Transcript
Speaker: Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
Speaker: Make sure you're subscribed to stay up to date with new episodes.
Speaker: Thanks for listening.
Speaker: And now onto today's show.
Speaker: Hello, I'm Weishin Chan from HSBC's Climate Change Center of Excellence, where I also head up
Speaker: How exciting.
Speaker: And as ever, there's a lot going on.
Speaker: I'd like to welcome Nigel Topping, a UN high-level champion for climate action COP26.
Speaker: This shows you how serious he is.
Speaker: He's even trying to learn Arabic at the moment.
Speaker: He asked me to emphasize the word crying, but I'm sure that's you being modest.
Speaker: And Jenny McInnes, Global Head of Policy and Partnership Sustainability at HSBC.
Speaker: Thank you for joining me both for this panel.
Speaker: We are going to have a discussion today.
Speaker: covering developments behind the scenes, green zone issues, and the all-important oil that facilitates negotiations, climate finance.
Speaker: So at COP26 last year, Nigel, the UK publicized the mantra of cash, coal, cars, and trees, and the first few days had a flurry of announcements to that effect.
Speaker: But what progress have we seen?
Speaker: on these.
Speaker: I'd like to focus on the coal, the cars, the trees initiatives for the moment.
Speaker: We can leave finance later, but in your vantage point, Nigel, what progress have we seen?
Speaker: I think mixed.
Speaker: One of the things which really landed in Glasgow was this idea of the breakthrough agenda.
Speaker: What are we going to do in each of these sectors?
Speaker: That goes beyond coal, cars, cash and trees, which is the Prime Minister's simplified
Speaker: a list of four.
Speaker: I mean, there's many more, right?
Speaker: Steel, aviation, shipping, you know, regenerative agriculture.
Speaker: So we've now got well over 50 countries all committed to that agenda, which means driving the innovation by 2030 so that we're on track.
Speaker: So of course, we've hit some bumps in the road because of Ukraine, but actually all the evidence is that we're accelerating the energy transition, although there's some short-term use of coal and some gas assets and fatibirol
Speaker: was very positive about that trajectory.
Speaker: If you look at cars, and I bang on about this all the time that we need to improve our exponential maths, we've more than 50x the amount of electric vehicles being sold in the last 10 years.
Speaker: That's doubling faster than every two years.
Speaker: And we're now at 10% globally.
Speaker: So if you carry on doubling every two years, that's 80% within three more doublings.
Speaker: So basically, the combustion engine is dead globally by the end of this
Speaker: decade now.
Speaker: And we're starting to see that exponential with real money coming in at the early stage, green hydrogen, green steel, sustained radiation fuels, the first zero carbon ships actually being ordered by Maersk and the other major container shipping vessel.
Speaker: So good progress and not enough progress in emerging markets.
Speaker: And that's perhaps more of a finance conversation
Speaker: which we'll come to later.
Speaker: I think the last thing I'd say is we've seen some very big policy shifts in the last few months.
Speaker: Obviously, the Inflation Reduction Act in the States, I mean, there's a kind of a feeding frenzy going on right now in the States.
Speaker: Everyone's just falling over themselves to access the largely carrot-driven transition there.
Speaker: But also Australia, you know, that's a big deal in terms of a major renewables and green hydrogen play.
Speaker: But of course, Europe also accelerating now, talking about possibly even upping their headline 2030 targets.
Speaker: Well, at the end of COP26, the Glasgow Climate Pact was signed.
Speaker: Countries were asked to revisit and strengthen their climate pledges or those nationally determining contributions.
Speaker: I count 23, with the latest being the UK and Indonesia, and as you said, the EU talking about it.
Speaker: they weren't quite the step up that we were looking for.
Speaker: Is the situation different on the ground?
Speaker: Jenny, perhaps we can turn to you for this question.
Speaker: How are countries closing the gap between climate targets with realistic policy setting and implementation?
Speaker: Yeah, thanks, Bajid.
Speaker: I think it's a really important question.
Speaker: And when we were going into COP26, I was working for the UK government and I really thought about ambition and ambition raising.
Speaker: in a number of different ways.
Speaker: Obviously, NDC enhancement in terms of increasing the actual target within the NDC is a really important metric.
Speaker: And it's important that we're able to show that the ratchet process that the Paris Agreement baked in works, it's viable, because every country that submitted an NDC in Paris should be able to go further because we've built so much confidence over the last few years by the fact that every country is part of this agreement.
Speaker: But I think there are other measures of ambition and we need to take them all into account.
Speaker: So, for example, improving the quality of NDCs.
