January 22, 2025 • 40 mins
Solving the climate crisis is not just a moral imperative, but also an opportunity for investors to earn a competitive return for finding and funding the desperately needed solutions. On this week’s episode of ESG Currents, Bloomberg Intelligence’s Senior ESG Analyst Rob Du Boff talks with famed hedge-fund investor Tom Steyer about his new venture Galvanize Climate Solutions. This episode also includes a discussion with Galvanize’s Chief Investment Officer for Global Equities Seth Kirkham from the BI ESG Conference on Dec. 11.
This episode was recorded on Dec. 20, 2024.
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Episode Transcript
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Speaker 1 (00:09):
ESG has become established as a key business theme as
companies and investors seek to navigate the climate crisis, energy transitions,
social mega trends, mounting regulatory attension and pressure from other stakeholders.
The rapidly evolving landscape has become inundated with acronyms, buzzwords
and lingo, and we aim to break these down with
industry experts. Welcome to ESG Currents, your guide to navigating
(00:32):
the evolving ESG space, one topic at a time. Brought
to you by Bloomberg Intelligence, part of Bloomberg's Research department,
with five hundred analysts and strategists working across all major
world markets. Our coverage includes over two thousand equities and credits,
as well as outlooks on more than ninety industries and
one hundred market indices, currencies and commodities. Amrav Dubaf, Senior
(00:54):
ESG analyst for Bloomberg Intelligence. Much has been made about
the massive capital now being directed by global governments to
address the climate crisis. A few months ago, on this
very podcast, we chatted with one of the chief architects
of the Inflation Reduction Act, Gina McCarthy. But despite the
hoopla we can't lose sight of the fact that it
(01:14):
will still take a great deal of private capital investment
to tackle the problem. And solving the climate crisis is
not just a moral imperative, but also an opportunity for
investors to earn a competitive return for finding and funding
the solutions that are desperately needed. Who better to discuss
this than one of today's guests, noted investor Tom Steyer.
(01:34):
Tom is the founder of one of the world's largest
hedge funds, Farelaw on Capital Management, and he also co
founded Galvanized Climate Solutions in twenty twenty one. We also
have the opportunity to sit down with Seth Kirkham, chief
investment officer for Global Equities at Galvani's. Tom, thank you
so much for joining us today.
Speaker 2 (01:52):
Robbins are treat to be with you.
Speaker 1 (01:54):
Now, let's start with your own journey. How do you
go from traditional Wall Street investor to climate investing?
Speaker 2 (02:00):
Well, let me say I was a completely traditional Wall
Street investor who started at Morgan Stanley, worked in the
ARB group at Goldman Sachs before leaving to start Farlan,
and you know, in between, I went to Stanford Business School,
but at the end of twenty twelve, I left Farallan,
and by the way, for the twenty seven years I
(02:20):
was at Farilan, I was also a partner at Helmut
and Friedman, which is a well known and extremely successful
private equity firm. Quit both those jobs called Turkey to
spend eight years as an advocate for a robust American
climate response.
Speaker 1 (02:37):
Was there something specific that you some data that kind
of sparked your interest or.
Speaker 3 (02:41):
What was that?
Speaker 2 (02:42):
Actually it was a more human story than that, you know.
I've my family's always loved going into the woods for
several generations in the United States, and I loved going
into the woods too, And I took my family up
to Alaska in two thousand and six to show them
the most untouched part in the United States before the
European And what we discovered was, yeah, we could see
(03:02):
all the birds and fish and mammals and all the
you know, the tallest mountain in North America.
Speaker 3 (03:09):
But what we can see is all melting.
Speaker 2 (03:11):
Yeah, and we all freaked out, all six of us
came back back home and sat around the kitchen table
and said, oh, my goodness, gracious, that was so obvious.
What do you think we should do about it and
starting then, I really started on a journey to try
and make the United States, you know, be a leader
in every way. And as an investor, I want us
(03:31):
to lead, you know, in a business sense and in
a you know, technology sense. But from and I spent
eight years trying to everything I could think of to say,
let's think about it this way, let's look at this
as an opportunity, let's get this done. And at the
end of twenty twenty so at the beginning of twenty
twenty one, I thought, everyone's heard me. Who wants to
(03:52):
hear me? The people who aren't hearing me are choosing
not to hear me.
Speaker 3 (03:55):
Yeah, so why not?
Speaker 2 (03:56):
And it's execution time. So I called up my first partner,
Arilon Katie Hall, who built her own business, and basically said, Katie,
do you want to do this with me? And she said, yeah,
Let's do the execution, Let's do the investment part. Let's
see the energy transition as a big tailwind. Let's get
it done. Let's help build the community to get this done.
Speaker 1 (04:16):
Yeah. I mean, I would say, you know, through my career,
I actually started off as a mutual fun analyst, and
you always had the social responsible investment funds, the church funds,
and then I think you really saw around that time,
from kind of mid twenty ten on this kind of
shift of I don't want to say the real investors,
but you know, some serious investors actually looking at this
(04:36):
problem and figuring out how to build products and funds
off of that. So I'm curious.
Speaker 2 (04:41):
Well, I think the first thing that you've got to
know about galvanizing me is we're not concessionary.
Speaker 3 (04:45):
Yeah.
Speaker 2 (04:45):
I mean, I spent twenty seven years at Shaylan out performing.
Helman Freeman is all about returns. The thing that I
think scales in this world is good performance. So we're
absolutely committed to this being a tailwind and outperforming because
we believe that's what scales. We believe that's what grows.
And you know, this is a gigantic opportunity. So if
(05:08):
you're not growing, if you're not real, then you're not
gonna have real impact. Yeah.
Speaker 1 (05:12):
I think that's kind of the chief thing we try
to get across is that we're not here to hug trees.
We're here to make money but also solve incredible problems.
And that's how money has been made throughout time, right
just finding innovative solution.
Speaker 2 (05:24):
If you think about what business does, business basically solves
societies problems, whether it's getting from one place to another,
or staying warm when it's cold or staying cool when
it's hot. It's solving society's problems and getting paid to
do it. And that's exactly where we are. And the
good thing now is so many of the clean products
(05:46):
are cheaper, faster, and better. I wrote a book saying, cheaper, faster, better,
how we win this war. It's like, yeah, we win
this war because people are going to make self interested
decisions about what to buy. Of course they are, and
that's good. It just has to be. You've got to
have a better product at a better price. And that's
what I think. We're at the time where that's overwhelmingly true.
Speaker 1 (06:06):
So can you talk about galvanized as investment philosophy? How
do you see it ultimately benefiting and benefiting from the
climate transition?
Speaker 2 (06:13):
So let me say that when we think at the
most macro level about galvanized, what we're trying to do
is understand this transition better than anyone else, try and
have domain expertise about what's happening and what's going to happen,
and we marry that with proven investors with great track
(06:34):
records in their specific strategy right, because our point is
we feel like the people who do best are the
people who know the situation, the ecosystem, the vertical the best,
but also who are real investors who understand about compounding
and returns and that's what they're committed to. So we
(06:55):
think that it's very unusual in this world to have
leading domain experts in the energy transition coupled with long
track records of great performance. And then what we do
is it's multi strategy. We want to bring that attitude
to different investment strategies and disciplines and then have them
cross fertilized, so we really have the domain expertise and
(07:18):
we really have best in class teams. We're a multi
strategy firm, which means that we're applying our domain expertise
to specific investment disciplines. So we're looking at early stage companies,
venturing growth companies. Specifically, we're looking at net zero real estate,
taking buildings and getting them to net zero and using
(07:41):
that as value add real estate. We're building a credit
strategy because we know that the majority of the money
that's going to go into the energy transition is going
to come in through debt and credit, and we have
a public equity strategy where we're working with the managements
to accelerate the transition. So when you ask about technologies,
(08:04):
you're talking a lot about that early stage venture and growth,
and we're seeing things there which we think could have
huge potential. I'll give you a very simple example, which
is enhanced geothermal. Right, so geothermal has been around for
a long time. It's about two percent of electricity generation
in the United States, so not that meaningful, honestly. Now,
(08:27):
geothermal as it's been practiced goes down about five hundred feet.
Enhanced geothermal is taking strategies, equipment, and people from the
oil and gas business and going down from five to
ten thousand feet, and at that point you're able to
deliver emissions free baseload power at a reasonable price. That's
(08:53):
a change. The question will be how big can it be,
what percentage of that electricity generation can be, because everybody
knows we need need baseload power, particularly as we get
to places where we absolutely have to have it be
up all the time without any questions asked. So there's
something Secondly, we're working on a technology with a company
building a technology to make the grid be able to
(09:16):
handle five to ten times as much electricity. Why is
that important Because we know we have to put more,
We need to deliver more electricity, and the grid itself
is a huge bottleneck to getting things done. So a
lot of projects that are ready to be built need
grid access in order to deliver the electricity, and that
is a really slow permitting and also construction project.
