Transcript
Speaker: This is HSBC Global Viewpoint, your window into the thinking, trends and issues shaping global banking and markets.
Speaker: Join us as we hear from industry leaders and HSBC experts on the latest insights and opportunities for your business.
Speaker: Thank you for listening.
Speaker: Welcome to the Business Plan for the Planet podcast, a series centred around ESG Insights.
Speaker: In these episodes, you'll hear from experts whose work is at the heart of sustainability-linked trends and opportunities, as well as from businesses that are delivering change for a better future for us all.
Speaker: Join us as we shine a spotlight on their commitment to a sustainable future.
Speaker: Welcome to Future Focus, the UK at Expo podcast series, where throughout the world's greatest show at Expo 2020 Dubai, we'll be celebrating the best of the UK's creativity, innovation and culture with special guests offering exclusive insight into ways we can innovate for a shared future.
Speaker: In this episode, host Mark Jamieson talks to Zoe Knight, HSBC's global head of the Centre for Sustainable Finance, and Martin Link, Chief Strategy Officer for Wood PLC.
Speaker: In a wide-ranging conversation, the three discuss how wood, traditionally a high-carbon technology, has a role to play as the world moves towards a low-carbon economy.
Speaker: A very good day and welcome.
Speaker: My name is Mark Jamieson.
Speaker: I'm the Institution of Civil Engineers, Middle East and Africa Council Member.
Speaker: I'm also Vice President of PMK Consult.
Speaker: Today, the podcast that we're presenting is looking at the future and how we will live, but more specifically, enabling the transition to net zero.
Speaker: Why is it important and what do we need to do?
Speaker: I'm very fortunate to be joined today by Zoe Knight from HSBC and Martin Link from Wood PLC.
Speaker: Zoe is the global head of the Center for Sustainable Finance and has over 12 years experience with HSBC, having started her career also in the banking world with JP Morgan, UBS, and Meryl to mention a few.
Speaker: Martin has 11 years and is currently the chief strategy officer for Wood PLC and is central to their transformation from a high carbon energy industry to how that will look in the future and what does low carbon mean for Wood PLC.
Speaker: Both of them bring a wealth of experience, particularly in sustainable finance and how the corporate world is going to adjust and change.
Speaker: Undoubtedly, this is going to be one of the key things that helps trigger the change, because it's all very well as having policies in place that are government-led.
Speaker: But the fundamentals are, without the support of the larger corporate world, we just won't get there in time.
Speaker: So a very warm welcome to you both.
Speaker: Thank you for joining me.
Speaker: Just touching the overall sort of plans of what we want to do, we're going to sort of pick on maybe three areas that we're going to look at.
Speaker: The role of finance to address climate factors, the need to understand what the energy sector is doing, and in particular, obviously, what that means here in the Middle East.
Speaker: And also, what are we going to be looking at as the next action plan?
Speaker: So how do we take the outcomes from COP26 and the predecessors?
Speaker: And how do we focus those in terms of topics for COP27 and indeed COP28, which will take place in Abu Dhabi in a couple of years' time?
Speaker: So I'm going to start with Zoe, please, just to talk about finances and enabler for net zero.
Speaker: Hi, Mark, and thanks for the invitation to join you today.
Speaker: It's great.
Speaker: And you've really hit the nail right on the head, right?
Speaker: What does it really mean for finance to be an enabler of a net zero economy?
Speaker: And really, we're talking about two things.
Speaker: The finance sector is trying to solve for two problems.
Speaker: One, get more capital into the pure play climate solutions that reduce emissions.
Speaker: And that's clearly critically important to limit future temperature rises.
Speaker: But the second thing, which is a much more complicated area to talk about, is we want to create this system that aligns finance today for a future that builds that net zero economy.
Speaker: And that means looking across all different sectors today.
Speaker: You know, the industries of today, like the steel and cement sectors that are providing both solutions for how we want to live going forward, like inputs into wind turbines, for example, but equally in producing those goods and services can be energy intensive themselves.
Speaker: And so the financial sector has this kind of dual role at mobilizing as much capital as it can into new investments for those solutions, but equally reconfiguring the existing capital stock embedded in organizations to be able to transform into that future net zero economy state.
Speaker: Martin, as an effective need or user of finance, from your perspective, how important is it to have the right incentives and indeed the right support to be able to make the changes that a company like yourselves are going through?
Speaker: Yeah, thanks, Mark.
Speaker: And again, I would just say thanks for the opportunity to be with you today and to share some thoughts.
Speaker: I think this is such an important topic.
Speaker: And the role of finance is absolutely critical to what we're trying to do as a company and for the industry.
Speaker: It's really the lifeblood of our economy for the company.
Speaker: So, yeah, it's really trying to
Speaker: understand the role it plays and how to utilize the things that Zoe was talking about to try and encourage finance to be used more wisely.
Speaker: One of the things I realized when we were looking at the energy transition and how we need to pivot towards it is one of our fundamental tenets is to stimulate wise investment.
