April 10, 2024 • 36 mins
Climate opportunities extend beyond clean-energy fuels and into a broad diffusion of business models, including areas such as efficiency and infrastructure. Join Senior BI analysts Shaheen Contractor and Andrew Stevenson as they speak with Sarah Wilson, managing director and head of climate strategy at Nuveen, to discuss the state of play in ESG asset gathering, strategies that are gaining steam and datasets to help portfolio managers make better ESG-related investment decisions.
This episode was recorded on April 2.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:09):
ESG has become established is a key business theme as
companies and investors seek to navigate the climate crisis, energy transition,
social mega trans mounting regulatory attention and pressure from other stakeholders.
The rapidly evolving landscape has become inundated with acronyms, buzzwords,
and lingo, and we aim to break this down with
(00:31):
industry experts. Welcome to ESG Currents, brought to you by
Bloomberg Intelligence, your guide to navigating the evolving ESG space,
one topic at a time. I am Shahyen, contractor, senior
ESG analyst, and I'm.
Speaker 2 (00:46):
Andy Stevenson, Senior ESG analyst for Climate.
Speaker 1 (00:49):
And we are your hosts for today's episode. So today
we're speaking with Sarah Wilson, the head of Climate Strategy
at Nevene, and we're going to chat about some interesting
climate opportunities, the energy policy landscape, and also the piece
that I'm probably the most excited about, which is fun flow,
is that Nouvene has seen that sort of runs counter
(01:12):
to this ESG backlash that's well been taking over everybody
right now. Sarah excited to dig in and thank you
for joining us.
Speaker 3 (01:21):
Yeah, thank Shahan it's great to be here.
Speaker 1 (01:24):
So, Sarah, when we think of climate opportunities, I think
people normally just gravitate towards clean energy, and I feel
like there's so much more out there. So I guess,
what are some climate solutions that you and Nuvene see
are interesting that there is demand for ahead.
Speaker 4 (01:43):
Yeah, So, I mean, I think you're right to point
out clean energy. Obviously, we need to really ramp up
our investment in clean energy to meet our climate goals
as a society, but there's so many other areas that
we see opportunity, and I have a few examples that
I'd love to share of investments that we've made at
Uvene through different teams and capabilities that we have. One
(02:06):
I'll start with is through our Energy Infrastructure Credit team.
So they recently provided a four hundred million dollar senior
debt facility to a company called Butterfly, which is an
energy as a service company based in the US. And
they're interesting because they're really opening up sustainability and energy
(02:28):
efficiency improvements for this sort of middle market of commercial
property owners.
Speaker 3 (02:34):
So think.
Speaker 4 (02:36):
You know franchise restaurant chains like Burger King or McDonald's,
or fitness chains or properties owned by rets, and you know,
these are types of properties that maybe historically have had
trouble coming up with upfront cash to finance the sustainability
improvements like HVAC or solar on site or you know,
(02:58):
these types of efficient upgrades, and this company, Butterfly, is
allowing them to put no money down upfront and sort
of finance it as through.
Speaker 3 (03:11):
A service contract.
Speaker 4 (03:13):
It's it's a really interesting model, and you know that
they're growing really quickly as a result, and we're excited
to be, you know, helping them raise capital to fuel
their business. So I think that's an exciting one because
it's it's sort of showing this broader diffusion of different
business models that I think are really important for spreading
(03:35):
these improvements out beyond some of just the largest companies
or the largest property owners.
Speaker 1 (03:41):
And just so much more than just cleaning up to right.
I think we're touching on efficiency in some aspects.
Speaker 4 (03:47):
Yeah, yeah, I say efficiency is what theest form.
Speaker 3 (03:50):
Of clean energy?
Speaker 1 (03:50):
Right, I know Andy has a lot to say.
Speaker 2 (03:52):
Yeah, I was going to say it's you know, if
you look at the history of energy savings with respect
to climate, efficiency is number one with the It's ninety
plus percent of all emission reductions is from efficiency, and
buildings is a great place to be doing it right
where there's a lot of opportunity there. And you know,
as you say, it's the number one way is not
(04:13):
to use the energy. Are there any other any sectors
apart from the building sector that you're interested in? I mean,
efficiency obviously is a big topic. It covers quite a
bit of ground. Is there anything else in that sort
of you know, that vein that you're pursuing at the moment.
Speaker 4 (04:31):
Yeah, So I'll highlight one other area from that same
energy Infrastructure Credit team.
Speaker 3 (04:37):
So they are excited.
Speaker 4 (04:38):
About battery energy storage. So that's another area that I
think is really poised for growth. We know that there's
a huge demand to expand grid capacity. You know, we've
got stats here that maybe many people are aware of,
but you know, the US grid has to increase fifty
(05:00):
twenty thirty five to meet UH projected in terms of capacity.
In terms of capacity, and you know that capacity I
think can be augmented by you know the likes of
battery energy storage, which really make renewables much more attractive
in terms of being reliable and providing more consistent power loads,
so that specifically is an area also where you see
(05:26):
policy support. So you know, at the federal level, through
the IRA, standalone battery energy storage projects now qualify for
the thirty percent investment tax credit through twenty thirty two,
and you know previously they would only qualify if paired
with solar. So there's there's real incentives that make those
(05:47):
investments attractive. And I think that especially when combined with solar,
where you know, we know that that's you know, growing
on a really exciting trajectory as well.
Speaker 3 (05:59):
So I think that that's just another.
Speaker 4 (06:02):
Example where I think the it's complementary to some of
the things that you might think about first and foremost
that makes sense.
Speaker 1 (06:10):
And then sticking to the same theme on sectors, the
one thing that I think Andy and I have both
noticed is that many ESG investors tend to avoid these
resource intensive sectors, so things cement steal. They just for
some reason don't want carbon. And I mean, we all
know that these industries are pivotal to the energy transition,
(06:30):
right And then Andy might chime in later, but he's
found certain carbon metrics within these industries to outperform so
investors at the same time missing out on this. How
do you see this evolve, especially since you know we
need to sort of bring these industries along with us
in the energy transition, not just exclude them.
Speaker 4 (06:51):
I mean, so I think for the ESG space, historically
a lot of funds have used various forms of exclusionary criteria, right,
and even our funds use some exclusions, and that does
result in sort of a tilt or maybe a skew
away from some of the resource intensive names. But I
(07:12):
think that that's shifting a little bit. So you know,
you have examples like different fund labels out in the
UK through the SDR, which is you know, just recently
been finalized and explicitly recognizes this idea of improvers or
transitioning strategies, right, And that's new for this field, and
(07:33):
that's exciting because I think it opens up the idea
that you could invest in something that's maybe not pure
today from a green standpoint, but it is improving over time.
And we've actually even before that labeling system was launched,
we have we have some funds out there that kind
of fit in that mold. So they hold a lot
(07:54):
of utilities, they hold a lot of kind of hard
asset companies that have real evidence of a transition plan
and that we engage with very deeply to try and
understand their trajectory along that plan.
Speaker 1 (08:09):
And I'll just say that's a good example of you know,
the dome transition. I have to say, there have been
so many climate funds that have popped up in the
last few years. Each one uses the word transition or
impact or aware, and they do completely different things. So
I think the slaving and these definitions will help.
Speaker 2 (08:29):
Yeah, And I would add, you know, if you think
about the recycling companies for example, those are a very
good example of steel companies or aluminum companies that are
actually very very low carbon, and you need those companies
to grow to build the things that we need to
be built, you know, across the entire you know, ecosystem
(08:49):
for power, for everything, for energy period, right, So it's
pretty important.