Speaker 1 (09:40):
And also a lot of the renewable solutions are intermittent
power versus.
Speaker 2 (09:44):
Yes, So this is we're basically using the existing footprint
in a more efficient way to deliver the power that
otherwise we'd have to do a huge building project to deliver.
And the last thing I want to say is this,
we see information as being a critical part of the
(10:05):
energy transition. Information in so many ways, real time information
for energy efficiency, real time information in terms of where
the emissions are coming from, real time information in terms
of what's possible to sequester. We see the buildout of
the information system for so you understand what's going on
real time and it's transparent, as absolutely parallel to building
(10:28):
out the physical systems to enable us to produce electricity differently,
you use transportation differently, change the built environment, change manufacturing,
or sequester. So we see the information part of this
parallel to all the big physical systems that need to
be built to make this whole transition possible.
Speaker 1 (10:48):
And I guess a lot of your strategy is then
taking some of these solutions and scaling them.
Speaker 2 (10:52):
Ll right, it's not well when you think about this problem,
it's I mean, some people call it global warming. It's
a global problem affecting eight billion people, and an awful
lot of what's going to happen is going to happen
outside the United States. So we can't solve this here.
The solutions can be designed here, they can be imagined here,
(11:17):
they can be produced here, But in effect, this is
a worldwide problem where people all over the world are
going to do things differently and better and cheaper and cleaner.
And it is that revolution, that transition that we think
is going to really drive growth around the world, including
as it pertains to artificial intelligence. Got it.
Speaker 1 (11:39):
So geopolitics is definitely a part of this, and I
just want to dig in a little bit with the
new administration here in the US, fair to say a
lot more skeptical of the climate transition, to put them
mildly curious, how do you navigate that? Do you think
it'll be harder to make money investing in climate solutions
in the nurature.
Speaker 2 (11:59):
Look, I think busy business, and I think what's driving
this overwhelmingly is costs and the ability to deliver product.
And so when we look, just to give you a number,
rub in twenty twenty three, so not this year, but
last year, of the new electricity generation around the world,
(12:20):
eighty six percent of it was renewable. Wow, no one
did something to be nice. There was nobody in Vietnam
going like we should buy more expensive electricity. So there
aren't floods in Florida. That is never going to happen.
What we're seeing is the crossover in terms of cost
and performance in clean energy. So that means evs, it
(12:43):
means solar and wind, it means batteries, it means heat bumps.
It's a huge array of products where in fact the
traditional product is being outstripped by new technology, which is
the story of the world for the last two hundred years,
and which is to be expected, and it's been true
ever since oil and gas started outstripping whale oil. So
(13:05):
that's where we are. And so there's going to be
a lot of rhetoric, there's going to be a lot
of noise, but in fact, people are going to keep
buying the best product at the lowest price, and that
is something that we're committed to. We're not committed to
of course public policy matters, but in fact what's driving
this is cold, hard business capitalism. That's what's driving the transition,
(13:30):
self interested decisions by people like companies and by countries.
Speaker 1 (13:34):
And you mentioned in an earlier question about permitting, and
that's really a challenge. Do you think at least maybe
one of the positives that come out of a more
deregulatory atmosphere is having having quicker permitting, not just obviously
for oil and gas, but also some of these.
Speaker 2 (13:51):
People are talking about the energy transition in terms of
international competitiveness, energy security, costs, the normal ways to talk
about business. And let's be clear, the big kahuna in
this transition is really China. They are a third of
(14:12):
the emissions in this world. We're something like we're about
eleven percent. They're thirty three percent. They have produced more
solar arrays, more wind turbines, more batteries, more evs than
anybody else in the world by far, and their evs
and their plug in hybrids are coming at costs that
(14:34):
are literally in the low teens twelve thousand dollars for
a plug in hybrid from BID that goes twelve hundred
miles on a charge. So we're seeing them really trying
to take away this huge amount of business from the
rest of the world. And I believe that the United
(14:55):
States traditionally has been the center of entrepreneur and innovation
in this world. It's a critical part of our economy.
It's something we do incredibly well, and I think it's
really important for us as a country for all the
reasons I was saying, energy security, international competitiveness, cost of
living for our citizens. It is really important that we
(15:17):
continue to innovate and lead. And it's very clear that
there is a huge competitor on the horizon and that
we need to go out and show who we are
and show our metal and do what America has traditionally done,
which is perform at exceptional levels.
Speaker 1 (15:31):
Yeah, there was a fascinating Bloomberg article a couple months
ago about how solar power was basically invented here and
just you know, for decades there's nothing happened with the costs,
and then the Chinese got involved and accelerated that.
Speaker 2 (15:43):
So I think that there has been a traditional sense
that we do the early part of an industry and
then they do the manufacturing and deployment part of an industry.
And I think that's something which we can need to
continue to do that early part. Also think that we
need to innovate on the manufacturing side so that we
can in fact and keep up in the world and
(16:05):
you know, continue to be a real competitor in the
manufacturing world. I think that's critical and I think that's
going to happen great.
Speaker 1 (16:10):
And you mentioned a lot of technologies out there. I'm
curious your thoughts on carbon capture because it seems to
be that, you know, it's it's an interesting way for
maybe continue to droll baby drill, but also reduce the
carbon impact. Is that something you viable?
Speaker 2 (16:26):
So let me say this. The estimates in terms of
emissions are that between now and twenty fifty, if we
perform well, we can reduce emissions by about three quarters.
That leaves a quarter if you want to be at
net zero, that has to be sequestered, meaning it has
to in some way be taken out of the air
and stuck into the ground or stuck into the ocean.
(16:49):
So when you say carbon capture, it's a broad category,
and to me it falls into two distinct vehicles. One
of them is about mechanical carbon capture and sequestration, where
you're sucking it out through mechanical means, putting it in
a pipeline and then sequestering it in a cavern or
(17:11):
a used up oil field. The other kind of sequestration
is using the natural world, one way or another to
take the same CO two out of the air and
stick it into the ground in various different forms. Now,
when you think about sequestration, there are a couple of
big questions. What does it cost per ton? How many
(17:32):
tons can you do? And does it really work? Like
can you show that it's happening? Can you show that
it keeps happening? And is their leakage? Like if you
plant a bunch of trees and take a bunch of
CO two out of the air and stick it into
their roots and the tree burns down him really done
very much? That's leakage. So that's just the preamble. So
let me give you my opinion. From what we can see,
(17:55):
the cost of doing mechanical sequestration is very high, and
I think even the oil companies who are pursuing it
the most seriously will acknowledge that, and they believe it
will come down to about one fifth of the cost
that they claim it is now. And from our standpoint,
(18:15):
and we've looked at this with engineers and scientists, that
seems like an optimistic viewpoint, to say the least. In addition,
it's very very capital intensive, and it means building gigantic
systems all over the world. So when we look at
both the costs and the ability to scale, so what
it costs per ton and how many tons you can do,
(18:39):
we believe or I believe that the ability to do
it through natural means actually scales much more and is
much cheaper. And so look, this is like all technologies,
we're going to find out, because this is going to
turn out to be a commodity. How many tons can
you do, what's the price you can do, and how
good and does it really work? And that's a technology question,
(19:02):
just like the question of how are you going to
do electricity is enhanced geo thermal going to be cheap
and how big is it going to be? In my opinion,
the evidence so far seems very strong on the side
of natural sequestration. It's critically important that it work. If
the oil companies believe they can make it happen through
carbon capture through mechanical means, good luck to him. But
(19:26):
I think that our research is different from their. Earth.
Speaker 1 (19:28):
So, you did have a notable recent hire at Galvanized.
Former Secretary of State and Special Presidential Envoy for Climate
John Kerry recently join you as co executive chair. What
does the addition of secretary carry mean for Galvanized and
what does he bring to the table.
Speaker 2 (19:45):
Well, first of all, I think John has been an
extraordinary American public servant since he got out of college
and joined the Navy right And I think that he's
someone who has worked on climate specifically both is the
head of the Senate Foreign Relations Committee as a Secretary
of State and as the Special Envoy for Climate. So
(20:06):
he's someone who has a decades long experience in this
and knows everyone in the world who's worked on this,
so he has a deep understanding of it. He has
amazing contacts and he has people really give him an
amazing amount of credit for what he's done and what
he knows. So when we think about him at Galvanize,
(20:26):
he brings a reach to us both in terms of
understanding what needs to be done, having the contacts or
people really want to work with him and us in
terms of specific opportunities and deals, and also where people
want to work with us in terms of getting behind
us and helping us succeed. So I think that John
in many ways, starting with his experience and knowledge, but
(20:49):
also with his reputation and his network of friends and
partners for decades, really makes it possible for us to
be more influential, especially around the world, because people know
him all over the world as someone who's worked on
this very thoughtfully and intelligently for a long time, and
he's a very trusted partner to many people who've worked
(21:12):
with them, you know, hand in hand solving problems on.
