Uh, and
Speaker 2: my team and I, we believe in one of our
Speaker 2: area focuses exactly on that is that we believe that
Speaker 2: there's gonna be a tsunami of policies, tool
Speaker 2: frameworks created in Asia to help them deliver on the NBC.
Speaker 2: And they will take guidance and and let's say lessons
Speaker 2: learnt from places like europe. Uh, and we already know
Speaker 2: that the european, let's say carbon markets, the E. T. S.
Speaker 2: Carbon markets have been around for a while now and
Speaker 2: they're in their 3rd 4th version
Speaker 2: And now they're finally, I think getting to a workable
Speaker 2: model on 34 sectors. So I think the lessons learned
Speaker 2: from Europe will be deployed in Asia that need to
Speaker 2: be deployed fairly quickly this decade. If we won't have
Speaker 2: any chance of getting to our climate change ambitions or
Speaker 2: prevention of that.
Speaker 1: So let's talk about that E. T. S. Issue a
Speaker 1: little more because the chinese have also taken cues from
Speaker 1: the Europeans and the various, you know, setbacks they had
Speaker 1: in terms of getting the market to come up with
Speaker 1: a useful set of information on carbon pricing to a
Speaker 1: sort of top down the regulator sort of setting the
Speaker 1: price and allowing the market to clear around that through volumes. Um,
Speaker 1: so carbon markets, I mean, which has been around for
Speaker 1: a while, Ikan 11 suggests that's the way to internalize externalities.
Speaker 1: What's your view?
Speaker 2: Yeah. So, again, instinctively you and I we've been trained
Speaker 2: that let the let the markets do their job right?
Speaker 2: And theoretically, a carbon market, what is its job, its
Speaker 2: carbon market, by the way, let's take a step back for,
Speaker 2: for our listeners,
Speaker 2: there's two types of carbon markets. There's one the compliance market,
Speaker 2: the regulated market that is controlled or regulated by either
Speaker 2: a regulator, such as the, as I said, the California
Speaker 2: Air Resource Board or by government such as the EU
Speaker 2: doing the E U E T s. Right? That's the
Speaker 2: compliance market, then there's the voluntary market and hear what
Speaker 2: I will be talking about is more the compliance market
Speaker 2: because the voluntary market is still very small, even though
Speaker 2: it's growing, but it's still very small.
Speaker 1: So
Speaker 1: if
Speaker 2: you look at the compliance market for carbon, its job
Speaker 2: is to theoretically is to make sure that the price
Speaker 2: of carbon is stable and slowly gradually increasing so that
Speaker 2: it puts pressures on the polluters of carbon to incentivize
Speaker 2: them to find ways to either reduce
Speaker 2: their carbon footprint or to just get out of that
Speaker 2: whole game altogether because it's going to become too costly
Speaker 2: if carbon prices continue to go up. That's that's the
Speaker 2: theoretical and that kind of makes sense.
Speaker 2: The problem. And this is my again, my humble view
Speaker 2: is that over the last 20 or so years that
Speaker 2: we've had various forms of in europe E T. S
Speaker 2: being the most the oldest form of carbon compliance market.
Speaker 2: The problem is that we have not seen a stable rising, uh,
Speaker 2: carbon price, let alone a reduction in carbon emissions by
Speaker 2: the participants of those markets. So
Speaker 2: That leads me to believe that there is some inherent problem.
Speaker 2: We haven't sorted it out for 20 years. There's some
Speaker 2: underlying challenges to the structure of those compliance markets that
Speaker 2: need to be addressed. And and what are the challenges?
Speaker 2: The challenges are that most compliance markets, when they get
Speaker 2: set and put in place there and their prices have
Speaker 2: not gone up. It is because the government or the
Speaker 2: regulator has
Speaker 2: given out free allowances, free credits to certain industries or
Speaker 2: sectors who are participating in that market because their political,
Speaker 2: because the voter bank, if if they didn't get those allowances,
Speaker 2: the price or the carbon impact of that industry would
Speaker 2: be so tremendous that the political parties bringing it on
Speaker 2: to be out the next voting session. Right, So the
Speaker 2: allowance is one of the problems, secondly, you also have
Speaker 2: a lot of these allowances being allowed to be carried
Speaker 2: forward for much longer than they should have.
