Sustainable Views: Financing the revolution – funding and money flows for a net zero world

Hello and welcome back to the Sustainable Views podcast from the Financial Times Group, where we discuss all things sustainability related. I'm Marie Kemplay, Deputy Editor of Sustainable Views, and I'm also really pleased to be joined today by two expert speakers from the world of finance. With us today, we have Mindy Lubber, CEO and President of sustainability nonprofit Seres, and Steve Howard, Vice Chairman Sustainability at global investment company Temasek. Welcome to both of you. This podcast and the coming editions are also a bit special as we're recording them in partnership with the Progressive Business Coalition, We Mean Business. And in this episode, we're going to be talking about the vital question of how to finance the global net-zero transition. Now, I don't know about the both of you, but I feel like I need to take a bit of a deep breath before diving into this topic because obviously a huge one. So let's set the scene a little bit. Bit. The global transition to net zero is obviously going to cost trillions of dollars. And in fact, McKinsey research from a couple of years ago put the figure at around $9.2 trillion per year up until 2050 in investment. So with that in mind, my initial question really is about where all that money is going to come from. So Mindy, I'll come to you first for your thoughts on that. Clearly funding is going to need to come from many different sources in both the public and private sector. So, you know, how do you see the role? What do you see as the role of government finance versus private finance in funding the transition?

It's a good question. Let me start by just throwing out, and I know we don't want to get into the details of every single number, trillions of dollars and lots of zeros. The good news is money is coming. So right now we are making progress and it's important for all of us to start any conversation with the fact that we've seen about $2 trillion go into the clean energy energy investment world over the past year. That's good. Now, where is it coming from? It's coming from every imaginable source, and that is the question that you just asked. There is no doubt that government cannot do all of this. They can't. There isn't the money. There are too many draws and needs on our government. And there's no doubt the private sector can't and probably will not do all of it, certainly not at the start. And we're still in early days despite seeing $2 trillion going in. So the simple answer I wish was simple and totally precise, but it's got to be a combination, a combination of investments from governments and from the public sector, and in the end, from individuals as well. But that's going to be a smaller part. And I think if we're smart about how we couple those types of investments, where does the government step in? Where does the World Bank step in? Where do other quasi-public-private entities step in? And where is it just a smart play for private investors. Even within the private sector, it's going to be all kinds of dollars. There's venture capitalists who say, I want to put a small amount of money or even a large amount of money in a new technology or in a technology and watch it grow. But there are also public pension funds who are often highly conservative investors. Investors like CalPERS in the United States, the largest public pension fund, who just made a commitment to a $100 billion by 2030 for clean energy solutions. So even within the private sector, it will be those who invest in small enterprises all the way up to some of the largest, and I'd say more conservative as investors, even at the public pension fund.

Yeah, okay. So the natural follow-up question to that is, you know, as you say, it's got to be a mix, and I guess it's defining who's going to fund which bit. That's the next question, right? But Steve, I'm keen to get your thoughts before we get to— deeper into this?

Yeah, I mean, it's a very, you've got to get quite specific because it kind of depends on what you're trying to fund because there's very different things here. There's attractive new companies that are coming through, you know, that are looking for, where private sector finance will finance those. You know, these are sort of conventional attractive investment opportunities. They just happen to be in clean energy or plant-based foods, alternative protein. They're part of this energy transition. Restructuring of our economy. But there's other things which are harder to fund. Some of the very large infrastructure projects, new energy grids might need a combination of finances. Or if you're looking at where you're having to do accelerated close down, and there's been a whole process looking at this, how do you switch, develop, roll out new clean energy and close down in an accelerated way the old fossil energy? So then you're sort of accelerating the depreciation of assets. So people in good faith invested in a fossil fuel power station 15 years ago expecting it to run for 40 years and you're trying to close it down in the next 6 or 7. And then that's obviously got to be a combination of private sector finance, carbon finance, and different types of government finance. And then you've got the areas where the sort of emerging economies, it's 2024, but there's still 2.3 billion people cooking on dirty solid fuels, wood, charcoal, sometimes sort of coke and coal. So a massive need for a clean cooking rollout. Some of those can be in really high-risk, poor countries, or the still the 700 million people or so who've not got access to electricity. If you are going into countries which are higher risk, those are really hard projects to finance. And this is the area I think that's where we need to focus a lot on. To make sure, because pension fund, let's say American or European or Asian pension fund capital will not flow there easily because the risks are high, the returns are uncertain. So you need to de-risk that and you need to find ways to do it. Otherwise people will be left behind in that. So some of this is super easy to finance. The really good companies that have got great technologies and great business models and they're operating in the US, Europe, or are stable parts of the world in Asia and elsewhere, they will attract the finance. That's not a problem. And it'll all be private finance. It's always good to have some assistance with where there's technology risk from the public sector. But once that technology risk is done, private sector finance will flow. But other areas we need to really work on. And I think I'd not heard blended finance a decade ago. Blended finance, what kind of, what does that mean? But now it's a real sort of buzz phrase, blended finance. It's been much more talked about than actually delivered. And so this sort of how we use public and private finance together to go after the opportunities that just won't happen otherwise is an urgent mission for us to solve.