Speaker 1 (21:14):
This great Well, thank you so much for joining us today.
Speaker 2 (21:18):
Tom rob as I said at the outset, it's a
treat to be with you.
Speaker 1 (21:22):
Thank you.
Speaker 2 (21:22):
Now.
Speaker 1 (21:23):
Next up is our discussion with Seth Kirkham, chief investment
Officer for Global Equities at Galvani's Seth sat down with
me for a fireside chat this past December at our
Bloomberg Intelligence ESG Industry Conference five Investment Themes for twenty
twenty five. Today for our discussion on investment Themes for
twenty twenty five is Seth Kirkham, Chief Investment Officer for
(21:45):
Global Equities at Galvanized Climate Solutions. Galvanized is a climate
focused global investment firm delivering capital and integrated expertise to
accelerate climate solutions and create long term value for investors.
I was founded in twenty twenty one by Note investors
Tom Steyer and Katie Hall, who were recently joined as
co executive chair by former Secretary of Steven Special Presidential
(22:07):
and for Climate John Kerry. I guess, Seth, that means
you now have two bosses that ran for President of
the United States. I just have the one.
Speaker 3 (22:13):
That's pretty unusual.
Speaker 1 (22:16):
Seth spent twenty five years in financial markets, with experience
investing across the entire market, but with periodic focus on
key relevant sectors to the transition, including energy, utilities, industrials,
and transportation. That was a bit of a mouthful, But
why don't you tell us a little bit about the
work you do.
Speaker 3 (22:33):
So, yeah, galvanized, as you say, as a multi strategy
asset manager. You know, we have investment strategies in venture
and growth, in real estate, and in public equity, and
there would be more to follow in public equities. Like
all of the strategies, you know, there's nothing concessionary about
what we're trying to achieve. We believe that investing through
the lens of the transition of the decombonization path towards
(22:55):
net zero, that there is fantastic profit opportunity for the
portfolio companies we're invested in for LPs that give us
money to look after, but equally we're trying to catalyze
that path towards net zero. So you know, within public
equities context, that means a deep level of engagement with
our portfolio companies and also with the broader capital markets
to try and ensure that we're playing our role to
(23:17):
deliver net zero.
Speaker 1 (23:18):
Great Now, the theme of today is ESG is here
to stay? Is ESG here to stay out of You know,
there's certainly a bit of a backlash and I know
you're from our prior discussion you're not a huge fan
of the term, but is ESG here to stay.
Speaker 3 (23:31):
Look, I think from an investment perspective, elements of it
are obviously still relevant. As I mentioned, you know, we
as a firm are focused on the transition. The transition,
I think, and we'll talk about this more later. I
suspect you know is entrenched in global economies. I'm not
convinced that, you know, social issues was ever an investment hypothesis.
Governance is a tool that we use, like I say,
(23:53):
when we're engaging with portfolio companies to try and drive
better outcomes, those outcomes we think will be better financially,
but also with respect to alignment to net zero, but
again not sort of holistically in investment hypothesis. So I think,
given you know, there are elements of community in capital
markets that conflate the acronym with concessionary capital, given the
(24:15):
sort of polarizing element that ESG has certainly in this
country created, Yeah, I think that's right. I think it's
a it's a t L, a three letter acronym that
the capital markets just try and move away from. And
we should all be articulating our investment strategies with respect
to where we're going to derive the returns, and like
(24:36):
I said it, certainly, you know, we believe one of
those letters you know, should be conflated with the opportunity
to invest capital profitably.
Speaker 1 (24:43):
Now, in terms of investing private capital, where do you
set between the role of private markets and also public policy.
How should those two play together to ultimately decroonize the economy.
Speaker 3 (24:56):
Yeah, I think if Tom were here, and you know,
I think at one moment he was contemplating, so apologies
for the downgrade here, but he would definitely speak about
you know, profit scale, you know, and as you're looking
at the opportunities, you know, from a technical perspective to
drive carbon out of the economy, where that's done coincident
(25:16):
with improving the economics at a micro level, the economics
of the companies that we're looking at, you know, that
will naturally collect more capital. Like all of us have
studied economics at some point in our career, and you know,
returns attract capital, and so private markets, over time, it's
our view, will play the principal role in delivering the
necessary infrastructure and assets to drive us towards you know,
(25:42):
Paris goals. But that's not to say that public policy,
you know, doesn't play a role. We're skeptical of public capital,
you know, playing a role in you know, successfully driving
carbon out of the economy. And you know, in the
US you have the Doe loan program, which you know,
the incumbent government as it's walking out the door, is
(26:02):
making a big push, you know, to try and spend
because it's certainly in the crosshairs of the Trump administration
to eliminate the Doe loan program. And you know, as
a public market participant, where i've seen companies accept loans
from the DOE, I sort of sort of amber and
red light start flashing, because if you can't successfully secure
(26:23):
that capital from traditional capital markets, there's probably a reason.
And while the Doe loan program, for example, you know,
might give you a more attractive term than traditional capital
markets might give you, you know, principle and interest are
kind of equivalent. And so you know, some of the
companies that we've seen take very large loans. Yeah, we
(26:43):
think they've done that because of necessity and because you
know there's no source elsewhere. But good public policy certainly
can create the appropriate environment, the appropriate context for private
capital to generate returns. I think the UK, for example,
you know, David Cameron's government many years ago put carbon
(27:05):
floor in place, which you know has allowed the UK
to become the first development market economy to drive coal
completely out of the merit order, and that you know,
has created environment where you know, offshore wind is producing
electrons in the UK a competitive price with a competitive return.
So I think policy from a from a public context,
you know, has an important role to play. I'm wary
(27:27):
of those companies that need to take you know, public capital,
public sources of capital.
Speaker 2 (27:32):
You know.
Speaker 3 (27:32):
My view, I think is broadly our firm is in
agreement that that governments have poor allocators of capital, you know,
raises some of those you know amber and red flags,
and really to scale the solutions, you know, we need
to focus on those areas that are driving competitive you know,
returns for the companies that you know we're investing in.
Speaker 1 (27:53):
And I've heard you talk about competitive decarboratization before, you
kind of talk about the concept and how that drives
your investment.
Speaker 3 (27:59):
For Yeah, I think, Look, the transition, like I say,
is entrenched. This will be the first year that capital
spend globally for utilities is an excess of international oil companies, right,
And you know, that shows you this, this transition from
molecules to electrons isn't going away, and in many instances
(28:23):
that's happening because it's driving not just carbon out of
the economy, but also driving improved economics for the consumers
of those electrons. You know, another statistic overnight, the Chinese
government has announced that you know, oil consumption this year
in China will be lower than twenty twenty three. Previously,
they were talking about peak oil in China happening in
(28:43):
the twenty thirties, and they've brought that forward to twenty
twenty five. Right, So an economy where actually battery electric
vehicles are now competitive with internal combustion engine vehicles from
a cost perspective and cost of ownership perspective, where you know,
they're they rolled out as much solar in China last
year as they did globally. Yeah, it's a country now
(29:04):
that you know. Twenty years ago, China was leaning into
an export driven economy because they had a labor arbitrage
right on the East coast of China. You had hourly
wages that were substantial discount to develop markets. You know,
that is equalized now. Actually, the East coast of China
now is more expensive, for example, from from a labor
cost perspective than Mexico. But actually, you know, the electrons
(29:25):
they're producing, the solar that they're producing in China now,
albeit obviously China still has a large amount hydrocarbons in
its merit order is enabled now to export low energy costs,
and you know, finished product that's coming out of China
just has lower you know, embedded capital and embedded costs
in it because of the cost of producing energy. And
you know, in the heart of Europe, I live in London.