Speaker: In the past, we were perhaps more just looking for technical challenges and taking on board bidding opportunities and very much focused on that.
Speaker: And I think one of the things we've really realized in order to play our role in the energy transition, we need to be thinking about the flow of capital much more intentionally and bring our technical knowledge
Speaker: to some of the biggest industrial challenges, things like industrial cluster decarbonization.
Speaker: How do we bring the finance to that so that it's spent wisely?
Speaker: We only have a limited amount of capital.
Speaker: And as Zoe was saying, we want to help it to flow in the right direction.
Speaker: So I think there's probably 2 things to touch on.
Speaker: The first thing is our solutions and services.
Speaker: So we want to partner with organizations who have capital.
Speaker: And often this is like developers or operators, and we want to make sure that they're able to access that finance.
Speaker: And sometimes we can be part of the solution for tapping into that finance.
Speaker: An example would be the UK export finance that we've worked alongside many times.
Speaker: So there's that aspect of working together with our partners to solve these problems.
Speaker: But also for ourselves as a big company, we have a lot of working capital that we need.
Speaker: We have our tax and treasury teams trying to ensure we've got liquidity.
Speaker: And I think it's been a really encouraging move for us to see that
Speaker: our own kind of access to capital has become more green, more sustainable.
Speaker: We've taken advantage of a couple of initiatives recently that's tied ourselves to more sustainable KPIs, which I think is a really positive step to showing our kind of commitment and also...
Speaker: keeping us accountable to some of these commitments that we've made, which I think, as you say, it's really the role of corporations to try and lead the energy transition by example and by providing the right services.
Speaker: We are seeing a significant step change in the way that investors are looking at both corporations and indeed what it means to be sustainable in terms of their investments.
Speaker: So that is translating into the sort of ESG, the environmental, social and governance side of things.
Speaker: a step change in terms of how we actually create those performance indicators, but also do we deliver against those priorities?
Speaker: And perhaps, Martin, you can start me with just how important is coalition building delivering ESG objectives to any corporation?
Speaker: Yes, it's absolutely vital.
Speaker: In terms of ESG within our own company, it's something that I would say three years ago, it was on the periphery as we kind of thought about the investor expectations.
Speaker: And then I remember it was probably in 2019, actually hosting a meeting with our brokers to do a deep dive into what ESG was and what it meant for us.
Speaker: Then in the space of about six months, it went from being on the edge to being right in the center.
Speaker: And I'm sure we're not alone in that as a company.
Speaker: And everybody was talking about ESG all of a sudden.
Speaker: And I think one of the encouraging things is that we were doing a lot of this already, but we didn't know it, if I can put it that way.
Speaker: When you look at environmental social governance, I would say it's just how to run a good business, basically.
Speaker: So we were doing a lot of these things already, doing very good work around not using third parties who were corrupt or using child labor or any of these.
Speaker: We had some really good policies, but they weren't under an ESG lens or umbrella.
Speaker: And so what it's done, I would say, Mark, is really kind of hone in on what makes a sustainable company.
Speaker: And I think we're still some way into that journey.
Speaker: Because from my research into the companies that look at this, there's not 100% clarity on what are the key metrics.
Speaker: So there's a lot of things measured.
Speaker: But what makes the difference between one company and another when it comes to these decisions is sometimes difficult to put their finger on.
Speaker: But I think the encouraging thing is we scored very well because as I said, I think we were doing a lot of the right things already.
Speaker: But it's also put into focus our need to transform our portfolio and be much more proactive in working with that kind of partnership approach and coalition.
Speaker: And a lot of that's to be honest with our customers.
Speaker: As they transition,
Speaker: We've got a number of strategic frameworks in place and joint ventures.
Speaker: When you think of all our different customers, we might have 1,000, 2,000 on the go at any one time across our entire business.
Speaker: And obviously, there's a range of perspectives on this topic.
Speaker: North America, Europe, Asia has a very different perspective.
Speaker: approach to the energy transition and net zero.
Speaker: And we're trying to make sure we're kind of partnering at the right pace of a lot of these areas.
Speaker: And we're encouraged that things seem to be accelerating.
Speaker: But I think that flexibility to be able to be the support at the right time and make sure we're gently agitating the relationships to encourage our clients to be more sustainable and ultimately more resilient is part of our strategy.
Speaker: But the
Speaker: Not everyone's in the same place, Mark.
Speaker: I think that's part of our challenge is we've got such a broad range of customers.
Speaker: It is a challenge to be that kind of partner of choice across the entire spectrum.
Speaker: So yeah, definitely a work in progress.
Speaker: Yeah, I couldn't agree more.
Speaker: I think it's a really interesting challenge as a corporate.
Speaker: Where you lead, there are clients that are so far at the other end of the optic.
Speaker: It is a bit like, which way are you looking through the pair of binoculars as to how they treat your leadership?