Speaker 2: So they kept the prices down. And that was another problem.
Speaker 2: And then there was a little bit of, let's say,
Speaker 2: voluntary carbon offsets. And again, I think what you were
Speaker 2: referring to Tamar was that the E. U. E. T. S.
Speaker 2: And one of the one of the reasons people blame
Speaker 2: for its initial failure was there there was a significant
Speaker 2: amount of carbon offsets that were being exported from china
Speaker 2: into the EU. And and that was a problem that
Speaker 2: is being rectified. And
Speaker 2: that's why you are finding that the EU after 20
Speaker 2: years of version three or four has finally got its E. U. E. T.
Speaker 2: S kind of stable and they've got their own reserve
Speaker 2: management system that is excluded all these offsets. So there
Speaker 2: are three reasons why prices have not been stable and
Speaker 2: not been good enough incentives for polluters to feel uncomfortable
Speaker 2: because they've been able to get away either through free
Speaker 2: allowances or prices staying.
Speaker 2: The other problem with these markets, carbon markets or I
Speaker 2: should say challenge uh structural challenges that the money that
Speaker 2: the government's generate from these, right? Because every time the
Speaker 2: government issues some of these credits for people, they supposed
Speaker 2: to get
Speaker 2: money that can be deployed in climate action. Right, uh europe,
Speaker 2: for example, had $14 billion worth of credits issued in
Speaker 2: the last round
Speaker 2: that money doesn't and has not been fairly deployed uh
Speaker 2: into pure climate action. Right? Even the allocation of these
Speaker 2: monies in europe from the E. U. E. T. S. System.
Speaker 2: If you look at the breakdown of the percentages that
Speaker 2: went to countries within the EU that actually had no
Speaker 2: climate ambitions versus those that were actually deploying climate ambitions.
Speaker 2: It was disproportionate again, political
Speaker 2: structures of Eu, same way in California, how the money
Speaker 2: gets sort of what they call green pork, pork barrelling
Speaker 2: is happening at the moment. So a lot of the
Speaker 2: deployment is just out of whack from a revenue from
Speaker 2: a revenue allocation perspective. So they're some of the challenges,
Speaker 2: inherent challenges that you can find that in my view
Speaker 2: of sort of
Speaker 2: keeping carbon markets from delivering what you and I would
Speaker 2: otherwise expect and and they're not going away, sadly, the
Speaker 2: last reason why this doesn't work is that when you
Speaker 2: put four or 56 sectors in to be covered by one,
Speaker 2: let's say carbon market, let's say, you put transport, you
Speaker 2: put uh
Speaker 2: metals and mining, you poured aviation, you put industrial production,
Speaker 2: all of these under a carbon electricity generation, all under
Speaker 2: let's say one carbon market and say, okay, all you
Speaker 2: for emitters in Country X, you're gonna be participating in
Speaker 2: this carbon market, buy sell credits and your cap and
Speaker 2: trade schemes. What ends up happening is that the sector
Speaker 2: with the lowest carbon ambition becomes, if it's big enough
Speaker 2: and can vote out the next government, they bring the
Speaker 2: whole structure of the carbon market down. And that is again,
Speaker 2: where the politics of carbon and its impact just make
Speaker 2: for carbon markets to become less effective.
Speaker 2: And that's why again, my humble opinion is that carbon
Speaker 2: markets will be there, they will take longer than we
Speaker 2: think to come up with a fair stable carbon price,
Speaker 2: we should not completely discount them, they let them operate.
Speaker 2: But in the in the meantime industrial policy and carbon
Speaker 2: policies from governments targeted uh focused uh so that they
Speaker 2: can deliver their NDC need to come into place. We
Speaker 2: can't just wait for carbon markets to sort themselves
Speaker 1: out
Speaker 1: very very well taken. I think the you know, similar
Speaker 1: sort of, you know, one step forward, one step backward
Speaker 1: has been also characteristic of china's emissions trading system. They're
Speaker 1: also trying to get it right, but it's pretty hard
Speaker 1: to get it right at the first go. It seems
Speaker 1: like
Speaker 1: when I look at this inflation reduction act that the U. S.
