Investing in the Energy Transition

[Music] thank you for staying with us um I'm Eugene from South chaming Post um as uh we are going to be talking about um energy investments in energy transition so last year according to figures $ 1.8 trillion was invested globally in um uh energy transition if you dig a little bit deeper into the numbers we find that between um Investments for um climate mitigation and adaptation between High income countries and low and medium income countries there is a huge gap particularly in P where private sector is concerned so only 3% of global Investments uh were by the private sector when it comes to um climate change um adaptation now um I would like to start this conversation by um asking beatric um seeing that you deal a lot with um Legacy wealth and what we call in the business patient Capital um what can we do to engage the private sector more what are some of the regulatory framework that we need to encourage private sector to be more engaged thank you thank you thank you for the question and uh thank you for having me here today look I mean uh the private sector plays a very important role when it comes to energy transition not only you know in the low and mid economies but actually overall you're right that what we have seen is a much lower engagement over time I think if you think about you know the uh the transition that needs to happen a lot of that needs to happen in those countries that are perceived as higher risk and so from an investor point point of view if you think about you know family offices and wealth uh in general I think the perception is that those Investments are riskier and therefore you know we need to create the framework to be able to Der risk those Investments right through you know uh multilateral you know banks for example that can provide uh guarantees philanthropic Capital that can be cathic to you know uh they risking some some of the Investments uh but it's definitely something that you know investors as we see it from a wealth point of view are extremely interesting to see and and to invest on and also because you know depending on the background where you're coming from what your you know sector of activity has been if you are an entrepreneur there are very specific areas where you know our clients are very interested in being active that's one I think the other one is a you know more stable um framework polit like policy framework to make sure that you know the Investments because they are very long uh Investments as you as you pointed out often times that have to do with uh you know infrastructure that you create a policy framework that is stable and credible and that you are not kind of changing that environment for investors uh quite often right so the keyword here is co-investments IE partnership between between the the um maybe the government sector the public sector and and and private sector um Dominico you work with aib you are based in Beijing um you've been there for a long time and you have seen firsthand the change that is that has happened to China's environment particularly the air so and that might probably be a good case example of a public sector Le uh Investments to address the environment So within this uh topic of conversation how can a multilateral bank like yours uh play this kind of role uh to facilitate take collaboration between the public sector and the private sector yeah thanks Jin uh well as as a multilateral Development Bank we we think uh we have to have a leading role into uh running this uh this type of shift to uh sustainable uh energy and uh definitely we we think this is a a key uh um a key Target for aib we have we are a young Bank a young uh multilateral Development Bank only started operations in 2016 but we uh put together very quickly uh what we call a corporate strategy which covers the 10 years between 2020 and 2030 one of the objectives that we set in the corporate strategy was to reach by middle midpoint of the of the strategy which is 2025 a target of 50% 5 50% um in uh uh climate finance and uh uh I'm happy that to report also that we in 2022 already so 3 years ahead of schedule we reach the target so this is to say that there is a tremendous appetite for these type of Investments and I said we think we should have a leading role but we certainly don't have the capital enough Capital to do that all the mdbs together they cannot do that so what you mentioned in the beginning in terms of working with the private sector to crowd in investment alongside the MTB is absolutely key for Success so run me through this uh concept of leading role so uh let's take any country for example there's a there's a huge um uh investable uh climate adaptation project uh is this a place where AI will come in and initiate uh some kind of a partnership initiate the project and bring it and create the framework where private players uh like UBS can get involved yes absolutely uh in the beginning uh of course all the all the focus was on the mitigation side uh and of course that's I don't want to say easier to do but uh there's there's more projects available more bankable projects so it's uh uh you know the community can come together the mdps everybody the the the private sector uh investors they can come together and finance those projects but and particularly in Asia uh we realized and and the mdp community realized that there is a lot of appetite for adaptation projects as well because the the impact of climate is is there already for everyone to see I mean you don't need to be a scientist you know to watch what's happening in in the world and so the adaptation side of projects they are more difficult to finance because it's more it's not it's not trivial to to structure the projects in a way that is bankable and appealing to a private uh sector investor and again we think here the mdbs they can come