Speaker: A lot of countries that put forward NDCs initially were, you know, they were a two-page piece of paper.
Speaker: They hadn't gone through national parliament.
Speaker: They hadn't been ratified domestically.
Speaker: They didn't have the ministry institutional capability to actually drive through the NDC.
Speaker: And that translation of the headline target into real implementation plans is a really core part of ambition.
Speaker: And I think we've seen a lot of progress on that.
Speaker: A number of countries have embedded their NDCs and net zero commitments into legislation, into new climate change act.
Speaker: And that's really important because it helps to buffer against political change as well.
Speaker: Like in the UK, we have net zero legislation.
Speaker: We were the first country in the world to develop the Climate Change Act and then the net zero legislation.
Speaker: And that presents a huge range of benefits in terms of establishing the institutional framework for being held to account on progress and really forcing the difficult policy decisions that are required to meet that commitment.
Speaker: I think another way of countries sharing ambition is by thinking longer term.
Speaker: We need short term NDCs.
Speaker: We have to take a huge chunk out of the global carbon emissions before 2030.
Speaker: But we also need countries to be thinking longer term.
Speaker: And for some countries in particular, that's important because we anticipate some growth in emissions, for example, in emerging economies between now and 2030.
Speaker: And we need to see a rapid growth.
Speaker: scale back on the back of that.
Speaker: I think a number of other things have happened.
Speaker: We've seen a few countries lead the development of their own energy transition plans.
Speaker: And that's important because this has to be a country-led process.
Speaker: It can't be imposed on countries from either the UNFCCC or from donors and finances.
Speaker: So it's really helpful when a country defines their long-term energy transition plan because it gives confidence to investors on the direction of travel.
Speaker: There's been a number of other things over the last couple of years, like investments in cities, in cleaner, greener cities with immediate health benefits.
Speaker: And that's particularly relevant in, you know, as we sort of
Speaker: transition hopefully out of the pandemic and recognise the interoperability between health and local climate.
Speaker: And we're also seeing a massive increase in the market for green finance.
Speaker: Lots and lots of countries, including emerging economies, have been developing taxonomies and green bond standards that help to align with global benchmarks and again help to give confidence to investors on the potential for investing in those countries.
Speaker: Thank you, Jenny.
Speaker: Nigel, in your role as a sort of UN high-level champion, what are you seeing that is outside of this policy setting that Jenny talks about, outside of politics and outside of the complications of getting legislation passed?
Speaker: What about the real climate action from companies?
Speaker: Well, I talked about the breakthrough agenda, which was launched by the UK presidency, but we actually launched the 2030 breakthroughs sort of non-stack, as for the private sector, the year ahead of the COP.
Speaker: And the private sector is getting itself pretty well organized.
Speaker: Pretty much every major emitting sector, you've got a serious collaboration or collaborations along the value chain.
Speaker: the massive collaboration around getting to zero shipping.
Speaker: Fuel providers, port operators, shipping manufacturers, freight owners, there's a zero emissions freight alliance with Unilever and IKEA and Amazon saying they'll only buy zero emissions freight by 2040.
Speaker: There's a whole series of first movers coalitions, which is a mixture of countries and companies giving forward market commitments to buying green steel, green cement, green hydrogen, sustainable aviation fuel.
Speaker: So I think that pre-competitive, you know, we're very used to this in the tech sector, right?
Speaker: We're so used, you know, Moore's law, right?
Speaker: It's not a law, as you know, it's an assertion of belief in our ability to innovate, which when enough people step up and say, yeah, we can do that, then it's amazing what we can do.
Speaker: And you're right, we're starting to see a Moore's law and pretty much, you know, so in hydrogen, we're looking at getting to $1.50, then $1 a kilogram before 2030.
Speaker: There's like mass, you know, when we launched the green hydrogen catapult a year before COP,
Speaker: The members were targeting 25 gigawatts by 2026.
Speaker: But a year later, they increased their target by 80% to 45 gigawatts 2026 and 700 by 2030.
Speaker: That's that exponential increase.
Speaker: kicking in.
Speaker: So I think that's a really, that interplay between more and more countries stepping up, as Jenny said, it's not just with NDCs and long-term strategies, but sometimes policies like that.
Speaker: I don't think the Indian tender for 50,000 e-buses, which is a $10 billion tender, is captured in NDCs or long-term strategies.
Speaker: Yeah, I don't think the sort of Reliance or Adani, tens of billions into renewables and green hydrogen is necessarily captured in the dynamism.
Speaker: So I think one of the things we won't see every country submit a new NDC every year, especially quite a lot of work for a lot of countries.
Speaker: But, you know, we've got very significant step up in the States.
