Next Generation of Climate Finance

Karen:

Good day, everyone. I'm Karen Bonadio the director of Alumni Relations, and I'm delighted to welcome you to our fifth alumni talk policy, Zoom webinar on the next generation of climate finance. The [inaudible 00:00:10] policy series features HPS alumni and panel discussions about pressing public issues. While we cannot meet in person, technology allows us to convene virtually, and we appreciate your patience as we navigate this event remotely.

This webinar is being recorded and closed captioning is available and can be turned on at the bottom of your screen. Today I'm happy to introduce Nick Kukrika, MPP 2007, partner at Generation Investment and member of the HKS Fund Executive Council who will moderate this panel discussion. Nick I'll now turn it over to you to kick off today's important discussion.

Nicholas Kukrika:

Perfect. Thanks Karen. And thanks everyone for joining this webinar. We're super excited to have you on, and just a few sort of introductory marks, and then I'll also introduce the panelist and then we'll run through a few questions. I mean, I guess the first thing I'd love to say is that I'm so unbelievably excited that we've been putting together, that in fact, Karen and her team have been putting together this alumni series, I often say and I'm sure all of you agree that there is no graduate school in the world not just at Harvard, but in the world that has as diverse and as talented a group of alumni as the Kennedy School.

It's one of the reasons why I went to the Kennedy School. It's one of the main reasons why I remain unbelievably proud to say that I went to the Kennedy School. And so, I'm believably excited to have a panel like this today. This panel is certainly no exception to that. We've assembled four really outstanding panelists that I think are super equipped to talk about this question of that the next generation of climate finance, which really involves a whole bunch of topics.

But I think could also be described as how are we going to solve the climate crisis, and to what extent, in what ways are the private sector actually going to play a role in that. That's maybe a less elegant, but more precise way of describing what we're trying to do. For that purpose, we have Moses Esema, who is an MPP from 2014. He's a senior vice president in Renewable Energy Finance at Bank of America Merrill Lynch.

We have Claire Healey, who was an MPA from 2004. Who's a director at E3G, which is I think tank based in Washington. We have Bracken Hendricks, who's an MPP from 1998. Who's the CEO of a group called Urban Ingenuity. And then we have Catherine Tweedie, who's MC and MPA from 2012, who's that head of Canada for Ninety One, which is an asset management firm that may be better known by some of you as, as Investec. And so I will now kick it off with our first question to our panelists.

And what I wanted to do was just start with this sort of a general question for all panelists. I think, many of us have found helpful when thinking about this challenge, to focus on interim targets and kind of the key interim target, which is to cut emissions by 50% by 2030. Sort of focuses the mind on what we need to be doing now. And each of you have a somewhat different perspective based on your current work. And so, looking through your own personal lens, could I ask each of you to describe what you think is not so well understood about what we can or should be doing now to reach that interim goal. And I was going to suggest we start with Claire who can maybe give us a bird's eye view.

Claire Healy:

Okay. Well, thank you, Nick. And thank you, Harvard Alumni for convening this conversation. So, as Nick said, I'm Claire Healey, an MPA of 2004, best two years of my life. I currently run the DC office of I think tank called E3G. And we're sort of a small obscure shop, I say small, but feisty because we take a whole of government approach to the issue of climate change. And our mission is a climate safe world. But we do the politics with the policy and look at the political economy leavers to make the necessary possible.

And my particular role is I work on the diplomacy and geopolitics program, which means I do sort of take this bird's eye view of the system as a whole to sort of, what am I doing on a panel on climate finance you might ask. Traditionally, I think climate finance in the climate community means two things. One, Article 2.1 C of the Paris Agreement that was agreed in 2015, which state that the goal is to make financial flows consistent with a pathway towards a low greenhouse gas emissions and a climate resilient development. That's article in the Paris Agreement, a long-term goal.

The other view, the climate community to think of is the $100 billion, that developed countries promise to mobilize for developing countries to take claim action. This was agreed in 2015, and that by 2020, at least a hundred billion would be mobilized. At the last count in 2018, I think it was circa 80 billion. But that's not what I want to talk about today, to your question Nick, what do I do in this sort of financial systems space? Because, increasingly the diplomacy we do is financial diplomacy.

And I think the easiest way to describe it, is thinking of it as almost like three blobs. One blob, let's say the regimes, the international regimes, be it the UNFCCC or the World Trade Organization, or the Gs, G7, G20, these blobs, where countries come together to cooperate. And then there's the big blob of the real economy where people decide what to buy and sell and build. And then in between is this financial system. And basically, what we're trying to look at is the financial system like global warming is not just an existential threat to the financial system.

The financial system made up of all the individual actors and institutions, is self embedding and contributing to the existential threat of climate change. So what do we do about that, if you take a systemic view, at E3G, we have sort of three buckets of activity. We're trying to sort of pull the leavers to sort of get more financing of green, which means the way from the dirty stir coal, oil and yes, gas to clean. We look at how are we going to agree in the financial system, and a bunch of reforms we're pushing through this year, particularly through the G7, the Gs et cetera, including mandatory disclosure of financial risks, at financial institutions and intermediaries, financial sector, transition plans, and more transformational role for public banks.