in with sort of you know longer term Capital more patient Investments uh putting in the work to to Source the projects that align towards very strict guidelines you know on the ESG side as well and make sure that again we can have a kind of a a you know multiplier effect by going into this type of investors and then carry and invite others to come into with us okay a followup question to that is obviously for the private sector um even for patient Capital your uh the return is your primary uh kpi if you will right so uh as a as a multilateral uh Bank you have to set the environment for for this to happen to enable the the investors to have a reasonable rate of return um does do multilateral Banks like yourselves have the mandate to do so and uh can you work with the public sector and the private sector to make this happen yes indeed uh first uh uh you know among the the many uh requirements that we have I I I will say that we can be more flexible on the financial return side because of course Capital cost less for an MTP than for a a private uh fund or a private investor of course so in sourcing the Investments we look at the impact of the investment as well we want to know what is the downstream uh effect that we are going to generate on the communities on the countries on the minorities you know all the classes of stakeholders that we want to help and so we are able to deploy Capital also against some Investments that if you look at them from a roe like return on Equity or return on investment purely may not work for an investment site and then the game becomes you know how to structure a deal to have the creativity to structure a deal where each component of the capital structure available in the world can take a piece of that investment and make it work for the community because the numbers are really huge right be let me put you on the spot and ask you in that kind of scenario what is a reasonable uh rate of return that you would you would uh I think it I mean I think it depends on which part of the capital structure are you going to be sitting and I think by I mean the key word that uh you know he he used is multiplier effect I think by you know providing guarantees or taking an equity uh peace in in the financing or you know um providing the anchoring in in some of these projects you're able to still have uh you know very competitive risk returns uh for investors that are interested in in that in the other part of the capital structure right I don't think I I think the the the thought that sustainable investment has to be some sort of philanthropic investment or where you have to give up return that those times are over I think there there are quite a lot of Investments that are very interesting and they're still you know contributing to to The Climate agenda well that's a perfect segue Eugene 10 seconds if I if I adding on uh on this uh I had a bilateral meeting with uh with a private investor this morning before coming here here very extremely bright person and lots of capital available but they told me any investment we cannot look at if the return is not 20% at least we don't have that as a as a major concern we also want to make a return so again how to work together with these people and taking different pieces of an investment I think that can attract Capital sorry perfect segue to show you're a private investor uh do you see attractive uh you know environmentally responsible sustainable clean energy transition Investments out there well definitely and as a player as you rightly said that is focusing energy transition uh we come from the green electrons and slowly shifting to the to the green molecules uh that said is the green hydrogen and its derivatives and this is exactly what we are offering to our partners to our investor which is the ability to share the the value that we create from the outset so we originate we create all these investment opportunities but then comes the time that we need to structure and we need the financing access to financing uh we know that investors are looking for stability and that comes also with strong regulatory Frameworks we have that in Europe we think that this could be exported with the support of the financial institution but also the multilaterals that play uh and as as you said before they set the environment for then the private sector to come and streamline all these opportunities uh that could deliver interesting returns also depending on the level of maturity of the technology we all know that Renewables it's a much more mature technology and then returns are in a completely different stage where investors are looking for for green hyrogen and and and this type of project I wanted to ask you something um in you operate in Europe you're based in Switzerland um uh European countries have a very among the highest uh Investments per capita in terms of uh transition projects um why is that unique to Europe uh what are some of the factors or best practices uh in Europe that make that possible and are those factors transferable to this part of the world to Asia well I think energy transition per se everybody needs to work together so that we achieve uh the common goal that we all share uh and that holds true for what I mentioned before the regulatory Frameworks which re assures the investors confidence so that they can come and and deploy the capital uh having the the model that is quite popular in the infrastructure World which is the public private Partnerships and you see this all over the European countries for highways and and uh infrastructure and in that sense this could be replicated elsewhere with the support of the financing institution and also an very important element which is the the people so you need people in order to be able to deliver all these ambition and this is what we do in our company so we have the skill a skill