I think that's a really nice way of putting it, Steve. Yeah, those areas where it's not going to happen otherwise, as you say, that's quite crucial. I guess just to break it down and jump back momentarily, you know, Mindy at the beginning was saying, thankfully, Some of this capital is starting to flow. We are seeing investments. So before we move on to the tricky areas, I guess, yeah, where is the money already going, Mindy, and where do we need to worry less maybe if we can cover that off quickly? And then we'll get into the trickiest stuff that Steve was starting to talk about as well.

Well, one thing I would say first that underpins my answer, my specific answer to your question, is much of this also depends on subsidies, on tax credits. It's not just dollars going out of somebody's bank account, to simplify things. Right now we still have enormous amounts of subsidies to the fossil fuel industry. That skews the market, it skews the economics, it skews everything about this discussion. So that's something we've got to keep taking a look at. Are there unreasonable— and in my judgment there probably are— subsidies for the fossil fuel industry that ought to go away? And that doesn't mean leaving fossil fuel workers in the lurch. It just means let's not incentivize dirty fuels. Doesn't make sense given the enormous cost to our society, to our economy, to people, to human beings, and so on. So that's one thing to consider. The second thing to consider is how that is starting to shift. In the United States, we've seen this small thing called $369 billion in the IRA by the federal government going into clean energy. That will be an enormous tool to jumpstart the clean energy economy, to move it, to make it happen quick— more quickly. But the bottom line answer to your question is, where do we need— where are we seeing money, and where do we see more money flowing? Steve mentioned it, but unless we focus on the Global South, unless we focus on countries that, number one, did not create this problem— it's the more modernized, industrialized countries that have created it through all of our conveniences and energy resources and systems. So we've got to make sure that even though there may not be as much money in those countries, money flows, investment dollars flow to the Global South. We're certainly seeing more investments happening in the United States, in China, in a number of the industrialized countries, but making sure that's more even. I mean, we should always remember, and I know you do and I'm sure our listeners do, global warming is one of unique challenges that what happens in Beijing impacts Rio de Janeiro and what happens in Boston impacts London. It is one global problem, and fixing it in one part of the world doesn't help us overall. We've got to fix it in the overall world, both to solve the climate issue as well as to keep in mind the equally important just and equitable economics question. It's not about just the well-to-do nations using getting more renewable energy. We've got to make sure that we see investments around the world.

