Dow Inc. (DOW) Earnings Call Transcript & Summary

Good morning. Hello. Welcome, everyone, to [indiscernible]. My name is Adam Lake. I lead our engagement for Climate Group in North America, and I've had the good fortune of leading Climate (MIC) for the past 5 years. So welcome, lovely weather today. So thank you for making it across town. As a reminder for everyone, these flagship sessions will be streamed online. So a massive thank you to everyone watching at home and for you in the audience, you get a chance to watch this again, and I'm sure you want to. So thank you for that. You can tweak about us and talk about things being discussed today, #climateweeknyc. Another thing that we're doing, it's a new thing this year, you can ask questions from the panel. So if you look on your badge, there's a QR code. If you log into that, you can pose a question which our chair will be able to put to the group. So without further ado, we have a session now focused on what it takes to accelerate the energy transition across the whole ecosystem, and it's proudly hosted by a good friends at Boston Consulting Group. So without further ado, I'd like to welcome the panels moderator and the panel, Thomas Baker, Managing Director and partner at the Boston Consulting Group to the stage. Thank you.

Well, good morning, everyone. It's a pleasure to join you all today and talk about energy transition. My name is Tom Baker. I'm a Managing Director and partner BCG. I lead globally our low-carbon energy and infrastructure sector. And I'm incredibly honored to be with very distinguished guests here to talk through challenges with the energy transition. Let me first intro the panelists. I have a couple of quick opening remarks, and then we'll dive right in. We've got about the next 55, 50 minutes. As you heard, I will be our MC and make sure we leave time at the end about 15 minutes for questions. So please, please do use the app to submit questions. I think that's when the session gets especially fun. But real quick in terms of introductions, I'm joined here by Neil. Neil is the Chief Administration Officer at Cisco, and leads all the sustainability-related activities at Cisco. [indiscernible] name is Richard. Richard Manley, he's the Chief Sustainability Officer of CPP Investments. Next to him is Edward Stones. He's the VP of Energy and Climate at Dow. And then finally Renae Kezar , who's the VP of Global Sustainability and Regulatory pairs at Johnson Controls. So why are we here today? Why are we talking about the energy transition? Well, when we look at all the contributors to climate change, including everything, including implications of land use, methane emissions from agriculture. When we do the math, energy makes up approximately 80% of all the total greenhouse gas emission impacts on our climate -- so we can't talk about climate change without talking about energy. But I think one of the exciting things, and the theme of this week's climate week is we can, we will. And as we think about energy, we absolutely can. We have all the technology, all the levers at our disposal. You look at technologies like renewables, which are unsubsidized in many parts of the world competing with fossil fuels. We have battery storage that can help firm up that renewables that has [indiscernible] decreased in cost. And then while we still have technologies like hydrogen, clean hydrogen and carbon capture that needs to scale and we absolutely need to lower those costs. We see a path and the technology exists to the majority of our energy emissions. But it's not easy. The theme, and we heard often in yesterday's opening ceremony that we're entering this messy middle. We're entering a stage where, yes, we may have the technology, we may have a path, but real life gets in the way. We see issues, for example, in energy transition around permitting, challenges with supply chain.Challenges with the grid and interconnecting renewables challenges with land, challenges with water for clean hydrogen and a variety of other real-world challenges that are going to constrict our ability to drive the energy transition. And so I'm excited today to talk to this panel that's on the ground, in the field, talk a bit about some of the challenges that they're seeing.o I'm going to start there. I'm going to start with a question of what are these real-world constraints that each of you are seeing in your daily work. And Renae, I'll start with you.