(29:45):
You know, Germany knows industrial heritage is being challenged by that,
you know, very arbitrage and Germany has you know, high,
historically high energy costs for a variety of reasons, and
they need to solve that problem. So the concept of
competitive decarbonization is sort of demonstrated there on a macro
level sort of country versus country, but we're also seeing
(30:07):
it on a micro level, and you know, the incoming
administration in America obviously is very focused on trying to
ensure that they cement the US's competitive advantage. For example,
in in generative AI, another you know industry which is
very energy intensive, and the ability to produce low cost
electrons into new data centers will be one of the
(30:30):
key elements to ensuring that the US is remains the
leader in artificial intelligence. And so, you know, those are
the kind of elements of the decarbonization of develop market
and developing market economies that we see big opportunity in
where you're providing some sort of technology that you know
has the intersect between the abatement of carbon and driving
(30:53):
down the operating cost for an economy. Stroke you know,
the companies that we're focused on, and.
Speaker 1 (30:57):
I think part of the equation there and this was
tart about a little of the prior panels, you know,
having a price on carbon and being able to look
at carbon as a as a commari. So how does
Galvanis think about pricing carbon and how does that fit
into your investment process.
Speaker 3 (31:12):
Yeah, we were actually writing a white paper on this
as we speak. I think next year, of all the
sort of investment themes that will touch on, I think
next year potentially is the year where public market participants
have to take more notice of the cost of carbon.
You know, we have the Carbon Border Adjustment Mechanism, the
SEEBAM in Europe twenty twenty four and twenty twenty five
(31:34):
for the years where importers of embedded carbon effectively have
to provide the accounting to the EU of you know,
how much carbon of you brought into the borders of
the economy, and twenty twenty six is the year you'll
actually physically start paying for it. There is some public
consultation going on right now which may cause some adjustments
to the process. But you know, as an investor, obviously
(31:58):
we have to measure the assets and libe ties of
any company. You know, we've had the ETS, the emissions
trading scheme in Europe for many years, and so in
some industries within the European frame, you know, we're used
to pricing carbon. But what's interesting is actually, you know,
we speak to a lot of policy advisors. It seems
(32:18):
like there's actually biparsses and support in the US for
a sea ban. Right in Europe. The sea BAM has
been designed to try and equalize, you know, the cost
position of European companies versus international companies, trying to solve
that energy cost arbor trage that I spoke about from
Chinese imported product in the US, it's different, it's another tariff,
right and it's another way to introduce tariff and control
(32:42):
to a certain extent, the the onshuring, the reonshuring of
industry into the US economy. And so you know, it
seems to have red and blue support in this country.
So if we do, in fact, in the largest economy
of the world, also see you know, extension of a
carbon price into this economy. We already have you know,
a carbon pricing mechanism of cap and trade mechanism in
(33:04):
California and in the northeast of the US. I think
investors are going to have to take much more notice
of this. Those regulated markets, we get a price signal, right,
we'll be able to look on our Bloomberg terminals and
to see what a ton of carbon will cost in
those regulated compliance markets, in non compliance markets, in sort
of in the voluntary carbon markets, there's less transparency right now,
(33:26):
but again there's moves to try and create the appropriate
framework to have accepted standards globally for voluntary carbon markets.
What we're certain off, by the way, on that front is,
you know, some of the sort of two three four
dollars a ton pricing you see for carbon offsets in
the volutary carbon market these are not credible offsets, right,
(33:46):
If we could properly abate carbon for two three four dollars,
we wouldn't have a climate problem. But again, you know,
as Europe starts to set standards and international you know,
standards bodies start to talk about setting standards for VCMs
as well. You know, in the out years, we're all
going to have to ask the companies to give us
the disclosures where they're not actually forced to, because I
(34:07):
think the California Disclosure Bill may survive. CSRD in Europe
is going to is pushed out but will come into
place in twenty six. So companies are going to start
giving us the disclosure as to how many tons of
carbon you know, sit effectively on their balance sheet, run
through their P and L on an annual basis. And
so I think it feels like next year is the
year where public markets will have to take notice of this,
and we certainly are starting to price that liability into
(34:29):
the companies that we're looking at, and incrementally, you see
that as a mechanism to sort of establish the town,
the total addressable market for those companies that can abate
those emissions.
Speaker 1 (34:40):
And I guess one of our themes is supply chain.
So you know, it's I shouldn't say it's easy, but
it's understood that you know, the companies you're directly investing
in understanding they're specific carbon footprint. But as you get
further and further down the supply chain, how do you
think about measuring carbon across supply chains.
Speaker 3 (34:56):
Yeah, that's a complex problem we have. We have a
portfolio company that made its first go once to disclosure
all the way back in two thousand and six, you know,
well before Paris. It's in a large industrial business, and
we started speaking them about this because last year we
wrote a white paper with the Stanford Graduate School of
Business to try and create a framework to connect executive
compensation sustainability pledges. Right, humans are rent seeking, you know,
(35:19):
a large part of any compensation plan typically as non financial,
up to about fifteen percent, and so it seems obvious
to us that you know, you should try and establish
some linkage between a company's pledge to a baked carbon
and the executive comp starting point, you know is there's
a probably i legal liability. California started prosecuting some companies
who have not met their commitments, and so we started
(35:41):
speaking to this company about you know, you haven't made
your disclosure on Scope three. You know your biggest liability
for sure is the Scope three exposure. When are we
going to see you do this? And by the way,
if you do, could you connect, you know, think about
connecting your sustainability pledge to your executive conversation said listen,
the problem is it's very hard for us to collect
the data from supply chain. In some instances, we're a
(36:01):
very big supplier to a small company that doesn't have
the financial capacity to build the infrastructure needed to collect
the data and report it back to us. In other instances,
we're a small customer of a very big supplier who
doesn't have the incentive to do it, you know, on
our behalf, and so it's challenged. They also said, by
the way, that nobody should reward us for our Scope
(36:22):
one scope to abatement right buying PPAs you know, any
of us could probably go out tomorrow and buy a
twenty year PPA for renewable electricity with no experience, and
so you know, don't reward us for Scope one. Scope too,
is Scope three is the complex piece that you know
we all need to have to resolve, and so what
we've tried to do is sort of share the knowledge,
and we do this a lot inside Galvanized. You know
(36:44):
that we're getting from our venture group where they've invested
in a number of software businesses that are establishing you know,
the dashboards and the reporting methodologies in order to try
and collect this data. And we've hosted convening so we
think earlier this year hosted the reading in New York.
You're sort of forty people collection of you know those companies,
(37:05):
like I say, that have the technologies to solve this problem.
You know some industry groups who have collectively got together
in other industries. So for example, in the fast fashion industry,
there's an industry collective where they've banded together to try
and establish process to collect the data. And then you
know some companies where we've seen best practice and actually
(37:25):
we'll be doing the same thing early next year, I
think with data centers, where we're going to put a
convenie together. And I think you know that talks to
one what you can do when you have holistic focus
and investment firm on a specific topic, but two also
the importance of public markets. You're playing a role here,
you know, I think of the emissions globally that don't
(37:46):
sit on some sort of state owned balance sheets, some
national electricity generator, for example, seventy five percent of those
emissions on public market balance sheets. And so, while our
capital itself is not catalytic necessarily, although in some instances
in primary market transactions, your public market capital can be catalytic,
we do have a responsibility. One to hold companies to
(38:07):
account where they've made pledges, right, you know, it's not
us that made the pledge, it's the company. But two
to try and persuade other companies that have yet to
make a pledge, and within that obviously scope through is
very important to start making those pledges.
Speaker 1 (38:20):
Great, we don't have a ton of time left, but
I just want to get your thoughts on, particularly in
the US a new administration coming in. You mentioned maybe
a carbon border adjustment, which for an administration where tariffs
are maybe their favorite word, may makes some sense. But
what other kind of policies do you think, particularly as
we come from a very climate friendly administration to what
(38:40):
that's maybe a little more hostile. What are you looking for?
Speaker 3 (38:43):
Yeah, I mean I think everyone speculating and whispering to
as many people in Washington as we can on this topic.
It's clear, you know, I think offshore wind in the US,
I don't, you know, it's kind of done on an arrival.
There's only a there's one material offshore wind field that's
has turbines turning today, and there's another one in production.
Jievin Over you know, last night held their investor day,
(39:05):
confirmed that they're not bidding on any of your projects.
I think the EV tax credit, you know, my personal
view is that that's you know, a poor way to
incentiviy the industry to get to like I say, the
crossing point of lower cost of ownership for EV's versus IC.
So the EV tax credit will go, and I think
that will be over time a good thing. And some
of the adders to the ITC and the PTC probably
(39:28):
look vulnerable. But my sense is, you know, the ITC
and the PTC probably remain, and the forty five X,
you know, the sort of FIOCH and the foreign entity
of concern and the domestic content requirements, you know, they
sort of chime with I think Republican policies right now
makes sense.