Speaker 4 (08:55):
Yeah, And you know, I guess another area that I
would mention is kind of interesting right.
Speaker 3 (08:59):
Now is.
Speaker 4 (09:02):
This sort of supply chain for the decarbonization projects that
are needed, so, you know, critical minerals being an area. Also,
the idea that we're on trying to enshore a lot
of manufacturing of certain inputs to things like solar panels
or batteries, which we've talked about, and really seeing like
(09:23):
where are those companies that are poised to take advantage of, yes,
the policy incentives, but also are maybe one step removed
and being upstream in the supply chain.
Speaker 2 (09:35):
Yeah, none of this is free from a climate perspective.
You have to make something to make a solar panel,
you have to do you have to do something to
you know, turn the wind. So there are costs to it.
And that's actually you know, kind of budgeted. When you
think about solar and wind. It's not zero, but it's
very very close to zero. And that's because of the
(09:55):
supply chain that you're talking about. You know, like these
are inputs. They may have a carbon footprint, but the
overall carbon footprint is far, far, far less than coal
or gas or what have you.
Speaker 4 (10:06):
Yeah, and you know that's where I think ESG as
a tool or a way of investing is still very
very useful. Right, Like you have ESG funds that exclude
things based on client preferences, but ESG as a factor
to consider in the investment process is really useful for
helping differentiate those companies that are well run, well managed
(10:29):
and you know, or maybe in those resource intentsive industries,
but they're doing it in a way that's more responsible,
more cognizant of you know, employee and then labor rights,
more all of those.
Speaker 3 (10:41):
Things that we all know as practitioners here, I.
Speaker 1 (10:44):
Would agree, but I mean that it is a perfect
transition because this failed. As a who still faces so
much of a backlash, I'm sure you feel it every day,
definitely in your rule. So I guess from where you sit,
what is the impact of this backlash, And I'm particularly
interested in the impact it's had on funds.
Speaker 4 (11:05):
Yeah, So you know, I think that the backlash itself
does tend to dominate a lot of conversations, especially for
people who maybe aren't as close to the work.
Speaker 3 (11:17):
They read headline and.
Speaker 4 (11:19):
They start to think that, you know, perhaps this is
an area to avoid or to stay away from. And
you know, honestly, I think that's probably been the biggest
negative impact that we felt inside the company and in
client conversations, is that it's had a bit of a
chilling effect for the work that people are nervous to engage.
Clients maybe have paused some mandate searches that you know,
(11:44):
they were positive on before. But I also think that
the story around actual flows into strategies is a bit
different than what you might read in the headlines. So
we at Nouveene have actually seen positive of inflows into
our RI strategies every single quarter of twenty twenty three.
Speaker 1 (12:05):
And this is even in the US.
Speaker 4 (12:07):
Yes, is the US US? Oh yeah, So we're we're
a global asset manager, but a lot of our flows
come from the US today. And you know, we have
a pretty broad suite. We have mutual funds, ETFs, we
have we've got separate accounts, we've got variable annuities, and
it's it's a pretty good cross section. I think of
(12:27):
what the products are on shelf and what that just
tells me and you know, hopefully tells the audience is
that this is this is really here to stay and
it's not a trend or a fad that's kind of
on the way out. It's we really think that responsible
investing and the interest in putting money in these types
(12:48):
of strategies, it's it's not on the EBB if anything,
it's it's still flowing.
Speaker 1 (12:55):
And is there a particular strategy that you think has
seen the most interest A one that maybe hasn't.
Speaker 4 (13:04):
So, I mean a lot of that is tied to
I think the broader market environment. So you know, we'll
see in a high rising rate environment, you know, we're
not going to see as much interest in like our
muni funds for example, right, but I think what we
are going to see continued interest in uh you know
some of our E S, G E t fs. Obviously,
(13:26):
the focus on passive strategies is something that is.
Speaker 3 (13:29):
Not going away.
Speaker 4 (13:32):
And you know, we also have a really exciting uh
focus on fixed income impact fixed income in particular, which
is proven to be very resilient. So we've got a
strategy called Core Impact Bond which has continued to gather
assets and that, uh, that strategy is exciting because it
means that we we have a lot of demand for green,
(13:54):
social and sustainability bonds through that through that fund.
Speaker 2 (13:58):
And from a a data perspective on that is that
something that you're able to communicate pretty well to your investors,
like they can you know this especially when you do
a project based investing, I think they get people get
a little more familiar with like okay, I get it right.
Usually it's a black box that you're investing in many.
It seems like it to a lay person, But are
(14:20):
there any anything specific on that front where you can
comment like what people see and go, oh, I want
to be part of that, you know, I think that's
a good strategy.
Speaker 4 (14:31):
Yeah, I mean that's the sort of tangible nature of
impact bonds.
Speaker 3 (14:35):
Has been really powerful for us.
Speaker 4 (14:36):
So way back in the day, I helped work on
our first impact report for that strategy, and that's now
been published for I think eight years, and it gathers
up all of the positive impacts that we have and
that the projects on the ground have across four themes.
(14:57):
And one I'll just share as an example of what
we've invested in is one that was issued by the
International Bank for Reconstruction and Development under the World Bank.
It's called an emissions Reduction linked bond. So this is
one where the investors can take payment not through a
(15:18):
traditional coupon, but through the issuance of verified carbon units
or carbon credits through a project that is in Vietnam.
Speaker 1 (15:26):
So the payment is through carbon offsets.
Speaker 3 (15:30):
Yeah.
Speaker 1 (15:30):
Interesting.
Speaker 4 (15:31):
Yeah, So if the basically, if the project delivers a
certain amount of carbon credits as a result of its
successful implementation, then can investors Yeah, investors get paid through
that and they can select that or the or the coupon.
Speaker 1 (15:46):
Okay, so that's like an impact linked yeah outcome.
Speaker 3 (15:50):
That's right.
Speaker 4 (15:51):
Yeah, And the particular project is interesting. So it's it's
based in Vietnam. It's taking these ceramic water filters and
deploying them in areas that previously burned like brush and
other biomass to boil water to purify it. And so
instead of doing that and generating you know, smoke that's
(16:12):
toxic and polluting, instead you're using these air purifiers and
actually creating public health benefits alongside carbon benefits. So it's
a it's a pretty cool one. It's it's very Again,
it's a great example of like a tangible project that
I think really resonates with people, and we profiled that
one in our Climate report this past year.
Speaker 2 (16:35):
Nice, that's great. And just on the opposite end of
that spectrum, like what's what's because the data is so
hard to come by, is is it very hard for
you to communicate like things that you find interesting, but
in sectors that the data is not great, you know,
so it's it's harder for you to kind of communicate
that is there any sector particular you think is like
(16:57):
troubling on that front or is it not really that way?
Speaker 4 (17:01):
Yeah, I mean even the example I just shared, it's
not like we can go to a Bloomberg terminal or
a data.
Speaker 3 (17:10):
Or a data provider and get that.
Speaker 4 (17:13):
Data, right Like, we have to go by hand to
go that data from the project. So from our standpoint,
that's still very inefficient and costly, but we still think
it's very much worth it because it helps the client
really understand what we're doing. There are other asset classes
(17:34):
where I think it's very hard to find data. I
would highlight the US MUNI market as maybe one. Munis
typically don't have a lot of resources for voluntary disclosure.