Speaker: But hopefully, yeah, we will see more and more governance and relationship build with governments that would allow those sort of clients to realize that
Speaker: the leadership you're showing is indeed the right path for them to follow.
Speaker: Bringing together different partners is ultimately fundamental to delivering sustainable futures.
Speaker: As Martin pointed out,
Speaker: what we'd really like to have in some way is a convergence of thinking around which ESG metrics are important for us all to be able to compare on a consistent basis.
Speaker: And so, you know, it's really important for the financial services industry to think about how to do that, of course, in a way that isn't
Speaker: non-competitive with each other, but in a way that makes it more straightforward for the outside world to see what we're doing and to really look at whether or not they think that it's consistent between players.
Speaker: But one of the things that I would point out as well is that we have seen quite an evolution in this space,
Speaker: in the sense that in the early days of ESG thinking, when the principles for responsible investment were launched back in 2006 or so, the emphasis was really at investors looking at corporates and their consideration of topics in an operating sense.
Speaker: Where we've got to now is this in a much more strategic and business oriented outcome sense.
Speaker: And that's because the ESG agenda is really about tackling end markets.
Speaker: It's about thinking, you know, which are the high carbon products of today, which may or may not have a place in certain countries and in certain futures.
Speaker: If we want to be aligned to a future that is
Speaker: limiting temperature rises and we want to be in cities that are livable and clean and healthy and we want to be not on the receiving end of extreme floods and weather events and we want to be able to prosper altogether.
Speaker: Actually, that means an innovation and shift in some of the products and services that we use today and how we allocate capital for them.
Speaker: I think one of the interesting points that investors have really got behind is providing or looking at labelled products as a means to have transparency on whether corporates are doing what they say they will, i.e.
Speaker: providing the proof points that their climate strategy and narrative is actually being put into play via financing and new capital and how investors can support that.
Speaker: And this is mission critical, right?
Speaker: Because as I pointed out earlier,
Speaker: It's very straightforward to highlight the solutions and the opportunity set and the pure play, what's going to make the world shift.
Speaker: But it's much harder to compare if an industrial company that is inputting into the supply chain of perhaps a power utility or an oil and gas or a shipping or an industrial, if they're on the journey as well.
Speaker: And so we need these labelled products to give the proof points that
Speaker: that the companies are doing what they say they will.
Speaker: And that might be a pure green labelling, bond or loan, or it might be a sustainability linked.
Speaker: And by sustainability linked, that means selecting a set of metrics like emission reduction and linking that to the terms of the financing.
Speaker: And this is pretty innovative, right?
Speaker: Because investors want to see action and progress and financiers want to make sure that their capital is aligned in a risk-reward managed way.
Speaker: So, it's just a different way of thinking in terms of the decision-making process, but it's useful to provide that transparency and signal that things are moving forward.
Speaker: Equally, couldn't agree more with that.
Speaker: I think it's fascinating to see how the metrics that we used five years ago are changing so dramatically now.
Speaker: And the emphasis on everything from green building codes to the various measures that one uses in construction are equally applicable across different industry sectors.
Speaker: And what we're seeing is that there's an ability for
Speaker: you know, global leadership to be demonstrated quite clearly.
Speaker: And as you both have pointed to, being able to have a degree of measurement that is translatable across without impacting competitiveness is undoubtedly what's key.
Speaker: One thing to point out, by the way, Mark, is that now there's some 23 trillion of global investments that are investing on an ESG basis across the institutional investor community.
Speaker: So it's not as if it's stuck in a corner anymore.
Speaker: It's really moved into the mainstream space.
Speaker: This is no more about early adopters and startups, is it?
Speaker: This is serious levels of funding.
Speaker: Martin, how quickly have you, as Wood, been able to take this transformation and drive it to the top of the agenda?
Speaker: And how do you see it also changing in terms of the speed?
Speaker: Because obviously, if we look at the messages we receive at the likes of COP26, we are...
Speaker: you know, the time is now is very much the message we get.
Speaker: You know, we have to do things now.
Speaker: We have infrastructure in place that is still going to be in place in 2050, and we're still going to be relying on it.
Speaker: So we've got two elements.
Speaker: We've got an element of resilience we have to deal with, but we've also got to deal with kind of those decisions we're making now are what are going to shape 2050.
Speaker: If we wait to 2040 or 2045,
Speaker: We're too late.
Speaker: There's nothing to be done.
Speaker: We know only too well how slowly governments operate.
Speaker: Again, it seems beholden to the corporates to lead the way.
Speaker: How can you do this quickly?
Speaker: I think you've really hit on a key question there, Mark, because when I look at the last couple of years of momentum, we talk about unstoppable momentum for this transition to a low-carbon economy.
Speaker: And then, Zoe, what you were saying about the trillions of dollars ready to be spent on a green economy.
Speaker: We're in this phase right now where
Speaker: It's requiring the whole systems change.
Speaker: So if you take shipping, for example, how do you create a green supply chain around shipping?
Speaker: Well, that's not a five-minute task.
Speaker: That's a transition that may take five to 10 years.