Can I just pick up something that Mindy said? I mean, you highlighted the role of policy and the Inflation Reduction Act is the biggest one that we've got in terms of a massive piece of public policy, which has been hugely catalytic. And there you can see something like green hydrogen, Even in real time, you could watch price projections for how much is it going to cost to make a liter of green hydrogen from using renewable energy. And it was super expensive and it would've been in pilot mode if it wasn't for very bold public policymaking that's been done in a number of countries to really unlock that. And then what that does, obviously it drives economies of scale. These very large industrial processes, you can put in big off-take agreements, you can get the whole infrastructure that builds around it. So you can start to have the users of green hydrogen can build up their infrastructure and their businesses. So it's hugely valuable. And this has always been a public policy challenge. So about good policies and incentives and business innovation and investment. And it will remain so with the things that are especially in that sort of pre-naturally commercial where there's a green premium. We've had a lot of talk about the green premium where green technology is more expensive. Fortunately, we've seen a crossover point in the recent years and we're seeing it on more technologies. So it's worth thinking, you know, 20 years ago there was 5 gigawatts of solar installed in the world. We installed that much in 4 days now. So it's just breathtaking, the solar revolution. And this is a solar century now. Wherever the sun shines, you can put a panel out and it's incredibly cheap and incredibly efficient today. So breathtaking from economies of scale. That wouldn't have happened without some brave initial investors and without German government putting feed-in tariffs and those sort of things, the sort of different public policies or industrial policies in China or other parts of the world that really drove the scaling and the cost depreciation there, as well as private sector coming in and putting in demands for getting solar there. So there's an exciting point now where the best technology for automobiles. The best technology is EVs. The best technology for energy generation is solar and wind and batteries. Soon we'll get to the point for other areas where there is a food and ag transition alongside the energy transition. So we'll see that with plant-based foods, with alternative proteins being cheaper, better, healthier, more sustainably, radically more sustainable. So We're in the era of the green discount and the role of public policy and the role of public dollars is to get us to that green discount alongside the private sector. That's what it's all about. And obviously it's just harder to do when you go into some emerging markets, especially into the more vulnerable countries where it's just harder to finance anything, not just a solar panel.

Yeah, no, and I think you give a really powerful example there when you talk about the solar technology in terms of the cost coming down, the capacity growing. I guess my question then, and I am very keen to talk about the point you've both raised around the emerging economies, the Global South, and that being more challenging, but just to stay with, I guess, in the developed economies momentarily, because, you know, the example you gave around solar and investing in technologies in these settings so that then it can be rolled out in a kind of mass scale worldwide, how do we kind of replicate that and in what areas do we need to kind of replicate it? What are the structures together? You know, we hear this term sometimes called, you know, the valley of death, you know, where emerging technologies, it's maybe possible for them to get initial seed capital, but then it's hard for them to scale up, right? So what, and you've talked about de-risking, so what needs to happen and where do we need to see that kind of de-risking, I guess, in a kind of developed economy setting? I'll stick with you momentarily, Steve, and then Mindy, I'll come to you. Next.

We saw a rush of money into venture for sort of climate tech. It was clean tech first time round if you go back sort of 10, 15 years ago. And there, clean tech 1.0 sort of struggled. It was early. There wasn't enough public policy stimulus. And actually there was everything. A lot of companies hit that valley of death because it was going to take them 10 years to scale a business and they had 3 years' money. And we're seeing the same thing again now actually where, and it's because of sort of global financial situation that we've been through, high interest rate environment. A lot of the major asset owners, asset allocators have pulled back from venture and it's more or less an 80% contraction in venture funding, even in the climate space. Climate might be a little bit more resilient. So there are good companies who will not get to the other side of that valley. And it's where you've got to get into sort of real commercial revenue and then you're more financeable. When you're sort of pre-commercial, you might have proven technology, you'd be rolling it out, but you're just not commercially viable yet. That's super hard to finance. And I think the asset owners, whether it's the sort of likes of ourselves at Temasek or the pension funds, we have, I think, a responsibility. We are in this unfolding planetary emergency. You can't just have with a sort of simple financial hat on. But although I can come back to it, I think there's a long-term compelling economic and financial case, not just a moral imperative for us to invest in these sectors. But right now we need to lean in because the valley of death has widened in the last couple of years at a time when we should be eliminating the valley of death for good companies in this space.

Mindy, interested in your thoughts.