Because what this boils down to, and I'll end here is when you take a systemic view, we can do a lot of diplomacy. We do that to try and sharpen the signals that gets sent to financial decision-makers, because ultimately the Paris agreement or the goals, or the diplomacy and policy in the world, what gets built will determine the rate of how we decarbonize and the allocators of capital, other people on this call, the other panelists, and I'm sure many people are listening in, what bankers and investors decide to invest in, ultimately determine whether we meet the Paris goals and the rate of de-carbonization.

And what we try and do is sharpen those signals because we'll hear from these panelists, what goes into their decision, whether to build this clean, sustainable piece of infrastructure or continue to fund this infrastructure, we know we're contributing to the problem. Is there a perception of whether they'll get paid, whether they'll make money. So the risks and opportunities, and a lot of that is sort of more long-term. So the new norms we're trying to sort of establish once and for all this year is that net zero, being the new normal, net zero emissions by 2050, and so concrete, credible, and realistic park targets for 2030, by converting those targets and tens of CO2 into real decisions in the near term.

And we shaped the perceptions that these allocators of capital make. So that's what I'm trying to do, sharpen those signals to change the perceptions and the risk opportunity calculus. And so the near term, 2050 essential, we get that net zero normal, but we bring it forward to 2030, which is literally two business cycles and two elections away. So it's very near term. So hopefully the investors on this panel make the right decision, but I'd love to hear how well we're doing in sharpening those signals.

Nicholas Kukrika:

Terrific. So with that, maybe actually we'll turn it over to Katherine who can tell us how well we're doing in fact.

Katherine Tweedie:

Thank you. It's so nice to be here. Actually, just as we were doing our prep session and it reminded me about also, I love the Kennedy School so much. If I reflect back, about 10 years ago, sitting in classrooms, and small groups having very, very vigorous debates about how we would all go out and solve some of the world's biggest problems. And one of the things that I loved, I think about what is so special about the Kennedy school is the diversity of backgrounds and individuals.

So, coming from the private sector and going to the Kennedy school, being able to sit down with policy makers and debate. And then fast forward 10 years, and here we are, out in the field, actually doing the work. So what are we doing, a little bit about what I do in our firm. So Ninety One, as Nick mentioned, you may know us better as Investec or Investec Asset Management. Quite a unique firm. We were started in South Africa 30 years ago by our current leadership team.

So we grew up in Africa and emerging markets. So a lot of exposure to natural resources and commodities, climate issues, sustainability, and we've really taken that ethos as our firm has grown. And we now invest globally. We manage close to $200 billion in assets, and those assets come from a lot of public pension plans. So we actually manage public money, but investing into different areas through a private sector lens. And we do that globally. So not only do we invest in our home turf in Africa, but across all emerging markets and global markets as well through public equities and fixed income perspective.

But one of the things that we've really enjoyed is the public-private partnerships. So for example, we manage a $1.2 billion development infrastructure fund in Africa, where we were chosen by the UK, and all the governments, to invest the development capital on the continent. 50% of that is in renewable energy projects mapped against the SDGs. And so here, you've got in a public sector capital, partnering with a private investor with deep expertise in a particular region, looking at it through an impact and sustainability lens. That's one example.

The other is, we are increasingly seeing both the risks and the opportunity presented by climate change for long-term. And so, we do a lot of work in carbon mapping and it's kind of the rigor at the moment to say, "Okay, we're going to diverse from a couple of the oil majors, and there we've solved our climate risk and contributed to solving climate change. And we're of the view that actually divesting climate risk is incredibly difficult because you may sell out of a couple of energy or mining companies, but actually you still have a significant amount of exposure through holding the banks that lend to them, transport companies.

And if you're going to invest in Tesla, you're definitely going to have energy and resources and other parts in your supply chain. And so, we take the view that the invest side of the equation is so important to deliver on the 1.5 to two degrees scenario. I think it's the UNIPC report says, we need between 1.6 and $3 trillion of capital a year, to get our pathway down to one and a half degrees. And if you just think of that in the size, say compared to the stimulus package that has just gone out of the US, that is a lot of capital.

So we're not there today, but as you look at decarbonization happening, there are all sorts of companies across the supply chain, whether you're directing renewables or in the components that go into a wind farm, or into energy efficiency processes, et cetera. And we think that the investment into this technology and into this energy transition presents a significant structural growth opportunity for the pension plans that we invest in.

And so, we run a global environment equity strategy, which plays to that decarbonization trend and also seeks to offset carbon within a public equities portfolio. Because the other thing that we do notice, and I see this working with some of the really large Canadian pension plans is that many of them have taken a direct approach to reducing their carbon footprint and investing in the energy transition. So investing direct in renewables, et cetera.

But if you look at asset allocation within most institutional investors, the Canadians are a little bit more progressive. But private or old investments constitute a pretty small part of your portfolio. So actually, if you want to direct the type of capital that we need for this energy transition, you also need to access your public equities portfolio and your government or fixed income portfolio. And so we're really excited about the sort of trend that we're seeing, and the interplay between finance and policy helping to address climate change.

Nicholas Kukrika:

Fantastic. So maybe to sort of bring it down a couple levels and actually Bracken, if you could talk about how you think about this question, what's sort of been on your mind, what's occurred to you lately about what's not well understood from where you're standing?