Speaker: And so there's patience required on the side of society.
Speaker: And in the midst of that change and that transition, it's not a leap that we're in, it's a transition.
Speaker: And one of the things I see, you're absolutely right, is that coming out of COP, there was a real sense of,
Speaker: you know, we can do this.
Speaker: We've got, you know, all the work around GFANS and all this kind of finance was mobilised and we made some really good statements, positive progression around fossil fuels.
Speaker: Maybe not everything that was the climate activists were wanting, but certainly I would say significant progress.
Speaker: Zari, I mean, obviously with everything we
Speaker: we've discussed so far.
Speaker: I think one of the key things I wanted to look at is what is the banking world itself doing in terms of its own footprint?
Speaker: Clearly, you're looking to provide and direct corporations and industry to look at the way that they would manage their finance, but your own footprint, how's that going?
Speaker: How's that challenge being met?
Speaker: Well, Mark, it's obvious that we need to be leading by example, right?
Speaker: Which is tricky, you know, in some cases, especially as we're such a big organisation.
Speaker: And one of the ways to do that is really to take a holistic approach, which we did a couple of years ago, although we've been looking at the climate space for over 10 years now.
Speaker: But the first thing to do is really to get your governance in order of having board level oversight, the highest level of authority of how to take decisions on climate issues.
Speaker: But then there's clearly the areas like risk assessment and integrating climate thinking into how you set your risk appetite if you're a bank or a financial institution.
Speaker: Equally, then, your own operational carbon footprint is important.
Speaker: But equally, going back to the point that I made earlier, this mobilising capital agenda is
Speaker: You can also have your own targets associated with that.
Speaker: For us, we've set out a 750 billion to a trillion in facilitation and investment for sustainable finance over the next eight years.
Speaker: It's a massive signal that you're serious about the problem and you're serious at helping your clients on their own transition and climate narrative.
Speaker: Now, in terms of how well we're doing on that,
Speaker: So far, we've provided 83 billion in the last year or so.
Speaker: So, you know, we're off to a start.
Speaker: That was in 2021.
Speaker: Our cumulative total is looking more at over 100 billion.
Speaker: And so, you know, it's moving.
Speaker: It's a really good news thing to be getting on with.
Speaker: Separately, when we think about the emissions that are associated with us, most of that is in our financing.
Speaker: It's the emissions that are associated with our balance sheet and how that's lent out to different organisations.
Speaker: And there's a massive effort across the industry as a whole through the GFANCE, the Glasgow Financial Alliance to Net Zero initiative that Martin mentioned earlier,
Speaker: This is about saying, okay, we know in the industry that a lot of us are financing the same corporates.
Speaker: So, does that mean that we're double counting emissions?
Speaker: How do we account for that?
Speaker: What sort of scenario should we think about in terms of our future pathways of how we set our own targets against our balance sheet?
Speaker: So,
Speaker: There's a lot of work around the operating profile of emissions, the emissions that are associated with our financing activities and the whole governance structure and how capital is being deployed.
Speaker: It's really a holistic approach and it's really moved on leaps and bounds in the last 18 months or so.
Speaker: the SMEs of today potentially become the corporates of tomorrow.
Speaker: And if we don't help them set out on the right path, what chance have they got in 20 years' time when they're very much center of the industries that we're members of now?
Speaker: And if we're looking at SMEs, and Martin, again, maybe can go a little further, how does an SME become relevant to
Speaker: in the ESG world.
Speaker: And then perhaps, Zoe, if you can also talk about after that, maybe what it means to remain relevant in an ESG world.
Speaker: The challenge for the SMEs, a lot of it depends really on whether they need access to public financing or not.
Speaker: Because what we see is as a big public company, where we have shareholders and the stock market and
Speaker: There's quite a lot of pressure, good pressure, I would say, to change.
Speaker: There's that kind of drive which is pushing the big corporates who need access to public money.
Speaker: If you're an SME, you might be privately owned or PE backed.
Speaker: I think the challenge then becomes much more about attracting... Well, it's not and or because this is a challenge for big corporates as well.
Speaker: But I think it's mainly attracting talent and showing the relevance of your organization to these kind of higher level purpose-driven activities that your workforce wants to see you being part of and wants to see you making a tangible difference in the world.
Speaker: That's one half of it.
Speaker: The other half is then surviving in the midst of a pandemic and recession and bounce back.
Speaker: And then all these changes that SMEs have been going through, furloughing staff, coming back to work.
Speaker: I was speaking to quite a few recently where all the self-isolation in the hospitality sector has really crippled a number of businesses where people are here for a week and off for 3 weeks.
Speaker: And it's this
Speaker: practical impact at the grassroots level.
Speaker: When you're only... A guy I was chatting to the other day, 75 people in their manufacturing facility, and they've been really hampered in their ability to produce capacity because of these issues.
Speaker: So they're wrestling with these really basic...
Speaker: getting people available and producing, whilst at the same time thinking aspirationally about where they want to go.