Speaker 1: Has now put in action and I compared with large
Speaker 1: legislation of the past, whether it's the U. S. Or elsewhere,
Speaker 1: I see a switching tactic and I want to hear
Speaker 1: your view on this issue. It seems to me that
Speaker 1: now for the reason that you mentioned that if you
Speaker 1: do something very draconian, you're vulnerable in the next election cycle.
Speaker 1: So the thinking behind the latest package out of the U. S.
Speaker 1: Seems to be more carrot than six,
Speaker 1: I give you incentives and tax credit to embrace climate
Speaker 1: action as opposed to I penalize you for being a
Speaker 1: large immature uh Do you think this is a student
Speaker 1: has a greater chance of success in the previous regimes,
Speaker 1: which seem to be more about, I'll tax you, penalize
Speaker 1: you output quotas on you.
Speaker 2: Yeah, so this is in the carbon policy, climate policy world,
Speaker 2: there is no doubt a debate around this, that is
Speaker 2: carrots better than sticks, right? Uh,
Speaker 2: and, and you know, for everything I would say, there'll
Speaker 2: be many people will say I'm wrong and they're right
Speaker 2: on this. So take it for what it's worth from me. Uh,
Speaker 2: carbon sticks have not
Speaker 1: worked,
Speaker 2: sorry, penalties have not worked, and they've not worked because
Speaker 2: people have gotten away with it and then they've gotten
Speaker 2: away with it for various reasons. Uh,
Speaker 2: and again, I don't need to go into company country
Speaker 2: regional reasons for them, but they haven't gone away from
Speaker 2: carbon taxes or carbon rebates car, sorry, car
Speaker 2: tax rebates because of carbon reduction. You know, that seems
Speaker 2: to have been, have had a much better uh, and focused, uh,
Speaker 2: result from my reading and therefore I think deploying that
Speaker 2: rather than having to penalize people, but then also let
Speaker 2: them have out through, let's say going and buying carbon
Speaker 2: offsets from here there and everywhere, which people have been
Speaker 2: doing that's one way to sort of sort of neutralize
Speaker 2: your penalties
Speaker 2: is going by. Again, one of my fears is that
Speaker 2: if you keep on pushing the penalties, it incentivizes people
Speaker 2: to go and find solutions to get out of it
Speaker 2: and the voluntary carbon market, if left unchecked could easily
Speaker 2: provide that out, You know, because regulators, regulators, but voluntary, uh,
Speaker 2: and finance the finance sector is very good at securitizing things. So,
Speaker 2: you know, give finance folks, you know,
Speaker 2: opportunities, securitize the carbon offset and sell it to someone
Speaker 2: who otherwise would be penalized, You're, you're playing into that space,
Speaker 2: which I think can lead us to a fake transition
Speaker 2: as opposed to transition. So I think having actually, incentives
Speaker 2: and carrots is a much better approach then if you
Speaker 2: just keep on penalizing, it's gonna be, it's gonna work
Speaker 2: both ways. And some of the best policies are where
Speaker 2: you do
Speaker 2: say to people to industries that if you do x, y, z,
Speaker 2: you will get priority when you're bidding or when you're
Speaker 2: tendering in government projects and all the rest and those
Speaker 2: folks who are not, by the way, you'll be excluded.
Speaker 2: That's a penalty, Right? And that's a penalty where they
Speaker 2: don't have to go and cheat too much for them
Speaker 2: to sort of step up. They need to step up.
Speaker 2: So there are ways to penalize people other than just throwing,
Speaker 2: you know, penalties, taxes, sorry, uh, taxes and penalties on them.
Speaker 2: Right.