We might be able to harvest some information out of
like an offering document, but generally speaking, you don't get
(17:54):
as much as you might get from like a public
company or even a private company. So that that's been challenging.
But there are there are some hopeful, you know, things
on the horizon. We've engaged with organizations that are encouraging
more disclosure by munis, like the Government Finance Officers Association CDP.
(18:17):
It's interesting because there's not really you know, we've seen
the sec of course take action with regard to climate
disclosure very recently.
Speaker 3 (18:26):
There's really no corollary on the horizon for munis.
Speaker 4 (18:29):
So I think that, you know, we're sort of contenting
ourselves with the voluntary engagements at this point.
Speaker 2 (18:37):
That's and Muti's is a very interesting area because they've
I've done some research recently where they've basically, over the
last twenty years received about a half a trillion dollars
of federal funding for climate rehabilitation, you know, picking up
after storms and things like that, and it looks like
those spickets are running dry. So they were supplementary budget tied,
and so you know, the municipal bonds market is not
(19:00):
big enough to absorb five hundred billion dollars worth of
climate bonds, for example, So there's going to have to
be some kind of uh, you know, some of it
is going to have to go through the public markets,
but it's also going to be a question of you know,
you're going to have to make probably do with less
in some of these areas, and munia simple bond financing
is very dependent on how well the local community does. Right,
(19:24):
So if you get rid of their lose infrastructure value,
then you're probably going to lose revenue down the road.
Speaker 3 (19:31):
Yeah.
Speaker 4 (19:31):
Absolutely, that's actually an asset class where we are we
have a very specific process to think about those climate
impacts over time, where we have a group of you know,
municipal analysts who do this all day every day and
go deep into the credit quality of these munis and
(19:51):
if they see we partner with a data provider who
helps us get a view into what the physical climate
hazards will look like in that very specific area, whether
it's tax backed muni or a revenue backed muni, and
really even down to the q SIP level, like so
(20:12):
what's the you know, maturity date on that bond is
and what are the climate risks that might materialize within
that time horizon? And if it rises above a certain level,
the team talks about it in their credit opinion and
they go and look for mitigating information. But at the
issuer level, so we we agree, I mean we see
it as something that's like rising in importance and definitely
(20:35):
something we're watching.
Speaker 2 (20:36):
Yeah, that's a good point. Long especially in the long
dated side, that's going.
Speaker 4 (20:40):
To be an issue, right, It could be. Yeah, I mean,
of course, the big question is like what are the
mitigating actions. Right, I'm sitting on the there's a sub
sovereign ESG Advisory Committee run by the Principles for Responsible Investment,
and it's a lot of basic a lot of MUNI
investors get together and talk about like what are we
doing about ESG? Right, and climate is like dominating the
(21:05):
conversation because like, in addition to these sort of longer
dated issues, you've also got this question of like insurance
insurance availability, and that's very here and now, like you're
already seeing companies like you know, State Farm leaving parts
of California or different private insurance leaving parts of Florida,
(21:25):
and so you know what happens. Then it goes back
to the taxpayer.
Speaker 1 (21:30):
And just out of curiosity, do any of do any
social issues come up in this communi discussion you mentioned
as dominated by climate? I think a lot of social
issues also when I think of communis.
Speaker 4 (21:41):
Yeah, I mean I think that the on the I
guess where social and climate intersect is really around like
the sort of the just transition topic. Right, And there's
definitely specific communities that are very fossil fuel dependent, and
we see one another kind of piece of information that
(22:03):
we have looked at in the past, is around counties
and school districts and cities that have a high percentage
of their employment coming from the fossil fuel industry. And
you know, that could be a real kind of red flag.
Speaker 1 (22:19):
That makes sense, And Sara, I want to go back
to one of the things you mentioned, which is that
your atfs have seen and flows and the hdfs are
here to say, I track BTF and flows very very closely.
I think the one thing we see is, you know,
everybody talks about these outflows, right, I think in the
US it's about four point three billion and outflows last year.
(22:42):
I will say that most of it, though, is just
limited to a few funds, you know, That's what we found.
So when one fund makes up fifty percent of all outflows,
I don't think that's really consensus. So like you know,
some kind of mass uprising out of ESG. So I'm
curious to your thoughts on that. And then I'm also
curious on particularly retirement assets, especially with the whole Department
(23:07):
of Labor rule going, you know, back and forth with
its pecunity. Yes, she would I forget the dun't pecuniity pecuniary.
Speaker 4 (23:16):
You I can't pronounce it. It's a it's a tongue twister.
Speaker 3 (23:20):
Yeah.
Speaker 1 (23:21):
So I'm just curious on retirement assets and how you
think this rule has impacted it, if it all.
Speaker 4 (23:28):
Yeah, So, you know, I think on the retirement side,
this is particularly relevant for Neuveen because we're owned by
t I A A and t I A is a
giant in the retirement channel. We pretty much if you
have a retirement account in a in the nonprofit sector,
in the higher education sector, healthcare sector, it's very likely
(23:49):
that TIA is providing is providing that behind the scenes.
So we and Uveene manages all of those assets. And
what we've seen through the through that retirement channel is
that plan sponsors are still actually adding ESG funds to
(24:10):
planned menus.
Speaker 1 (24:11):
And you mean for the photo one case side of the.
Speaker 4 (24:13):
Four three B four three B, which is the non
profit version of four one k okay, it's I don't
know as much about it enough to explain it fully,
but the all you really need to know is like,
if you work in the nonprofit sector and you have
a retirement plan, it's under the four three B Moniker.
(24:35):
So what that means is that you know you have
these planned sponsors like the university, for example, who is
in charge of composing the retirement plan menu, and they're
the ones who make the decisions about what funds are
go on the menu for the plan participants to choose from,
and they are responsible for following this sort of d
(24:59):
L rule. Maybe out directly it's technically only for ARISA assets,
but in practice what happens is most planned sponsors just
follow that guidance out of an abundance of caution. And
you know, there has been a little bit of a
back and forth between administrations where you know, when you've
(25:19):
got a Democrat in office, they tend to be more
permissive of ESG on the menu, and then when you've
got a Republican they've they've rescinded that. I think what
just most recently happened under Biden was trying to make
it more more durable, right, so saying that as long
as ESG factors are considered in a pecuniary fashion, right,
(25:42):
they can be, they can be factored in just like
any other pecuniary, pecuniary factor.
Speaker 3 (25:48):
And really that's very well.
Speaker 4 (25:49):
Aligned with how Nuvine thinks about ESG. So we had
we have an investment first investor choice approach where when
we when we integrate ESG factors, we do it in
a way that supports our ability to deliver our investment performance.
And you know, we also allow investors to choose when
they have preferences that go beyond those in the financial realm.
Speaker 2 (26:10):
That makes sense. Should we turn to the IRA maybe
a is a talking.
Speaker 1 (26:15):
Point, I let you take it away.
Speaker 2 (26:17):
Sure. So obviously we passed this bill quite a while ago.
I mean it seems like yesterday and everyone in the
climate space is very happy that it was passed. But
it was, you know, November or October of twenty twenty two.
It was pretty quiet really last year in terms of
people talking about you know, activity around it, and you know,
(26:39):
like to hear your thoughts. Do you think it's you know,
now we're starting to see the rules come into play
and once you get the rules to kind of you know,
be outlined a little better for people that they can
start taking action. Or are there any investments that you
are more excited about now than you were prior to
the IRA? Might be an easy, easier question to answer.