Speaker: And in the middle of that is attracting the talent to come and be part of the solution.
Speaker: So I definitely think, as a bigger corporate, the more help we can provide them, the better.
Speaker: And just to build from that, really, I mean, we're obviously headquartered in the UK, but we operate across around 60 countries or so.
Speaker: And clearly our clients are operating globally.
Speaker: And we've managed to really create some
Speaker: innovative collaboration across our geographies and corporates.
Speaker: So, for instance, some of our large headquartered companies in the US, well, indeed, Walmart, which obviously has a massive supply chain in Asia where we're present, we
Speaker: were able to create a collaboration where we could provide preferential terms to the supply chain within that construct because of the sustainability-linked metrics that Walmart wanted its suppliers to adhere to.
Speaker: And that's, of course, driven by...
Speaker: shareholder pressure, the ESG investor that is asking its shareholding to look at the supply chain in more detail, and it's filtering down that way.
Speaker: But it means that we can be part of a more robust financing and sustainability structure.
Speaker: Within the region, of course, for Dubai Expo, we've done some work with Etihad Airlines in terms of sustainable aviation fuel as a market that can be grown.
Speaker: So there's plenty of ways in which a bank, believe it or not, can actually be part of the industrial transition as well.
Speaker: And what I've found really inspiring, actually, is I've been working on climate now for 16 or 17 years and in the financial markets for a long time.
Speaker: And often you can become on the receiving end of comments,
Speaker: where people are kind of quite surprised that I work in climate in a bank.
Speaker: And yet there is so much that we can do.
Speaker: And it's so inspiring to see our colleagues get on board with this effort.
Speaker: Right.
Speaker: They're devising products.
Speaker: They're thinking about how they can save plastic or save on energy efficiency and be more sustainable in their day to day roles.
Speaker: And that's brilliant to see.
Speaker: And it's necessary.
Speaker: And it's just one of the reasons why being part of this global architecture is a really nice place to work in terms of driving change.
Speaker: A question for you Zoe is how do you see us being able to reward companies that will invest in that resilience that effectively is the bridge between where we are now and where we need to be?
Speaker: Well, they'll get rewarded themselves by the fact that they'll be operating in the future and it's a license to operate.
Speaker: But in addition to that,
Speaker: There are several ways in which companies will grow, right, and have done throughout history.
Speaker: And it's no different now.
Speaker: It's just thinking about what the...
Speaker: external factors are on ability to operate.
Speaker: Now, if the external factor is the supply chain is disrupted because of weather or an inability to grow products, if you're a consumer company, for instance, then to be resilient, you simply can't avoid thinking about how your supply chain is going to change.
Speaker: If you're supplying into areas that are very carbon intensive,
Speaker: The political appetite to address these issues is increasing, and that can be a contributing factor as to how you'll be able to survive in the future.
Speaker: And I mean, there are tricky topics here, right?
Speaker: It's not going to be a straightforward downward emissions curve, although we would all like that.
Speaker: There are...
Speaker: Fossil fuels are part of the way that we live today, and there are substitutes for many activities, but still we're working through how to shift in others.
Speaker: And so the most important point is to signal direction of travel, to take these issues into account.
Speaker: And by doing that, you are therefore assessing resilience, assessing how well your business model is going to operate in the future.
Speaker: And that gives you time to...
Speaker: influence the change and to think about how that is going to play out.
Speaker: So we see this in a lot of cases of people being thoughtful around a longer term time frame, which perhaps even two, three years ago, that longer term thinking wasn't really part of daily business as usual.
Speaker: But that will certainly help with the resilience discussion.
Speaker: Thank you.
Speaker: And Martin, I have no doubt that the Wood are also considering, as much as they're considering the sustainable future and the low carbon future, there is an element of resilience both effectively internally and equally important, as you touched on just now, the supply chain.
Speaker: Perhaps you can give us a little more around your policy initiatives on that front.
Speaker: Yeah, I think the really critical thing is sustainable and resilient organizations of the future.
Speaker: And I really liked what you said, Zoe, about they'll be rewarded by existing in the future.
Speaker: I think we do need to recognize that society rewards what they value, right?
Speaker: That's essentially what the finance industry does.
Speaker: What we value as a society changes over time.
Speaker: And we talk about the social license to operate.
Speaker: That has really been changed drastically over the last five years.
Speaker: And sometimes companies are a bit slower to respond to the changing values that society places on different aspects of its life.
Speaker: And for us, being resilient and sustainable is important.
Speaker: is really trying to be relevant to what people are trying and what they want in their life, you know, and trying to understand how society is changing, how governments are changing and respond to that in a way that means that we're still relevant.
Speaker: For us, I guess there's a couple of aspects.
Speaker: Part of it is looking into the future and thinking what might happen.
Speaker: We did some scenario planning where we looked 15 years into the future to try and think about the world in 2035.
Speaker: And these questions, I talked about strengthening the muscle of contemplation within wood.