Bracken Hendricks:

Great. Well, thank you very much. It's exciting to be on this panel. I really like the sweep of it. Bracken Hendricks, I'm the CEO of Urban Ingenuity. We're a small business based in Washington DC. We run a number of public finance programs, and we have a program to work with nonprofits and community-based organizations developing clean energy infrastructure in the ground. We're very active in energy efficiency, and deep energy retrofits.

I love the comment Claire made about making zero net energy the new normal. We're working very closely with affordable housing to do pools of solar across multiple portfolios and make it cost-effective and economically efficient. And we're deeply involved in micro grids and really deploying state-of-the-art advanced energy infrastructure and really thinking about what that next generation infrastructure looks like. And as Katherine said, it's hard to finance these projects. It's hard to organize the projects so that the capital can flow efficiently.

So, this movement from policy signals into institutional investment and total movement of the capital market and the macro economy is a massive challenge that we all have a role in. So, market signals matter and policy and capital deployment are integrally related. I started Urban Ingenuity actually out of a project I was involved in with the AFL–CIO and president Clinton and the Clinton Global Initiative. We were trying to move $10 billion of pension capital into clean energy on the ground that would create domestic jobs.

And it was really hard to find pipelines of investible deals. So Urban Ingenuity came together around structures for debt and equity that were scalable and figuring out how to organize capital and then help it to scale. And what I realized is that in the fabric of market structures on the ground, there are a lot of challenges that are policy dependent. And I think we'll talk a little bit more about the details of policy and markets. So, I wear another hat here too, and I just want to mention it very briefly before kind of turning it back.

But I think these two things of policy and market. So with Urban Ingenuity, we're actually trying to deploy capital into deals and it's hard, but it's doable, especially if you're trying to serve small, hairy deals in urban communities, the ones that make the most difference. Those are the hardest. So there's market, there's a public goods level externalities that warrant a public policy response. I also had the honor about a dozen years ago, I wrote a book with governor, Jay Inslee, then Congressman of Washington state.

And so when he announced that he wanted to run for president as a climate candidate, I said, "I'm all in, how can I help?" And so I had the luxury of putting together a federal platform for a climate candidate, for how would you reshape all the levers of government? So we built a program, and I just want to name it quickly and then hand it back.

But we talked about a framework of standards, investment, and justice. And I think one of the things that we're seeing enter the market today, we're moving away from a discussion about cap and trade, market externalities, making pollution expensive, to a framework of how do we build good things, desirable things, and useful things faster, cheaper, and more reliably by setting a high bar in public policy standards, matching it with public investment and making sure that there are key levers for social justice and public goods, so that those massive shifts of trillions of dollars of new investment are actually helping people and building an economy that serves the true public purposes that we all go to Kennedy School to advance. So, maybe I'll hand it back to you with that, but I hope to go deeper on some of these points as we go deeper.

Nicholas Kukrika:

That's great. Yeah, we'll definitely revisit the question of justice in a moment. And I really liked the framework, I liked the way that was described. And so we're fortunate to finish off this first question, we have someone who actually is deploying capital in a very, very day-to-day sense and actually making those deals happen. So, Moses, how are you thinking about this?

Moses Esema:

I echo the comments that is really great to be on this panel and again, to speak with folks here and have the discussion. Kennedy never fails to kind of keep you engaged even outside the classroom. So that's another great example of that. Hello, Ken, and most of the same as mentioned before, I'm a senior vice president over in the Renewable Energy Finance Group within Bank of America, and our team here, we do a direct equity investments into renewable energy projects across the country.

And for the most part, they tend to be utility scale products. These are big 100, 200 plus megawatt projects that located that power, many homes throughout the country. And part of the dynamic that we feel that kind of goes to this question about what's... I'll just say one, as an institution, Bank of America is committed to investments in low carbon technology and activity, but as a group in particular, on to the next point we do a lot of, we have a lot of activity in this space.

We do a few billion dollars of investment every year, and so, we're constantly seeing how the landscape is changing based on what's coming across on my desk. What deals are showing up, how are folks that give us structure in projects, and because we're actually investing at the projects, we're getting to deal with things like long-term power contracts concerned about the plans for operations and management of a wind farm. So it gets down to the nitty gritty of what does it take to have a long-term horizon view of an actual renewable energy project?

I think it kind of fits within this dynamic of a system and policy folks, but that's what it comes down to. Is it attractive enough to put in millions of dollars with the capital that you have would be developed and sustained. But that said, one of the things that I think is, I've mentioned it before as a group about what I think is not often discussed in terms of our goal is the recognition that we would like to appreciate this.

We don't really have a national energy market, [inaudible 00:21:41]. We have at least 50 different managing markets. And so the biggest thing to try and to get towards a goal of reducing our current emission and having a broader climate goal is how do we coordinate that across those different energy markets, so that when I'm thinking about capital deployment in New York or in Illinois, or in California, I'm still able to think and believe that I can have a long-term horizon because I'm confident in how either the energy markets exist now, and how they're evolving that I can make those kinds of calls.

And I think a big important to note is that, as important and as critical as I personally believe, investment into new technology, and actually our R&D is important to the space, there are still a lot of white space within existing technology and being able to provide financing and funding for deployment of that technology, especially when it comes to utility scale, wind and solar projects. And I think that's something that may not be as... People realized it was a lot more attractive, 10, even five years ago.