Sure. So Johnson Controls, we have, of course, the big ambitious target of 100% renewables by 2040. We're currently at 42%. I like how you call it this messy middle because now we're sitting -- we're looking at a global [sitting], we're looking at a global footprint, 1,300 facilities. Everyone has electricity, and there are so many options. So it used to be pretty simple, just VPPA, plug it in and there you go. Now it's all of these options as you really want to understand the pros and the cons before you sign that long-term deal. You also have to know the economics. So is there financing available, are there incentives, you have some pros and cons there. You have legal contracts. You're legal team, your procurement team, our finance team. And then lastly, the ESG accounting, right? So will this count towards whatever new mechanism we may have, current mechanisms with greenhouse gas protocol. All of these puzzle pieces have to lock together to then give confidence as you move forward. So there's a little piece, although it's positive in that there's a lot of options. So at least we have some options that [indiscernible] the functions across the organization to start engaging on.

Great. Edward, same question to you. What are the some of the real-world constraints challenges you're seeing in the energy transition?

Well, so I think what we at DOW called our transition approach, I mean we have a decarbonized and growth story. And the whole story is about putting the [indiscernible] in that. You can't just decarbonize because then you pay out of business if you don't grow and you don't add value. And you can't just grow because you have to decarbonize. So it's the [indiscernible] together. And putting that together, it's really important to define the path. And so for us, it's actually relatively simple. We have roughly 30 years to do this, and we have -- we've committed to spend about $1 billion a year on decarbonizing and growing. And the question is choosing what goes first. And so for us, where we have infrastructure available like we do in Canada, we will move towards our decarbonized project there where we've said we'll build the first carbon-neutral Scope 1 and 2 ethylene cracker in the world. We're also looking at deploying new technologies like nuclear in our project in Seadrift, Texas and we'll do other things like using blue and secular hydrogens around the world. So for us, it's aligning the investment, capturing the value and some of that value can also be from subsidies, but value subsidies, technology and infrastructure on a long-term path...

Richard, over to you. constraints you see from your world.

I think we are at the point -- you call it the messy middle, but I'd say we're at the point now where we really are seeing the technology become [indiscernible] success. And that is, as you alluded to, the levelized cost of energy using many of these renewable technologies are now very competitive. When we were integrating it into the grid, a 2%, 3%, 4% or 5% share of the grid, the challenges of integrating network were relatively limited. The scale of what was been added was marginal in nature, the implications of intermittency, baseload reconciliation was small than it is today. And we now have a situation where we've inspired demand. The demand to green the electricity system is clear. We've seen multiple business cases of being able to transition from conventional gray sources of generation to green. The challenge we now have is we are listed in the supply response [winning] and this isn't just a supply response in terms of the OEMs delivering the wind and solar modules. This is the entire supply chain or a replumbing of the energy system. This is mines. This is smelters. This is fabrication facilities to build the technology at the scale we need to deploy to meet the growing demand expectations, but also then getting the permitting in place. multiple examples around the world today of a very strong competition to gain access to renewable energy projects. Once these projects are then moving forward, bottlenecks are appearing not only in raw materials, copper cables, for example, but also in permitting, it's difficult to get local communities to embrace a [indiscernible] new pylon system. They don't prefer to see it done on the ground. It's also difficult to access grids at the scale that is required in different parts of the world. So you call it the messy middle. I think we are, at this point, there's potential hiatus where we need to see some structural debottlenecking of the supply chain and the deployment letters need to be facilitated in order to meet that demand that is now clearly inspired.

Great. Great. Over to you.

So I'll talk broadly about corporations and maybe what we all may be facing at this point in the messy middle to build off my colleagues here. No doubt, there's the cost benefit analysis the company, particularly public companies will have to do as they go through the process. And I think the challenge in the company's space is, will they indeed be able to stick with it and invest for the long term. Inevitably, a company is going to face a short-term budgetary concern, question or challenge, whatever it may be. And there's an eventual long-term intersection of the positivity of that cost benefit analysis, will a corporation have the patience to stay with it and reach that intersection in the future and not be too short term in their thinking. So I think that's a barrier and a challenge that corporations need to think through and understand that the investment today is indeed for that long-term benefit and to have the discipline and patience to stay with it.