Speaker 1: I think, Yeah, absolutely. I mean, I think the tobacco
Speaker 1: industry is a great cautionary tale about the limits of
Speaker 1: penalties and taxes that can, you know, achieve the desired
Speaker 1: goal versus, you know, maybe mass education and incentives and
Speaker 1: so on. Um, so, okay, uh, beyond this issue of
Speaker 1: the market failure and regulatory capture
Speaker 1: and the carrot stick strategy, is there any major risk
Speaker 1: in the area of climate investing that we haven't touched
Speaker 1: on yet?
Speaker 2: Yeah, I mean, climate investing is, again, as we've said, is,
Speaker 2: is early days, so we're gonna see more and more
Speaker 2: risks emerge as we go through. I think the very,
Speaker 2: the first risk as climate investors do, we have enough time.
Speaker 2: I think time is a big issue. Have, have we
Speaker 2: left it too late? Right. And that is a discussion
Speaker 2: to be had on a different sort of
Speaker 2: podcast with much more well informed people on whether or
Speaker 2: not we have left it too late because as I said,
Speaker 2: climate investing is about risk return and impact. Will we
Speaker 2: be able to deliver the impact that we're investing for
Speaker 2: fast enough
Speaker 2: is a big risk that anyone going into this space.
Speaker 2: Will they come out of this in five years, 10
Speaker 2: years time and say, but the impact happened, but it
Speaker 2: was too late. So that's, that's a risk. And I
Speaker 2: think that will take its time. Uh, the second risk
Speaker 2: I think in climate investing. Okay, and this is not
Speaker 2: a climate change mitigation adaptation that companies are doing this
Speaker 2: is for investors, uh,
Speaker 2: is the funds management industry or the providers of uh,
Speaker 2: investment vehicles. My peers uh, that the whole greenwashing concept
Speaker 2: and idea that you brought up providing genuine, uh, climate
Speaker 2: investing vehicles, uh, with impact that is going to, that
Speaker 2: is a big risk as well, that we don't do that,
Speaker 2: we don't do it well enough, and people
Speaker 2: kind of lose interest, or, as you rightly said earlier on,
Speaker 2: you know, people start questioning it and therefore give up
Speaker 2: on it. And I think the, the, the genuine climate
Speaker 2: products investment vehicles with no greenwashing, giving confidence to investors
Speaker 2: is the second biggest risk. And, and I'm glad that
Speaker 2: that's being tackled on by various fronts, one with data
Speaker 2: coming in much more so that me and my team
Speaker 2: can come up and deliver,
Speaker 2: uh, you know, impact numeric, but also the regulators making
Speaker 2: sure that myself and my peers are kept held accountable
Speaker 2: to what claims were making. So that's the second risk.
Speaker 2: I think the third risk and that we touched upon
Speaker 2: briefly was this, you know, for me, is again, the
Speaker 2: ability of financial markets to securitize intangibles, you know,
Speaker 2: especially when you have something that is hard to monitor,
Speaker 2: as it is, which is carbon, whether carbon is being
Speaker 2: admitted or not admitted, it's a sign that it's a science,
Speaker 2: but it's not, it cannot sort of prove it in
Speaker 2: some ways, uh, if something cannot be sort of, let's
Speaker 2: say monitored, uh, that easily, and only a few people
Speaker 2: are measuring it, and no one's regulating it, but someone's
Speaker 2: securitizing it,
Speaker 2: you're leading to potentially a challenge for climate investing and
Speaker 2: the financial securitization of carbon. And again, we go back
Speaker 2: to the whole climate investing is, what is the price
Speaker 2: of carbon? How do we incorporate it into our systems
Speaker 2: if we financially securitized carbon in a way, which is
Speaker 2: done with the view that this is for just transition,
Speaker 2: but it ends up being a fake transition because one
Speaker 2: we didn't deliver on those, you know, carbon reduction targets
Speaker 2: that this was supposed to do. And also we took
Speaker 2: many people down the, you know, the wrong path, show
Speaker 2: them ways to sort of claim offsets when they weren't there.
Speaker 2: That is
Speaker 2: something that can be damaging not only to the investing,
Speaker 2: climate investing, uh, universe, but also to the, you know,
Speaker 2: let's say to the to those people who for whom
Speaker 2: we're trying to get just transition right, whether that be
Speaker 2: the indigenous people who are living off the land and
Speaker 2: and trying to sort of benefit from that,
Speaker 2: and also support with legitimate carbon offsets. If we, for example,
Speaker 2: tell them that the price of carbon offset is X, Y, Z.