Well, there's no question that there are some companies that— look, the risk issue for all investors varies, but risk drives investments, whether it's venture funds or whether it's pension funds. And obviously there's a massive amount of different kinds of capital that goes into things. Things that are very high risk are going to take at this point are going to require some public dollars. Some dollars from the World Bank or quasi-public-private. It will need to be some combination, but we need to be very focused. In the meantime, as we see total energy investment over the past year of $3 trillion or so for the first time, $2 trillion of that has been for non-fossil fuels. So we're seeing more. And again, it's not necessarily in the small companies, but some amount of that is ending up there. So we're seeing $2 trillion out of an of all 3 going to renewables, electric vehicles, nuclear power grids, storage, low emission fuels, efficiency, heat pumps, and a third of that, about a trillion, going to oil and coal. So part of that alone will have a spinoff as we get more momentum, more energy, more money flowing into renewable clean energy. Some of the even smaller opportunities will benefit from that. For every dollar going to fossil fuels today, $2 trillion, or 2 out of 3 dollars, are going to renewable energy. And again, across the board at all kinds of investments. But I will say a fair amount of that, or some amount, has been jump-started by policy, by the government saying we will put some straight dollars into things through loans, through just straight investments. We will come up with the right public policy incentives through tax credits. And we've got to keep looking at those things. Some investors get tax credits by investing in smaller companies. We've got to look at where is the risk and what is it going to take to address the risk. And I think that's where private and public dollars together sometimes work better. Again, at the outset, as Steve has said and others, I mean, these markets are real. The fact that we have $3 trillion going into— or $2 trillion out of $3 trillion investments going into renewables and related is because they're good investments, not because they're going to solve the world's problems, although they will and they ought to, and that ought to be part of the formula. They are good investments. We need to be driving up and showing how these investments work how they make sense, how people are making money from them, and we'll see more dollars flow. There will always be, though, this so-called valley of death, the difficulty of very small innovators who may have extraordinary technology, but getting to a point of critical mass. And look, we've got a lot of smart people looking at that. Let's hope we're finding those right technologies and where they're impressive. Let's hope we are putting together the right packages and a lot is going on to finance them.

I mean, there's been some great efforts in the space, just like Breakthrough Energy Ventures have focused on science-driven, looking at from a DB Science and Technology point of view, we've partnered with Breakthrough on this. That's their really early stage in the space. We've partnered with a number of other really good funds where they're leaning in and deploying capital to great entrepreneurs. With really high impact businesses that can make a real difference in the space. Fantastic commercial opportunities as well. We've set up a specially targeted fund that's looking at late venture, early growth. So just as you're sort of climbing out of the valley of death, you'd say, when you need a big cash injection, then that's called Decart Partners. They've sort of invested in everything from a mushroom leather company through to a recycled lithium-ion battery company. And that's a partnership between ourselves and BlackRock. And so there's capital being deployed and there's opportunities, but it's an artifact of the financial system. High interest rate environment, suddenly asset allocation, pension funds, sovereign wealth funds, everybody else saying they're overallocated to alternatives. And the first thing that goes is venture and money gets pulled back from venture. And I think people are crowd, we're sort of crowd animals as well. And suddenly everybody moves away. And then, so you've actually have the time, I think that's one area. I'm not worried about financing so much of the large infrastructure, well-established mature technologies, wind, even offshore wind and solar. These are very, very financeable. The large rollouts of EVs are as well. There's money flowing there very easily, but there is a shortage on this sort of venture and we'll miss some companies there. We're at this peak time where I think you go back a few years ago, everybody was doing internet-based businesses, setting up something to try and get students their pizzas 5 minutes faster or something. Now actually the entrepreneurs are trying to solve this big problem. They're trying to, how do we tackle climate change and reverse the decline in nature? Lift people out of poverty. And there are thousands and thousands of businesses and entrepreneurs out there. Not all of them deserve to succeed in this world we live in because they're not all great. But what we don't want to do is to have those fail that could make a really, really, really big difference.

You've both so far actually struck a relatively optimistic tone, which is quite nice to me. We don't, you know, in this kind of space, there's often a lot of challenges that we're talking about, but it's good to talk about these causes for optimism. But I guess the reason I'm remarking on that is often when we talk about net zero, people very much speak about it as a cost, you know, an investment that needs to happen. And the kind of flip side of that, you know, as it, as it, of it being an economic opportunity, I think that's perhaps talked about less or stressed less. I'm interested in your views on, you know, in your worlds, are people framing it as an opportunity and has that message got across or is that still an argument that you think we need to make more, more strongly with policymakers, with investors, or have people have Have people kind of got that now? Mindy, I'll go to you.

