S&P Global Inc. (SPGI) Earnings Call Transcript & Summary

Hello, everyone, and welcome to today's webinar. My name is Lindsey Hall, and I'm Head of Thought Leadership at S&P Global Sustainable1. It's my pleasure to be moderating today's webinar, which is titled Beyond ESG with Mid-Year Economic Outlooks in Sustainability. Now today's webinar is part of a series titled Beyond ESG where we take conversations beyond the typical environmental, social and governance topics to dig deeper. Before I introduce today's esteemed guests, just a few housekeeping items. We recognize that the topic of today's webinar is of great interest to you. And we want this to be an interactive session as much as possible, so we encourage you to submit your questions for discussion. At the bottom of your screen, you'll see a row of widget icons and these icons will allow you to interact with us throughout the session. I'd also like to point out the Q&A widget, which can be used to submit questions to our panelists as well as the survey widget. Please take a little bit of time at the end of our webinar today to fill out our short survey. We really value your insight. Additionally, you can find any of the reports we talk about today in the resource widget. The webinar is being recorded, and an on-demand version will be available shortly after we conclude. And if you run into any tech issues during the program, please try refreshing your browser. If that doesn't work, please use the Q&A widget to contact us and a member from our tech team will assist you. Okay. So now it's my pleasure to introduce today's panelists. We are joined by Amit Bando, who is Chief Economist and Senior Adviser for Just and Inclusive Economics at Ceres; Ludovic Subran, who is Chief Economist at Allianz; and Paul Gruenwald, who is Global Chief Economist at S&P Global Ratings. Now as we hold this discussion today, we're more than halfway through 2023 and we're just months away from a big event for the sustainability world. That's, of course, the UN's -- United Nations COP28 Climate Conference taking place in Dubai in November and December 2023. So we thought this is a great time to cast our eyes ahead and ask 3 really smart panelists: what's your midyear economic outlook? And how are the key trends you're observing impacting sustainability goals? I'm especially excited for this conversation because while all 3 of you are economists, you each come to this topic from a different perspective, and I'm really eager to tease those out in this conversation. I'd like to start with you, Paul, because I've just recently been reading your Q3 credit conditions report and I thought it would be useful for us to start with the sort of lay of the land, a macro view for our audience. In broad strokes, how would you describe the global economic landscape?

Well, thanks, Lindsey, and hi, everyone. Right. As you just mentioned, we concluded our quarterly forecasting round at S&P Ratings. And what that is, is an exercise where the economists and the credit analysts get together and come to a global macro view. Where we've landed in this latest quarter is that the post-COVID surge of growth that we've been seeing is slowing down in a very uneven way. We'll all remember that during COVID, we saw a spike in the consumption and production of goods as the services part of the economies were shut down. And now the pendulum has swung back the other way. We're seeing very strong services growth, pent-up demand for things like travel, entertainment, et cetera. What's really interesting in this round is that labor markets remain very tight despite different speeds of the major economy. So for example, the U.S. looks like it's trending at about 2% growth and unemployment is at a multi-decade low. In the eurozone, we've got essentially 0 growth and we also have unemployment at a multi-decade low. But the real story has been inflation. We all know about the big burst in inflation resulting from the COVID shortages, the supply chain issues and Ukraine -- or Russia's invasion of Ukraine. But that kind of -- that part of the inflation, the food and fuel has started to come down sharply. But the real issue here is that core inflation, which is what central banks are focusing on for their inflation targets, that has remained very sticky. So we are now 500 basis points into Fed rate increases, 350 to 500 for the other major central banks. Growth remains robust. Inflation remains too high. So we think rates are going to be higher for longer. So that's the main takeaway of the most recent round for us is that growth is slowing, but inflation sticky. We're going to be in a world where policy rates are going to be higher for longer, probably 1 or 2 more hikes out of the U.S. and eurozone and then kind of steady into early 2024.

Okay. Great. That's a really helpful sort of baseline to start building this conversation from. Now in this report, Paul, I was also interested to see that you listed top global risks. And 2 of the secular trends you highlighted are squarely in what I would consider the sustainability bucket. And you wrote that both of those risks are already elevated and trending worse. Can you tell our audience about, first, what those risks are? And then also why do you see them worsening?