Great. Renae, I want to go back to you. And I think Richard, you mentioned several of you have mentioned challenges with supply chains and especially as all of you in this entire group thinks about scope 3 emissions and addressing decarbonization in your supply chain, it's -- I think we would all agree it's a hard lever to pull. Now I think interestingly, JCI is in a really unique position in the fact that you all actually produce solutions that could help address decarbonization in your's and many of our supply chains. But Renae, I would love you to talk a little bit about one of the challenges you see in decarbonization of the supply chain? And then where do JCI solutions help address those?

So I think in addressing decarbonization in the supply chain is it's typically unique, right? If you look at the carbon landscape of each individual organization, it will be unique to either their industry or to themselves. So -- but you're right in that Johnson Controls, I mean, specific to building products and technologies, we deliver those solutions for over 100 years, energy efficiency for customers before it was decarbonization. It was always energy efficiency. So it really starts from a good position of helping out you customers but a lot of times your customers can also be our suppliers, we look at reducing energy and decarb. I'll use -- I'll give you guys an example what we've developed over the last about 1.5 years, we call it the customer Zero program. So we've been in charge of global sustainability. I also have 50% of our admissions Scope 1 and 2 come from our buildings footprint. So it's like, okay, hey, guys and gals, what you're selling out there to customers, can we then do that to ourselves across a pretty vast network of manufacturing, branch locations, R&D facilities headquarters. And in a programmatic way, what's the most efficient way to decarbonize reducing energy. Again, the model can work for our suppliers, the model can work for our customers. Three main levers. So we're really focused on, again, energy efficiency, bringing down the loads that we have. So first is energy efficiency with the latest and greatest of our products and solutions, transitioning oil and gas to electrification. That's huge when we talk about the energy efficiency and then the last one is around digital optimization. So we have our own digital technology called [OpenBlue], but it actually runs anyone software technology that can get the most optimal results and that multiplier effect on energy emissions and costs. So we really put together this model, again, built off what we've been doing for customers and industries of how can you get the energy cost savings, it also translates itself to decarbonization. It's working for ourselves actually just this last year. We're finishing up our first, we call it a showcase site where we put everything into our -- one of our largest emitting sites in Norman, Oklahoma. Also included some on-site solar. We get an electrification for our fleet, our in-service fleet vehicles. So that way we would truly have a model that we also -- we can work with, especially when we think about the integration of the energy systems. But building on that, when we think about our supply chain, Embodied carbon is a big deal for us, in particular in the metals category. So we are heavily engaged with our suppliers in each of those categories. And we give them the options that we've used ourselves, we give them the options we do for our customers because if you have buildings and manufacturing plants, the playbook is likely the same. We have these 8 steps, and it's like a menu option. You can choose from because it is unique, but at least we try to apply that across the value chain in that way what we're delivering to our customers is that full system solution.

Renae, you mentioned energy efficiency. And I'm glad you did because we all know it's a lever that we draw our [indiscernible], it's usually all the way on the left. It produces energy savings, can be NPV-positive, but it doesn't get done. What is the constraint to getting your customers and all of us to deploy energy efficiency? How do we address that?

Well this is you saying it doesn't get done, I see it get done all the time. And again, this goes back to energy efficiency contracts and what our customers know us for, which is the optimal management of their building under the eyes of energy efficiency for cost savings. So we're always building that in together. What we've started to do is link that to carbon where we get into more of the challenging discussions as capital equipment. So what we're doing -- but then that's when you're talking significant and you're starting to move a little bit further in the other direction on the abatement curve. And then what we've done on that side is looking to remove those upfront costs, those upfront capital costs and helping customers finance it over the long term. But transitioning to an OpEx that's a bit more palatable in the short term in order to start getting those savings [indiscernible] coming. And there's also an element where you just got to get started. Even if you get started on the far left-hand side of the curve, fine, and then you start to -- you can start to build in more of the capital improvements, the digital improvements and on it goes. But I do find that you just -- even ourselves, we just had to get started and then also need good levers.