Speaker: So, you know, it was something the first time we'd done it and it was quite new, but it really generated a lot of very, very good questions and debate right at the top of the company at the board level and exec leadership team.
Speaker: And as a strategist, it was fantastic for me to kind of ask these questions and
Speaker: get people talking almost as... We got to this space where they were almost talking as private citizens rather than board members or... And it's about what kind of world do you want to live in in the future?
Speaker: And we talked about that.
Speaker: I tried as best I could to be totally objective and dispassionate with my scientific background.
Speaker: But as you discuss these things, you realize we all have an interest in what the future looks like, every single one of us.
Speaker: And so actually, I realized eventually I was becoming more and more convicted that the world that we need, that we want,
Speaker: we have to put our full weight into making that world happen.
Speaker: We can't just sit back and say, oh, well, in these various scenarios, we're going to win in all these different scenarios.
Speaker: And greenhouse gases might double or whatever.
Speaker: No one succeeds in a four degree planet or a three and a half degree planet.
Speaker: And I think that thinking
Speaker: future thinking has been very, very good.
Speaker: I think then there's the opposite side of that or the converse side, which is
Speaker: it's like present day stability and strength, right?
Speaker: And as Zoe was saying, that kind of whole fossil fuels transition, we're seeing right now the potential dangers of switching off too quickly and making quick decisions that are maybe politically favorable, but actually they're from an industry perspective, they're way, way too fast.
Speaker: And so I think what you were saying, Zoe, about this signaling the change, that's what governments need to do.
Speaker: They need to signal a change, but give the businesses like us long enough lead time to adjust.
Speaker: And that's like 10 to 15 years.
Speaker: And so...
Speaker: The challenge, I think, for us right now, Mark, is remaining relevant in our core markets, but also these emerging markets, and then being nimble enough to transition our portfolio from markets that are...
Speaker: kind of finding this pressure to change, being the enabler of change and being financially rewarded fairly through the midst of all of that.
Speaker: And sometimes those things are imbalanced and sometimes they're not quite in balance.
Speaker: And I think the last thing I would leave with on this particular topic is, you know, you're asking about being rewarded for this kind of greening.
Speaker: of your company.
Speaker: I think there is something missing right now.
Speaker: You almost get more rewarded if you exit an industry rather than stay in and try and help it.
Speaker: And I think that's something that as a big corporate trying to fix some of these challenges, it would be nice to be a bit more rewarded for doing that.
Speaker: That is one of the challenges that I see, particularly if you look at the Middle East, we're a deeply hydrocarbon driven economy and most of our energy solutions are still that, although there has been significant investment in alternatives and that continues apace.
Speaker: But I think we still have to recognise
Speaker: that if we take the climatic extreme events, it feels like as an individual, they're happening more often.
Speaker: It feels like they're happening with greater impact.
Speaker: And yet, you know, we don't necessarily look to help deal with the problem.
Speaker: And if, you know, if we shut something down, we think we've succeeded or we haven't, you know, it hasn't solved the problem.
Speaker: And hence why, you know, we're all now, you know, one of the issues could be if you look at the UK, you know, we're now struggling with
Speaker: significant increases in the cost of energy.
Speaker: So what's the right balance?
Speaker: Because somewhere along the line, there has to be a better balance.
Speaker: Zoe, just moving that on perhaps a little bit, we've talked very much about the need for sustainable finance and how it influences behavior both at corporate levels, government levels, and indeed further down the supply chain.
Speaker: I guess two questions that I have around this.
Speaker: How easy is it to distribute it?
Speaker: You've talked about the trillions, the 23 trillion that are now available.
Speaker: But how do we make sure it goes to the right place?
Speaker: And then secondly, picking up a lot of what Martin said about the supply chain, how do we capture everyone that actually fundamentally needs it?
Speaker: In other podcasts, we've talked about the funds that capture those that are in the sort of
Speaker: second stage of innovation, if you like.
Speaker: But somewhere within all of this, we've got to try and make sure we don't miss out on the golden goose that's going to help us accelerate and transform our futures.
Speaker: And so it'd be interesting to see how you as the banking world, how you make sure there aren't great initiatives being missed because we just can't get the finance to them at the right time.
Speaker: Sadly, right at this second, I think there probably are great initiatives being missed because of getting the finance to them.
Speaker: That's changing very fast because there's an emphasis across the entire capital stack of finance now that there hasn't been previously.
Speaker: There's the large institutional investor, there's the government thinking in sort of aid approach that's capturing climate.
Speaker: There's now increasingly the VC and the private equity markets and the philanthropists that have all got this mindset around, yeah, I really want to do something to help solve the climate problem here.
Speaker: The tricky point is matching just exactly what you said.
Speaker: It's matching where the source of the projects that are looking for capital are versus the mandate of the investors that can provide it.
Speaker: And I think that this is where...
Speaker: There's still a need for kind of awareness building and talking about the topic.