Speaker 1 (39:44):
All right, thank you very much for your time, sEH,
thank you for inviting me listeners, can find more information
on sustainability issues on the Bloomberg terminal by going to
BI space ESG go. If you have an ESG quandary
or you would like to ask bi's expert analysts or
learn more about our research, send us in the email
at ESG Currents at bloomberg dot net. And if you
like this episode, please subscribe on Apple, Spotify, or your
(40:06):
favorite podcast platform
ESG has become established as a key business theme as
companies and investors seek to navigate the climate crisis, energy transitions,
social mega trends, mounting regulatory attension and pressure from other stakeholders.
The rapidly evolving landscape has become inundated with acronyms, buzzwords
and lingo, and we aim to break these down with
industry experts. Welcome to ESG Currents, your guide to navigating
(00:32):
the evolving ESG space, one topic at a time. Brought
to you by Bloomberg Intelligence, part of Bloomberg's Research department,
with five hundred analysts and strategists working across all major
world markets. Our coverage includes over two thousand equities and credits,
as well as outlooks on more than ninety industries and
one hundred market indices, currencies and commodities. Amrav Dubaf, Senior
(00:54):
ESG analyst for Bloomberg Intelligence. Much has been made about
the massive capital now being directed by global governments to
address the climate crisis. A few months ago, on this
very podcast, we chatted with one of the chief architects
of the Inflation Reduction Act, Gina McCarthy. But despite the
hoopla we can't lose sight of the fact that it
(01:14):
will still take a great deal of private capital investment
to tackle the problem. And solving the climate crisis is
not just a moral imperative, but also an opportunity for
investors to earn a competitive return for finding and funding
the solutions that are desperately needed. Who better to discuss
this than one of today's guests, noted investor Tom Steyer.
(01:34):
Tom is the founder of one of the world's largest
hedge funds, Farelaw on Capital Management, and he also co
founded Galvanized Climate Solutions in twenty twenty one. We also
have the opportunity to sit down with Seth Kirkham, chief
investment officer for Global Equities at Galvani's. Tom, thank you
so much for joining us today.
Speaker 2 (01:52):
Robbins are treat to be with you.
Speaker 1 (01:54):
Now, let's start with your own journey. How do you
go from traditional Wall Street investor to climate investing?
Speaker 2 (02:00):
Well, let me say I was a completely traditional Wall
Street investor who started at Morgan Stanley, worked in the
ARB group at Goldman Sachs before leaving to start Farlan,
and you know, in between, I went to Stanford Business School,
but at the end of twenty twelve, I left Farallan,
and by the way, for the twenty seven years I
(02:20):
was at Farilan, I was also a partner at Helmut
and Friedman, which is a well known and extremely successful
private equity firm. Quit both those jobs called Turkey to
spend eight years as an advocate for a robust American
climate response.
Speaker 1 (02:37):
Was there something specific that you some data that kind
of sparked your interest or.
Speaker 3 (02:41):
What was that?
Speaker 2 (02:42):
Actually it was a more human story than that, you know.
I've my family's always loved going into the woods for
several generations in the United States, and I loved going
into the woods too, And I took my family up
to Alaska in two thousand and six to show them
the most untouched part in the United States before the
European And what we discovered was, yeah, we could see
(03:02):
all the birds and fish and mammals and all the
you know, the tallest mountain in North America.
Speaker 3 (03:09):
But what we can see is all melting.
Speaker 2 (03:11):
Yeah, and we all freaked out, all six of us
came back back home and sat around the kitchen table
and said, oh, my goodness, gracious, that was so obvious.
What do you think we should do about it and
starting then, I really started on a journey to try
and make the United States, you know, be a leader
in every way. And as an investor, I want us
(03:31):
to lead, you know, in a business sense and in
a you know, technology sense. But from and I spent
eight years trying to everything I could think of to say,
let's think about it this way, let's look at this
as an opportunity, let's get this done. And at the
end of twenty twenty so at the beginning of twenty
twenty one, I thought, everyone's heard me. Who wants to
(03:52):
hear me? The people who aren't hearing me are choosing
not to hear me.
Speaker 3 (03:55):
Yeah, so why not?
Speaker 2 (03:56):
And it's execution time. So I called up my first partner,
Arilon Katie Hall, who built her own business, and basically said, Katie,
do you want to do this with me? And she said, yeah,
Let's do the execution, Let's do the investment part. Let's
see the energy transition as a big tailwind. Let's get
it done. Let's help build the community to get this done.
Speaker 1 (04:16):
Yeah. I mean, I would say, you know, through my career,
I actually started off as a mutual fun analyst, and
you always had the social responsible investment funds, the church funds,
and then I think you really saw around that time,
from kind of mid twenty ten on this kind of
shift of I don't want to say the real investors,
but you know, some serious investors actually looking at this
(04:36):
problem and figuring out how to build products and funds
off of that. So I'm curious.
Speaker 2 (04:41):
Well, I think the first thing that you've got to
know about galvanizing me is we're not concessionary.
Speaker 3 (04:45):
Yeah.
Speaker 2 (04:45):
I mean, I spent twenty seven years at Shaylan out performing.
Helman Freeman is all about returns. The thing that I
think scales in this world is good performance. So we're
absolutely committed to this being a tailwind and outperforming because
we believe that's what scales. We believe that's what grows.
And you know, this is a gigantic opportunity. So if
(05:08):
you're not growing, if you're not real, then you're not
gonna have real impact. Yeah.
Speaker 1 (05:12):
I think that's kind of the chief thing we try
to get across is that we're not here to hug trees.
We're here to make money but also solve incredible problems.
And that's how money has been made throughout time, right
just finding innovative solution.
Speaker 2 (05:24):
If you think about what business does, business basically solves
societies problems, whether it's getting from one place to another,
or staying warm when it's cold or staying cool when
it's hot. It's solving society's problems and getting paid to
do it. And that's exactly where we are. And the
good thing now is so many of the clean products
(05:46):
are cheaper, faster, and better. I wrote a book saying, cheaper, faster, better,
how we win this war. It's like, yeah, we win
this war because people are going to make self interested
decisions about what to buy. Of course they are, and
that's good. It just has to be. You've got to
have a better product at a better price. And that's
what I think. We're at the time where that's overwhelmingly true.
Speaker 1 (06:06):
So can you talk about galvanized as investment philosophy? How
do you see it ultimately benefiting and benefiting from the
climate transition?
Speaker 2 (06:13):
So let me say that when we think at the
most macro level about galvanized, what we're trying to do
is understand this transition better than anyone else, try and
have domain expertise about what's happening and what's going to happen,
and we marry that with proven investors with great track
(06:34):
records in their specific strategy right, because our point is
we feel like the people who do best are the
people who know the situation, the ecosystem, the vertical the best,
but also who are real investors who understand about compounding
and returns and that's what they're committed to. So we
(06:55):
think that it's very unusual in this world to have
leading domain experts in the energy transition coupled with long
track records of great performance. And then what we do
is it's multi strategy. We want to bring that attitude
to different investment strategies and disciplines and then have them
cross fertilized, so we really have the domain expertise and
(07:18):
we really have best in class teams. We're a multi
strategy firm, which means that we're applying our domain expertise
to specific investment disciplines. So we're looking at early stage companies,
venturing growth companies. Specifically, we're looking at net zero real estate,
taking buildings and getting them to net zero and using
(07:41):
that as value add real estate. We're building a credit
strategy because we know that the majority of the money
that's going to go into the energy transition is going
to come in through debt and credit, and we have
a public equity strategy where we're working with the managements
to accelerate the transition. So when you ask about technologies,
(08:04):
you're talking a lot about that early stage venture and growth,
and we're seeing things there which we think could have
huge potential. I'll give you a very simple example, which
is enhanced geothermal. Right, so geothermal has been around for
a long time. It's about two percent of electricity generation
in the United States, so not that meaningful, honestly. Now,
(08:27):
geothermal as it's been practiced goes down about five hundred feet.
Enhanced geothermal is taking strategies, equipment, and people from the
oil and gas business and going down from five to
ten thousand feet, and at that point you're able to
deliver emissions free baseload power at a reasonable price. That's
(08:53):
a change. The question will be how big can it be,
what percentage of that electricity generation can be, because everybody
knows we need need baseload power, particularly as we get
to places where we absolutely have to have it be
up all the time without any questions asked. So there's
something Secondly, we're working on a technology with a company
building a technology to make the grid be able to
(09:16):
handle five to ten times as much electricity. Why is
that important Because we know we have to put more,
We need to deliver more electricity, and the grid itself
is a huge bottleneck to getting things done. So a
lot of projects that are ready to be built need
grid access in order to deliver the electricity, and that
is a really slow permitting and also construction project.
Speaker 1 (09:40):
And also a lot of the renewable solutions are intermittent
power versus.