Yes. Yes, please...

Yes. If I could just add to that. So you're right, efficiency is typically on the left. There's no capital outlay. There's no increase in OpEx. The challenge of efficiency is you're not going to find it knowing the kit you have installed. You're going to find it knowing how the kit is used. And unfortunately, that's not easy to do outside in. That does require you also to go to the people using it. And I think we see a lot of companies as they think about developing their transition plans, thinking this is something you can do at the top of the house. It's not. You actually need to take the whole organization with you. And actually, I'd say efficiency is the only utilized lever to actually engage the entire employee base because everybody can contribute to it. It's the highest IRR opportunity because of my earlier point, there's rarely capital outlay or OpEx. But just remember the other thing is, every 7% you find is a year of Paris alignment. It buys you headroom to work out how to actually then prioritize the bigger ticket CapEx outlays. So one thing I think we would ask and we've seen is we've applied what we call our abating capacity assessment to our portfolio companies is it's not the most exciting bit, but it's definitely the highest payoff bit. And everything to do incentivize people to pursue that, I think, is an important lever for us to prioritize what I call the optimal transition, get the most molecules out of the business with the least impact to the business.

I want to make a point here, though. Dow has been doing energy efficiency since day 1. And so we are a large manufacturer of chemicals and industrial type products. We absolutely believe in efficiency, but our view is that this is not how you get the carbon. You are not going to get to carbon neutral with efficiency. You have to think about the technology changes that's required, the changes the work processes and the approach you have. We reduced our missions 15% from 2005 to 2020, and we'll do another 15% by 2030. But -- and some of that was efficiency. We have every -- to your point, we've got all of our top 25 sites. We have teams focused on developing an abatement curve for all of them and then we execute over time. At the corporate level, we pick out what's best. Efficiency always gets done but for us, it's not enough. We now need to do new technologies and approaches and investments. And that's where that gets more difficult because it's not value control. You have to have a source of value or growth to deliver that reduction in our system because our system is that efficient already.

Yes. Makes sense. Edward, we'll stick with you and switch gears a little bit. This group, I'm sure, is aware of the concept energy trilemma. And that is we need our energy to be of course clean, but also reliable and affordable. We need the lights to go on. We need those fuels that we use in our modern society. We know how closely affordability is tied to people's well-being. Can you talk a little bit about how do you see the energy trilemma? How does Dow see it? How do you think about addressing it?

So for us. I first heard of the energy Triliaen I was dealing with Australian energy balances after they basically shut down the country is because of some very poor energy policy that basically led to Australian gas being cheaper in Tokyo harbor than it was in Sydney Harbor, which was fascinating. My view is that the trilemma is a necessary but insufficient commission success. You also need political will to do things and you need physics. And the problem is government authorities are very good at thinking about political will and sustainability. They're less good about affordability and reliability, and they really don't understand physics. A lot of business people are great on physics and affordability and even reliability and less worried about politics and sustainability, you have to have it all. And if you don't have at all, the system you're designing will eventually break and when it breaks, it breaks badly. And so for us, it's the 5 things. It's affordability, the reliability, sustainability, politics, physics.

Great. Richard, over to you. You provide, I think, a really unique perspective on this panel from a financing perspective. And I think we hear time and time again how financing is a constraint to the energy transition. And I see in my work, yes, project finance on utility scale [indiscernible] win can come in at very low cost of capital. And that certainly in the last decade has helped enabled the growth of renewables. But especially as we look at other decarbonization tech, like green hydrogen, carbon capture, I see there's still a rightfully perceived or real technology risk. Investors are being a little bit more skittish early on at going after those technologies. Welcome your thoughts. Is that what you see? Where does financing in general play a role? What constraints do you see?