Well, look, in general they have it, and that's why we're seeing more money flowing in and more incentives. But, and I am optimistic, but I do want to paint the picture that we're all seeing. Even within some of the larger technology, wind energy has had some strong go-forward and a little bit of a fits and starts over the last couple of years. And we need to be mindful of that. We need to make sure that given the size of wind energy, given what it could accomplish, that the right resources flow, because I would argue wind energy has not seen over the last year and a half the growth that solar has seen. And part of it is just straight economics. People look at the numbers and know I'm a little— I'm not overly concerned, but we're seeing the EV market in the US, less so around the world, having a little bit of a hiccup at the moment. I think that will all move through, and I think the IRA will help that considerably. So it is a good picture when we're talking about $2 trillion going into renewable energy. That's a good picture. But we still have a lot of work to do. And the work is not only in convincing investors that there are smart investments. The work is infrastructure. It's permitting. Right now, there is a lot of very, very smart technology, but raising it to critical mass to reach enough players to bring enough energy into the grid, we need to change how the grids are set up. We need to change how hard it is to plug into the grid. We need to change how difficult it is sometimes to site power stations, even if they're smaller rather than larger. So as we look at the economics of individual technologies, and the economics of where the money will come from. And I do think the word has gone out that there is money to be made, and that's why we're seeing massive companies— Ford investing in photovoltaics, you know, large companies investing in battery factories and literally changing where they build their products and how they build their products. All of that is happening, and that's there. But we need to look at overall what other changes need to be made to make sure that we are turbocharging the ability of these technologies to do what they need to do to work, whether it's in the United States, China, Japan, or in the developing world.

Steve, your views?

Yeah.

Yeah, I mean, it's both. You know, it's both a cost and an opportunity, and it depends. And if you're a large asset owner, if you're a large investor, then you're going to be exposed. You're exposed to the opportunities, then you've got to lean in there. That's super exciting. And you are exposed to the costs. So if you've got companies like, we've got a large portfolio with some very long-term portfolio companies that are long-term partners of ours. We own an airline. Sustainable aviation fuel is a cost. Sustainable aviation fuel today costs a lot more. You can't wave a magic wand and make that go away. There's lots of hard work and dollars to be deployed and technology to be developed to bring those costs down. So There's a cost and then you've got to choose. You've got to look at policy and leadership and ways to get through that because it doesn't happen by itself. If you went to the cement sector or something, the cement sector would probably, like all of us actually, prefer that climate change just didn't exist because for them it's a cost. You've got a very carbon-intensive technology that's literally a fundamental building block of society, but there's not huge margins in it. It's highly commoditized. It's a cost to decarbonize that and it's hard to do. And you've sunk your capital into big cement plants today already. So the cost there, the opportunity's fantastic. It's a, you know, the rollout of new companies and new technologies. So I'm technology, you know, I don't believe technology solves anything by itself. It doesn't. I'm not just a blind technologist in this, but it's a huge, huge, huge enabler. So we have the technology. To solve this problem. Hurrah, because wouldn't it be really depressing if we didn't? Capital is being started to be deployed. The policy levers are there. Our challenge is that we're in a highly complicated world geopolitically, and we've blown the carbon budget pretty much. So we have very limited time. So this is moving fast at scale. And deploying capital on a rate that we've not done before. And yes, it is both about pursuing opportunity and it's also managing costs because you are going to actually go through some expensive transitions for the really heavy industrial carbon sectors, the cement sectors, the steel industry, et cetera. Those are expensive to decarbonize. The power sector where you're dependent on coal in many countries. Expensive because if you are accelerating the close down of those coal plants.