Right. So first of all, we put out the baseline forecast and the narrative and that's the most probable outcome. But then we come up with a list of risks, usually downside risks, things that can go wrong with the forecast. The top of that list is typically macro credit issues. But as you just mentioned, Lindsey, we've got a couple of kind of secular risks: one is cyber and the other one is climate and energy transition. And these are things that can also move the macro credit needle. I think maybe a focus on climate for this particular response, but we know that global temperatures are continuing to rise. We know that global emissions need to be reined in. There's an energy transition in place that involves decarbonizing the existing energy structure and coming up and building out the renewables part of that. So that exercise by nature is very chunky and there'll be risks around that. There are financial issues. There are policy issues. There are technology issues. So our macro credit teams have identified that as one of the areas that could potentially move the macro credit needle over the coming years. It's not a forecast, that doesn't have to happen in the next 6 to 12 months. But the risks around climate change and energy transition are something that we continue to focus on as we do our macro credit surveillance in these quarterly exercises.

Okay. Great. So I'd like to bring in another of our panelists here, Ludovic. As Chief Economist for Allianz, I'd like to hear from you. How does what we just heard from Paul in this sort of scene setting for the economic outlook and some of the risks we're facing, how does that jive with your own observations?

Well, I guess we have a similar picture at Allianz. I would maybe add a couple of points that I think are interesting, is the disconnect between financial markets and the real economy. The fact -- and of course, the very fact also that bond markets and equity markets are also telling us different things. So there is a bit of a culture clash between central bankers maintaining their credibility line and markets testing the limits and maybe believing somehow that politicians will win and central banks will have to stop before it's too late. So there is a bit this ongoing battle, this ongoing tension point, which nobody really knows how it's going to be released. Is it through a correction on the market? Is it through an actual recession? Is it through further cost of living prices? I tend to be in the camp of people that don't believe too much in a soft landing. I don't think that ever happened historically. And I know this time is always different, but I have a hard time believing it. So I wonder how this jigsaw between policymakers, the inflation trends and also the politicization of the environment and the fact that we are -- the fact we're in an environment where fiscal policy has been very loose and now it's starting to consolidate, how this is all going to play out. So we called our scenario actually climbing the wall of worries, right? And then the second topic is, of course, related to today. I think what is very striking to me in this quarter is how much people are now looking back at physical risks again, looking at the days of extreme heat, trying to link that to a productivity, to growth. We're all conversant in NGFS transition risks, but we all know that physical risk is an issue and this [ is really ] in our model because of the horizon of the forecast, because of our difficulty taking that into account materially in the way we assess growth, inflation, market returns and so forth. So I think it's very interesting to have that in mind today because it's going to be one of those questions that we're going to have to answer in the coming quarters or years very precisely as economists.

Okay. Now you just mentioned the NGFS, the Network for Greening the Financial System, this coalition of central banks. For our audience who might not be as familiar with the work of the NGFS, how are you thinking about it? How are you incorporating what they're doing into the way that you're looking at the world at Allianz?

Oh, boy, that's a good question because we actually have developed our own sector pathways because we're not super happy with NGFS. So we use part of NGFS, but then we use the -- Allianz has been spearheading what is called the Alliance of Net-Zero Asset Owners, the AOA, which is the gold standard for the UN. It's 74 balance sheet owners that have committed to net zero pathway or at least carbon neutrality by 2050. And so we've worked on a different model, satellite model, to NGFS, which is called One Earth Model, OEM, developed together with the University of Sydney (sic) [ University of Technology Sydney ] to try to have sector pathways that are valid, I would say, from an investment perspective. And so we are integrating partly NGFS, part [ IEA ], but also this One Earth Model into the ranges, the corridors that we have to look at when it comes to making our investment portfolio temperature aligned with the 1.5-degree overshoot. So we are avid users of NGFS, but we are also avid critics of what may be missing in the way. For example, you agree on physical risk, but also on the breakdown we need to be able to do the right investments. I'm thinking here about the energy sector and the type of pathways that are actually feasible from an investment perspective where finance can really play its role to transform millions into billions, right? And so here is where, for example, us at Allianz, we had to make sure we had a series of pathways for the key sectors in Europe but also in the U.S. and also in some of the big markets [ we're ] present, trying to understand how we position some of the upstream investment opportunities that we scout on a daily basis.