I think part of the challenge is we've just had 35 years' worth of capacity expansion across the globe, leveraging 1 of 2 different dimensions, either exporting of manufacturing into emerging markets or building capacity in the cloud. And I talked earlier on about the capacity that we need to build the supply side response we need to provide the capacity we need to meet demand. The only mine you can build in the cloud is a [bitcoin] mine. You can't build a copper mine or cobalt mine. So we, I think, all need to embrace the potential for a bit of a reset, and that is that most capital invested in the last 3 decades has been pursuing capital light, IP-heavy investment opportunities, where capacity could have [indiscernible], returns were very, very high. And the certain parts of the investment market were accustomed to generating 25% returns after tax and after fees.Now where we are now, I think we need to be a little more pragmatic is not the second digital revolution, but a second industrial revolution. We need to replum the economy. And that is really getting down now to technologies that could commoditize quite quickly. that are likely very capital intense. When I was born, they used to be called public utilities, they generated regulated returns and moving from, I think, an investment precedent that we're acclimated into the double digits to potentially a large part of the capital investment that needs to be made to deliver the transition of the economy, generating returns that are high single digit, low double digits is something that we need to appreciate. But also that then changes the dimension around technological risk, commercialization risk and regulatory risk. Most of the technological risk, I think, is diminished. But I think in terms of regulation, the risk of seeing a project delayed, if it's only just generating double-digit returns is considerable. And the process seen delayed whether that's regulation or deficiencies in the supply chain is something that people are having to underwrite. So the finance is there. I don't view the issue here is the unavailability of finance. I think the financial sector is having to recalibrate risk reward. And I think we're also seeking for help upstream in delivering a regulatory regime that helps on the right and bringing the expansion in the supply chain that gives people conviction that these projects can be delivered on time and on budget.

Can i squeeze in?

Yes, jump in.

I think I completely agree with everything you said. There is one other thing that needs to be said, which is there is a consumer -- there's a consumer who desperately wants lower carbon lower impact, more circular solutions. And there are industrial providers, utilities, infrastructure companies who are very eager to go make that connectivity work and make -- and they have the technology. I don't think this is a technology issue. I think it's a linkage issue of how do you capture the value that is there intrinsically in the consuming class for these better solutions? And how do you share that across the value chain in a way that allows the industrial companies, the efficiency solutions, the utilities to deliver lower carbon power, nuclear technologies, blue and green hydrogen, et cetera. Clean solutions.

Great. Neil, over to you. I know that Cisco is a huge consumer of energy for your operations, and I know you all have taken steps to seek green energy. Maybe talk a little bit about the progress you've made? And what are some of the challenges you've encountered as you shifted to green Energy?