team setting behind all that all what we do uh and this the the interaction between all these entities all these stakeholders around um investment opportunities as a whole uh it's also the secret or the ingredient the secret ingredient so that you can uh make it work and translate from a theoretical point of view to get things done on the ground right let's quickly talk about um interest rates in the in the remaining few minutes that we have um before November we were perhaps on a trajectory where uh cost of funding was going to drop but now there seems to be a little bit of uncertainty um more and more people are arguing that maybe higher for longer is going to become The New Normal um um how does that change the uh investment uh opportunities for uh green transition financing look I mean I think we we said some of these projects are quite long dated they are you know uh they are you know patient investors I think on the long end of the curve we are obviously much more stable than what we have seen in the short end of the curve but there is no doubt that a lot of these uh companies will finance themselves in a rolling basis on the short term so no doubt that higher interest rates for some of the more you know incipient uh you know tech for example that's going on or some of the more startup uh type of uh you know firms is is going to be more challenging for banks in general I'll say that obviously interest rates higher interest rates for for longer is is good for net interest margin I say in general so it gives us the ability to provide balance sheet to these type of projects as well so it's it's kind of like two sides of the same coin yeah Dominico does it make your life or easy from yeah from an from a multilateral perspective I think what this means is uh more local currency lending uh I mean to to navigate through the cycle particularly when you enter a period of a sustained uh High rates uh we have to work uh both with investors and with the local Regulators to uh open up uh uh their markets and identify opportunities to to to finance sure you you have a final word does it make you does it make it harder for you to do your work well at the end of the day what we need to offer is flexibility and diversity in terms of access to different Technologies and different let's say local footprint and this is what we are doing investing in different Technologies Renewables green hydrogen its derivatives with a particular focus on Aviation uh and this is at the end what can mitigate all these risks that are all the time surrounding us and that we can we cannot forget this is a cycle that we are going through challenging with a lot of moving pieces but at the end we need to keep focused and uh and uh and delivering our strategy uh by uh by uh by being able to to deploy in this manner great thank you that's all the time that we have for this discussion thank you very much for being a great panel thank you thank [Applause] you ah hello hello thank you for staying with us um I'm Eugene from South chaming Post um as uh we are going to be talking about um energy investments in energy transition so last year according to figures $1.8 trillion was invested globally in um uh energy transition if you dig a little bit deeper into the numbers we find that between um Investments for for um climate mitigation and adaptation between High income countries and low and medium income countries there is a huge gap particularly in PRI where private sector is concerned so only 3% of global Investments uh were by the private sector when it comes to um climate change uh adaptation now um I would like to start this uh conversation by um asking be interest um seeing that you deal a lot with um Legacy wealth and what we call in the business patient Capital um what can we do to engage the private sector more what are some of the regulatory framework that we need to encourage private sector to be more engaged thank you thank you for the question and uh thank you for having me here today look I mean uh the private sector plays a very important role when it comes to energy transition not only you know in the low and mid economies but actually overall you're right that what we have seen is a much lower engagement over time I think if you think about you know the uh the transition that needs to happen a lot of that needs to happen in those countries that are perceived as higher risk and so from an investor point of view if you think about you know family offices and wealth uh in general I think the perception is that those Investments are riskier and therefore you know we need to create the framework to be able to Der risk those Investments right through you know uh multilateral you know banks for example that can provide uh guarantees philanthropic Capital that can be catalytic to you know uh the risking some some of the Investments uh but it's definitely something that you know investors as we see it from a wealth point of view are extremely interesting to see and and to invest on and also because you know depending on the background where you're coming from what your you know sector of activity is been if you are entrepreneur there are very specific areas where you know our clients are very interested in being active that's one I think the other one is a you know more stable um framework polit like policy framework to make sure that you know the Investments because they are very long uh Investments as you as you pointed out often times that have to do with you know infrastructure that you create a policy framework that is stable and credible and that you are not kind of changing that environment for investors uh quite often right so the key word here is co-investments IE partnership between between the the um maybe the government sector the public sector and and and private sector um Dominico you work with aiib you are based in