I think you raised a really interesting point there, and I'd love to hear from our other panelists on this. What is the most realistic pathway? I know in my role, I've been sitting in on some really interesting internal and external conversations about this topic. But Paul or Amit, what about you? How are you thinking about -- or how is this coming up in the work that you're doing, this question of the most realistic or credible pathway?

Yes. I can jump in. And again, with the work that we are doing here at Ceres, we are, in fact, working with many of the institutional investors that are trying to address very many of the risks that you talk about. And what strikes me is, as you said, that within the sort of present set of decisions that need to be made on addressing climate change, specifically the energy transition in light of some of the physical risks, we are finding and -- moving forward that we need to also look at the overall risks that emanate from this. In particular, given physical risks, what are some of the risks with respect to insurance? What are some of the risks that investors face because of communities and large geographies being severely impacted? So in the work that we're doing, I'm trying to look at those kinds of transition risks where if we go from a sort of current fossil fuel-based energy sector to one that is largely renewable space, what are the impacts on the workers that are left behind? What are the impacts on communities where facilities closed down? And then on the flip side, what are the impacts on the workers in the new communities because the kinds of jobs, the kinds of protections that you might get in a fossil fuel-based power plant where the jobs are unionized with a fair amount of benefits, steady jobs, now if you lose that, you're not able to immediately transition to similar jobs elsewhere because the renewables-based industries, whether it's wind or solar, tend to be contract jobs, transition jobs. So it's not just about the skills and the availability of jobs, it's also about the transition that goes on and how it affects communities that are impacted by that. So this is something that we are looking at very closely particularly with respect to the front-line communities, which are typically at the front end and the receiving end of most of the impacts and the negative impacts that we see as a result of some of the risks that Ludovic was talking about. Of course, this has implications for the financial risks, the insurance risks because the insurance sector is keenly aware that we have a changing scenario and that then impacts the ability of businesses to borrow, of communities and groups to get the proper insurance. So these are the sets of issues that, I think, moving forward we will see as a result of the transition we are talking about. So decarbonization at the macro level is very desirable, clearly, but what are some of the granular effects? And of course, then we have the issues related to new supply chains, mining related to new critical minerals. And then that, of course, leads to the larger geopolitical issues of, again, risk, security, et cetera. So that, in a nutshell, are the issues that we are seeing. If you start breaking down the ESG into their components of environmental risks, the social risks, and of course, the governance risks that was mentioned earlier, the fact that policymakers have a role yet what is the interaction with the private sector players. So I'll stop there to get some more feedback.

Lindsey, can I jump in and kind of go on the back of that. I think both Ludovic and Amit said something very important. One, Ludovic was talking about the feedback from physical events back into the real economy and that's something we need to do a better job at modeling because right now, let's say, you have a hurricane or a coastal storm, you rebuild that. So you put your capital stock back in place. That's actually good for growth, right, because you hire people and you rebuild and you can kind of do that over and over again. We really need to think harder about as the climate changes, how that feeds back and really moves the macro needle. So that's number one. Amit also made a good point about distributional issues. And I think most of us are old enough to remember we didn't address this very well during globalization. So globalization was initially viewed as a very positive thing, free trade and open markets. And yes, there might be some distributional issues, but the pie is bigger and everybody is kind of happy. And we know how that movie ended. There was -- there were very sort of serious distributional effects that weren't addressed properly by policy and that led to some serious declines in support for globalization. And you can make a similar argument as we go through the energy transition, some groups are going to gain, some groups are going to lose. So we have to be very mindful of the distributional issues as well if we want to maintain support. So there's actually some lessons for the energy transition from the way that we handled globalization. And some of that, we certainly don't want to repeat again.

