Evolving Strategies: How Asset Managers are Approaching Transition Finance

[Music] think we' 15 minutes not the long time in the words but a lot of grind to cover um before we kick off I just want to to take some time on behalf of the the adgm team just to say to everyone thank you very much for um supporting us throughout abui Finance week and it's a great pleasure to be doing this interview with with Ron So today we're going to talk about how State stet one of the world's biggest most important asset managers are approaching the topic of transition Finance asset manager really influential in trillions of dollars of capital deployment every day and it just so happens that the experts say that we need trillions of dollars of capital to mobilize IND climate Finance projects so I guess what we're about to hear today is a very important perspective we're joined today everyone um by a very special Finance week guest he's a giant of corporate America uh the chairman CEO of the legendary State Street 227 years old I hope that's right um and4 trillion dollar of assets under management Rono Hy you're very welcome to adgm well Chris thank you and it's good to be here this Gathering is very important and the topic that we're about to talk about I think is vital her highness I think set us off uh and and talked about why it's so important that we get this right so it's a very good and important conversation to be having State Street as I said one of the world's most important institutions um we need to talk about your approach to sustainable investment let's start how has the the the landscape political market economic Landscapes changed over even just the past two years and how have these changes affected your investment Str and how you think about this well I I think the political landscape has changed a lot over the last two years um I mean that tends to happen when you have uh something that's going to take a long term uh and something that's not easy uh politics does start to shift and change and we're seeing it both you know really from all sides of uh of the spectrum you know you've got uh in some cases the uh uh people in a certain side of the political Spectrum saying you must invest you can't be investing in these industries um in other places uh you've got what for lack of a better term is climate deniers I mean for us uh we have been at this for a long time um as you know Chris our our clients are large institutional managers large institutional investors they take a Long View because their liabilities are long term they might be running Pension funds they might be Sovereign wealth funds but they're thinking into the future and if you think about climate climate we think of as as an investment risk and it's got to be important uh uh incorporated into the investment risk framework um and it's not just a downside risk but it's also an opportunity um as as noted by emanu there's an enormous amount of investment that needs to occur to get to where we need to be that's opportunity and so for us we think of it uh there's two real principles here one it's about value not values we all have our values but for us it's about value and protecting the value of our investors uh and then secondly it's about this point that climate is a very long-term investment risk but it's also a very long-term investment opportunity and let's see how we can bring those together let let's stay on that that word risk because I think that's pretty Central to to every here you know money managers manage risk for their clients you know what what does State straight do to assess and manage the risks what are the risks what what sort of concrete actions are you taken to actually assess and manage these risks well we do a couple things first of all as an investment manager uh we have completely Incorporated it into our investment risk framework so we think about it now like we think about other risks such as interest rates right right such as uh any other kind of big macro risk there secondly um we also have a business where we help other uh investment managers so we've created tools for example we have a tool now that helps asset managers portfolio managers evaluate the carbon intensity uh in their portfolio uh and determine you is that something with that knowledge is there something that they want to take or not do as a result of that so this is about tools and data in that case yeah I think when you say there are tools it's about Innovation it's about technology I think that's you know obviously going to be a really big step forward and you know obviously we're in the age of big transitions in technology and you're going to see a lot more of that stuff you're here in adgm um Abu Dhabi Global Market the International Financial Center of Abu Dhabi I don't know if it's your first time but if it is you're very welcome and it's good to have you here um well it's not my first time in fact we've got an office across the way there you go um we're a financial regulator and um we have as Emanuel mentioned earlier we've taken some solid steps in the field of transition Finance we've done things like the Region's first sustainable Finance regulatory framework we're home to the world's first regulated carbon Exchange but this is Abu Dhabi you travel the world a lot I guess and as you travel the world and view ju different jurisdictions what's your advice on how policy makers Regulators can ensure both the a pro growth approach to The Net Zero transition planning and how do you do that with your clients well I think it's important and nol mentioned this in his video that there's an enormous amount of capital that needs to be marshaled to this problem and and I don't think the problem is lack of capital it's how do you mobilize it and mobilize it in an effective and efficient way and I think that's what Regulators need to be thinking about and in some ways uh adgm is leading uh is leading in the world on this because um it's it's almost a twofold mission you have one is you need to protect from bad behavior uh but second you need to Foster an environment where this can occur and I think the unfortunate problem with many Regulators around the world is they're too focused on decarbonizing portfolios as opposed to decarbonizing the atmosphere and this is why this idea of divestment makes no sense to us and it's never made sense to us if you decarbonize a portfolio and say to somebody your portfolio is X it needs to go to Y in terms of carbon what have you accomplished I mean the I suppose