You know, the question you asked gets more complicated by the time value of money. I mean, there is no doubt that many of the investments will bring positive returns. Different investors need different responses and returns on different timelines. Some of these things will take longer to pay back. And some investors want that payback early, soon, immediately. I mean, I'll give you an example, not of an investor, but of one of many, many dozens of conversations we have with the world's largest companies, Fortune 50, Fortune 100 companies, where we ask them to go to 100% renewables by 2030 or to change all of their energy systems, refrigeration systems, car systems, auto systems. And for them, they see the long-term return, but they've got to make some very clear short-term investments. And that's the debate going on with CFOs in hundreds of boardrooms and hundreds of companies right now. Can they justify hundreds of millions, if not billion-dollar investments that will pay off, that will save them money in the long term, that are definitely smart and good for meeting the challenge of climate? But how do they justify it today in in a world where quarterly earnings drive popularity, drive value, drive what we see in the stock exchange every day. So how do we integrate the long-term value, which is real and clear and measurable in many cases, with the short-term costs to companies? And that's the debate we're having literally every day with companies that have the capital, but how to justify the capital, or with companies that don't have the capital to make these short-term and shorter-term investments, and does it make sense for them to borrow the capital? So the time value of money, obviously, and all of your listeners know that, plays in in a major way here.

I'm keen to explore, I guess, what can be sometimes a controversial topic, but it relates back to things both of you have just been saying, actually, you know, whether there's a role here for carbon taxes. You know, you've both talked about, okay, we're under significant time on this, there's the need to, you know, investment is going into some of these technologies and industries and there's good news there, but it needs to happen more and more quickly. And the case, you know, exactly to your point, Mindy, day to day at the moment, it can be more economically beneficial in the short term to invest in some of these sectors which aren't going to do us favors in the long term from a climate change perspective. So yeah, we talked about the role of policy. Is there a role for carbon taxes here to make these clean technologies a more obvious investment sell right now because the economics would get shifted, right, by that. That's a simplistic argument, but a lot of people make the case for carbon taxes. What are your views on that? Steve, I'll go to you. I'll go to you first.

I think we've looked at this over a long time and putting a price on carbon is super helpful. You can use other policy mechanisms and levers and regulation. You can absolutely, you don't, it's not essential, but it's really helpful. And because it delivers a very broad signal, it's not a coincidence. So we've invested in H2 Green Steel alongside many others investors. So it could be the world's first green steel plant, super exciting in Boden in Sweden. And lots of interest commercially in that. The first ones will be more expensive to do these things. It will be, but lots of people would like to have green steel in their products. But that's actually in a country, in Sweden, with very high carbon tax. So you can look at carbon tax and it sounds like some sort of punishment actually, but it creates also a powerful incentive for rolling out new technology as well. And when we're in this really big shift, it's a really, really intense shift from fossil fuel century to the solar-powered and wind-powered century, to a clean green century. And that's the future of all business. All economic opportunities going forwards have got to be clean and green. So you want actually bold public policy, including strong carbon pricing is a real asset for that. But there's lots of different ways of doing it. Obviously you've got the EU ETS, you've got various, there's There's the California scheme, there's RGGI, there's multiple emissions trading schemes as well, which also put a price on carbon. And we're seeing the voluntary carbon market come through that it's had a few bumps, but the voluntary carbon market's stabilizing now. And you can see links between the voluntary carbon market and the carbon markets in the more developed economies that are formal compliance-driven markets. Or links to carbon taxes. For instance, Singapore's carbon tax allows 5% of that tax to be met through high-quality offsets. And that's exciting because a carbon price can also allow capital to flow to projects that just won't get financed otherwise. So that brings in the avoided deforestation, the reforestation, the nature-based solutions. Which can deliver gigatons if they're well executed. And some people think offsets are like a corporate get out of jail free card. If badly designed, they absolutely could be, but well designed when they're linked through to compliance markets, this can be a huge way of financing deep, deep emissions reductions, whether that's accelerated close down of fossil fuel power stations in developing economies, alongside rolling out renewables or its nature-based solutions on scale. So getting a value on carbon and a highly liquid global market or multiple markets that are connected is in our best interest and it's starting to happen like that.

Mindy, I'm interested in your views as well because right at the beginning, you know, you were speaking about how you felt it with subsidies for fossil fuels, that wasn't appropriate. And obviously carbon pricing, carbon taxes, that's kind of going a step further, right? So yeah, do carbon taxes have an important role here?