Great. Thank you, Paul, for building on that. I think this is a question probably for both Paul and Ludovic. But one thing that came up in our kind of prep conversations, in our background calls ahead of this webinar is the fact that, increasingly, your roles as economists are concerning climate economics, that climate economics are playing a rising role in your day to day job. And I'd love if you could share with our audience a little bit more about how that is evolving because I think it will help us understand the direction of travel. Ludovic, maybe we start with you for that question.

Yes. Thank you, Lindsey. I mean it is now a good 1/3 of my time and this has steadily increased since 2019. And so it's quite fascinating actually to see because I was not trained as a climate economist, so I had a lot of catch-up to do. Somehow, I feel good that a lot of people are still interested in this topic. But when you check and we did a survey a couple of years ago at Allianz, the proportion of climate illiteracy is very strong. So you have us, the experts, trying to catch up and trying to make sure we take into account as much as we can from climate economics, and from what Paul just said, the distributional effect, so the winners and losers, and try to understand the trade-offs and the carbon pricing versus market -- or market-based mechanism versus actual intervention and the share of public and private investment and the type of models that will work to meet the war economics need of fighting climate change. So we experts are moving ahead, but it's like we're marching ahead of the band and sometimes looking behind and realizing that a lot of the people are not up to date. So -- because we have a lot of introspection to do in our topic just to catch up because it's not something that all of us are conversant. So you can bring in talent, you can train yourself. There are some parallels that can be drawn with other parts of the economic theory and methods and toolbox. But I think one of the main issues, I think, is it's still very foreign for most people. Amit just mentioned the insurance sector. We [ need to ] talk to Californian households about the actual trade-off that they will face to have an affordable home insurance policy 10 years from now and this type of discussion because of the jargon, because of the fact that we are catching up with science at the same time as we're trying to make sure people understand the actual trade-offs, we're very bad at it. So that's something -- so I would say we are spending a lot of time because there are actual needs. And of course, the corporate disclosure and all of the things that are happening force companies to move ahead. But I still -- we're still doing a very poor job at breaking down in chewable parts what it really means for the daily basis. Or we leave space for people who do that, but who are degrowth evangelists or people that actually are very vocal and very [indiscernible]. We know that it doesn't work in terms of behavioral change communication. So you have an action paralysis because we are not very good at actually making it understandable for everybody what it actually means in terms of paying for externalities in the goods basket that you buy, understanding the type of environment in which financial institution will operate as regulation will change, the type of fiscal policies that are favored or that should be favored and what it means for political programs and elections. These are the things where we're still not very good at. At the same time, the very fancy modeling on climate is going extremely strong and very lively.

So Ludovic, I thought I would like to add to that. I agree with what you're saying is I think we have the intersection of scientific data, modeling and analysis. And yes, it's lively, but at the same time there, I think, are quite a few challenges there because there's lots of -- as we even look back over 5 or 6 years, there's lots of changes in modeling. Our sophistication of the models depends a lot on the kinds of assumptions we made, whether it's atmospheric modeling or data that is gathered in terms of the impacts. I think -- the models are good. The assumptions are what I feel are still evolving and there's a lot of uncertainty there. So of course, that affects the economic impact analysis and the modeling that we do. But in this case, you did mention, and I would like to emphasize, that the policy side of things, the third leg of that stool, if you may, there is a lot that needs to be done. I mean just even in terms of simple pricing, I think our modeling, our policies that we make suffer because we don't have an explicit price for carbon amongst other things. So the kinds of models that we have are implicitly. And if you look geographically across the globe, different countries, different geographies, different sectors are implicitly pricing in carbon, but we do not have a good agreement and perhaps given the political climate, as you mentioned, we're not going to have anything coming up anytime soon. So when you build all of this in, our ability to predict the risk and the rewards resulting from any action we take, that becomes that much more key. So to me, it seems that we need to recognize that in this particular discussion and actions that we take, we are moving along a path that is perhaps even more -- less certain with respect to the kinds of data that we have and the analysis that we do.

