Robert Fernandez

The financial sector is the bridge for a $45trillion opportunity.

Rob says investing institutions can evolve their analysis and understanding, and act as a vital influence on companies, while the sector as a whole can help drive better disclosure.

“The first one has to do with consideration of ESG risks in the investment process and doing it in a credible way, where you look to continuously enhance your process to take advantage of better information to incorporate into your process. And secondly there's a role for the investment community in supporting efforts to improve corporate disclosure around ESG issues. We've been a supporter of the sustainability accounting standards board, which is now ISSB, since probably 2012.” 

Rob cites a recent Moody's report called ‘Ready or Not’ which evaluated companies for their climate transition readiness. “They estimate there's a $45 trillion investment opportunity in the coming two decades to a shift to a zero carbon economy. That amounts to a 25% gain in GDP.  And then Ceres has said that something like a trillion dollars needs to be invested every year in clean technologies for us globally to hit or achieve at least below two degrees celsius. And to get to one and a half degrees, it's even more.”

“Investors can therefore have a great role to play in helping bridge the gap between projects that need to be financed and clients that want to finance them.”

Companies are finding new ways to make a difference.

Rob says S&P 500 companies are responding to the call for more ESG proactivity. “We certainly see a number of companies that are thinking about the social side of things as well. When you think about large companies, they have such incredible resources, the cash that they generate from their operations, their expansive networks, they have the ability to drive positive change in so many different ways.”

Coffee retailers work with their growers to help them operate more sustainably, and with farmers to plant trees that can handle a warming climate. “Other service companies, retailers, restaurants, are very much focused on paying a living wage, we're seeing this a lot in the United States. You also have companies creating career advancement opportunities which weren’t there in the past.”

Rob says corporate philanthropy is a huge and important area of support for social-related issues. “It's not necessarily just with your employees. These major companies also provide support to the communities where they operate, in areas related to education or healthcare, perhaps designating a certain percentage of their revenues to support these philanthropic efforts. We're seeing a lot of positive development there as well.”

He also notes the business roundtable in the US where leading company CEOs have redefined the purpose of a company as being to promote an economy that serves all Americans. “It's a recognition of social and environmental issues that companies need to manage. I think overall there is this whole movement going on, and it's only getting stronger.”

Stranded asset owners need to remain accountable.

Stranded assets are better off in the hands of publicly listed companies, Rob says. “We have seen reports about how energy companies are selling them off to private equity, in a way to get them off their balance sheet. But then they feel like they're not in the public view anymore. And so, from our standpoint, we would believe they should remain on public company balance sheets. We look at a variety of factors when thinking about stranded assets, whether this company has high or low ESG ratings and how we determine them, their capex, their capital spending plans, the management strategy for decarbonisation and how realistic we think that plan is. Have they tied executive compensation to decarbonisation goals? It's not all about where they are today, and the assets they have, but where the company intends to be in the future. And there's also a recognition that demand for oil and gas is going to be pretty robust for the foreseeable future, probably for the next decade or so, meaning that the transition as we're seeing is not going to be clean and easy.”

Technology will power the search for climate change solutions.

“It's not just like shooting at a target with one bullet ” Rob says.  “It's like a spray shot approach, because we need all possible solutions. We need to scale renewable power investment in infrastructure. The carbon credit markets need to really develop, to provide opportunities to trade more and offset emissions until they can be mitigated. And you're certainly seeing a lot of investment going on in technologies such as hydrogen and carbon capture and storage. That's where some of my hope comes from.”

Rob notes that more US municipalities are thinking about climate risks and embedding them into their capital planning for water systems. He cites Larry Fink, the CEO of Blackrock, talking about how the next 1000 unicorn startups will all be involved in climate technology.

“There will be a lot of capital being deployed in a variety of businesses to help create solutions, and it feels like we're going to need all of this to help fix or at the very least manage climate change in the coming years.”

So far it’s all about mitigation not adaptation.

More companies are focused on mitigation than adaptation, Rob says, especially in the last couple of years around the focus on a science-based target. “We certainly see some sectors that are focused on adaptation, the ones that have more physical risk like transportation, US railroads, the real estate sector. By and large, it's all about mitigation. There probably needs to be more happening with these other companies that also have physical assets such as manufacturing facilities or office buildings.”

A 1.5 degree target for 2050 will be hard to meet.

Rob says that based on the current trajectory we are unlikely to stay below 1.5 degrees.

“We had a climate scientist speak to us last month, who really went into detail on the science. And he would certainly say we have no chance of hitting it. And what's so hard about this conversation is that you want to be hopeful that we can, that the necessary resources will be put in place and humanity will get our act together, and we will achieve it. But I think based on current science, and the current trajectory, it does seem like it'd be hard to achieve the one and a half degree pathway by 2050.”