And then falsely I believe that we're done, we're not, and there's still a lot to be playing in that space. And I think what's important to notice that as we do shifts, as we make statewide renewable energy standards, as we shift the attractiveness of net metering within solar or the idea of what is it, how do we manage rights within offshore wind, all these shifts matter when we're all thinking about a long-term investments and that a wrong move there can hold back capital for five, 10 years just because we'll pause, we'll focus on it.

And so I think it does matter, this idea of how do we get towards long deployment of this in capital, we work with investors who have patient capital, who can do significant dollars in a long-term horizon. And then actually just think about what it means to coordinate policy so that we can get closer to having a national entity market, even if practice you probably want just because that's how we're not just in New York or Texas, or just in Oklahoma, we think naturally through. That means we have to take on our hats thinking about the policy and that might be us every single time. And so that coordination we're looking for.

Nicholas Kukrika:

Fantastic. Maybe we just move on to the next question. I mean, of course the challenge is that we not only have to cut emissions by half in the next 10 years, but we also have to do this in a way that doesn't exacerbate the already massive problems we have associated with inequality, not to mention any number of other sort of issues that could also fit into the heading of justice.

And so for Claire and Bracken, and maybe we'll start with Bracken, what is your framework for how you integrate a notion of justice into our efforts to reduce emissions. And when you hear that word, what does it mean to you from where you're standing?

Bracken Hendricks:

Yeah, that's a great question. And I was just saying this notion of standards, investment and justice framework, it's not incidental. It's not like a sort of social equity ornament. The fact that justice is central to an investment thesis from a public policy and public goods perspective. It is a core value proposition. We are talking about multiple trillions of dollars in capital shifting over the next decade. This is an investment opportunity on the scale of some of the hugely transformative historic investments.

Whether it's the buildings of canals or railroads or interstate highway systems. Decarbonizing the energy infrastructure is about fundamentally investing in the productive, real economy in a way that's transformative at the trillion dollar scale. The multi-trillion dollar scale. And that that starts with signals in terms of a 100% clean energy standard by 2035, as Joe Biden has called for. All new cars are going to be 100% electric as California and our European competitors have gone for it.

So you set a high bar, and then you match it with public finance tools with incentives like a renewable tax credit. You layer in these incentives that drive in the types of capital that Katherine and Moses are deploying to really move dollars behind this. But we also have in this country, a history of injustice tied to these waves of investment. If you look at what happened with the GI bill, highly successful, but African-American and Latinx families were excluded.

If you look at histories of how the new deal unfolded and what it meant for BiPAP farmers. If you look at the great society investment and as highways were built, whose communities got bulldozed and who were brought into the real benefits of the economic development? When we're talking about multi-trillion dollar shifts of capital, it matters profoundly who's at the table. So we as public policy advocates, as well as market practitioners need to have a keen eye to those public goods dimensions, to the inclusion in the policy frameworks, to the determination of which projects are chosen, which contractors have access to the value streams.

All of these public good dimensions can either exacerbate inequality or actually realize the American promise of bending the arc of history toward justice. This is profound investment with deep, deep public policy significance. It's not just about clean energy. It's about building the future of the US economy. And really the future of who we are as a people, as at stake in how we make these decisions. So we can translate that down. As Moses said, micro grid, solar policies, all of these small scale policies translate into real policy decisions on the ground.

And we can go deeper in the mechanics of how we fix policies and deploy capital. But I think the principle that justice is core can't be forgotten.

Nicholas Kukrika:

Fantastic. That's very helpful. Claire, how are you thinking about this question?

Bracken Hendricks:

How am I thinking about justice? That's the whole, day long seminar. We talk about this like it's a very technical conversation and like about where the money is going to come from, but of course political. The sort of dislocation or the transition we're talking about, you can't even imagine what Net Zero in 2050 means, or having global emissions in the next decade. We cannot even imagine what that actually means to our day-to-day lives.

At core, it means we've got to take people with us and it's political, right? And so, we've got to think about justice in those terms, if we've learned anything at recent events, it's that if we don't take people with us, it comes back and bites us in the bum. And COVID-19 has taught us that these challenges are interrelated like inequality and environmental degradation, sort of one and the same, right? So the justice lens, I think it was always perhaps marginal, right? So it just transitions as a lens. Very narrowly defined about how we help coal miners and coal communities transition.

Already that has to be expanded to oil and gas workers, which is going to established industries core part of our economic fabric. That's not going to be without pain, but the auto workers. I read somewhere that 10% of male employment in the US drive a vehicle. Right? I just think we've got to think of this, not just in terms of decarbonization, which is obviously a core trend, but also digitalization, and in other mega trends that we're facing. And so when I think of justice, I think we've got to step up, and our politicians have to step up. We need a new social contract that has to be more than a sound bite.

It needs far more robust social policies and safety nets. We've got a thing called like the small Island States, right? So justice for the front lines, and it's good to hit the Biden Harris administration. When they talk about their 2 trillion clean energy deal, like getting 100% clean electricity by 2035, and 40% of that being spent in environmental justice lens. So it matches in the domestic, in the US. And it'd be interesting to hear and see how that gets operationalized.

But on the international stage where we look at these small Island States in vulnerable countries, which bear the brunt of global warming and at least able to sort of future proof, I will just say the International Energy Agency with OECD have just created a global commission on people centered keen energy transitions. Again, to share best practice, to share learning and framing. Joe Mansion is one of the US representatives on that international body.