I want to come back to something Ludovic said about the economics profession. And we were very late to the game in getting our heads around the climate issue and the environmental issues. So if you pick up an economic textbook, at least the kind that I was reading when I was younger, you didn't see anything about the environment until maybe chapter 15 and they talked about negative externality, a firm that was maybe polluting a river running alongside it. And then you put in an optimal tax and that was it. The was the entire corpus of the economic climate discussion back then. But we're all playing catch-up right now. And I think there's been a lot of good work. There's a great report from the U.K. government by the Dasgupta report, which sort of puts together the climate and the macro. But there's a lot of work to do. I think just getting the kind of trade-offs between economic growth and sustainability and emissions and all of that kind of in chapter 1 and upfront in our thinking, I think there's still a bit of work to do there. Lindsey, to your question, as far as my team is concerned, we promoted one of my economist 2 years ago to the Head of Climate Economics and she is working very closely with our Sustainable Finance team and sometimes with your team in Sustainable1. So that's definitely progress. But there's almost certainly a literacy issue. Many of us are involved in financial literacy or were financial literacy champions or we're trying to help folks along to improve their financial literacy. But again, as Ludovic said, there's a climate and sustainability literacy. There's an energy literacy that I think needs even more work. So it's a lot of things together. It's making sure that we've got climate front and center [ in our ] thinking about growth in economics. It's bringing people up to speed in terms of their knowledge and literacy and then repositioning our team so we can meet the challenge. But I agree there's still more work to do. We're traveling in the right direction. But I still think, as a profession, we still have a fair amount of catching up to do.

Thanks, Paul. I guess, Amit, if I could turn that over to you, I mean, what are -- from your perspective, what are the challenges you're seeing with literacy? And also, I would love to hear if you have any thoughts on solutions? If anything you've seen work well in other nonsustainability-related areas that might work well for improving literacy here.

Yes, I think -- well, that's kind of a tricky one, right, because we kind of assume people know things and then we start digging and maybe perhaps they don't. But just starting with the basics. I've had to teach myself a lot of these things, but just basic information about emissions and how they feed into rising temperatures and questions about the role of fossil fuels in our life, whether we're talking about concrete or steel or plastics or ammonium or any of these other building blocks of modern society that have all this energy embedded. When you think about how do we get from A to B, which is a sustainable world and how do we decarbonize the old sector and build out the new ones? And where does that electric power come from? Is that green power or is that coal generated? So we have to, I guess, kind of think about things and start measuring them from end to end and try to put -- to the extent possible, put some numbers on these. And just as we all have a credit score, maybe we all have an energy score in the future. But again, to Amit's point, we've got an issue around emissions. We've got issues around externalities. I think a price on carbon has to be part of the solution. And the policy has to be there and the markets will do their thing. But I just -- I think there's just a lot of learning to do and kind of educating each other and making sure we've got the data and the facts as right as possible and kind of lift everybody up. But it's a big task, right? We haven't been focusing on this. Now we need to, and I think there's a role for all of the things I mentioned.

Great. Thank you. And Amit, what's your perspective on this?