I think carbon taxes are one of the most important things we could do amongst many, many things. Right now we don't penalize, and this isn't about being punitive, but we don't put a price on the very real cost of carbon-intensive industries. So we call them externalities. They're out there, they get dealt with. There are very real costs. And rather than the party who is generating the cost paying it, it goes to society and we all pay it. Putting a cost will remind every player who's generating carbon and thus having to pay a price on the carbon they're generating. It will make them think about if there are other ways to run their business. So there are other ways to develop their manufacturing, or there are other parties to deal with. So I will not tell you it's a politically easy thing to get here in the United States. Steve talked about places where we do have carbon taxes. If the carbon tax is high enough, and it's got to be meaningful, it can't be just a bunch of words. If it is high enough to reflect the real cost of that carbon pollution to our society, to our economy, to our manufacturing world, then it could have a profound impact. And I think it has had an impact, as Steve talked about, for whatever reason in the United States. And I think we promised at the start of this call we're not going to be here talking about politics or we could go on all day and all night. But certainly we have not been able to get it front and center on the political agenda. And I think that'll have to be revisited in whichever administration comes into play. It is an important part of the formula. It's not the total answer, but to allow people to generate As much carbon as they do without being responsible for that carbon makes no sense. And every day that goes forward, it makes less sense. But carbon taxes are complicated— how you define them, how you design them, how do you make sure they're equitable and fair is important. But some of that thinking has been done. We're certainly up to the challenge of that kind of thinking, and I think we need to get on with it in more places than where it exists, and certainly in this place called the United States where I I mean, most, just to briefly add to Mindy's comments, most sort of global companies, especially investors, are starting to use internal carbon pricing just in the assumption, just sort of modeling for what's either going to be out there or could be out there.

So we have a, ours is $65 a ton we put on. So that's how we sort of model that onto our investments is we'll put it up to $100 or more by 2030. and that's been embedded the last 3 years or so in our investment process as a firm. And as many companies, all the companies looking at sort of energy transition investing use something similar. And so there's an assumption there's an inherent carbon price that we're putting into our investments through that. And so, and you can make the, you make the project stand up. It works for doing this.

I'm going to change direction quite drastically here because I did say earlier on, I did want to get onto the topic that you both raised at the beginning around making sure capital flows are going to the Global South and developing economies. And I think the OECD a couple of months ago reported that, you know, for the first time, it believes in 2022, developed nations hit, you know, that $100 billion climate finance target that I think was set way back in 2009 in Copenhagen. And please jump in and correct me if I'm wrong, either of you, if that's incorrect. But, you know, so that's obviously good news. But I think from what you were both saying right at the beginning, you don't feel that that's kind of job done is good enough. So yeah, what still needs to happen in terms of getting those capital flows into the Global South, into developing economies? Mindy?

Well, there are a number of things that need to be done. One place that I would start, and I won't stop there, is the World Bank, the quasi-public-private investment vehicles that have public money. There has not been a considerable clear action step of preferred energy systems. It's sort of, you know, we need to get energy to certain places, and whatever energy and however we could get it there the quickest is the way to go. All of that money, the money that's gone from the public-private, has to have policy directives, and they are independent. So it's not like the President of the United States or the president of any No country could direct them and tell them, "You shall do this." They have their boards, but they've got to make decisions that are in the interest of both short and medium and long term. And it may be that certain investments in fossil fuels, which are still being made by whether it's the Export-Import Bank, the World Bank, and so on, those things have to end. Because in the end, they're not helping the countries where the money is going to. They may be for the very short term, but they're creating other issues for the longer So that's one place to start. There's huge amounts of money in that space. And the policies are still in many ways agnostic, energy technology agnostic. Let's get money to the right place. Let's get dollar flows to the right place. And whether it's fossil or solar, let's just get the energy there that we've got pots of money, considerable pots of money. The private sector, though, is also making very clear bets. They are looking at it in a much more focused way. What kind of goals, what kind of vehicles, what kind of tax incentives we could generate to make those investments more productive for those willing to do the investments. And a lot of that is happening. We're seeing more money going into the developing world. We're seeing more funds specifically designed to invest in the developing world. And we're seeing many conversations around what are the tax credits or the incentives to enable that to happen in larger amounts of dollars.