So I think it's a hot topic. I think we've learned our lesson, I hope. And we've got to do this differently, and like take people with us, right? We know bad things happen. COVID does that, we know the cost of inaction is far more expensive than the cost of action. So I'm excited now. And hopefully we have a few years of sort of proactive policymaking because we know the Kennedy School has taught us big problems, require big solutions and brave political leaders. So I'm excited to hopefully get more on the justice friends in these next few years.

Nicholas Kukrika:

Fantastic. That's very helpful. All roads increasingly go through West Virginia. But not for our next question. I just wanted to talk a little bit about private capital a bit more specifically, and bring Katherine and Moses back in. From the perspective of your work, in what ways do you see private capital rising to this challenge that we're discussing both with respect to just cutting emissions, but also cutting emissions in a manner that actually integrates justice.

But in what ways do you see them actually falling short? In what ways do you see private capital simply not meeting that challenge from the work that you've been doing? Sorry, let's start with Katherine.

Katherine Tweedie:

Okay, great. I was also just thinking about the justice question, because I think it is a really interesting one and I will tie it into my answer, but you know the way that we've been giving a lot of thought to justice is about who is impacted by not taking action with regards to climate change and who is impacted by taking climate change action. And you can have a positive and a negative on both fronts. I work very closely with pension funds, university endowments, et cetera.

And it's quite interesting if you look at kind of the average age of most individuals who are sitting in the investment committee of these plans, they tend to be an older generation. I'm in my forties, so I can't take myself too much, but let's go up a little bit. But the students, and I'm sure Harvard has this at the moment, the students that are banging on the door of the Chief Investment Officer of the university foundation and saying, "Look for me, climate justice is not just about generating a return from the university's endowment or pension. It's the way that is going to be done."

And if you go back a couple of years ago, there were big question marks about whether you could invest sustainably and still generate the sufficient return that you needed for your endowment or pension fund, to actually deliver the outcome on the end, when that teacher retired, or the foundation wanted to build a new building. And what has been very exciting for me is the sort of convergence that has taken place, where we are seeing that investing sustainably is not necessarily at the risk of giving up returns.

And so there's this merging together. And you're seeing this merging together of intergenerational care about the how we do things is quite, even if you just look at the sort of greater impact that she's had on the younger generations, thinking about how enforcing the older generation to address that. So that's one thing on climate justice. The other, having grown up in both South Africa and Canada, thinking about the role of natural resources in communities and how important they are for local communities in many parts, and particularly in emerging markets.

And so, it just transitioned for many communities is actually one where oil or natural resource where others are increasingly done in a more sustainable way, but still support those communities. I'm really optimistic when I see some of the big majors that are taking these big stances and saying, "Yes, we are going to transition." It's part of that just transition that will both help with economic development in these regions, but help us along the climate transition plan.

And so if you tie that into, public and private, first of all, I know Moses will speak to this, but the amount of capital that is being deployed on a private sector basis or private capital basis. So when I talk about private it's direct investment into the underlying companies or investments from a pension plan or a bank, et cetera. They've really led the charge in the establishment of big new renewable and green energy infrastructure.

And that for us is the first step. But as I said in my earlier comments, I think we're very limited if we rely solely... If the transition and the amount of capital that we need to facilitate the transition only relies on that narrow part of an asset allocated as balance sheet. Then we are not going to be able to do what we need to do. And so accessing sustainable funds from public equities and increasingly from government fixed incomes.

When you buy government bond piece and you're seeing green bonds being issued, or capital going to those countries where their governments are putting in better sustainability plans, that is the way that we're going to unlock capital over the longterm to get us to that one and a half degrees. Moses, over to you.

Nicholas Kukrika:

Go forth Moses.

Moses Esema:

We've got to start there. First, as I would say, I definitely could have. But there is definitely a lot of capital, especially in the space I'm from early and now we're just seeing utility scale deployment of wind and solar. There's a sense that our competitors and their partners with a lot of folks who are kind of ready and eager to evaluate these long-term contracts and long-term projects and make these adjustments directly into the underlying projects.

And I think that's definitely to your question, Nick, away where private capital has stepped up because I think without that you will see a much slower level of deployment and there's risk already in those kinds of investments. To Katherine's point, they still have to be returned. It has to be made in that, but there is this more recognition from institutional wealth standpoint that how you make the return does matter. And so, there's more focus and attention to the kind of work I'm doing now, where folks like our investments, and they feel like it's both a good purpose.

Like has the whole good return, but also the broader strategic benefit of investing in low carbon technologies, thinking about our energy transitions as a nation, as a globe. So I think that's definitely a strength that we've had of what we've had now. There are hundreds of billions of dollars in that space being deployed, or that have been deployed from different investments. To your questions on where they're falling short though, I think for the long time, unfortunately, what was often referred to as the Valley of Death are still existing.

Where there has been a lot of investment in the R&D space for new technologies, thinking about how to make batteries work in labs, thinking about new types of solar cells, a lot of money coming into the R&D side, and then for folks like us, a lot of money coming into the point of proven technology on a massive scale, $100 million investment made that happen in an Oklahoma. But that gap between actually being able to invest into scalable projects or pilot projects smelling actually proved the technology, get them to be proven.