Speaker: It's all well and good that the likes of HSBC has got this mandate from the top and it's all permeating across all of our regions and all of our businesses.
Speaker: That is amazing.
Speaker: It's fantastic.
Speaker: It's mobilizing people.
Speaker: But we are just one organisation and there are other big ones like us that are, you know, maybe doing something differently or need to grow or whatever it might be.
Speaker: And so therefore, the fact that the finance agenda is so central now to the COP process is,
Speaker: and the thinking of how to mobilize capital through that, it means that there's becoming a greater linkage between the edging ministries, the sort of planning ministries that are doing kind of national climate plans submitted to the UN that are addressing the problem,
Speaker: and getting those plans translated into investment roadmaps so that investors can really see, okay, right, transforming the energy system, that's huge.
Speaker: It's going to take a lot of investment.
Speaker: Maybe providing a fleet of electric buses is something that's not so costly and might be provided by a private company or
Speaker: maybe even a rich philanthropist, you never know who might be putting in towards it.
Speaker: But nonetheless, that kind of that translation effect of the real economy shift and the investment is going to deliver that is edging ever closer together.
Speaker: And I suspect that one of the outcomes of COP27 is going to be a closer alignment of that thinking, the real economy energy shift and the financial sector investment roadmap to be able to do that.
Speaker: And the future for clean tech and the various products and solutions, Martin, clearly in all of this, we know the transportation, the energy sector, the construction industry, we're all in the bad books.
Speaker: But we are starting to look at some really interesting innovations and changes.
Speaker: And it's worth the audience knowing about that.
Speaker: Yeah, I think there's really probably two main categories of technologies that we need to think about.
Speaker: So the IEA came out last year, I think it was, saying that all the technologies we need to our 2030 targets are already in existence.
Speaker: So that's really about deployment.
Speaker: It's about being cost competitive.
Speaker: It's about scale, pace of deployment and supply chain bottlenecks and things that could disrupt the flow of that technology around the world.
Speaker: So I think we've seen a really encouraging uptake in solar and wind,
Speaker: onshore and offshore, and a huge investment across the world in power generation, which has made it cost competitive.
Speaker: So I think the market is there for that.
Speaker: And it's really down to the individual countries and organizations to figure out if that's the right solution for them in their geography.
Speaker: So I think
Speaker: Yeah, there's more to come, but from a kind of innovation and breakthrough perspective, you then move on to the next series of technologies, which is probably around hydrogen and carbon capture, utilization and storage.
Speaker: I think there's a lot of exciting work going on around hydrogen just now.
Speaker: And some of the projections are phenomenal in terms of the potential capacity for hydrogen to become effectively the clean molecule that we need as an energy vector.
Speaker: Some of the economics might be a bit challenging, but I think the world has shown that it can reduce the costs of these new markets pretty quickly.
Speaker: And so I think there's a real hope that hydrogen can be a real enabler.
Speaker: not just to kind of be the energy vector, the clean energy vector, but also in these kind of hard, what they call hard to a bit sectors where it's going to require industrial re-pivoting or kind of adjusting these big facilities.
Speaker: and trying to use hydrogen to bring this decarbonized solution to these big processes and industrial complexes.
Speaker: And I think from an energy perspective and energy and infrastructure, that's really the big challenge because I guess a lot of our focus goes on the things that are very
Speaker: visible, things like transportation, where there's a lot of discussion around electric vehicles and internal combustion engines and how quickly that market can be penetrated.
Speaker: If the economics work and consumers are happy, I think that will change fairly quickly.
Speaker: And the infrastructure has been built.
Speaker: But it's really the industrial ones that are the big challenge.
Speaker: And so I think hydrogen could be a really big enabler of that.
Speaker: And we're really investing in that as a market.
Speaker: We see a big potential blue and green hydrogen to really try to
Speaker: provide these technical solutions that then can enable you to capture carbon and store it in a way that means that you can still keep producing the pet chems that are going to be needed.
Speaker: And I think this comes back to what you were saying, Mark, earlier around the Middle East.
Speaker: You look at a lot of the work that we're trying to support to diversify in the region and using these hydrocarbons to be more sustainable and trying to burn less of them and use them more in products.
Speaker: And the whole refining investment that's been going on to produce more products.
Speaker: The world will need plastics and a lot of that comes from hydrocarbons.
Speaker: And I think we really see that as a real opportunity for wood and for the Middle East because of the low lifting costs in the region and the massive distribution network.
Speaker: So, yeah, lots of opportunities, but lots of, I think, encouragement as well.
Speaker: Some of the solutions are already out there, just a case of scaling them up.
Speaker: I think it is interesting, particularly in picking up your point about the Middle East region and the initiatives that are coming out of there are truly commendable.
Speaker: But it's also, I think, a challenge when you also consider, and this has global implications, not just Middle East ones,
Speaker: When we're looking at city to city, with Dubai to Abu Dhabi, I think it's much simpler.
Speaker: The principle of changing petrol stations into hydrogen stations or electric vehicle charging stations works very well.