Speaker 2 (09:44):
Yes, So this is we're basically using the existing footprint
in a more efficient way to deliver the power that
otherwise we'd have to do a huge building project to deliver.
And the last thing I want to say is this,
we see information as being a critical part of the
(10:05):
energy transition. Information in so many ways, real time information
for energy efficiency, real time information in terms of where
the emissions are coming from, real time information in terms
of what's possible to sequester. We see the buildout of
the information system for so you understand what's going on
real time and it's transparent, as absolutely parallel to building
(10:28):
out the physical systems to enable us to produce electricity differently,
you use transportation differently, change the built environment, change manufacturing,
or sequester. So we see the information part of this
parallel to all the big physical systems that need to
be built to make this whole transition possible.
Speaker 1 (10:48):
And I guess a lot of your strategy is then
taking some of these solutions and scaling them.
Speaker 2 (10:52):
Ll right, it's not well when you think about this problem,
it's I mean, some people call it global warming. It's
a global problem affecting eight billion people, and an awful
lot of what's going to happen is going to happen
outside the United States. So we can't solve this here.
The solutions can be designed here, they can be imagined here,
(11:17):
they can be produced here, But in effect, this is
a worldwide problem where people all over the world are
going to do things differently and better and cheaper and cleaner.
And it is that revolution, that transition that we think
is going to really drive growth around the world, including
as it pertains to artificial intelligence. Got it.
Speaker 1 (11:39):
So geopolitics is definitely a part of this, and I
just want to dig in a little bit with the
new administration here in the US, fair to say a
lot more skeptical of the climate transition, to put them
mildly curious, how do you navigate that? Do you think
it'll be harder to make money investing in climate solutions
in the nurature.
Speaker 2 (11:59):
Look, I think busy business, and I think what's driving
this overwhelmingly is costs and the ability to deliver product.
And so when we look, just to give you a number,
rub in twenty twenty three, so not this year, but
last year, of the new electricity generation around the world,
(12:20):
eighty six percent of it was renewable. Wow, no one
did something to be nice. There was nobody in Vietnam
going like we should buy more expensive electricity. So there
aren't floods in Florida. That is never going to happen.
What we're seeing is the crossover in terms of cost
and performance in clean energy. So that means evs, it
(12:43):
means solar and wind, it means batteries, it means heat bumps.
It's a huge array of products where in fact the
traditional product is being outstripped by new technology, which is
the story of the world for the last two hundred years,
and which is to be expected, and it's been true
ever since oil and gas started outstripping whale oil. So
(13:05):
that's where we are. And so there's going to be
a lot of rhetoric, there's going to be a lot
of noise, but in fact, people are going to keep
buying the best product at the lowest price, and that
is something that we're committed to. We're not committed to
of course public policy matters, but in fact what's driving
this is cold, hard business capitalism. That's what's driving the transition,
(13:30):
self interested decisions by people like companies and by countries.
Speaker 1 (13:34):
And you mentioned in an earlier question about permitting, and
that's really a challenge. Do you think at least maybe
one of the positives that come out of a more
deregulatory atmosphere is having having quicker permitting, not just obviously
for oil and gas, but also some of these.
Speaker 2 (13:51):
People are talking about the energy transition in terms of
international competitiveness, energy security, costs, the normal ways to talk
about business. And let's be clear, the big kahuna in
this transition is really China. They are a third of
(14:12):
the emissions in this world. We're something like we're about
eleven percent. They're thirty three percent. They have produced more
solar arrays, more wind turbines, more batteries, more evs than
anybody else in the world by far, and their evs
and their plug in hybrids are coming at costs that
(14:34):
are literally in the low teens twelve thousand dollars for
a plug in hybrid from BID that goes twelve hundred
miles on a charge. So we're seeing them really trying
to take away this huge amount of business from the
rest of the world. And I believe that the United
(14:55):
States traditionally has been the center of entrepreneur and innovation
in this world. It's a critical part of our economy.
It's something we do incredibly well, and I think it's
really important for us as a country for all the
reasons I was saying, energy security, international competitiveness, cost of
living for our citizens. It is really important that we
(15:17):
continue to innovate and lead. And it's very clear that
there is a huge competitor on the horizon and that
we need to go out and show who we are
and show our metal and do what America has traditionally done,
which is perform at exceptional levels.
Speaker 1 (15:31):
Yeah, there was a fascinating Bloomberg article a couple months
ago about how solar power was basically invented here and
just you know, for decades there's nothing happened with the costs,
and then the Chinese got involved and accelerated that.
Speaker 2 (15:43):
So I think that there has been a traditional sense
that we do the early part of an industry and
then they do the manufacturing and deployment part of an industry.
And I think that's something which we can need to
continue to do that early part. Also think that we
need to innovate on the manufacturing side so that we
can in fact and keep up in the world and
(16:05):
you know, continue to be a real competitor in the
manufacturing world. I think that's critical and I think that's
going to happen great.
Speaker 1 (16:10):
And you mentioned a lot of technologies out there. I'm
curious your thoughts on carbon capture because it seems to
be that, you know, it's it's an interesting way for
maybe continue to droll baby drill, but also reduce the
carbon impact. Is that something you viable?
Speaker 2 (16:26):
So let me say this. The estimates in terms of
emissions are that between now and twenty fifty, if we
perform well, we can reduce emissions by about three quarters.
That leaves a quarter if you want to be at
net zero, that has to be sequestered, meaning it has
to in some way be taken out of the air
and stuck into the ground or stuck into the ocean.
(16:49):
So when you say carbon capture, it's a broad category,
and to me it falls into two distinct vehicles. One
of them is about mechanical carbon capture and sequestration, where
you're sucking it out through mechanical means, putting it in
a pipeline and then sequestering it in a cavern or
(17:11):
a used up oil field. The other kind of sequestration
is using the natural world, one way or another to
take the same CO two out of the air and
stick it into the ground in various different forms. Now,
when you think about sequestration, there are a couple of
big questions. What does it cost per ton? How many
(17:32):
tons can you do? And does it really work? Like
can you show that it's happening? Can you show that
it keeps happening? And is their leakage? Like if you
plant a bunch of trees and take a bunch of
CO two out of the air and stick it into
their roots and the tree burns down him really done
very much? That's leakage. So that's just the preamble. So
let me give you my opinion. From what we can see,
(17:55):
the cost of doing mechanical sequestration is very high, and
I think even the oil companies who are pursuing it
the most seriously will acknowledge that, and they believe it
will come down to about one fifth of the cost
that they claim it is now. And from our standpoint,
(18:15):
and we've looked at this with engineers and scientists, that
seems like an optimistic viewpoint, to say the least. In addition,
it's very very capital intensive, and it means building gigantic
systems all over the world. So when we look at
both the costs and the ability to scale, so what
it costs per ton and how many tons you can do,
(18:39):
we believe or I believe that the ability to do
it through natural means actually scales much more and is
much cheaper. And so look, this is like all technologies,
we're going to find out, because this is going to
turn out to be a commodity. How many tons can
you do, what's the price you can do, and how
good and does it really work? And that's a technology question,
(19:02):
just like the question of how are you going to
do electricity is enhanced geo thermal going to be cheap
and how big is it going to be? In my opinion,
the evidence so far seems very strong on the side
of natural sequestration. It's critically important that it work. If
the oil companies believe they can make it happen through
carbon capture through mechanical means, good luck to him. But
(19:26):
I think that our research is different from their. Earth.
Speaker 1 (19:28):
So, you did have a notable recent hire at Galvanized.
Former Secretary of State and Special Presidential Envoy for Climate
John Kerry recently join you as co executive chair. What
does the addition of secretary carry mean for Galvanized and
what does he bring to the table.
Speaker 2 (19:45):
Well, first of all, I think John has been an
extraordinary American public servant since he got out of college
and joined the Navy right And I think that he's
someone who has worked on climate specifically both is the
head of the Senate Foreign Relations Committee as a Secretary
of State and as the Special Envoy for Climate. So
(20:06):
he's someone who has a decades long experience in this
and knows everyone in the world who's worked on this,
so he has a deep understanding of it. He has
amazing contacts and he has people really give him an
amazing amount of credit for what he's done and what
he knows. So when we think about him at Galvanize,
(20:26):
he brings a reach to us both in terms of
understanding what needs to be done, having the contacts or
people really want to work with him and us in
terms of specific opportunities and deals, and also where people
want to work with us in terms of getting behind
us and helping us succeed. So I think that John
in many ways, starting with his experience and knowledge, but
(20:49):
also with his reputation and his network of friends and
partners for decades, really makes it possible for us to
be more influential, especially around the world, because people know
him all over the world as someone who's worked on
this very thoughtfully and intelligently for a long time, and
he's a very trusted partner to many people who've worked
(21:12):
with them, you know, hand in hand solving problems on.