Speaker 4 (27:00):
Yeah, I mean I think we've covered some of them, right.
We've talked about battery storage. We've talked about supply chain
and on on shoring of inputs to the sort of
clean energy value chain. I think there are others out
there that you know, maybe maybe touch on things like seapace.
(27:21):
So we have a we have a capability called under
our new VENE Green Capital brand that focuses on SEAPACEE
lending and SEAPACEE stands for Commercial Property Assessed Clean Energy.
So it's a way for it's a way for commercial
property owners to access capital for you know, sustainability upgrades
(27:43):
and to do so in a way that conveys like
with the property and they pay it at the same
time as their property taxes. So this is the this
is the type of thing that I think the.
Speaker 3 (27:56):
The i RA is helpful for.
Speaker 4 (27:58):
And also you know, but it also requires engagement state
by state.
Speaker 1 (28:04):
So what you say engagement do you mean? But yes,
I manage it.
Speaker 4 (28:09):
Yeah, so we so like right now we we lend
for seapace in thirty two different states, so that but
not every state allows allows So you know, I think
there's there's kind of these areas that are helpful at
a federal level, and then at a state level there's
(28:31):
still I think engagement that has to happen to unlock
some of these markets that would it would enable these
types of structures to play out. But you know, I
think the the IRA opportunities also come about, and I
think some of the more I can't I think it
(28:54):
can come out in public markets where you're talking about,
you know, electric vehicles or electric vehicle charging infrastructure. I
think you're also seeing some of that play out again
through like the impact bond space where we UH can
see you know, utilities issue green bonds that maybe are
(29:16):
more attractive because of incentives that make utility scale renewable
energy easier to develop. So those are those are definitely
some areas that we're starting to see interest in. I
will say I kind of hoped, going back to the
muni side of things, I kind of hope that munis
would take up some of the i RA incentives more
(29:38):
than they have. I even went to a uh A
conference a while back that was run by CDP and
they had some folks from the e p A there,
and they have there's all these resources on all of
these you know, outreach efforts to try and get local
municipal entities to take advantage of these incentives, and I'm
(30:01):
not sure that it's like fully penetrated.
Speaker 1 (30:04):
Tell you what, Immuni fan.
Speaker 3 (30:05):
Yeah, I do a lot of work on muni's.
Speaker 2 (30:09):
I did a study or we have done a study
on the utility sector, and they really were just nothing changed.
Twenty twenty three, you know, you're really starting to see
twenty four and twenty five is when the money is
getting spent. You know, there they see some certainty coming
down the line. And you know, hopefully even with some
of your the investments in buildings you were describing before,
(30:30):
maybe the break eapens are better, you know, like because
of the policy. Right So you know you might not
have liked it then, but how about now type of
new conversations right right could hopefully get open some of
those doors.
Speaker 1 (30:43):
And I guess you know, this year's election fun stuff.
How do you see the IRI or just the whole
energy policy landscape changing if at all?
Speaker 3 (30:57):
Yeah, So, I mean there's different opinions about this.
Speaker 4 (31:00):
I think some of the provisions the IRA obviously benefit
all kinds, all across the political spectrum.
Speaker 3 (31:08):
Red states, blue states.
Speaker 4 (31:10):
And because of that, it's possible, we think it's possible
that parts of the IRA will be safe even if
we get a Trump win in the White House. That said,
I think that there's parts of it that might not
be safe. Some of the clean energy tax incentives, some
(31:31):
of the you know, other provisions that maybe are an
easier target.
Speaker 3 (31:37):
To be rescinded.
Speaker 4 (31:39):
But because there are potentially some entrenchment of like the
benefits already being felt, it makes it a little bit
less likely to be completely rescinded. Now, I will say,
on the other sort of side of the coin, I
think the sec Climate Rule would probably get taken off
(32:01):
the table.
Speaker 3 (32:03):
We'll see. I mean, so you know, we good enough
to be I mean, it's see.
Speaker 4 (32:09):
I feel like we've been talking about it for years
because it's been out there for consultation, and you know,
we we submitted some comment letters supporting it a couple
times over, and so we were we were pretty happy
with what we got, frankly, but I think that would
be that would be a shame if we saw it
taken taken down.
Speaker 2 (32:29):
As you say, there's a lot of there's a lot
of a lot of carrots out there in the i RA.
So maybe it's not as it's not as vulnerable as
other things where you're expecting you know, carbon capturing storage
or something like, you know, forcing someone to change gears abruptly.
This is more of here's money, please take advantage of it.
At least that's the approach. So hopefully it's a little
(32:51):
a little kinder on that front. So in terms of
I'm just I'm just curious, from an investment horizon perspective,
given that you're doing a lot of bond investment in general,
does that sort of suggests that the people that are
investing in these funds are kind of in it for
a longer haul as it were, because I mean what
(33:11):
we obviously what we saw with the clean energy transition,
I mean, yes, we lost money from the strategy, but
it was a meme, you know, like it. It did
have a kind of a crazy momentum flare to it
that people threw money at. And so that's it's sort
of natural that that kind of there's an ebb and
flow there. But I just, you know, if you're looking
at it from a bond perspective, I would think that
(33:33):
your focus, because it's longer term in nature, it might
be a little different, and you know, maybe that resonates
better with people. I don't I don't know. But just curious.
Speaker 3 (33:44):
Yeah.
Speaker 4 (33:44):
So, I mean, so our biggest client is actually TIA's
general count, and that's a three hundred billion dollar pot
of money that you know, backs TIA's lifetime income guarantees
that they make, and they are are very much a
long term investor, and they're they're there to basically say
(34:07):
that we can guarantee your income to and through retirement
essentially in perpetuity, right. And I work quite closely with
them on their climate strategy and their their net zero commitment.
And one of the reasons that they are thinking so
much about climate is because of that long time horizon
(34:29):
and they know that, you know, if you're going to
make let's say, like a twenty thirty or twenty thirty
five carbon reduction target, they might have a portfolio of
today that won't turn over, you know fully within that time.
So in investment decisions that are being made today are
actually very relevant for something out in twenty thirty five.
(34:53):
And I think that that does definitely help elevate these
top these issues in in the minds of the asset owner.
Where I wish we could get to is like a
little bit more of that long term mindset. In other
corners of the market.
Speaker 1 (35:11):
Yeah, I mean I think that actually might be a
perfect way to in this conversation. But when I think
of ESG, I think of long term investing, right, not
something that's moving the market day to day, but something
that has more for long term implication.
Speaker 2 (35:27):
Yeah, just and the mindset's different, right, I mean, you're
investing for a longer time horizon. You're considering many, many
more risk factors, right, You're looking at there are short
term risk factors that are very much tied to markets,
but longer term risk factors like that you're describing. And
you know, we have years of pretty bad climate years,
(35:48):
so we kind of know that we're in for more
of it, most likely even a more heightened level. And
so you you know, and you're thinking about an investment
strategies you say, ten, fifteen, twenty years into the future,
it's sort of hard not to consider it, right.