Yes. I think building on what Paul just said, I think the idea that we are on this journey is completely accepted. We have a lot to learn in terms of making ourselves aware, as was just said, that in a lot of the traditional economic textbooks or economic learnings that everyone did, a lot of these things we're talking about, climate, the impacts on climate, these were externalities and left as things that can't be priced in. Would be good if we could do so. And here are some ways of incorporating externalities into our economic modeling analysis and decision-making. Now we are coming to a point where many of these cannot be considered externalities anymore because then we sort of run the risk of constantly imputing prices. And the way our system works, we need prices. We need some strong market signals that will impact what -- not only what market players are doing, but also what policymakers are doing. And I think that is where we face the biggest challenge at this macro level. I also look at what that implies in terms of decision-making at the ground level, and I'll give you an example. Policy support. Well, we had the Inflation Reduction Act in the United States. IRA, arguably, some of the biggest commitments in this area in terms of infrastructure development that is squarely aimed at mitigating and adapting to the impacts of climate change. What you find there is a lot of detailed policy regulations, guidelines, even instructions on how this money can and should be used. Lots of good analysis that has gotten into this policy framework that supports the policymaking. However, when you take it down to the actual use of the funds, and might I add that 40% of all of the IRA funds are earmarked for use in front-line communities, so it again clearly understands that there have been past inequities to the point that was made by Paul and Ludovic that we can learn from that. And moving forward, we are saying 40% of these funds are going to be used in front-line communities. Yet when we start working with them, we find that even those that are literate about what can and cannot be done, what the IRA says, it is very difficult, well-nigh impossible to access the funds. And this is, I think, a practical kind of a problem where even with the policymaking -- I'm not suggesting that this policymaking is complete and perfect, but to the extent that we have something, we're facing practical challenges at the ground level. And this feeds off of what's being discussed here that, yes, there is a literacy issue. But more importantly, there are issues related to how our current system is set up in terms of how funds can be accessed and used and monitored and reported back on. Just that framework is complicated enough and perhaps out of tune with what is really needed to resolve some of the problem. So this is, I think, an area where I would say that in the near term, to get the funds moving, to see what impact we have as a result of the funds being used and then monitoring and reporting back so that we get better economic analysis, better assessment of risks and rewards, and of course, that rolls back into better policymaking, better modeling. I think that's not happening. And so I think that link between what's needed at the macro level feeding off of what's happening at the ground level, that is a challenge that we face. And of course, if we can get all of this resolved, to some degree, then we can get the monies moving faster to help do what we have set out to do.

Thank you, Amit. I'd like to come back to this question of how do we get the funds flowing. But first, since you've just been talking about the IRA, Paul, I know you've been doing some work on the Inflation Reduction Act. So would love to bring your views in here.

Yes. Thanks, Lindsey. I have a slightly different view. I think the IRA has been a game changer and I'm basing that at least partly on a big conference that S&P runs now called CERAWeek. And it's kind of like the IMF meetings for global energy. The industries there, governments there, academics are there, tech people are there. And it happened back in March in Houston. But I think there was a lot of buzz around the IRA as being a game changer in the sense that it's kind of catapulted the U.S. into this leadership position on energy transition past the Europeans. And indeed, there were a lot of European energy folks that are talking about the possibilities for building out the transition ecosystem in the U.S. And the target of the IRA, as I understand it, is in addition to focusing on the local communities, which is what Amit said, is to incentivize changes in a few key areas. One is hydrogen, particularly green hydrogen. The other one is CCS, which is carbon capture and storage. And the other one is kind of battery storage. And these are big issues that we need to get a breakthrough. But -- in one sense, the government is kind of throwing a lot of money at this, but there's a lot of technology entrepreneurs and everyone else trying to find the big breakthroughs. It's pretty well understood that something like 95% of those efforts are going to fail, but there are a few key areas where we can kind of make the breakthroughs here. But again, if we're going down a path where we're decarbonizing the old sector and building out the new ones, the goal here is to have an economy that properly prices energy and externalities, but also an economy that continues to grow. And I think green growth is kind of like the Holy Grail here, can we continue to expand the economy and at the same time decarbonize it and get emissions on a better path? And I think the IRA is a good tool to do that. It's kind of more of a carrot rather than a stick. Maybe Ludovic can comment on this, the European approach was characterized as a stick rather than a carrot, but there was a lot of buzz. And I sensed a lot of energy and optimism and kind of convergence of views around the IRA where, again, government, academics, industry, the tech guys, all this -- all seem to be kind of moving toward a goal, which was -- left me a little bit more optimistic than I expected.

Yes. Thanks, Paul. I'd love to hear Ludovic perspective here as our European on the panel. But I know anecdotally speaking, so one of the hats I wear here is I host the ESG Insider podcast and we did a recent episode about the EU's Green Deal Industrial Plan, which some of our guests on the podcast characterized as the IRA as sort of being the call to action for the EU to proceed with its Green Deal Industrial Plan. Ludovic, any response to anything that Paul has just said about IRA or about Europe's approach?