There's a lot less capital coming. That's kind of what we would typically know as the venture capital space that we see often in the tech side, when you're seeing less on the climate technology side, especially with renewable energy. I think unfortunately in recent years, we've also had a reduction of the R&D side because a lot of that was coming from public sector support, which wasn't really happening as much in the US, I would say in the last few years.

We're hoping that the new administration that, that might change, but fundamentally that's not necessarily going to solve that value. And I think that's probably where more private capital has to think about how we can manage those risks, how we can get involved. What will it take to get more comfortable with the investment in those kinds of projects. For example, battery storage, I think is huge. I think battery storage has come a long way, from probably even just 10 years ago where we're moving towards proven technology, we're seeing more applications we're seeing for our batteries being able to be deployed and potentially even on utility scale, which has huge implications for rollout of renewable energy across the country, because you got to have solve the intermittency issue with renewable energy projects and power development.

But then not see a lot of those projects being invested with the big pension funds or the big banks, because they want to see more of them deployed out on a smaller scale. So the ones who are stepping into that gap tend to be the large developers. The big utilities, a little bit of practice developers who are balance sheet investing to kind of make those projects. Those pilot projects exist, to try and encourage the big investors to say at least [inaudible 00:40:56].

And the challenge with that is that there are not that many big developers that can do that. And that means the pace of what we deploy these climate solutions, can be slow. And I think that's going to be, because as a nation, as a global, we're putting these hard timelines on this reduction goals, we need to get faster when it comes to deployment of capital. And I think having a suitable investors leaps a little bit further into that development cycle, might be a path and maybe even having more of the like public sector or the R&D investing type of institutions reach a little bit further out in terms of whether they want to fund, helping close that gap I think it's going to be key if we actually want to try and make the goals that we have here.

So it's not just, we'll get there eventually in 2080, but no, it really want this to be an active effort to move this ampule transition, not just for the country, but for the globe and really get renewable energy deployment. So even that isn't.

Nicholas Kukrika:

Yes.

Katherine Tweedie:

I just had one a very quick follow up actually just on that. We are coming at it from quite a Western viewpoint, but we do a significant amount of investing in China and it's quite interesting when you look China added the entire Canadian bridge last year, just in that new coal production. So China is technically still carbonizing. At the same time, their investment into R&D and patents and green technology and green energy is greater than all other countries combined.

So while they're carbonizing, they recognize that they've got to go through the energy transition themselves and in an expedited manner. And so you're seeing this incredible investment from both public and private sector. Sometimes those are combined across industries. We want to see that transition take place, if we're going to get to one and a half degrees, we have to bring China and other emerging markets with us. But we are optimistic that the rate of technology and innovation and new patents that are being developed domestically in China, in this regard.

Nicholas Kukrika:

Awesome. So I think actually now we'll turn it over to your questions, and just while we're pulling from those questions, just to add one thing to both of the last comments, because I also work in private capital markets or sort of focused on public equity and private equity. And if you have a question, just remember to use the raise hand function in Zoom to ask the question. And while we're doing that, it's just useful to remember to Bracken's framework. We have a solar industry today because someone actually bothered to have standards in the form of a feed in tariff.

Initially in Japan, although that was a bit of a false start, but ultimately in Germany where we have the Germans to thank for the solar industry in my opinion, that ultimately catalyze an entire industry that then was spawned in China. That then was also spawned in the US that then created inability to move past that Valley of death. And we've struggled to have those standards. But I think there's now a tremendous amount of hope that those standards are coming into place, which will then create incentives properly to actually pass that Valley of Death.

But I think there's still a lot of concern understandably around that. So, do we have a question yet? Apologies if I'm supposed to be doing something differently. Okay. Oliver, I understand you have a question, you can feel free to come off video if you like. And yeah, tell us what is your question?

Oliver:

Wow. So sorry, I guess I didn't expect to get asked that quickly. But generally, I have one thank you to everyone for joining. This is one really great to see where some HKS Alumni go on to do. And this has been an awesome conversation in general. I'm interested in people's thoughts, particularly on the private markets, on the movements towards ESG management recently, and how people who maybe aren't in carbon neutral businesses to start with are starting to look at a need to move towards it, or to keep start tracking it.

Basically, just through a risk management perspective and kind of the flip side of this, that climate risk particularly after things we just saw in Texas, increase number of hurricanes every year, and what might that do in terms of driving people towards more carbon neutral or just carbon tracking measures.

Nicholas Kukrika:

Yeah, that's a great question. Katherine, do you want to take a first stab at that? And then maybe if Claire has something to add?

Katherine Tweedie:

Sure. So definitely seeing a much greater emphasis on ESG as part of the sort of investment research process that you conduct before you invest in a company or a government bond, et cetera. From our perspective again, because we sort of grew up in some complex places we had always put, it's probably starting with the G the governance, but we had always looked at it as part of our assessment. I think a little bit more with a risk management lens on.

Today we look at it as, we want to invest in the best companies to generate the best returns. And so we think those companies that display very strong ESMG characteristics throughout their business are probably best poised to be the most competitive. And so, it's gone from just mitigating risks to actually wanting to invest in the winners, in whatever industry you're in. And so, it's absolutely essential to have a very clear view on how an underlying company manages their environmental, social, and governance issues. So definitely very important. And increasingly so.