Speaker 1 (36:04):
I guess that's a perfect ending. ESG is the longer
term investment strategy. But Sarah, I've learned so much today,
especially about these climate opportunities and the examples you shared,
So thank you again for joining us, and you can
find more information on climate investments, fun flows and more
by going to be at ESG on the Bloomberg Tunnel,
(36:24):
which opens up Bloomberg Intel. It's our research dashboard. If
you have an ESG quandary or burning question you'd like
to ask our bi expert analysts, please send us an
email at ESG currents at Bloomberg dot net. Thank you,
ESG has become established is a key business theme as
companies and investors seek to navigate the climate crisis, energy transition,
social mega trans mounting regulatory attention and pressure from other stakeholders.
The rapidly evolving landscape has become inundated with acronyms, buzzwords,
and lingo, and we aim to break this down with
(00:31):
industry experts. Welcome to ESG Currents, brought to you by
Bloomberg Intelligence, your guide to navigating the evolving ESG space,
one topic at a time. I am Shahyen, contractor, senior
ESG analyst, and I'm.
Speaker 2 (00:46):
Andy Stevenson, Senior ESG analyst for Climate.
Speaker 1 (00:49):
And we are your hosts for today's episode. So today
we're speaking with Sarah Wilson, the head of Climate Strategy
at Nevene, and we're going to chat about some interesting
climate opportunities, the energy policy landscape, and also the piece
that I'm probably the most excited about, which is fun flow,
is that Nouvene has seen that sort of runs counter
(01:12):
to this ESG backlash that's well been taking over everybody
right now. Sarah excited to dig in and thank you
for joining us.
Speaker 3 (01:21):
Yeah, thank Shahan it's great to be here.
Speaker 1 (01:24):
So, Sarah, when we think of climate opportunities, I think
people normally just gravitate towards clean energy, and I feel
like there's so much more out there. So I guess,
what are some climate solutions that you and Nuvene see
are interesting that there is demand for ahead.
Speaker 4 (01:43):
Yeah, So, I mean, I think you're right to point
out clean energy. Obviously, we need to really ramp up
our investment in clean energy to meet our climate goals
as a society, but there's so many other areas that
we see opportunity, and I have a few examples that
I'd love to share of investments that we've made at
Uvene through different teams and capabilities that we have. One
(02:06):
I'll start with is through our Energy Infrastructure Credit team.
So they recently provided a four hundred million dollar senior
debt facility to a company called Butterfly, which is an
energy as a service company based in the US. And
they're interesting because they're really opening up sustainability and energy
(02:28):
efficiency improvements for this sort of middle market of commercial
property owners.
Speaker 3 (02:34):
So think.
Speaker 4 (02:36):
You know franchise restaurant chains like Burger King or McDonald's,
or fitness chains or properties owned by rets, and you know,
these are types of properties that maybe historically have had
trouble coming up with upfront cash to finance the sustainability
improvements like HVAC or solar on site or you know,
(02:58):
these types of efficient upgrades, and this company, Butterfly, is
allowing them to put no money down upfront and sort
of finance it as through.
Speaker 3 (03:11):
A service contract.
Speaker 4 (03:13):
It's it's a really interesting model, and you know that
they're growing really quickly as a result, and we're excited
to be, you know, helping them raise capital to fuel
their business. So I think that's an exciting one because
it's it's sort of showing this broader diffusion of different
business models that I think are really important for spreading
(03:35):
these improvements out beyond some of just the largest companies
or the largest property owners.
Speaker 1 (03:41):
And just so much more than just cleaning up to right.
I think we're touching on efficiency in some aspects.
Speaker 4 (03:47):
Yeah, yeah, I say efficiency is what theest form.
Speaker 3 (03:50):
Of clean energy?
Speaker 1 (03:50):
Right, I know Andy has a lot to say.
Speaker 2 (03:52):
Yeah, I was going to say it's you know, if
you look at the history of energy savings with respect
to climate, efficiency is number one with the It's ninety
plus percent of all emission reductions is from efficiency, and
buildings is a great place to be doing it right
where there's a lot of opportunity there. And you know,
as you say, it's the number one way is not
(04:13):
to use the energy. Are there any other any sectors
apart from the building sector that you're interested in? I mean,
efficiency obviously is a big topic. It covers quite a
bit of ground. Is there anything else in that sort
of you know, that vein that you're pursuing at the moment.
Speaker 4 (04:31):
Yeah, So I'll highlight one other area from that same
energy Infrastructure Credit team.
Speaker 3 (04:37):
So they are excited.
Speaker 4 (04:38):
About battery energy storage. So that's another area that I
think is really poised for growth. We know that there's
a huge demand to expand grid capacity. You know, we've
got stats here that maybe many people are aware of,
but you know, the US grid has to increase fifty
(05:00):
twenty thirty five to meet UH projected in terms of capacity.
In terms of capacity, and you know that capacity I
think can be augmented by you know the likes of
battery energy storage, which really make renewables much more attractive
in terms of being reliable and providing more consistent power loads,
so that specifically is an area also where you see
(05:26):
policy support. So you know, at the federal level, through
the IRA, standalone battery energy storage projects now qualify for
the thirty percent investment tax credit through twenty thirty two,
and you know previously they would only qualify if paired
with solar. So there's there's real incentives that make those
(05:47):
investments attractive. And I think that especially when combined with solar,
where you know, we know that that's you know, growing
on a really exciting trajectory as well.
Speaker 3 (05:59):
So I think that that's just another.
Speaker 4 (06:02):
Example where I think the it's complementary to some of
the things that you might think about first and foremost
that makes sense.
Speaker 1 (06:10):
And then sticking to the same theme on sectors, the
one thing that I think Andy and I have both
noticed is that many ESG investors tend to avoid these
resource intensive sectors, so things cement steal. They just for
some reason don't want carbon. And I mean, we all
know that these industries are pivotal to the energy transition,
(06:30):
right And then Andy might chime in later, but he's
found certain carbon metrics within these industries to outperform so
investors at the same time missing out on this. How
do you see this evolve, especially since you know we
need to sort of bring these industries along with us
in the energy transition, not just exclude them.
Speaker 4 (06:51):
I mean, so I think for the ESG space, historically
a lot of funds have used various forms of exclusionary criteria, right,
and even our funds use some exclusions, and that does
result in sort of a tilt or maybe a skew
away from some of the resource intensive names. But I
(07:12):
think that that's shifting a little bit. So you know,
you have examples like different fund labels out in the
UK through the SDR, which is you know, just recently
been finalized and explicitly recognizes this idea of improvers or
transitioning strategies, right, And that's new for this field, and
(07:33):
that's exciting because I think it opens up the idea
that you could invest in something that's maybe not pure
today from a green standpoint, but it is improving over time.
And we've actually even before that labeling system was launched,
we have we have some funds out there that kind
of fit in that mold. So they hold a lot
(07:54):
of utilities, they hold a lot of kind of hard
asset companies that have real evidence of a transition plan
and that we engage with very deeply to try and
understand their trajectory along that plan.
Speaker 1 (08:09):
And I'll just say that's a good example of you know,
the dome transition. I have to say, there have been
so many climate funds that have popped up in the
last few years. Each one uses the word transition or
impact or aware, and they do completely different things. So
I think the slaving and these definitions will help.
Speaker 2 (08:29):
Yeah, And I would add, you know, if you think
about the recycling companies for example, those are a very
good example of steel companies or aluminum companies that are
actually very very low carbon, and you need those companies
to grow to build the things that we need to
be built, you know, across the entire you know, ecosystem
(08:49):
for power, for everything, for energy period, right, So it's
pretty important.
Speaker 4 (08:55):
Yeah, And you know, I guess another area that I
would mention is kind of interesting right.