Yeah, Steve, a big topic. But yeah, tell me, you know, biggest challenges and where needs to— where the focus needs to be in terms of getting those capital flowing into the—

I'll come back to sort of this. There's broadly 3 areas I think that we need to do to get capital flowing in this. But first, I think I'll just go back to the green discount. So it's super exciting that we've got cheap technology. So if your people haven't got any infrastructure, it's all new infrastructure. So that's an opportunity as it's now come right down the cost curve, whether it's solar or EVs and batteries. And so that's actually allowing business models that are using things that are tailored for emerging markets where you've seen sort of microfinance. How do you work with is consumers who have $10, $15 a day or less, and the business models are adapted. And then you can use de-risk technology there. So one of our partners, LeapFrog, which has a climate fund, they're an impact investor focused on emerging markets. Their average customer, the end customer of their portfolio companies is on $12 a day or less, I think is the number. So really it is the global poor. And SunKing is one of their investments. SunKing is using solar batteries, LED lighting, et cetera, to roll out clean energy solutions on a pay-as-you-go approach. And 100 million people have access to some form of clean energy solution as a result of that. Highly scalable, highly, highly scalable. So I think that there are, and there's multiple examples of this. There's company, a smart battery company in India that basically is doing swapping. We're having people literally leapfrog from old tech. They're not going through into conventional internal combustion engines. They're going straight to two-wheeler EVs or three-wheeler EVs and using a battery switching station. There's 1,000 of them across India operated by small entrepreneurs. And Hundreds of millions of people will swap their batteries there over time. Very compelling solutions driven by the technology and market-specific business models. So we need to invest in those at scale. So that's a first point. Then I think there's something, you know, so that's the, let's look at those and let's have the models there and look at the pilots and deploy capital, build confidence and say, actually the risk rewards here are good. Capital can flow. I think there's something for asset owners. I touched on this before, and if you indulge me in this a second, but we're universal owners. We're kind of exposed to the total global economy. Our best long-term returns will be in a global economy that thrives. That will be an inclusive economy that's tackled climate change and reversed the decline in nature. And we've modeled it. We know that that's true. And the other large asset owners know the same thing. So actually, if our best returns come in that world, we've got to really lean in. And we've put, I think, $44 billion Singapore dollars behind sustainable living trends aligned investments so far as a firm. It's a pretty meaningful commitment from us. We know there's more to do for us and we are absolutely committed to doing that. But we need to really do the hard to do things as well there. So we need to lean in and find the solutions for things. So if we need the big asset owners doing that, the pension funds, it's in the long-term interest of where if you are a pensioner in Canada or wherever, or if you are actually a citizen in Singapore, it's in long-term financial interest for us to invest actual risk capital in solving some of these problems. Because if we don't, who does? There'll be some public money in there. It won't be enough. And my last thing, I said there were sort of 3 broad areas. The last is we need to do something we've not done yet. And I think as Mindy pointed out, there's a role for the multilateral development banks and others in this, and they're looking at it. They're active in this space. But if you look at what we did during the pandemic, the governments that could, Printed money on an exceptional scale. They stood behind businesses. They rewrote the rulebook of what government can do in a crisis super fast. Climate change is like COVID, but it doesn't go away. It just gets worse until we've got to net zero emissions and beyond. So it's time to really look at how we do this. And there's been brave efforts by the Prime Minister in Barbados and elsewhere to look at how we can do this. We're going to need to look at how can we mobilize capital to do some of these hard-to-do things and make sure we don't leave billions of people at real risk, super resilient, left behind in the energy transition in a world that is punished by climate change.

Thanks, Steve. Quite a bold call to action there. And I think that's a good point for us to end on actually. We could We could keep going with this discussion for many more hours, I think. But thank you both for a really interesting discussion there. You know, obviously a very complex but vital area of focus for both policymakers and investors to grapple with over the coming years. This has been the Sustainable Views podcast from the Financial Times Group. So to read more about all things sustainability or to listen to other podcasts from Sustainable Views, you can visit sustainableviews.com. But all that I'm left to say here is thanks again to Mindy and Steve for their contributions to this discussion, and thanks to you all for listening.