Speaker: You know, the EU probably are talking about increasing their headline figure, maybe after even countries like Egypt, who just haven't got a very ambitious NDC, but are working on turning the plans into financeable propositions.
Speaker: We had a big conference out there, which is really encouraging.
Speaker: And HSBC has been very involved.
Speaker: out there but their head the minister for renewable energy is already saying next year they're going to review their targets because i think that people get it's a question of confidence right that exponential is is built on confidence of people saying what they're doing and then doing it quicker and cheaper and then and then people go in with a bigger target and a shorter time frame the next time so i think in particular we're seeing that alignment of the private sector along the value chain and
Speaker: around it with the finance sector, with all the members of GFANS, doing the hard work of turning headline commitments into detailed plans, as HSBC, for example, has been doing.
Speaker: You can't implement at the level of net zero by 2050.
Speaker: You've got to implement that.
Speaker: How do we finance this sector through the transition?
Speaker: Doing it on the ground, so to speak.
Speaker: Exactly.
Speaker: And as countries improve, so the UAE a couple of weeks ago, the peer pressure will be there.
Speaker: That momentum will follow through.
Speaker: But a slightly different question for you, Nigel, if I may.
Speaker: I mean, many of the initiatives you spoke about tend to focus on mitigation, net zero, one and a half degrees.
Speaker: Very important for the sort of future transition and building the infrastructure surrounding that.
Speaker: But the extreme weather events of 2022 so far, right?
Speaker: I mean, the heat wave in Europe, the droughts in China, the floods in Pakistan, these continue to highlight the importance of adaptation.
Speaker: Indeed, Egypt in its representation as COP27 hosts representing the African continent will be focusing on adaptation.
Speaker: So what adaptation actions are you seeing from companies, Nigel?
Speaker: That's a really good point.
Speaker: And it is something that the Egyptian presidency is particularly focused on.
Speaker: And as have we been for some time, I mean, the mitigation work is better organized and further advanced intellectually and operationally.
Speaker: Actually, we just launched this idea of the mitigation breakthroughs, like the 2030, like we need
Speaker: 70 green steel plants to be built by 2030.
Speaker: That's the figure that comes from the mission possible work on steel.
Speaker: And we can see 47 of them in various stages of planning already.
Speaker: So you can start to be pretty confident that we'll hit that 70 or maybe surpass it.
Speaker: But on adaptation resilience, there hasn't been that clarity of landscape.
Speaker: So we end up talking in abstract terms about the problem, but not getting down on the ground, as you say.
Speaker: So we just launched a series of adaptation resilience breakthroughs, which define the deployment target for various
Speaker: solutions, whether it's insurance, closing the protection gap, because that's one of the big things which allow, for example, smallholder farmers to be more resilient, or whether it's investment in water infrastructure in urban areas in sub-Saharan Africa, or clean cooking solutions, or mangrove restoration.
Speaker: And each of those has millions of lives and livelihoods made more resilient.
Speaker: And most of them also have a mitigation aspect as well, like if you're restoring mangroves or using clean cooking stoves instead of cutting down forests, you have all sorts of
Speaker: benefits, but also importantly, they have developmental employment and economic growth aspects.
Speaker: And one of the most important things that we're working on now is trying to kill the myth that there's no investment case in adaptation of resilience.
Speaker: It's just not true.
Speaker: It's kind of so obviously not true.
Speaker: When you just think about what everybody agrees is that when we get to a resilient net zero world, it'll be a much bigger economy.
Speaker: So there must be a way of
Speaker: unlocking a business case.
Speaker: It requires some innovation financially and some of the things that HSBC is involved in like fast infra labeling for robust resilient infrastructure investment or the Coalition for Climate Resilient Investment, which is making really good progress on helping governments understand the longer term fiscal case for investing more in resilient infrastructure and generating a bigger fiscal return
Speaker: But that's quite technical, right?
Speaker: And so it's really pleasing to see some of the leading banks like yourselves and the rating agencies and data providers coming together.
Speaker: And I think we'll see a lot more of that in Egypt and in this decade to come.
Speaker: Actually, there is a case to invest in resilience.
Speaker: It just needs to be made skillfully.
Speaker: And that's not a flippant statement.
Speaker: There's a lack of skills in a lot of those markets to help make that case.
Speaker: How do we know what a good climate plan looks like for a company?
Speaker: Well, I mean, I'm sure Nigel has views, but it's a really good question.
Speaker: And I think credibility in that is absolutely key.
Speaker: So GFANS is helpfully producing a set of guidance for financial institutions in considering, you know, how to develop transition plans and what should be in them.