Speaker 3 (08:59):
Now is.
Speaker 4 (09:02):
This sort of supply chain for the decarbonization projects that
are needed, so, you know, critical minerals being an area. Also,
the idea that we're on trying to enshore a lot
of manufacturing of certain inputs to things like solar panels
or batteries, which we've talked about, and really seeing like
(09:23):
where are those companies that are poised to take advantage of, yes,
the policy incentives, but also are maybe one step removed
and being upstream in the supply chain.
Speaker 2 (09:35):
Yeah, none of this is free from a climate perspective.
You have to make something to make a solar panel,
you have to do you have to do something to
you know, turn the wind. So there are costs to it.
And that's actually you know, kind of budgeted. When you
think about solar and wind. It's not zero, but it's
very very close to zero. And that's because of the
(09:55):
supply chain that you're talking about. You know, like these
are inputs. They may have a carbon footprint, but the
overall carbon footprint is far, far, far less than coal
or gas or what have you.
Speaker 4 (10:06):
Yeah, and you know that's where I think ESG as
a tool or a way of investing is still very
very useful. Right, Like you have ESG funds that exclude
things based on client preferences, but ESG as a factor
to consider in the investment process is really useful for
helping differentiate those companies that are well run, well managed
(10:29):
and you know, or maybe in those resource intentsive industries,
but they're doing it in a way that's more responsible,
more cognizant of you know, employee and then labor rights,
more all of those.
Speaker 3 (10:41):
Things that we all know as practitioners here, I.
Speaker 1 (10:44):
Would agree, but I mean that it is a perfect
transition because this failed. As a who still faces so
much of a backlash, I'm sure you feel it every day,
definitely in your rule. So I guess from where you sit,
what is the impact of this backlash, And I'm particularly
interested in the impact it's had on funds.
Speaker 4 (11:05):
Yeah, So you know, I think that the backlash itself
does tend to dominate a lot of conversations, especially for
people who maybe aren't as close to the work.
Speaker 3 (11:17):
They read headline and.
Speaker 4 (11:19):
They start to think that, you know, perhaps this is
an area to avoid or to stay away from. And
you know, honestly, I think that's probably been the biggest
negative impact that we felt inside the company and in
client conversations, is that it's had a bit of a
chilling effect for the work that people are nervous to engage.
Clients maybe have paused some mandate searches that you know,
(11:44):
they were positive on before. But I also think that
the story around actual flows into strategies is a bit
different than what you might read in the headlines. So
we at Nouveene have actually seen positive of inflows into
our RI strategies every single quarter of twenty twenty three.
Speaker 1 (12:05):
And this is even in the US.
Speaker 4 (12:07):
Yes, is the US US? Oh yeah, So we're we're
a global asset manager, but a lot of our flows
come from the US today. And you know, we have
a pretty broad suite. We have mutual funds, ETFs, we
have we've got separate accounts, we've got variable annuities, and
it's it's a pretty good cross section. I think of
(12:27):
what the products are on shelf and what that just
tells me and you know, hopefully tells the audience is
that this is this is really here to stay and
it's not a trend or a fad that's kind of
on the way out. It's we really think that responsible
investing and the interest in putting money in these types
(12:48):
of strategies, it's it's not on the EBB if anything,
it's it's still flowing.
Speaker 1 (12:55):
And is there a particular strategy that you think has
seen the most interest A one that maybe hasn't.
Speaker 4 (13:04):
So, I mean a lot of that is tied to
I think the broader market environment. So you know, we'll
see in a high rising rate environment, you know, we're
not going to see as much interest in like our
muni funds for example, right, but I think what we
are going to see continued interest in uh you know
some of our E S, G E t fs. Obviously,
(13:26):
the focus on passive strategies is something that is.
Speaker 3 (13:29):
Not going away.
Speaker 4 (13:32):
And you know, we also have a really exciting uh
focus on fixed income impact fixed income in particular, which
is proven to be very resilient. So we've got a
strategy called Core Impact Bond which has continued to gather
assets and that, uh, that strategy is exciting because it
means that we we have a lot of demand for green,
(13:54):
social and sustainability bonds through that through that fund.
Speaker 2 (13:58):
And from a a data perspective on that is that
something that you're able to communicate pretty well to your investors,
like they can you know this especially when you do
a project based investing, I think they get people get
a little more familiar with like okay, I get it right.
Usually it's a black box that you're investing in many.
It seems like it to a lay person, But are
(14:20):
there any anything specific on that front where you can
comment like what people see and go, oh, I want
to be part of that, you know, I think that's
a good strategy.
Speaker 4 (14:31):
Yeah, I mean that's the sort of tangible nature of
impact bonds.
Speaker 3 (14:35):
Has been really powerful for us.
Speaker 4 (14:36):
So way back in the day, I helped work on
our first impact report for that strategy, and that's now
been published for I think eight years, and it gathers
up all of the positive impacts that we have and
that the projects on the ground have across four themes.
(14:57):
And one I'll just share as an example of what
we've invested in is one that was issued by the
International Bank for Reconstruction and Development under the World Bank.
It's called an emissions Reduction linked bond. So this is
one where the investors can take payment not through a
(15:18):
traditional coupon, but through the issuance of verified carbon units
or carbon credits through a project that is in Vietnam.
Speaker 1 (15:26):
So the payment is through carbon offsets.
Speaker 3 (15:30):
Yeah.
Speaker 1 (15:30):
Interesting.
Speaker 4 (15:31):
Yeah, So if the basically, if the project delivers a
certain amount of carbon credits as a result of its
successful implementation, then can investors Yeah, investors get paid through
that and they can select that or the or the coupon.
Speaker 1 (15:46):
Okay, so that's like an impact linked yeah outcome.
Speaker 3 (15:50):
That's right.
Speaker 4 (15:51):
Yeah, And the particular project is interesting. So it's it's
based in Vietnam. It's taking these ceramic water filters and
deploying them in areas that previously burned like brush and
other biomass to boil water to purify it. And so
instead of doing that and generating you know, smoke that's
(16:12):
toxic and polluting, instead you're using these air purifiers and
actually creating public health benefits alongside carbon benefits. So it's
a it's a pretty cool one. It's it's very Again,
it's a great example of like a tangible project that
I think really resonates with people, and we profiled that
one in our Climate report this past year.
Speaker 2 (16:35):
Nice, that's great. And just on the opposite end of
that spectrum, like what's what's because the data is so
hard to come by, is is it very hard for
you to communicate like things that you find interesting, but
in sectors that the data is not great, you know,
so it's it's harder for you to kind of communicate
that is there any sector particular you think is like
(16:57):
troubling on that front or is it not really that way?
Speaker 4 (17:01):
Yeah, I mean even the example I just shared, it's
not like we can go to a Bloomberg terminal or
a data.
Speaker 3 (17:10):
Or a data provider and get that.
Speaker 4 (17:13):
Data, right Like, we have to go by hand to
go that data from the project. So from our standpoint,
that's still very inefficient and costly, but we still think
it's very much worth it because it helps the client
really understand what we're doing. There are other asset classes
(17:34):
where I think it's very hard to find data. I
would highlight the US MUNI market as maybe one. Munis
typically don't have a lot of resources for voluntary disclosure.
We might be able to harvest some information out of
like an offering document, but generally speaking, you don't get
(17:54):
as much as you might get from like a public
company or even a private company. So that that's been challenging.