Yes, it's a very American-centric view, right? So because I think the money was there before. What it spurred the Europeans to do is to rethink the disbursement, how do you get the money out of the door, which is what Americans are very good at. And just because you had this experience just 10 years ago with Obama's super stimulus and people see the benefits of Obama's super stimulus till today and we see -- when you talk to American businesses today, they talk about labor hoarding because they're waiting for the [indiscernible] to come, right? So I think somehow we had more or less the same amount of money, [ EUR 500 billion ] or so over 10 years, in different parts. But the IRA forced us to think about how to get it out. The 2 things that are interesting is because we were in -- keep up with the Joneses type of mode, we didn't necessarily look at the right things. And I mentioned 2 things that are important. The first one is construction sector because it's a nontradable sector, and it's 30% of the emission, but there is nothing for the construction sector. This is stupid. And the second one is the green brain drain. What America is good at, you guys are a magnet for talent and we saw that with the tech war. And for the climate tech and for the green war, I hope it's more collaborative than a war, we have to really think in Europe how we get money into fundamental research, which is the U.S. -- I was in the U.S. when of Obama's super stimulus happened and I was in D.C. I remember very vividly the number of people going to work in fundamental health because that was where the money was channeled to. And this is something Europe didn't get right. So somehow, it's not a zero-sum game. I think the way the European frame the problem was like, oh, we have to do as much. This is not very smart. I think the fact that America gets money out of the door for climate is amazing for everybody because America is the largest emitter per capita. But it did awake a form of race. But I don't think it does mean that the money will go to the right place. That's a bit my concern as of today. So we have to continue to scrutinize and to keep our federal governments as an institution very much on their toe with what they do with this money because it's a lot of money, and so we can do a lot of great things. But I fail to see really the projects. And what Paul mentioned is also very important. The acceptability that maybe 7 out of 10 projects will fail is something that is very hard to understand or stomach in Europe compared to the U.S. just because of the culture of failing and learning from your failures. So there is a lot to happen on there. And yes, this is a space to be watched for the months to come, certainly.

Yes, Lindsey is going to give me 30 seconds for a rebuttal, yes. Ludovic, first of all, I'm dual German-U.S. so I'm not totally a U.S. view, but I wanted to quote Winston Churchill. So I put this up -- I Googled it while you were speaking. He's got a quote, at least that's attributed to him, "Americans can always be trusted to do the right thing once all other possibilities have been exhausted." So again, Europe was way out in front on the time line. But the IRA -- you're right. It's kind of throwing a lot of money at this, but the idea is to kind of create this ecosystem that's going to be kind of Silicon Valley for the global energy industry. And that's how Houston thinks about itself now. But the one point I wanted to make in this conference, the one thing that really resonated with me was the CEO of TotalEnergy was up there on the stage saying what a great job the IRA was doing. Total is now the largest exporter of natural gas from the United States and most of it's going to Germany. So I think kind of repositioning or reconfiguring gas flows around the Russia-Ukraine war has been another issue as well. But you're right, there's going to be lots of misses. It's more part of the American culture than the European one. There's going to be a lot of, let's be honest, not perfectly allocated money in this, but it seems to be moving the needle in a big way. Thanks.

Amit, any response to what you're hearing here?