Speaker: you know, we will need to build up our assessment really, really rapidly and have a really clear view of what credibility looks like.
Speaker: And we're thinking about that a lot at the moment in the context of our energy company transition plans, which we've already requested and which will be absolutely key as we look to implement our energy policy, our new net zero aligned energy policy that will be published at the end of this year.
Speaker: Because
Speaker: We need to be able to differentiate between the countries that are the clients that are actively seeking to transition and have a credible roadmap to get there, but perhaps need some help.
Speaker: And those that have set targets, but have no plans to get there and understand how we work with them to really try and drive that transition.
Speaker: I don't know whether Nigel, you want to answer that.
Speaker: I mean, that's one of the reasons we launched the Race to Zero a couple of years ago was to try and distinguish between flaky greenwashing announcements and targets and science-based plans.
Speaker: There's over 8,000 companies and financial institutions now in the Race to Zero.
Speaker: So they've all committed to setting robust science-based targets, which means immediate 2025, 2030 goals, not just five CEOs down the road, a miracle's going to happen.
Speaker: But on my watch as CEO, I promised to operationalize
Speaker: this target.
Speaker: I think that increasingly we're seeing good work on sectoral pathways, the Mission Possible Partnership and SBTI have done a lot of work on some of those hard to abate sectors or innovate to abate, we prefer to call them now like steel, shipping, I think I just published something on chemicals.
Speaker: So judging whether a company has aligned their plans, at least with those sort of free competitive plans, much like in the sort of
Speaker: tech world, there's a pre-competitively agreed technology roadmap to go from 4G to 5G.
Speaker: We're starting to see that happen in more and more of these sectors.
Speaker: So pre-competitively agreed roadmap, then compete like hell in implementing it.
Speaker: One really important thing to note is to benchmark against those plans which get to net zero rather than the key providers of forecast
Speaker: information.
Speaker: Forecasts are always wrong on the low side for technology.
Speaker: So you need to look at normative scenarios, not forecast.
Speaker: Whether it's BNF or the IEA, the technology forecasts are always wrong.
Speaker: They don't take into consideration the dynamics that we know of this feedback process.
Speaker: They try and model bottom up.
Speaker: That's why they always have to correct outputs every year.
Speaker: But I think the most important thing is demonstration of allocation of capital.
Speaker: So an oil company is talking about being serious about the transition, but only allocating a couple of percentage points of their capex to the energy transition.
Speaker: So say it's just blah, blah, net zero, but look, follow the money.
Speaker: So you can see that in the automotive industry, all the money is going into R&D and product development for electric vehicles.
Speaker: So you can see that's a serious transition.
Speaker: You can judge how serious, but in other companies, you can see that it's not serious because the money is not flowing yet.
Speaker: What developments are we seeing to align the financial system to sort of net zero goals, to transition and to adaptation from your vantage point, Nigel?
Speaker: Well, you just laid out the negotiation agenda, right?
Speaker: And that, of course, relevant, but it's far from sufficient.
Speaker: I mean, Mahmood would say that climate financing is insufficient, inefficient and unfair.
Speaker: And we know it's insufficient.
Speaker: And part of the problem is that we've over focused on the negotiations agenda.
Speaker: like to be blunt the difference between 80 billion and 120 billion it will be will be almost unnoticeable for most emerging markets so it's that's that's not to um try and um mathematically wave away the trust issue around the delivery of 100 billion but it's really a trust issue and and and there's a trust deficit because there's a that promise hasn't been met it's really it's
Speaker: Yeah, it really undermines trust in the whole process.
Speaker: So we're waiting to see the updated plan of how that 100 billion is going to be reached.
Speaker: But we know that the real figure is more like 3 trillion for emerging markets, excluding China.
Speaker: It's based on the Vivid and the Brookings Institute seem to converge around that.
Speaker: level.
Speaker: So one thing which MacMood and I and the presidencies have asked, Nick Stern and Vera Songwe, Vera Songwe was around the UN Economic Commission in Africa until recently, and a group of global economists, is to give us a better picture of the overall landscape in terms of the overall quantum, so that three trillion, but then break it down by multilateral, bilateral, sovereign, domestic savings mobilization.
Speaker: That's an interesting thing that's been talked about a lot more now in Africa and the islands, that this kind of
Speaker: lazy capital sitting around not being used or it's being put into T-bills and treasury bills rather than investment in local infrastructure.
Speaker: So what's the total amount?
Speaker: How does the stack break down?
Speaker: And then also what are some of the debt issues around it?