Speaker 2: And then it turns out that five years later, they've
Speaker 2: given up all their other activities and focused on this,
Speaker 2: only to find out that that those offsets are not
Speaker 2: being internationally accepted and that the price is not 100 bucks,
Speaker 2: it's like not even a buck
Speaker 2: that's going to become not a just transition for them,
Speaker 2: it's gonna be a costly transition for them. So I
Speaker 2: think that's my third and last sort of risk is
Speaker 2: that how do we do, how do we make sure
Speaker 2: that in, you know, as we move towards a just
Speaker 2: transition and create these carbon
Speaker 2: markets, especially the voluntary ones that we do it in
Speaker 2: a way that does not need to affect transition for ourselves.
Speaker 2: And even for, let's say the people who really we
Speaker 2: should be benefiting in the process. So that's the risk
Speaker 2: to climate investing
Speaker 1: right now. There are sobering ones, no doubt about it. Um,
Speaker 1: now your mandate is global, you look at sectors and
Speaker 1: companies all over the world, but you're based in Asia,
Speaker 1: your investor base I think is largely asian. And you
Speaker 1: do look at a lot of asian companies. Um, so
Speaker 1: give us a sense of the state of the war
Speaker 1: against climate change in Asia.
Speaker 2: Mm. So if you look at climate change in Asia again, uh,
Speaker 2: the approach we've taken at porcupine is there's there's a two,
Speaker 2: it's a two pronged approach, a bottom up approach of
Speaker 2: looking at companies and that the other one is a
Speaker 2: top down approach. If I start with the top down approach,
Speaker 2: as I mentioned earlier on, as we, as we were
Speaker 2: discussing that asian countries, climate ambitions becoming better and better, uh,
Speaker 2: Incrementally with most companies having in cop 26 come out
Speaker 2: with incrementally better targets related to climate and also separately
Speaker 2: on some environmental issues as well, but climate definitely they've
Speaker 2: gotten better isn't good enough. Many people would argue not
Speaker 2: good enough. But to me I'm one of those, I
Speaker 2: take the incremental change as a positive start, the absolute
Speaker 2: will will catch up hopefully over time. But
Speaker 2: when we look at it from the policy perspective to
Speaker 2: support those NBCS, then there's a massive gap as I said,
Speaker 2: you know, in what they're trying to achieve under the N. D. C.
Speaker 2: S and what their policies are in place. So I
Speaker 2: think ASIA's impact in terms of helping the global climate
Speaker 2: change challenge is very much from a top down perspective
Speaker 2: going to be driven by whether or not the countries
Speaker 2: whether be India
Speaker 2: china Australia and Singapore. Everyone in in Asia are actually
Speaker 2: delivering the policies to support uh their specific NDC s.
Speaker 2: So that's one way that one needs to map out
Speaker 2: ASia to see what's happening at the margin. Are they
Speaker 2: doing the right thing? Just looking at targets by themselves?
Speaker 2: Maybe not good enough. You've got to follow the follow
Speaker 2: follow down to the policies
Speaker 2: if you look at it from a bottom up perspective.
Speaker 2: Uh my team and I over the last uh you know,
Speaker 2: a couple of years since we last we last spoke
Speaker 2: we've spent time creating our own climate and environmental frameworks
Speaker 2: and one of them is our climate mapping framework and
Speaker 2: we've also got a database of about 450 asian companies
Speaker 2: that either have have a C. D. P. Or S. B. T. I.
Speaker 2: Or transition pathway in it
Speaker 2: based data that we have focused on and with the
Speaker 2: aim that we want to see companies and their industries
Speaker 2: and what is their actual climate footprint or environmental footprint?