Sure. So in 2021, we set our SBTI goal, which was a 27.5% reduction in our own greenhouse gas emissions by 2030. And I think the first thing I'd say is, as a management team, we're very much a purpose-driven organization that's not marketing. It's real. It's why we said 20-30. We didn't say 2050, we didn't say 2040. And we did that because it's going to be -- our management team is going to be me, it's going to be our CEO, our current team. that's going to figure out how to do it. And we're very purposeful in doing that. It's not a hope and a wish and the future generation to solve its hours to solve was kind of point one. And point two, so if we think about, okay, how are we going to do that? There's really 2 primary levers for us. One is electrification of our fleet. And so our fleet are the traditional large diesel trucks that you could think of as an 18-wheeler, if you will. The electrification of that Class 8 tractor did not yet exist. So we had to go into the manufacturing community and convince them to build that vehicle for us, there's plenty of passenger vehicles we could choose from that are electrified, which is fantastic for all of us, but the manufacturers were not yet producing that truck when we set that goal. So that was a swallow a hard moment for us, but we've convinced some manufacturers to begin to produce those vehicles. And then step 2, which makes it even more complex is 100% renewable energy. So within that fleet, our trailers have 3 temperature zones, our warehouses, which are maybe 600,000 square feet on average, have 11 different temperature zones. We're a heavy user of energy to your point. So to go all the way to 100% renewable, while electrifying what's going to be 35% of our fleet is how we get to that goal. And so perhaps to the comment on throughout the chain, there's 2 components to kind of force those actions because it's fine to set a goal, but then it's how are we going to get from here to there. we are incentivizing our entire management team, not me, not our CEO, and not our NEOs, but all leaders across the enterprise on these goals. And we lay out each year, what are the activities that we need to accomplish if you draw the slope to between you are here and 2030, what do we need to do? And each year, we have a very specific set of activities we need to accomplish, whether it's procuring those trucks, getting the infrastructure in place, getting the renewable energy in place, and we are paying our short-term incentive on that. So that's kind of part 1 to be sure we do it. But then there's the business value across it to the point that Edward just made. So we are scope-free to our customers in the food service space. Our customers are also establishing goals. They will work with distributors who can responsibly get the product to them. That's an advantage for us, and we're fortunate that we have the capital to be able to make that investment. But then hard work comes in because in the supplier community, those who are producing the food, which is a big impact on all of this. We need to teach them about this. But they will win if they follow us in this journey. So that's the connectivity across the supply chain. We've got the [poll] from the customer, and we are pushing our supplier, and we're proud to be a connected tissue to be able to do it. But it's hard work. It's a journey. And so we're just trying to be very specific each year on the steps and the actions we need to take instead of having this really far away kind of objective to shoot for trying to be very specific each year.

I appreciate your response. How do you address supply chain issues, you go out there and work with your supply chain I have to ask, I know on the EV side, charging infrastructure is very hard, especially in the case of the tractors and the types of vehicles. How have you addressed that? What are the -- what happened -- what have you seen in dealing with EV charging?

Yes, Infrastructure is a big deal. And we're learning as we go on this journey, we established out in Riverside, California, what we call our first electric vehicle hub. So we're leveraging solar within our own site to receive some of that power, put it in the infrastructure and charge the electric tracker and then actually now bring an electric trailer into play. If you're not familiar with how it works, you can have a tractor than the trailer. If you got an EV tractor pulling a diesel fuel to refrigerated trailer, that doesn't work so well. So we need the trailer too. So it's what we call electric vehicle hub, an electric tractor and electric trailer, fueled by solar on site. We can do that in some instances for that infrastructure that works. We don't have the real estate everywhere to be able to do that. So in other instances, we need to get more creative with the infrastructure and be sure we're leveraging the turns, if you will, on the charging, have the right space to be able to use charging and in other instances get even more creative. It helps when we can figure out the right incentives and the right locations to help offset some of the investments we need to make. That's part of the overall mix. as well. But I'd say solar is kind of point one, building the infrastructure with partners and then probably charging as a service is a path in which we're heading down more so because we're not infrastructure experts, and that's part of our learning too. We're really good at delivering food, but we're not the expert in infrastructure. There are others who are. And so we're working on partnerships, again, across the supply chain to do that.

Great. Well, we're about done with the panel. Please start submitting your questions. I wanted to just do -- before we get to the questions, one last rapid-fire question for the panelists. I won't make this -- you'd only have one word. I'm going to give you a whole sentence. But you're given that great lamp with the Genie inside, the Genie gives you one wish, what would you wish to help address the energy transition. You can't wish for more wishes. So in one sentence. Not everyone said no. Renae, I'll start with you. Just what would be your wish.

I envision, say, a war room of sorts where say it could have a city, a state, nation, but a war room where you're looking at all the energy, you can kind of design what your best-in-class situation could be, and then it prints out here's your playbook to go ahead. And everyone throw in all your solutions, but just make it easy.

So for me, it would be a credible, auditable, fungible, financially tradable way to capture the price of carbon through the value chain and pass the value. Because I think, fine, if you could develop a financial -- a way to see that financial clarity, you could very easily afford more things upstream than we are doing today.