Nicholas Kukrika:

Go ahead Healy, or I can also comment as well, it's up to you.

Claire Healy:

So I'd had a couple of them, I think you're right to raise up the risk management frame. I think as Moses said earlier, the key thing is the pace and scale of change, right? Great stuff has happened, lots going on, but to be Frank we're not doing enough fast enough. So the key thing is the pace and scale, and that's why I think we do need regulations to make the markets work better and faster. And I think the opportunity frame, like more jobs, make money, and Katherine said earlier, these going funds have proven to be above par and particularly even during the sort of deep post COVID.

So the opportunity frame gets us so far, but not all the way. So we do need this risk management approach, I think across the board the task force on climate related financial risks, where in 2016, 2017 had a couple of years hiatus. But now I think it's back, and we will see hopefully this year mandatory risk disclosures, I think from all the G7, if not the book of the G20, which puts that information out into the marketplace, and then also taxonomies.

This conversation about what is clean and green versus what's not, let's just figure that out to make it easier for investors. Again, we don't have the time for a thousand flowers to bloom just got to get on with it. And I would say finally, the positive sign, the G20 just reconstituted, their sustainable finance working group, who led by US and China no less. And I think that will be a space where we can start talking about aligning and harmonizing approaches not just in classification, but also ways we can benchmark label and regulate to avoid greenwashing.

As Catherine said, like ESG has been a factor, but it's gone from a very niche market to more mainstream, but there's still a lot of work to do to make sure it's not greenwashing. And have the Europeans have a great action plan, the US and are back in action with the SEC and others and this working group. I think we'll see a lot more work in this area to get the pace and scale that we need. So I think, and to shift the incentives and shift the trillions.

Nicholas Kukrika:

We're going to move to the next question. But the only thing I would add is that from where I stand in the interim, whilst we wait for those standards to be put in place that Bracken spoke to, and Claire just also reminded us of, it's really important that investors actually also hold companies to certain standards. And investors have an ability to do that. So, we've started asking all of our companies, basically, you need to disclose scope one and two at a minimum, and the next year or else just doesn't make sense for us to invest in you.

And then, in a certain period of time, you need to be reporting according to TCFD, which is what Claire just described. And then in a certain period of time, you better have science-based targets in order to be able to get to net zero by 2040, because we have an ambition that our portfolio has to be net zero by 2040. Because if we don't have that ambition, then what do we do? I mean, we're not aligned with what is absolutely imperative to be realized.

So I think that's an interim step. And it's also possible for investors to inform to some degree policymakers into how those standards can actually be set to a degree. Because I think they have some possibility being able to see the way in which companies can work around it, because that's kind of our job is to be skeptical of companies basically.

Claire Healy:

Can I say one thing just on risk management. Because, it gets back to your earlier question on justice. Like we know the risk is lying dormant somewhere in the system, right? And physical risks, transition risk. And there is a question around justice like who will be left holding the bag, right? When things flip, who's going to be left holding that. So we do have to figure out where that resets, and try and have it orderly transitioned to minimize the risk. So it doesn't need to wait systemic crisis.

Nicholas Kukrika:

Terrific. Eukael, you are up. Next question comes from Eukael Bush, would go ahead and apologies if I mispronounced your name.

Speaker 8:

That's all right. No one gets it right the first time, Eukael.

Nicholas Kukrika:

Eukael.

Speaker 8:

Thank you. Wonderful panel. Wonderful comments. Two part question; first, I come from the philanthropic sector specifically looking at international development. What in your views are the greatest ways that philanthropic dollars can be used to increase the flow of private capital? Is it de-risking, divestment et cetera. And then second, looking at the global South, how are these questions you've talked about today, different for investors that are looking at those emerging economies and are living in them, and actually working at companies and then investing in those local companies. What would you advise for them? Thanks.

Nicholas Kukrika:

Go ahead Bracken.

Bracken Hendricks:

Being the most intensely domestic, it's maybe odd that I'm jumping in, but I actually was hoping to talk about this conversation about public capital and private capital and the interstitial space for philanthropic mission-based impact investment, and even corporate capital, that's really trying to unlock ESNG type goals. There's a really, really important role for those purpose-driven dollars to help drive the market. Someone was saying earlier, the question of how we do this.

Execution matters, both Moses and Catherine were talking about, there's a lot of investible projects out there, and that's true. In the solar space, there are increasing numbers of utility scale, very efficient opportunities to deploy capital into deals, in energy efficiency to large commercial buildings are ripe. But there is work to do to make the full market accessible. And I'm actually working on a project right now with a foundation called the Wallace Global Fund who were very active in unlocking, sort of invest divest type of thinking and opening up pools of transactions.

So if you think about opportunities to make these smaller projects, these more mission driven projects, more investible through uniform underwriting, through scalable contracts, through transactional efficiency, through just broader public awareness, getting investment at scale into these emerging markets, emerging technologies, or difficult to reach sectors requires credit enhancement, or perhaps early first movers, who can de-risk, first loss position on alone, alongside market rate capital. They unlock an entire fund.

These sorts of financial design mechanisms, as well as grants support for better transactions that are kind of blending market and mission based activity can open up entire markets, whether it's in urban inner cities, rural economic development in the United States or the global South, or even in technology risk with things like battery technology that may be on the leading edge, not quite financeable, but if you can put a loan loss on it, you could finance it. So there's a lot of opportunities for impact investors philanthropies and mission-driven corporate actors to be first movers. And to my mind, it's one of the most exciting places in this whole space today.