Speaker 2: Is that high or low? And then we want to
Speaker 2: map it against. Are these companies actually making an effort
Speaker 2: to reduce the climate or the carbon footprint or the
Speaker 2: environmental footprint? And when we overlay the company country policy,
Speaker 2: let's say initiatives onto our mapping of the company and
Speaker 2: sector plans, it gives us some very interesting sort of
Speaker 2: picture of on the ground what is happening from a
Speaker 2: company and an investor's perspective. There are and and you know,
Speaker 2: some of this is going to be a bit of
Speaker 2: a going to be sort of hashed out in our
Speaker 2: we have a asian environmental
Speaker 2: Action fund planned in the coming months, many of the
Speaker 2: companies in there will be a result of this analysis
Speaker 2: that we're doing to show what kind of environmental impact
Speaker 2: that they can make. An Asian companies can have a
Speaker 2: massive environmental impact. I'll just give you an example of
Speaker 2: one asian company, one company in Japan won't name the
Speaker 2: company but its scope three carbon emission is 435 million tons,
Speaker 1: four
Speaker 2: 135 million tons. Right? And by the way the second
Speaker 2: and that's scope three there are we have other asian
Speaker 2: companies who scope one and two
Speaker 2: Are about 250 million tons. Right? So we're talking massive
Speaker 2: and to put it in perspective the whole of Japan's
Speaker 2: carbon emissions is about one billion tons. So 435 million
Speaker 2: tons from one company, that's this code three. So if
Speaker 2: you can get companies like that on your radar but
Speaker 2: also with very strong, let's say environmental actions in place
Speaker 2: as an investor that impact
Speaker 2: becomes easier to achieve because the size and scale in
Speaker 2: Asia of the carbon footprint or the climate footprint is
Speaker 2: massive compared to some of the developed market companies that
Speaker 2: most people are used to investing in. So I think
Speaker 2: ASia presents some great opportunities to help the fine on
Speaker 2: climate change but how you go about doing it, you've
Speaker 2: got to be very, very careful and sensible about it,
Speaker 1: wow. Yeah, so those numbers are kind of in a
Speaker 1: way exciting because then you sort of understood the point
Speaker 1: that how much
Speaker 2: potential
Speaker 1: AsIA has in contributing to the global aim towards, you know,
Speaker 1: net zero.
Speaker 1: Um, what about financial returns back on episode 16 when you,
Speaker 1: you have visits that the companies you select for your
Speaker 1: investment criteria will prosper over companies that are not prepared
Speaker 1: for climate change because of the regulation and the taxes
Speaker 1: that were coming?
Speaker 1: Well the last two years as we have discussed, we
Speaker 1: have seen numerous announcements on carbon taxes and border adjustment
Speaker 1: tax emission targets, etcetera. So the thesis that companies that
Speaker 1: are ahead of the game will prosper more and provide
Speaker 1: better returns. Has it panned out?
Speaker 2: Yeah, it's a good question. So in the same uh,
Speaker 2: call back in 2020, 1 thing I did say is
Speaker 2: that for companies that incorporating human social environmental capital into
Speaker 2: their business models right ahead of their peers, the financial
Speaker 2: results or even the impact results should be a 3-5
Speaker 2: year game. And so from that perspective, I think for
Speaker 2: many of our companies, the jury is still out, both
Speaker 2: actually on the impact side were convinced that they've been
Speaker 2: delivering on their human social environmental capital progress on the
Speaker 2: financial side, the jury's still out for for many of
Speaker 2: the companies in our portfolio.
Speaker 2: If I was to break down our portfolio companies into
Speaker 2: the e part, the part there is definitely our companies
Speaker 2: who have climate or environment as a tailwind in their
Speaker 2: business models. Examples being in the space of legislature, back systems,
Speaker 2: the heating, ventilation, air conditioning, uh,
Speaker 2: uh, sector or whether it be the electric electric electrification industry.
Speaker 2: They definitely in the last two or three years since
Speaker 2: we've spoken have delivered better than their own past performance
Speaker 2: and also against their peers.