Speaker 1 (21:14):
This great Well, thank you so much for joining us today.
Speaker 2 (21:18):
Tom rob as I said at the outset, it's a
treat to be with you.
Speaker 1 (21:22):
Thank you.
Speaker 2 (21:22):
Now.
Speaker 1 (21:23):
Next up is our discussion with Seth Kirkham, chief investment
Officer for Global Equities at Galvani's Seth sat down with
me for a fireside chat this past December at our
Bloomberg Intelligence ESG Industry Conference five Investment Themes for twenty
twenty five. Today for our discussion on investment Themes for
twenty twenty five is Seth Kirkham, Chief Investment Officer for
(21:45):
Global Equities at Galvanized Climate Solutions. Galvanized is a climate
focused global investment firm delivering capital and integrated expertise to
accelerate climate solutions and create long term value for investors.
I was founded in twenty twenty one by Note investors
Tom Steyer and Katie Hall, who were recently joined as
co executive chair by former Secretary of Steven Special Presidential
(22:07):
and for Climate John Kerry. I guess, Seth, that means
you now have two bosses that ran for President of
the United States. I just have the one.
Speaker 3 (22:13):
That's pretty unusual.
Speaker 1 (22:16):
Seth spent twenty five years in financial markets, with experience
investing across the entire market, but with periodic focus on
key relevant sectors to the transition, including energy, utilities, industrials,
and transportation. That was a bit of a mouthful, But
why don't you tell us a little bit about the
work you do.
Speaker 3 (22:33):
So, yeah, galvanized, as you say, as a multi strategy
asset manager. You know, we have investment strategies in venture
and growth, in real estate, and in public equity, and
there would be more to follow in public equities. Like
all of the strategies, you know, there's nothing concessionary about
what we're trying to achieve. We believe that investing through
the lens of the transition of the decombonization path towards
(22:55):
net zero, that there is fantastic profit opportunity for the
portfolio companies we're invested in for LPs that give us
money to look after, but equally we're trying to catalyze
that path towards net zero. So you know, within public
equities context, that means a deep level of engagement with
our portfolio companies and also with the broader capital markets
to try and ensure that we're playing our role to
(23:17):
deliver net zero.
Speaker 1 (23:18):
Great Now, the theme of today is ESG is here
to stay? Is ESG here to stay out of You know,
there's certainly a bit of a backlash and I know
you're from our prior discussion you're not a huge fan
of the term, but is ESG here to stay.
Speaker 3 (23:31):
Look, I think from an investment perspective, elements of it
are obviously still relevant. As I mentioned, you know, we
as a firm are focused on the transition. The transition,
I think, and we'll talk about this more later. I
suspect you know is entrenched in global economies. I'm not
convinced that, you know, social issues was ever an investment hypothesis.
Governance is a tool that we use, like I say,
(23:53):
when we're engaging with portfolio companies to try and drive
better outcomes, those outcomes we think will be better financially,
but also with respect to alignment to net zero, but
again not sort of holistically in investment hypothesis. So I think,
given you know, there are elements of community in capital
markets that conflate the acronym with concessionary capital, given the
(24:15):
sort of polarizing element that ESG has certainly in this
country created, Yeah, I think that's right. I think it's
a it's a t L, a three letter acronym that
the capital markets just try and move away from. And
we should all be articulating our investment strategies with respect
to where we're going to derive the returns, and like
(24:36):
I said it, certainly, you know, we believe one of
those letters you know, should be conflated with the opportunity
to invest capital profitably.
Speaker 1 (24:43):
Now, in terms of investing private capital, where do you
set between the role of private markets and also public policy.
How should those two play together to ultimately decroonize the economy.
Speaker 3 (24:56):
Yeah, I think if Tom were here, and you know,
I think at one moment he was contemplating, so apologies
for the downgrade here, but he would definitely speak about
you know, profit scale, you know, and as you're looking
at the opportunities, you know, from a technical perspective to
drive carbon out of the economy, where that's done coincident
(25:16):
with improving the economics at a micro level, the economics
of the companies that we're looking at, you know, that
will naturally collect more capital. Like all of us have
studied economics at some point in our career, and you know,
returns attract capital, and so private markets, over time, it's
our view, will play the principal role in delivering the
necessary infrastructure and assets to drive us towards you know,
(25:42):
Paris goals. But that's not to say that public policy,
you know, doesn't play a role. We're skeptical of public capital,
you know, playing a role in you know, successfully driving
carbon out of the economy. And you know, in the
US you have the Doe loan program, which you know,
the incumbent government as it's walking out the door, is
(26:02):
making a big push, you know, to try and spend
because it's certainly in the crosshairs of the Trump administration
to eliminate the Doe loan program. And you know, as
a public market participant, where i've seen companies accept loans
from the DOE, I sort of sort of amber and
red light start flashing, because if you can't successfully secure
(26:23):
that capital from traditional capital markets, there's probably a reason.
And while the Doe loan program, for example, you know,
might give you a more attractive term than traditional capital
markets might give you, you know, principle and interest are
kind of equivalent. And so you know, some of the
companies that we've seen take very large loans. Yeah, we
(26:43):
think they've done that because of necessity and because you
know there's no source elsewhere. But good public policy certainly
can create the appropriate environment, the appropriate context for private
capital to generate returns. I think the UK, for example,
you know, David Cameron's government many years ago put carbon
(27:05):
floor in place, which you know has allowed the UK
to become the first development market economy to drive coal
completely out of the merit order, and that you know,
has created environment where you know, offshore wind is producing
electrons in the UK a competitive price with a competitive return.
So I think policy from a from a public context,
you know, has an important role to play. I'm wary
(27:27):
of those companies that need to take you know, public capital,
public sources of capital.
Speaker 2 (27:32):
You know.
Speaker 3 (27:32):
My view, I think is broadly our firm is in
agreement that that governments have poor allocators of capital, you know,
raises some of those you know amber and red flags,
and really to scale the solutions, you know, we need
to focus on those areas that are driving competitive you know,
returns for the companies that you know we're investing in.
Speaker 1 (27:53):
And I've heard you talk about competitive decarboratization before, you
kind of talk about the concept and how that drives
your investment.
Speaker 3 (27:59):
For Yeah, I think, Look, the transition, like I say,
is entrenched. This will be the first year that capital
spend globally for utilities is an excess of international oil companies, right,
And you know, that shows you this, this transition from
molecules to electrons isn't going away, and in many instances
(28:23):
that's happening because it's driving not just carbon out of
the economy, but also driving improved economics for the consumers
of those electrons. You know, another statistic overnight, the Chinese
government has announced that you know, oil consumption this year
in China will be lower than twenty twenty three. Previously,
they were talking about peak oil in China happening in
(28:43):
the twenty thirties, and they've brought that forward to twenty
twenty five. Right, So an economy where actually battery electric
vehicles are now competitive with internal combustion engine vehicles from
a cost perspective and cost of ownership perspective, where you know,
they're they rolled out as much solar in China last
year as they did globally. Yeah, it's a country now
(29:04):
that you know. Twenty years ago, China was leaning into
an export driven economy because they had a labor arbitrage
right on the East coast of China. You had hourly
wages that were substantial discount to develop markets. You know,
that is equalized now. Actually, the East coast of China
now is more expensive, for example, from from a labor
cost perspective than Mexico. But actually, you know, the electrons
(29:25):
they're producing, the solar that they're producing in China now,
albeit obviously China still has a large amount hydrocarbons in
its merit order is enabled now to export low energy costs,
and you know, finished product that's coming out of China
just has lower you know, embedded capital and embedded costs
in it because of the cost of producing energy. And
you know, in the heart of Europe, I live in London.
(29:45):
You know, Germany knows industrial heritage is being challenged by that,
you know, very arbitrage and Germany has you know, high,
historically high energy costs for a variety of reasons, and
they need to solve that problem. So the concept of
competitive decarbonization is sort of demonstrated there on a macro
level sort of country versus country, but we're also seeing
(30:07):
it on a micro level, and you know, the incoming
administration in America obviously is very focused on trying to
ensure that they cement the US's competitive advantage. For example,
in in generative AI, another you know industry which is
very energy intensive, and the ability to produce low cost
electrons into new data centers will be one of the
(30:30):
key elements to ensuring that the US is remains the
leader in artificial intelligence. And so, you know, those are
the kind of elements of the decarbonization of develop market
and developing market economies that we see big opportunity in
where you're providing some sort of technology that you know
has the intersect between the abatement of carbon and driving
(30:53):
down the operating cost for an economy. Stroke you know,
the companies that we're focused on, and.