But there are there are some hopeful, you know, things
on the horizon. We've engaged with organizations that are encouraging
more disclosure by munis, like the Government Finance Officers Association CDP.
(18:17):
It's interesting because there's not really you know, we've seen
the sec of course take action with regard to climate
disclosure very recently.
Speaker 3 (18:26):
There's really no corollary on the horizon for munis.
Speaker 4 (18:29):
So I think that, you know, we're sort of contenting
ourselves with the voluntary engagements at this point.
Speaker 2 (18:37):
That's and Muti's is a very interesting area because they've
I've done some research recently where they've basically, over the
last twenty years received about a half a trillion dollars
of federal funding for climate rehabilitation, you know, picking up
after storms and things like that, and it looks like
those spickets are running dry. So they were supplementary budget tied,
and so you know, the municipal bonds market is not
(19:00):
big enough to absorb five hundred billion dollars worth of
climate bonds, for example, So there's going to have to
be some kind of uh, you know, some of it
is going to have to go through the public markets,
but it's also going to be a question of you know,
you're going to have to make probably do with less
in some of these areas, and munia simple bond financing
is very dependent on how well the local community does. Right,
(19:24):
So if you get rid of their lose infrastructure value,
then you're probably going to lose revenue down the road.
Speaker 3 (19:31):
Yeah.
Speaker 4 (19:31):
Absolutely, that's actually an asset class where we are we
have a very specific process to think about those climate
impacts over time, where we have a group of you know,
municipal analysts who do this all day every day and
go deep into the credit quality of these munis and
(19:51):
if they see we partner with a data provider who
helps us get a view into what the physical climate
hazards will look like in that very specific area, whether
it's tax backed muni or a revenue backed muni, and
really even down to the q SIP level, like so
(20:12):
what's the you know, maturity date on that bond is
and what are the climate risks that might materialize within
that time horizon? And if it rises above a certain level,
the team talks about it in their credit opinion and
they go and look for mitigating information. But at the
issuer level, so we we agree, I mean we see
it as something that's like rising in importance and definitely
(20:35):
something we're watching.
Speaker 2 (20:36):
Yeah, that's a good point. Long especially in the long
dated side, that's going.
Speaker 4 (20:40):
To be an issue, right, It could be. Yeah, I mean,
of course, the big question is like what are the
mitigating actions. Right, I'm sitting on the there's a sub
sovereign ESG Advisory Committee run by the Principles for Responsible Investment,
and it's a lot of basic a lot of MUNI
investors get together and talk about like what are we
doing about ESG? Right, and climate is like dominating the
(21:05):
conversation because like, in addition to these sort of longer
dated issues, you've also got this question of like insurance
insurance availability, and that's very here and now, like you're
already seeing companies like you know, State Farm leaving parts
of California or different private insurance leaving parts of Florida,
(21:25):
and so you know what happens. Then it goes back
to the taxpayer.
Speaker 1 (21:30):
And just out of curiosity, do any of do any
social issues come up in this communi discussion you mentioned
as dominated by climate? I think a lot of social
issues also when I think of communis.
Speaker 4 (21:41):
Yeah, I mean I think that the on the I
guess where social and climate intersect is really around like
the sort of the just transition topic. Right, And there's
definitely specific communities that are very fossil fuel dependent, and
we see one another kind of piece of information that
(22:03):
we have looked at in the past, is around counties
and school districts and cities that have a high percentage
of their employment coming from the fossil fuel industry. And
you know, that could be a real kind of red flag.
Speaker 1 (22:19):
That makes sense, And Sara, I want to go back
to one of the things you mentioned, which is that
your atfs have seen and flows and the hdfs are
here to say, I track BTF and flows very very closely.
I think the one thing we see is, you know,
everybody talks about these outflows, right, I think in the
US it's about four point three billion and outflows last year.
(22:42):
I will say that most of it, though, is just
limited to a few funds, you know, That's what we found.
So when one fund makes up fifty percent of all outflows,
I don't think that's really consensus. So like you know,
some kind of mass uprising out of ESG. So I'm
curious to your thoughts on that. And then I'm also
curious on particularly retirement assets, especially with the whole Department
(23:07):
of Labor rule going, you know, back and forth with
its pecunity. Yes, she would I forget the dun't pecuniity pecuniary.
Speaker 4 (23:16):
You I can't pronounce it. It's a it's a tongue twister.
Speaker 3 (23:20):
Yeah.
Speaker 1 (23:21):
So I'm just curious on retirement assets and how you
think this rule has impacted it, if it all.
Speaker 4 (23:28):
Yeah, So, you know, I think on the retirement side,
this is particularly relevant for Neuveen because we're owned by
t I A A and t I A is a
giant in the retirement channel. We pretty much if you
have a retirement account in a in the nonprofit sector,
in the higher education sector, healthcare sector, it's very likely
(23:49):
that TIA is providing is providing that behind the scenes.
So we and Uveene manages all of those assets. And
what we've seen through the through that retirement channel is
that plan sponsors are still actually adding ESG funds to
(24:10):
planned menus.
Speaker 1 (24:11):
And you mean for the photo one case side of the.
Speaker 4 (24:13):
Four three B four three B, which is the non
profit version of four one k okay, it's I don't
know as much about it enough to explain it fully,
but the all you really need to know is like,
if you work in the nonprofit sector and you have
a retirement plan, it's under the four three B Moniker.
(24:35):
So what that means is that you know you have
these planned sponsors like the university, for example, who is
in charge of composing the retirement plan menu, and they're
the ones who make the decisions about what funds are
go on the menu for the plan participants to choose from,
and they are responsible for following this sort of d
(24:59):
L rule. Maybe out directly it's technically only for ARISA assets,
but in practice what happens is most planned sponsors just
follow that guidance out of an abundance of caution. And
you know, there has been a little bit of a
back and forth between administrations where you know, when you've
(25:19):
got a Democrat in office, they tend to be more
permissive of ESG on the menu, and then when you've
got a Republican they've they've rescinded that. I think what
just most recently happened under Biden was trying to make
it more more durable, right, so saying that as long
as ESG factors are considered in a pecuniary fashion, right,
(25:42):
they can be, they can be factored in just like
any other pecuniary, pecuniary factor.
Speaker 3 (25:48):
And really that's very well.
Speaker 4 (25:49):
Aligned with how Nuvine thinks about ESG. So we had
we have an investment first investor choice approach where when
we when we integrate ESG factors, we do it in
a way that supports our ability to deliver our investment performance.
And you know, we also allow investors to choose when
they have preferences that go beyond those in the financial realm.
Speaker 2 (26:10):
That makes sense. Should we turn to the IRA maybe
a is a talking.
Speaker 1 (26:15):
Point, I let you take it away.
Speaker 2 (26:17):
Sure. So obviously we passed this bill quite a while ago.
I mean it seems like yesterday and everyone in the
climate space is very happy that it was passed. But
it was, you know, November or October of twenty twenty two.
It was pretty quiet really last year in terms of
people talking about you know, activity around it, and you know,
(26:39):
like to hear your thoughts. Do you think it's you know,
now we're starting to see the rules come into play
and once you get the rules to kind of you know,
be outlined a little better for people that they can
start taking action. Or are there any investments that you
are more excited about now than you were prior to
the IRA? Might be an easy, easier question to answer.
Speaker 4 (27:00):
Yeah, I mean I think we've covered some of them, right.