Moses Esema:

Just quickly want to add one thing, I 100% agree with Bracken. My previous life I focused more on emerging market investment in this energy space. And it is as exactly right. I think that there is value definitely in this investment, but there is a lot of need, I think for the previous side for the web, where it can be had, because when it came to a lot of looking at different power projects, in Ghana, Morocco or different parts of the world, bankability of projects became huge. And those actually a lot of dry powder.

But essentially, investments ready to come in, are you going to do something, but didn't have those bankable projects. Essentially this idea of standardized power contracts, that someone is coming in taking the first loss when it comes to the debt side. Things that help the risk, the project given that a lot of this trans capital's being competed against globally. So yes, you may have a fund focused on emergent market, but still when it comes to social capital, they're competing against alternative investments in the US, in the UK and other parts of the world.

So be with maybe there was going to become incredibly important. And I think there will be a lot of capital unlocked, if that will be the focus of income in the space, I guess very much agree with that.

Claire Healy:

Can I just jump in on that Nick as well? Because I think that's a really important point. And again, when you look at the system at large, I think the need for overseas development assistance, I think has never been greater post COVID. And yet the outlook, I think ODA is green since everybody is fiscally constrained. So I think if those traditionally finance flows are going to be grossly inadequate, I do think our an open space for some of these reforms, structural reforms, right?

I think we've all been probably party to countless conversations about how to mobilize private finance, many initiatives out there toward this end, included the blended finance task force, which tried to pull in philanthropic capital. They've studied the market, they know the barriers, but I do feel now in this context, there was an opportunity to push through some of those reforms, for example, with the public banks using more balance sheet optimization, to unlock billions more.

And I know I'm party to a conversation where we're looking at new mechanisms like existing instruments and vehicles that could be deployed now to pull in private finance toward COVID vaccine, and COVID recovery as well as green. So there are lots of instruments out there, I think, but again, they haven't got the scale they need. So I think there's a lot of appetite by governments, they can't deliver what they need to global public goods through traditional means. So I do think we'll be seeing some reforms deployed to pull in more private finance.

Nicholas Kukrika:

Great. We're running a little bit long, but we're going to squeeze one last one from Donald. Donald please go ahead with your question.

Donald:

Thank you so much. My question is for Katherine Tweedie, you mentioned having lived in South Africa and Canada, and we've talked a little bit about West Virginia. You made the comment about needing to bring along the public from communities who are dependent on carbon-based industries. And I wonder if you have suggestions about how we do that so they can hopefully become part of the solution rather than the opposition.

Katherine Tweedie:

Yeah, it's a very important topic for us. As a South African firm, We've been investing in natural resources for 30 of our 30 years. So we're very aware of the importance of capital and local employment in these areas where sometimes, that mine or manufacturing facility can often be the only employer in that region. I think what we've seen, and if you look at say the successful model of Botswana with diamonds, for example, not a polluting industry necessarily as much as others, but where you've got very strong governance taken by the government in that country, along with the private sector and the ability to negotiate really well say it to beers about, beneficiation, taking place at home and skills training, that's kind of getting into a micro level.

But as we see the transition taking place, I still think over the next at least few decades, we are still going to require many of the natural resources that we use today. The question is, how can we build those minds and manufacturing capabilities in a much more efficient and clean way, and also help with the transition of jobs as increasingly, we require less labor, more automation is taken place and we transitioned those individuals into higher skilled roles.

And that's where the importance of a forward thinking government together with local partners, both your financing partners, as well as your operating partner is essential. I was speaking to an individual yesterday here in Toronto, who sits on the board of Nickel and Cobalt mine in Canada. And absolutely essential if we're going to have all of the electric vehicles that we plan to in the coming decade, those resources are absolutely essential.

And so how are we going to continue to operate those mines, but do so with a plan to getting to net zero? So technological investment into the manufacturing and operations is critical, along with the re-skilling of individuals as we change the way we do things. We come all the way back to Kennedy School. That's our innovation and adaptive leadership and public and private kind of coming together. So no mean feat, but I think we're starting to see pockets of that happening in the more progressive parts of the world.

Nicholas Kukrika:

Fantastic. So unfortunately that's all the time we have right now for Q&A. I think someone put it in the chat that if you have further questions, you can send them to alumni@hks.harvard.edu. And we can try and pass them along to the panelists. I would just like to thank all of the panelists again for their time, for their unbelievably helpful insights about these questions. I think this is certainly the gnarliest problem that I've ever encountered.

Nicholas Kukrika:

I think that might be the gnarliest problem we face right now, and you can see that from its many dimensions, what we have to confront. But I'm super excited about what we as alumni can do to help solve these challenges. And I really, really appreciate everyone joining to listen in. So Karen, thank you very much. And if there's no other comments, I guess we will sign off.

Karen:

Yes. I'm just going to close and just say thank you to all the alumni who joined today, as well as thank you to our panelists. We look forward to keeping you connected to the alumni talk policy discussions and other engagement opportunities. Stay tuned for our next event and late April on Artificial Intelligence. And please visit the alumni website for the most up-to-date school news and events. Stay safe and healthy everyone. Thanks.