the portfolio has gotten Greener but is the atmosphere have any less carbon no it doesn't so I think recognizing that the the job that we have here is decarbonizing the atmosphere um one critical way to do that is investing in the high emitting Industries so this idea that we're not going to invest in oil and gas we're not going to invest in steel we're not going to invest in concrete in fact I would argue that over the short to medium term disproportionate investment needs to go there at least to mitigate but also to find new technologies right concrete not going away hydrocarbons aren't going away but how do we think about new technologies that can actually make them better so if there's one message to Regulators around the world stop focusing on divestment fascinating um when we finish here today we're on the 30th of November um it's a a notable date because it's the opening day of of cop 28 some 70 miles down the road I know I like many others in the room are going to jump into cars after this event today and and go down to Dubai for the next 12 days at cup 28 we're going to hear a lot about the energy transition can you explain to us why you see the engagement of the biggest institutions like State Street and others as completely necessary for the energy transition what strategies do you see is the most effective for that well I think the financial institutions are there because um they are the providers and mobilizers of capital so part of it is to understand the problem uh but second is to understand how you bring investors in projects together one of the big challenges that we're facing in this uh in in this arena is that it's not not so much lack of capital as I said earlier but how do you bring the right amount of capital to projects for example in many cases projects are small yet institutional investors need to invest scale they can't actually be be deploying money in 100,000 even in you know 5 10 million so how do you scale projects secondly uh there's certain risks that investors are willing to take there's other risk that they aren't so this concept of Blended finance and how do you think about bringing the multilateral development Banks and private Capital together to come out with better Solutions yeah the it's a very good point and it's about collaboration so we we designed RIS RAC regulation awareness collaboration and ecosystem r a i I think that collaboration I know Emanuel mentioned it earlier is pretty important um it's about Partnerships at the end of the day and we only make progress when we work together to to try and Achieve something um it's we're in Abu Dhabi capital of capital as we call it um we have three Sovereign wealth funds here I'm sure you and state stre do some work with some or all of them um sentiment amongst asset allocators like Sovereign wealth funds and Pension funds and others seems to be changing um as I say we've three Sovereign wealth funds here we're um at cop staging activities with the likes of the one planet Sovereign wealth fund Network and we're you know really spending time learning about what they're thinking what's your view on the changing appetite from your customers from your asset allocators um like Sovereign wealth funds and how do asset management companies like State Street need to act in the short the medium the long term to prepare for their changing appetite yeah well I don't know that I necessarily agree that sentiment is changing on the part of sovereign wealth funds but I think that the expectations that have been been imposed on them are perhaps unrealistic I mean Sovereign wealth funds have a fiduciary duty to something right if it's a pension fund it's for their uh the pension beneficiaries um if it's a traditional Sovereign wealth fund it's for the future so the idea that the money can just be made available for anything is simply not true so I think that um it goes back to what I was saying earlier Sovereign wealth funds are looking for ways to effectively and efficiently deploy the capital they're looking to take on and and really I think quite ambitiously take on uh risks that they or that they can tolerate but there's certain risks that they can't um so this gets back to this point about how do you have the right Partnerships in place so that those uh if you will first order risks that an investor like a sovereign wealth fund can't take are Tak taken care of because then you get the multiplier effect of capital and too often we're in the situation where the multilateral development Banks and The Sovereign wealth funds are almost competing with each other when actually there can be layers of capital brought the multilateral development Banks can leverage their capital and extend it much further with the kind of private Capital brought in by The Sovereign wealth funds I guess super interesting I guess a final question for me because I can see we're starting to run out of time are are we where we should should be are we doing enough and how fast is it going to move over the next five years so it's it's a really good question because um are we where we should be no um and part of that is because the world didn't start soon enough um so there's much more that we need to do but I also think it's very important um and I'm not being polyan here but we should we should recognize what's been accomplished so you know one fact here that isn't really talked about too much but if you go back to 2015 in comp and Paris uh the view was that Peak carbon would occur sometime around 2040 the view now is that Peak carbon is probably going to occur before the end of this decade so that by itself doesn't mean anything but at least it means that we're no longer adding to the problem right that we're going the other way so part of what we need to do is recognize what we've accomplished to have fact-based science-based non-political discussions in terms of what we need to do and look at solutions to get there now again I'm not po Manish politics will always be part of this but as much as possible we need to recognize where we're actually achieving things and specifically what we need to do in terms to close the gaps it sounds like we're going in the right direction um at least and um we have 38 seconds left and I could see the stage the stage managers ready to get us off but here's um to um our appreciation for you coming here joining us and we're hoping for real progress over the next 12 days and we hope that states Trader a big part of it so thank you very much thank you Chris Take Care thank