Beijing um you've been there for a long time and you have seen firsthand the change that is that has happened to China's environment particularly the air so and that might probably be a good case example of a public sector Le uh Investments to address the environment So within this uh topic of conversation how can a multilateral bank like yours uh play this kind of role uh to facilitate collaboration between the public sector and the private sector yeah thanks e Jin uh well as as a multilateral Development Bank we we think uh we have to have a leading role into uh running this uh this type of shift to uh sustainable uh energy and uh definitely we we think this is a a key uh um key Target for aib we have we are a young Bank a young uh multilateral Development Bank only started operations in 2016 but we uh put together very quickly uh what we call a cop corate strategy which covers the 10 years between 2020 and 2030 one of the objectives that we set in the corporate strategy was to reach by middle midpoint of the of the strategy which is 2025 a target of 50% 5 50% um in uh uh climate finance and uh uh I'm happy that to report also that we in 2022 already so 3 years ahead of schedule we reach the target so this is to say that there is a tremendous appetite for these type of Investments and I said we think we should have a leading role but we certainly don't have the capital enough Capital to do that all the mdbs together they cannot do that so what you mentioned in the beginning in terms of working with the private sector to crowd in Investments alongside the MDB is absolutely key for Success so run me through this uh concept of leading role so uh let's take any country for example there's a there's a huge um uh investable uh climate adaptation project uh is this a place where AI will come in and initiate uh some kind of a partnership initiate the project and bring it and create the framework where private players uh like uh UBS can get involved yes absolutely uh in the beginning uh of course all the all the focus was on the mitigation side and of course that's I don't want to say easier to do but uh there's there's more projects available more bankable projects so it's uh uh you know the community can come together the mdps everybody the the private sector uh investors they can come together and finance those projects but and particularly in Asia uh we realized and and the mdp community realized that there is a lot of appetite for adaptation projects as well because the the impact of climate is is there already for everyone to see I mean you don't need to be a scientist you know to watch what's happening in in the world and so the adaptation side of projects they are more difficult to finance because it's more it's not it's not trivial to to structure the projects in a way that is bankable and appealing to a private uh uh sector investor and again we think here the mdbs they can come in with sort of you know longer term Capital more patient Investments uh putting in the work to to Source the projects that align towards very strict guidelines you know on the ESG side as well and make sure that again we can have a kind of a a you know multiplier effect by going into these type of investors and then carry and invite others to come into uh with okay a follow-up question to that is obviously for the private sector um even for patient Capital your uh the return is your primary uh kpi if you will right so uh as a as a multilateral uh Bank you have to set the environment for for this to happen to enable the the investors to have a reasonable rate of return um does do multilateral banks like yourselves have the mandate to do so and uh can you work with the public sector and the pr sector to make this happen yes indeed uh first uh uh you know among the the many uh requirements that we have I I I will say that we can be more flexible on the financial return side because of course Capital cost less for an MTB than for a a private uh fund or a private investor of course so in sourcing the Investments we look at the impact of the investment as well we want to know what is the downstream uh effect that we are going to generate on the communities on the countries on the minorities you know all the classes of stakeholders that we want to help and so we are able to deploy Capital also against some Investments that if you look at them from a roe like return on Equity or return on investment purely may not work for an investment site and then the game becomes you know how to structure deal to have the creativity to structure a deal where each component of the capital structure available in the world can take a piece of that investment and make it work for the community because the numbers are really huge right let me put you on the spot and ask you in that kind of scenario what is a reasonable uh rate of return that you would you would uh I think it I mean I think it depends on which part of the capital structure are you going to be sitting and I think I think by I mean the key word that uh you know he he used is multiplier effect I think by you know providing guarantees or taking an equity uh piece in in the financing or you know um providing the anchoring in in some of these projects you're able to still have uh you know very competitive risk returns uh for investors that are interested in in that in the other part of the capital structure right I don't think I I think the the the thought that sustainable investment has to be some sort of philanthropic investment or where you have to give up return that those times are over I think there there are quite a lot of Investments that are very interesting and they're still you know contributing to to The Climate agenda well that's a perfect segue Eugene at 10 seconds if I if I may adding on uh on this uh I had a bilateral meeting with h with a private investor this morning