Every country in the world pretty much is committed to comprehensively decarbonize their economy by the middle of the century. So any director that is approving a strategy for a corporate and staying inconsistent with that is putting the company on a collision course with the respective regulatory environment, It's just a reality. So what I would like to see is that every company is proactively auditing its operations to quantify the proven abating capacity. That's technically and economically feasible today. The probable of [indiscernible] capacity technically feasible, but not quite economic. And lastly, the uneconomic abatement capacity, it's either not possible or requires a $150 carbon price that we're going to unfortunately have there, with a view to providing not only the Board the information it needs to improve the transition plan, but provide the capital markets to the insight they need to actually price transition.

I'll go with consistency of regulations and connectivity across the space from government down to larger businesses like us, but particularly down to smaller businesses where we have a lot of our customer base, small business owners, entrepreneurs trying to understand whether they're on the supply side or the consumer side, what this all means. And then inconsistency across state borders makes it even more challenging for them. So that consistency would benefit all of us.

Great. Well, thank you. We'll switch now to questions. I have a couple of questions here, but also, I wouldn't -- if folks have a question, feel free to stand up also calling you and trying to repeat the questions. But maybe I'll start with one here, which is how do we ensure net 0 by 2030 or 2040 doesn't shift to net 0 by 2050, 2060, et cetera.

I think in our way, and I think a big piece of this comes from kind of the -- the evolvement of the regulatory environment on ESG reporting because it's just -- it's another layer of your commitment. It's sticking your commitment at all layers of the organization. So this move from voluntary to regulatory reporting, I think you have to answer some pretty big questions if those dates start to slip.

I'll start with -- I don't think that 0 by 2030 is possible for most industry period. So anybody who's telling you that is probably not credible. So I think it's developing the credibility and then ensuring that those numbers and those discussions stay consistent with the actions that are being taken with 2023 performance goals, 2030 performance goals and frankly, 2050 performance goals are for my grandchildren, right? I have to act on what I'm doing today. It's a long journey, but we got to start the path.

I'd say we've got to try and overcome the human desire to oversimplify this. So this is not easy. Whether, when and how we get to that 0 is going to be informed by the interplay between 5 different things, whether consumption habits change, whether the technology is developed to help us out, whether the market infrastructure, we need to provide the appropriate economic incentives is in place, whether the corporates deliver what they say they will, and lastly, whether the regulation is there to provide it. And I think there's been multiple episodes over the last few years where the debate is try to focus on a singular silver bullet to get to net zero, this isn't just about regulation. This isn't just about the real economy. This isn't just about the financial system, isn't just about the end consumer. This is about all of us are working together to make some of the hard choices we need to make to deliver the outcome we all seek.

There will be a consistent theme here. I think I'll leverage off one of my colleague's comments early. You got to start somewhere. And you need to make progress. You need to be transparent, credible, show the progress you're making. And it's okay if you need to justify a move to a different time if you're making the progress and moving forward, if you're not moving forward, that's where the challenge will come in, make progress start somewhere and move forward.

Great. So I'm afraid I'm not tech advanced to see the questions that are coming up here. So can I just take questions? Yes, please.

So many of you on this panel and on the previous call, some many of you on this panel on a previous panel talked about the importance of regulation and the need for regulation to create standards and metrics that help each industry comply and get to its goals. That's obviously very different than the current political conversation, at least in the United States, which so often turns toward an antiregulatory ideological bench. And I wonder if you could just address that because what you're saying it sounds a lot more refreshing than what I hear in Washington, D.C. every day.