Speaker 1 (30:57):
I think part of the equation there and this was
tart about a little of the prior panels, you know,
having a price on carbon and being able to look
at carbon as a as a commari. So how does
Galvanis think about pricing carbon and how does that fit
into your investment process.
Speaker 3 (31:12):
Yeah, we were actually writing a white paper on this
as we speak. I think next year, of all the
sort of investment themes that will touch on, I think
next year potentially is the year where public market participants
have to take more notice of the cost of carbon.
You know, we have the Carbon Border Adjustment Mechanism, the
SEEBAM in Europe twenty twenty four and twenty twenty five
(31:34):
for the years where importers of embedded carbon effectively have
to provide the accounting to the EU of you know,
how much carbon of you brought into the borders of
the economy, and twenty twenty six is the year you'll
actually physically start paying for it. There is some public
consultation going on right now which may cause some adjustments
to the process. But you know, as an investor, obviously
(31:58):
we have to measure the assets and libe ties of
any company. You know, we've had the ETS, the emissions
trading scheme in Europe for many years, and so in
some industries within the European frame, you know, we're used
to pricing carbon. But what's interesting is actually, you know,
we speak to a lot of policy advisors. It seems
(32:18):
like there's actually biparsses and support in the US for
a sea ban. Right in Europe. The sea BAM has
been designed to try and equalize, you know, the cost
position of European companies versus international companies, trying to solve
that energy cost arbor trage that I spoke about from
Chinese imported product in the US, it's different, it's another tariff,
right and it's another way to introduce tariff and control
(32:42):
to a certain extent, the the onshuring, the reonshuring of
industry into the US economy. And so you know, it
seems to have red and blue support in this country.
So if we do, in fact, in the largest economy
of the world, also see you know, extension of a
carbon price into this economy. We already have you know,
a carbon pricing mechanism of cap and trade mechanism in
(33:04):
California and in the northeast of the US. I think
investors are going to have to take much more notice
of this. Those regulated markets, we get a price signal, right,
we'll be able to look on our Bloomberg terminals and
to see what a ton of carbon will cost in
those regulated compliance markets, in non compliance markets, in sort
of in the voluntary carbon markets, there's less transparency right now,
(33:26):
but again there's moves to try and create the appropriate
framework to have accepted standards globally for voluntary carbon markets.
What we're certain off, by the way, on that front is,
you know, some of the sort of two three four
dollars a ton pricing you see for carbon offsets in
the volutary carbon market these are not credible offsets, right,
(33:46):
If we could properly abate carbon for two three four dollars,
we wouldn't have a climate problem. But again, you know,
as Europe starts to set standards and international you know,
standards bodies start to talk about setting standards for VCMs
as well. You know, in the out years, we're all
going to have to ask the companies to give us
the disclosures where they're not actually forced to, because I
(34:07):
think the California Disclosure Bill may survive. CSRD in Europe
is going to is pushed out but will come into
place in twenty six. So companies are going to start
giving us the disclosure as to how many tons of
carbon you know, sit effectively on their balance sheet, run
through their P and L on an annual basis. And
so I think it feels like next year is the
year where public markets will have to take notice of this,
and we certainly are starting to price that liability into
(34:29):
the companies that we're looking at, and incrementally, you see
that as a mechanism to sort of establish the town,
the total addressable market for those companies that can abate
those emissions.
Speaker 1 (34:40):
And I guess one of our themes is supply chain.
So you know, it's I shouldn't say it's easy, but
it's understood that you know, the companies you're directly investing
in understanding they're specific carbon footprint. But as you get
further and further down the supply chain, how do you
think about measuring carbon across supply chains.
Speaker 3 (34:56):
Yeah, that's a complex problem we have. We have a
portfolio company that made its first go once to disclosure
all the way back in two thousand and six, you know,
well before Paris. It's in a large industrial business, and
we started speaking them about this because last year we
wrote a white paper with the Stanford Graduate School of
Business to try and create a framework to connect executive
compensation sustainability pledges. Right, humans are rent seeking, you know,
(35:19):
a large part of any compensation plan typically as non financial,
up to about fifteen percent, and so it seems obvious
to us that you know, you should try and establish
some linkage between a company's pledge to a baked carbon
and the executive comp starting point, you know is there's
a probably i legal liability. California started prosecuting some companies
who have not met their commitments, and so we started
(35:41):
speaking to this company about you know, you haven't made
your disclosure on Scope three. You know your biggest liability
for sure is the Scope three exposure. When are we
going to see you do this? And by the way,
if you do, could you connect, you know, think about
connecting your sustainability pledge to your executive conversation said listen,
the problem is it's very hard for us to collect
the data from supply chain. In some instances, we're a
(36:01):
very big supplier to a small company that doesn't have
the financial capacity to build the infrastructure needed to collect
the data and report it back to us. In other instances,
we're a small customer of a very big supplier who
doesn't have the incentive to do it, you know, on
our behalf, and so it's challenged. They also said, by
the way, that nobody should reward us for our Scope
(36:22):
one scope to abatement right buying PPAs you know, any
of us could probably go out tomorrow and buy a
twenty year PPA for renewable electricity with no experience, and
so you know, don't reward us for Scope one. Scope too,
is Scope three is the complex piece that you know
we all need to have to resolve, and so what
we've tried to do is sort of share the knowledge,
and we do this a lot inside Galvanized. You know
(36:44):
that we're getting from our venture group where they've invested
in a number of software businesses that are establishing you know,
the dashboards and the reporting methodologies in order to try
and collect this data. And we've hosted convening so we
think earlier this year hosted the reading in New York.
You're sort of forty people collection of you know those companies,
(37:05):
like I say, that have the technologies to solve this problem.
You know some industry groups who have collectively got together
in other industries. So for example, in the fast fashion industry,
there's an industry collective where they've banded together to try
and establish process to collect the data. And then you
know some companies where we've seen best practice and actually
(37:25):
we'll be doing the same thing early next year, I
think with data centers, where we're going to put a
convenie together. And I think you know that talks to
one what you can do when you have holistic focus
and investment firm on a specific topic, but two also
the importance of public markets. You're playing a role here,
you know, I think of the emissions globally that don't
(37:46):
sit on some sort of state owned balance sheets, some
national electricity generator, for example, seventy five percent of those
emissions on public market balance sheets. And so, while our
capital itself is not catalytic necessarily, although in some instances
in primary market transactions, your public market capital can be catalytic,
we do have a responsibility. One to hold companies to
(38:07):
account where they've made pledges, right, you know, it's not
us that made the pledge, it's the company. But two
to try and persuade other companies that have yet to
make a pledge, and within that obviously scope through is
very important to start making those pledges.
Speaker 1 (38:20):
Great, we don't have a ton of time left, but
I just want to get your thoughts on, particularly in
the US a new administration coming in. You mentioned maybe
a carbon border adjustment, which for an administration where tariffs
are maybe their favorite word, may makes some sense. But
what other kind of policies do you think, particularly as
we come from a very climate friendly administration to what
(38:40):
that's maybe a little more hostile. What are you looking for?
Speaker 3 (38:43):
Yeah, I mean I think everyone speculating and whispering to
as many people in Washington as we can on this topic.
It's clear, you know, I think offshore wind in the US,
I don't, you know, it's kind of done on an arrival.
There's only a there's one material offshore wind field that's
has turbines turning today, and there's another one in production.
Jievin Over you know, last night held their investor day,
(39:05):
confirmed that they're not bidding on any of your projects.
I think the EV tax credit, you know, my personal
view is that that's you know, a poor way to
incentiviy the industry to get to like I say, the
crossing point of lower cost of ownership for EV's versus IC.
So the EV tax credit will go, and I think
that will be over time a good thing. And some
of the adders to the ITC and the PTC probably
(39:28):
look vulnerable. But my sense is, you know, the ITC
and the PTC probably remain, and the forty five X,
you know, the sort of FIOCH and the foreign entity
of concern and the domestic content requirements, you know, they
sort of chime with I think Republican policies right now
makes sense.
Speaker 1 (39:44):
All right, thank you very much for your time, sEH,
thank you for inviting me listeners, can find more information
on sustainability issues on the Bloomberg terminal by going to
BI space ESG go. If you have an ESG quandary
or you would like to ask bi's expert analysts or
learn more about our research, send us in the email
at ESG Currents at bloomberg dot net. And if you
like this episode, please subscribe on Apple, Spotify, or your
(40:06):
favorite podcast platform
Host
Eric Kane
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