before coming here very extremely bright person and lots of capital available but they told me any investment we cannot look at if the return is not 20% at least we don't have that as a as a major concern we also want to make a return so again how to work together with these people and taking different pieces of an investment I think that can attract Capital sorry perfect segue to you're a private investor uh do you see attractive uh you know environmentally responsible sustainable clean energy transition Investments out there well definitely and as a player as you rightly said that is focusing energy transition uh we come from the green electrons and slowly Shi into the to the green molecule that said is the green hydrogen and its derivatives and this is exactly what we are offering to our partners to our investor which is the ability to share the the value that we create from the outset so we originate we create all these investment opportunities but then comes the time that we need to structure and we need the financing access to financing uh we know that investors are looking for stability and that comes also with strong regulatory Frameworks we have that in Europe we think that this could be exported with the support of the financial institution but also the multilaterals that play H and as as you said before they set the environment for then the private sector to come and streamline all these opportunities uh that could deliver interesting returns also depending on the level of maturity of the technology we all know that Renewables it's a much more mature technology and then returns are in a completely different stage where investors are looking for for green hyrogen and and and this type of project I wanted to ask you something um in you operate in Europe you're based in Switzerland um uh European countries have a very among the highest uh Investments per capita in terms of uh transition projects um why is that unique to Europe uh what are some of the factors or best practices uh in Europe that make that possible and are those factors transferable to this part of the world to Asia well I think energy transition per se everybody needs to work together so that we achieve uh the common goal that we all share uh and that holds through for what I mentioned before the regulatory Frameworks which re assures the investors conf confidence so that they can come and and deploy the capital uh having the the model that is quite popular in the infrastructure World which is the public private Partnerships and you see this all over the European countries for highways and and infrastructure and in that sense this could be replicated elsewhere with the support of the financing institution and also an very important element which is the the people so you need people in order to be able ble to deliver all this ambition and this is what we do in our company so we have the skill a skill team setting behind all the all what we do uh and this the the interaction between all these entities all these stakeholders around um investment opportunities as a whole uh it's also the secret or the ingredient the secret ingredient so that you can uh make it work and translate from a theoretical point of view to get things done on the ground right let's quickly talk about um interest rates in the in the remaining few minutes that we have um before November we were perhaps on a trajectory where uh cost of funding was going to drop and now there seems to be a little bit of uncertainty um more and more people are arguing that maybe higher for longer is going to become The New Normal um how does that change the uh investment uh opportunities for uh green transition financing look I mean I think we we said some of these projects are quite long dated they are you know uh they are you know patient investors I think on the long end of the curve we are obviously much more stable than what we have seen in the shortterm of the curve but there is no doubt that a lot of these uh companies will finance themselves in a rolling basis on the short term so no doubt that higher interest rates for some of the more you know incipient uh you know tech for example that's going on or some of the more startup uh type of uh you know firms is is going to be more challenging for banks in general I'll say that obviously interest rates higher interest rates for for longer is is good for net interest margin I say in general so it gives us the ability to provide balance sheet to these type of projects as well so it's it's kind of like two sides of the same coin yeah Dominico does it make your life harder or EAS from yeah from a from a multilateral perspective I think what this means is uh more local currency lending uh I mean to to navigate through the cycle particularly when you enter a period of uh sustained uh High rates uh we have to work uh both with investors and with the local Regulators to uh open up uh uh their markets and identify opportunities to to to finance sure you you have a final word does it make you does it make it harder for you to do your work well at the end of the day today what we need to offer is flexibility and diversity in terms of access to different Technologies and different let's say local footprint and this is what we are doing investing in different Technologies Renewables green hydrogen its derivatives with a particular focus on Aviation uh and this is at the end what can mitigate all these risks that are all the time surrounding us and that we cannot we cannot forget this is a cycle that we are going through challenging with a lot of moving pieces but at the end we need to keep focus and uh and uh and delivering our strategy uh by uh by uh by being able to to deploy in this manner great thank you that's all the time that we have for this discussion thank you very much for being a great panel thank you thank you [Music]