Speaker: We need to see more catastrophe clauses to have automatic
Speaker: Repayment holidays, particularly when the small vulnerable countries have like a 50 to 200 percent of GDP event.
Speaker: It's kind of insane to expect them to keep paying debt whilst trying to concentrate on rebuilding after a hurricane.
Speaker: Significant extensions in insurance coverage, some good progress being made in parametric insurance rollout in the Caribbean.
Speaker: Relooking at the laws of qualification of ODA for some of those countries that have
Speaker: graduated to middle income, but still very vulnerable compared to the size of their economy.
Speaker: Barbados would be the poster child for that.
Speaker: And then particularly looking at the leverage ratios that we need.
Speaker: So for me, the thing I'd like to see most is I'd like to ban MDBs from talking about their front of pipe deployment measure and only allow them to talk about what they're actually
Speaker: So that's why I use that example of EG, the 500 million public to 10 billion private.
Speaker: That's a pretty good leverage ratio.
Speaker: In emerging markets, the current leverage ratio from public to private is one to 0.19.
Speaker: So we're getting 19 cents for every dollar of public money.
Speaker: 19 cents private is rubbish.
Speaker: And it needs to be one to three because we need to go to about 75% private to reach that 3 trillion.
Speaker: So I think we're getting a better sense of the landscape.
Speaker: We're starting to have better conversations around
Speaker: sort of normatively what the changes are that are needed.
Speaker: You've seen me and Motley and others talking in the General Assembly about some of those changes that are needed.
Speaker: But we need more public capital, and whether that's from more special drawing rights or some of the work reviewing the capital adequacy of the MDBs.
Speaker: And we need to leverage it better.
Speaker: And we need to tackle the debt in a more structural way.
Speaker: So it's a pretty big agenda.
Speaker: But I do think the quality of the conversations
Speaker: improving and hopefully we go beyond just what's the successor to the 100 billion, having a more sophisticated overall conversation, which includes much more of the private sector capabilities as well.
Speaker: There are lots of linkages between a lot of different areas.
Speaker: One of the ones that is emerging, Jenny, is between climate change and biodiversity, it's basically being recognised.
Speaker: What role does biodiversity and nature-based solutions have in helping us to get to net zero faster?
Speaker: Yeah, I mean, I was thinking exactly that when we were talking about demand side, because we're also developing our deforestation policy this year alongside our energy policy.
Speaker: And the challenges are completely different because for the deforestation policy, we really need the whole value chain or other critical actors in the value chain and other competitors or other banks to move in the same direction to really send the signal that's needed to tackle deforestation.
Speaker: I mean, it's not new, the concept climate and nature are intrinsically linked.
Speaker: You know, the evidence is absolutely there now and it has been for the last couple of decades.
Speaker: So we will not achieve net zero without serious efforts to protect nature, to restore nature and the ecosystem services, to value the ecosystem services that nature provides.
Speaker: So that's why we're really focused on our net zero line deforestation policy this year.
Speaker: We need to rapidly understand how we can have that value chain impact.
Speaker: And it is a multiplier impact.
Speaker: That's the exciting thing about it, is if we can send the right signals to the value chain by sending a demand signal in terms of the commodity link deforestation that's potentially financed by HSBC and other banks,
Speaker: then that has an impact on the whole value chain.
Speaker: What we need to ensure is that it doesn't result in a shift in trade flows away from emerging economies, who are the biggest producers of commodities and who are the ones that need support to tackle deforestation.
Speaker: So it does need some, it can't just send a demand signal.
Speaker: There needs to be work with government to shore up that producer country regulatory environment and enforcement.
Speaker: What do you think COP27 will be known for and how will it support or pave the way for COP28?
Speaker: 30 seconds each.
Speaker: Why don't we start with Nigel?
Speaker: I think it would be known for a focus on resilience and on
Speaker: Some of the innovations needed both public and private, both international and domestic, to mobilise the trillions needed to make the just transition in emerging markets.
Speaker: Thank you.
Speaker: And Jenny?
Speaker: And I think it's a really, when the question was about COP27, looking through to COP28 as well, it's really important that we take that two-year view.
Speaker: And it's got to build confidence in the process and in the commitments that have been made by the public and private sector.
Speaker: and the fact that those are being implemented and delivering impacts on the ground.
Speaker: Wonderful.
Speaker: That's all we have time for.
Speaker: What amazing insights from the ground, from the world of finance, from Nigel and Jenny.
Speaker: Thank you so much for your time.
Speaker: Thank you for joining us at HSBC Global Viewpoint.
Speaker: We hope you enjoyed the discussion.
Speaker: Make sure you're subscribed to stay up to date with new episodes.