I mean I think my comments come more from the European emission CSR date right? So they -- we all know kind of what they put forth as well as, I would say, what they put forth is pretty specific around what you have to -- the analysis you have to do and then what you need to disclose. So a lot of us are reading ourselves there. I would say a common thread with the SEC draft was even just simply TCFD. I think it was mentioned over 250 times in that draft. So at least we're starting to see some tealeaves of where this is going to go. In my position, I'm just trying to get ready for whatever it ends up being that we are ready to report against and be held responsible for. At the same time, maybe regulatory reporting, again, CSRD. I think our investors are asking the question at the top of the call, right, every single time we have all the stakeholders along the way are asking us about our commitments, our performance year-on-year, what happened, we did have the detail the level of questions is significantly different than 5 years ago. So I still believe even if it's not regulatory in the U.S., we'll be held accountable by the investment community.

Historic climate policy is focused on making gray activities unattractive. In the last 12 months, we've now embarked upon alternative approach, which is let's make green activities attractive. And I do think we need to be careful in terms of how we frame regulation. But most people are seeking certainty in the direction of travel that over time, certain things need to stop over time, other things need to start. Just using the stick is not obviously the only way to achieve this. We do need to see some [carrots]. But I think the other opportunity we've got here is actually leveraging governance rights that shareholders don't have many rights, but they do appoint the board and Boards ultimately are accountable for approving strategy. And if strategy is being approved, it's not consistent with the direction of travel that's been set by governments. But -- and I do think there's an opportunity for the investor industry to engage more proactively and seek strategies consistent with the expectation that has already been provided quite publicly [indiscernible].

I'll build on what you said, which is I find the stick only approach that Europe has used to date basically has run its course, and I'm not sure that it's going to lead to a good outcome. European industrial production is down dramatically. Emissions are down somewhat as well. But a lot of that has been buying strange things like replacing nuclear with renewables. Why not replace coal with renewables or with nuclear -- that would make a lot more sense to me. So I believe fundamentally that there can be a different less onerous regulatory model that drives to smart business decision-making because if there really is a consumer who wants a lower carbon product and the stuff you make like what we do is 98% of all things you touch have something to do with the business of chemistry. We are part of the solution here. We're going to bring value, and that value is going to be rewarded if it's lower climate impact more renewable, more circular. So that's important. If you want to regulate the bad actors, I'm all for that. But we have to balance the carrots [indiscernible] a little bit.

I left the point about strategy and Board. So at Cisco, I'm responsible for sustainability. I'm also responsible for our strategy. So I think having that combination is important and helpful as we think about, ultimately, how do we move forward long term regardless of what the regulations may be. So I completely agree with that, and I would encourage more companies to have that type of thinking.

So got a question here. We have focused a lot of this, maybe implicitly or explicitly this panel around electricity. But we know there are challenges with thermal energy, the use of coal, natural gas for heat. Reactions are -- is hydrogen, carbon capture and Edward I'll start with you. I know this is an important topic.

Yes. So for us, we -- about 40% of our purchased power is renewable, but there comes a time where you can't be more than that because you don't get enough temperature. Nuclear current technology, nuclear really is too low temperature for what we need to do, which is why we're investing in small modular reactors, and we're actually announced our [indiscernible] facility that we're going to deploy the first commercial industrial use of advanced [indiscernible] technologies by about 2030. You also need a lot of the business of chemistry makes methane as a byproduct, and you need to reuse that methane in your processes, which is why Carbon capture is so incredibly important because you can take the carbon off it, and then that leaves you methane less the carbon equals hydrogen that's blue hydrogen, and that's how we can use that for heat. I just leave it there because I think we're out of time.

Great. Well, thank you all for a lovely panel. We do not have a genie in a bottle, unfortunately. And so I know it's going to be up to both the panelists here in this group to overcome these important challenges and constraints and deal with this messy middle. But just on behalf of this entire group, I'd like to thank the panelists and let's give them a round of applause.

To all the panelists and speakers [indiscernible] it was really fantastic having you take part. It's a really interesting discussion. Talking of transition, we are going to swiftly move on to our next session on the path rate for accelerating EV growth across the global South. It will be very interesting, and we're just going to make up the speakers, and we'll get started straight away. So thank you very much.