Speaker: What I've noticed as well is...
Speaker: Having done the journey a couple of times, you do the Riyadh to Dubai journey, and it's a very different thing to undertake in a vehicle.
Speaker: The challenges, I think, remain that once one moves further away from the urbanized centers,
Speaker: How do we also reach out and make the transitions that is going to encourage adoption, but also in a way that brings benefit and doesn't penalize them because of where they live?
Speaker: That sort of urban versus rural question for me is a really interesting challenge for us as part of the overall energy and indeed finance aspect of getting us to net zero.
Speaker: If you've got less dense populations, you generally have less carbon demand.
Speaker: But, you know, equally,
Speaker: When you want to create the level of flexibility that permeates being in a city, we also have the challenge of actually trying to find that balance that people are able to get from A to B. It's a really key question.
Speaker: Having experienced living in rural Scotland, we have those, just for people who don't live in it, we have the storms come through before Christmas that wiped out
Speaker: thousands of trees and destroyed electricity lines.
Speaker: And all of a sudden, thousands of homes were without power for weeks.
Speaker: This goes back to what we talked about earlier, this sustainability, sometimes versus resilience, right?
Speaker: Because all of a sudden, what people realized was when you're without power in your home, you can't charge your electric car.
Speaker: And if you have a petrol or diesel car, you can drive to the hotel to at least get a shower and have somewhere to sleep.
Speaker: So these very practical questions come to people's minds when it's like, yes, aspirationally, we all want to have electric vehicles, but where we live.
Speaker: And I think this goes to the heart of this podcast.
Speaker: How will we live?
Speaker: How do we want to live?
Speaker: I think there's a real opportunity here as we come out of the pandemic in certain parts of the world.
Speaker: You can definitely see a revitalized rural economy when people are able to work essentially from anywhere.
Speaker: There is an opportunity for countries to look at their less densely populated areas as potential economic growth of the future because we're not so tied to location in a digital world.
Speaker: Thank you.
Speaker: Zoe, any thoughts on that before we move to a final question?
Speaker: Yeah, I mean, just to echo Martin's points, really, about the way that we'll live going forward and how, you know, and thinking about it from that perspective.
Speaker: There is still room for the city, even in a post-COVID world where we've all moved outside of the city for a bit and been a bit more versatile in what we're doing.
Speaker: But equally, the whole sort of context of COVID points to a shared response to solve the climate problem, right?
Speaker: Because without the broadband infrastructure, you're not going to be able to work in a rural location for very long because either you're going to get annoyed by slow broadband or your employer might not be too keen on the fact that all of a sudden you're not maybe as productive as you could be with fast broadband.
Speaker: And that, of course, needs a policy enabler as well as the finance enabler, as well as the demand for it.
Speaker: Essentially, those are the three nuggets that need to come together to solve the climate problem, right?
Speaker: It's the finance, the policy and the demand for change.
Speaker: I think just to end today's podcast, I kind of really have the what to what next question for you both.
Speaker: What do you think success will look like for COP27 and indeed for COP28 in Abu Dhabi in the future?
Speaker: So COP27 in Egypt, you know, I think it's a continuation of finance center, center stage, mobilizing more into the solutions, getting that renewable electrification up as much as possible.
Speaker: So that's the key thing.
Speaker: Success also in Egypt is a bit more about raised ambition at the country level, getting emission reductions down faster.
Speaker: We really need that.
Speaker: We need an acceleration and emphasis there.
Speaker: But then as we move forward to Abu Dhabi in 2023, that's a really big year because under the UN framework, it's the year of the global stock take.
Speaker: Now, what that means is when countries put forward plans ahead of Paris, there was an aim then to say, well, we've got to monitor these plans, right?
Speaker: How on track are they going to be in several years' time?
Speaker: And so Abu Dhabi will be overseeing that global stock take.
Speaker: which plays into how essentially how much the energy system is transitioning.
Speaker: So it's certainly going to be a very big year.
Speaker: So sincere thanks to Zoe Knight of HSBC and Martin Link of Wood PLC for joining me today for this fantastic podcast for Expo 2020.
Speaker: Your insights and your candidness have been really appreciated.
Speaker: It's been a super conversation.
Speaker: Thank you so much, both of you.
Speaker: Thanks for listening to Future Focus, the UK at Expo podcast series.
Speaker: Look out for more podcasts in the series or subscribe on your preferred podcast platform.
Speaker: And if you want to stay up to date with all things UK Pavilion, links to our social media channels can be found in the episode description.
Speaker: This has been a special podcast in the Business Plan for the Planet series.
Speaker: More episodes will follow shortly, so please do keep an eye out for those.
Speaker: For more information on the programme, visit business.hsbc.com forward slash sustainability.
Speaker: Thank you for listening today.
Speaker: This has been HSBC Global Viewpoint Banking and Markets.
Speaker: For more information about anything you heard in this podcast or to learn about HSBC's global services and offerings, please visit gbm.hsbc.com.