We've talked about battery storage. We've talked about supply chain
and on on shoring of inputs to the sort of
clean energy value chain. I think there are others out
there that you know, maybe maybe touch on things like seapace.
(27:21):
So we have a we have a capability called under
our new VENE Green Capital brand that focuses on SEAPACEE
lending and SEAPACEE stands for Commercial Property Assessed Clean Energy.
So it's a way for it's a way for commercial
property owners to access capital for you know, sustainability upgrades
(27:43):
and to do so in a way that conveys like
with the property and they pay it at the same
time as their property taxes. So this is the this
is the type of thing that I think the.
Speaker 3 (27:56):
The i RA is helpful for.
Speaker 4 (27:58):
And also you know, but it also requires engagement state
by state.
Speaker 1 (28:04):
So what you say engagement do you mean? But yes,
I manage it.
Speaker 4 (28:09):
Yeah, so we so like right now we we lend
for seapace in thirty two different states, so that but
not every state allows allows So you know, I think
there's there's kind of these areas that are helpful at
a federal level, and then at a state level there's
(28:31):
still I think engagement that has to happen to unlock
some of these markets that would it would enable these
types of structures to play out. But you know, I
think the the IRA opportunities also come about, and I
think some of the more I can't I think it
(28:54):
can come out in public markets where you're talking about,
you know, electric vehicles or electric vehicle charging infrastructure. I
think you're also seeing some of that play out again
through like the impact bond space where we UH can
see you know, utilities issue green bonds that maybe are
(29:16):
more attractive because of incentives that make utility scale renewable
energy easier to develop. So those are those are definitely
some areas that we're starting to see interest in. I
will say I kind of hoped, going back to the
muni side of things, I kind of hope that munis
would take up some of the i RA incentives more
(29:38):
than they have. I even went to a uh A
conference a while back that was run by CDP and
they had some folks from the e p A there,
and they have there's all these resources on all of
these you know, outreach efforts to try and get local
municipal entities to take advantage of these incentives, and I'm
(30:01):
not sure that it's like fully penetrated.
Speaker 1 (30:04):
Tell you what, Immuni fan.
Speaker 3 (30:05):
Yeah, I do a lot of work on muni's.
Speaker 2 (30:09):
I did a study or we have done a study
on the utility sector, and they really were just nothing changed.
Twenty twenty three, you know, you're really starting to see
twenty four and twenty five is when the money is
getting spent. You know, there they see some certainty coming
down the line. And you know, hopefully even with some
of your the investments in buildings you were describing before,
(30:30):
maybe the break eapens are better, you know, like because
of the policy. Right So you know you might not
have liked it then, but how about now type of
new conversations right right could hopefully get open some of
those doors.
Speaker 1 (30:43):
And I guess you know, this year's election fun stuff.
How do you see the IRI or just the whole
energy policy landscape changing if at all?
Speaker 3 (30:57):
Yeah, So, I mean there's different opinions about this.
Speaker 4 (31:00):
I think some of the provisions the IRA obviously benefit
all kinds, all across the political spectrum.
Speaker 3 (31:08):
Red states, blue states.
Speaker 4 (31:10):
And because of that, it's possible, we think it's possible
that parts of the IRA will be safe even if
we get a Trump win in the White House. That said,
I think that there's parts of it that might not
be safe. Some of the clean energy tax incentives, some
(31:31):
of the you know, other provisions that maybe are an
easier target.
Speaker 3 (31:37):
To be rescinded.
Speaker 4 (31:39):
But because there are potentially some entrenchment of like the
benefits already being felt, it makes it a little bit
less likely to be completely rescinded. Now, I will say,
on the other sort of side of the coin, I
think the sec Climate Rule would probably get taken off
(32:01):
the table.
Speaker 3 (32:03):
We'll see. I mean, so you know, we good enough
to be I mean, it's see.
Speaker 4 (32:09):
I feel like we've been talking about it for years
because it's been out there for consultation, and you know,
we we submitted some comment letters supporting it a couple
times over, and so we were we were pretty happy
with what we got, frankly, but I think that would
be that would be a shame if we saw it
taken taken down.
Speaker 2 (32:29):
As you say, there's a lot of there's a lot
of a lot of carrots out there in the i RA.
So maybe it's not as it's not as vulnerable as
other things where you're expecting you know, carbon capturing storage
or something like, you know, forcing someone to change gears abruptly.
This is more of here's money, please take advantage of it.
At least that's the approach. So hopefully it's a little
(32:51):
a little kinder on that front. So in terms of
I'm just I'm just curious, from an investment horizon perspective,
given that you're doing a lot of bond investment in general,
does that sort of suggests that the people that are
investing in these funds are kind of in it for
a longer haul as it were, because I mean what
(33:11):
we obviously what we saw with the clean energy transition,
I mean, yes, we lost money from the strategy, but
it was a meme, you know, like it. It did
have a kind of a crazy momentum flare to it
that people threw money at. And so that's it's sort
of natural that that kind of there's an ebb and
flow there. But I just, you know, if you're looking
at it from a bond perspective, I would think that
(33:33):
your focus, because it's longer term in nature, it might
be a little different, and you know, maybe that resonates
better with people. I don't I don't know. But just curious.
Speaker 3 (33:44):
Yeah.
Speaker 4 (33:44):
So, I mean, so our biggest client is actually TIA's
general count, and that's a three hundred billion dollar pot
of money that you know, backs TIA's lifetime income guarantees
that they make, and they are are very much a
long term investor, and they're they're there to basically say
(34:07):
that we can guarantee your income to and through retirement
essentially in perpetuity, right. And I work quite closely with
them on their climate strategy and their their net zero commitment.
And one of the reasons that they are thinking so
much about climate is because of that long time horizon
(34:29):
and they know that, you know, if you're going to
make let's say, like a twenty thirty or twenty thirty
five carbon reduction target, they might have a portfolio of
today that won't turn over, you know fully within that time.
So in investment decisions that are being made today are
actually very relevant for something out in twenty thirty five.
(34:53):
And I think that that does definitely help elevate these
top these issues in in the minds of the asset owner.
Where I wish we could get to is like a
little bit more of that long term mindset. In other
corners of the market.
Speaker 1 (35:11):
Yeah, I mean I think that actually might be a
perfect way to in this conversation. But when I think
of ESG, I think of long term investing, right, not
something that's moving the market day to day, but something
that has more for long term implication.
Speaker 2 (35:27):
Yeah, just and the mindset's different, right, I mean, you're
investing for a longer time horizon. You're considering many, many
more risk factors, right, You're looking at there are short
term risk factors that are very much tied to markets,
but longer term risk factors like that you're describing. And
you know, we have years of pretty bad climate years,
(35:48):
so we kind of know that we're in for more
of it, most likely even a more heightened level. And
so you you know, and you're thinking about an investment
strategies you say, ten, fifteen, twenty years into the future,
it's sort of hard not to consider it, right.
Speaker 1 (36:04):
I guess that's a perfect ending. ESG is the longer
term investment strategy. But Sarah, I've learned so much today,
especially about these climate opportunities and the examples you shared,
So thank you again for joining us, and you can
find more information on climate investments, fun flows and more
by going to be at ESG on the Bloomberg Tunnel,
(36:24):
which opens up Bloomberg Intel. It's our research dashboard. If
you have an ESG quandary or burning question you'd like
to ask our bi expert analysts, please send us an
email at ESG currents at Bloomberg dot net. Thank you,
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