Speaker 2: Uh, it's interesting says even in this, even in this,
Speaker 2: let's say downturn that we've had the global recession fears
Speaker 2: that have been created in the last let's say six
Speaker 2: months time. The cyclicality and the nature of these companies
Speaker 2: being part of the global cycle has come through, they
Speaker 2: have they have suffered as well. But the there when
Speaker 2: you listen to them and speak to them, they're there,
Speaker 2: you could say, uh, outlook is better than most. Don't
Speaker 2: have the tail winds of
Speaker 2: environment behind them. So it gives us conviction and strength
Speaker 2: in our view that having tail winds of climate solutions
Speaker 2: and environmental is a good tailwind to have. So, I
Speaker 2: think the financial return from that perspective, we are confident of.
Speaker 2: One of the things that again I would like to
Speaker 2: mention is that when we started this conversation is that
Speaker 2: anyone who's coming coming into climate investing right, they're already
Speaker 2: coming in with with this new mindset that they're looking
Speaker 2: for impact
Speaker 2: and they're looking for risk adjusted returns with impact. So
Speaker 2: the impact part is very much going to be the
Speaker 2: driver of anyone coming into this investment space. If you
Speaker 2: look at us, us and our portfolio that we're planning,
Speaker 2: it is going to be based on an absolute return
Speaker 2: approach where we're going to share with our investors that
Speaker 2: there's a certain percentage return, uh,
Speaker 2: we aim to deliver, but more importantly, it's going to
Speaker 2: be returns with impact. So the impact part of that,
Speaker 2: we're going to have to really identify what that impact
Speaker 2: is going to be in terms of carbon emission reductions
Speaker 2: intensity reductions in terms of peak carbon, especially if we're
Speaker 2: looking at climate but we're looking also at other environmental issues.
Speaker 2: So I think the definition of returns especially for climate
Speaker 2: investors is going to be and is already the conversation
Speaker 2: is a very different conversation to when we last spoke,
Speaker 2: where a lot of people looked at E. S. G.
Speaker 2: Investing and still compared it to some index returns, bench
Speaker 2: microtones here. The conversation on climate investing starts with show
Speaker 2: me the climate impact first and then tell me to
Speaker 2: get that climate impact.
Speaker 2: What is the financial let's say makeup or or expected
Speaker 2: return that you think you can get out of it?
Speaker 2: So it's it's for for climate investing.
Speaker 2: I think people are going into it should be and
Speaker 2: are focused on the climate impact. And then what kind
Speaker 2: of financial returns one could expect from that universe of
Speaker 2: companies because let's face it, that universe of companies is
Speaker 2: going to be a very different universe of companies then
Speaker 2: you broader index that most people compare their financial returns to.
Speaker 2: So it's it's a conversation that we're having with our
Speaker 2: parliaments on the expected returns. But but first glance of
Speaker 2: Our sort of model portfolio a 5-7% per annum return
Speaker 2: should be deliverable in an Asia pack context.
Speaker 1: Also, I'd like to think that as more and more
Speaker 1: countries and companies come under the the umbrella of focusing
Speaker 1: on that zero that the investment base will become broader
Speaker 1: and broader. At one point you might have to start
Speaker 1: benchmark indices because every company will be an E S
Speaker 1: G company
Speaker 2: I look forward to that day,
Speaker 1: probably not two years from now. It's been great having
Speaker 1: you back on the show. So I really, really want
Speaker 1: to thank you very much for your time and insights.
Speaker 2: No thank you so much and I do look forward
Speaker 2: to copy time 1 50 when you and I will
Speaker 2: be having another chat and you know,
Speaker 2: talking about something new, something different, an evolution of E S.
Speaker 2: G to something new
Speaker 1: and something very, very positive for the earth and for
Speaker 1: our portfolios. I want to thank you and thank our
Speaker 1: listeners as well. Kobe time was produced by ken Del
Speaker 1: Bridge from Spice Studios, Gezi Sharma and violently provided additional
Speaker 1: production assistance.
Speaker 1: This podcast is for information only and does not represent
Speaker 1: any trade recommendations. All 83 episodes of copy time are
Speaker 1: available on youtube and on all major podcast platforms including apple,
Speaker 1: google and Spotify. As for our research publications, webinars and
Speaker 1: live streams. You can find them all by googling DBS
Speaker 1: Research Library. Have a great day