Yes. So I think I agree that -- for the most part with what you're saying. And I think I'd like to add to that is that, yes, IRA is built as an infrastructure development program, lots of money is thrown at it. I guess what I was commenting on earlier is the fact that between what has been agreed on as a result of the IRA back in November, I'm just concerned about the pace of movement in terms of use of those monies. And I think this gets to some of the issues that we've been discussing, which is that you can only do so much when it comes to federal policymaking. And you have to also then recognize that there are other elements that have been introduced as a result of the IRA, which leads to some of the differences that Ludovic was pointing to, that is perhaps we are moving away as a result of the IRA from a global picture to one that is also trying to secure domestic supply chains. And that has an impact when it comes to cooperation with Europe or the rest of the world. I mean, here, we're talking about primarily about U.S. and Europe, but I think we have to recognize that there is a whole world out there. And so there are concerns that relate back to energy security, supply chain security and viability. And so those shifts that we're seeing, we're already seeing some of those trends elsewhere, including the fact that other countries within the North America and the Americas sphere, the NAFTA-related countries, Mexico in particular, are seeing a boost in investments that are flowing in as a result of potential IRA-related activities in the United States. So it's the pace that I'm talking about. And then within that, the fact that we have deliberately targeted front-line communities, I think this is where we are seeing gaps when it comes to actually implementing. And so this, to me, is a question. And then in terms of the energy transition, for example, you mentioned things like we need better battery technologies, better technologies related to hydrogen, et cetera. I think traditional permitting issues are creating a problem. Transmission lines have to be put up to really support the new energy sources that we are anticipating, and we are nowhere up to that. And I think the fact that we have a permitting process that is relatively slow, is fragmented because of the state-level decisions that need to be made. And there is a movement that calls for moving some of these decisions to the national level and using eminent domain as a way to hasten and simplify the permitting process. I bring this up as an example of the kinds of operational delays that can happen as a result of the existing framework, the policy, regulatory framework and the need for a new infrastructure system to support the energy transition that we are envisioning. So of course, this relates to the IRA because that determines the pace at which the funds get used and distributed.

Absolutely. Thank you. So we've got some differing perspectives on the IRA, and I think we'd be remiss if we didn't also talk about how this can help the Global South. How does the Global South come into the equation. And Paul, maybe we can turn to you to start with the reply.

Yes. Thanks, Lindsey. Yes, even if we have a global center of development around transition technologies, et cetera, whatever the Silicon Valley is going to be for the transition, those technologies need to be disseminated. I think everyone knows, getting back to the literacy discussion, that most of the advanced countries are decreasing their energy per unit of GDP. That's true in the U.S., true in Europe, definitely true in Japan. But we have the emerging markets led by China, India, but a whole bunch of other countries that are just starting to develop. And there's an equity issue here. They want to grow the economic pie and support their populations, et cetera, and how are they going to do that in a sustainable way. So the answer has to be that some of these technologies, whether we're talking about hydrogen or carbon capture or storage or anything else, they have to find their way into the Global South so they have a sustainable path to develop their economies. There's a big question about how that happens. Technology can be spread easily or it can be blocked, but there's geopolitics and everything else wrapped around here. So on the optimistic assumption that these technologies do get developed, they need to be shared in some way with the Global South so they can get on a sustainable path or else this whole thing isn't going to happen, right? Energy transition is a global issue, so it needs a global solution, and those are tricky.

Absolutely.

So if I could jump a little bit, I think Paul brings up a very interesting point about technology transfer from developed to developing countries. And I think there is an element where we can suggest that there's one strategy that could be effective, but perhaps could be a little controversial is that there are some countries who, if they receive the technology, will then be able to attract private sector investment. So if there is agreement, say, between the U.S. or the EU and Indonesias, the Indias, the Brazils of the world, if technology goes there, if these agreements are put in place, they can attract additional private sector funds. And I think that's an important issue because we're not going to get transition at scale until we have private sector involvement. So I mentioned those countries because they are -- they have a system in place. They're mature enough that, in fact, they can draw in those private sector investments and leverage existing technologies and funds that they have there. Some -- they have quite a bit of their own resources to put in. And of course, they are also the ones that, moving forward, are going to have the greatest increases in per capita emissions and total emissions. As opposed to saying that this technology should be available to everyone. Not saying that it shouldn't be available, but in the effectiveness of moving these technologies to other countries where they may not have additional resources of their own and because of the state of play in their particular economies, they may not be able to attract and leverage additional private sector investments. So that's something that I think is worth considering. I know the Bridgetown discussions and agreements have been looking into this. And as we are talking about COP28, looking to the discussions there, this is the kind of additional nuance that needs to be put into the framework as opposed to just saying, oh, we need to transfer technologies. I just want to bring that in. So adding to what Paul is saying that it's important to make sure that we have these kinds of global discussions, not talk about it as a zero-sum game. But at the same time, even there, I think we should be looking further into how we can really provide impetus to greater on-the-ground movement.

Yes. And you just mentioned, Amit, COP28. And as we discussed at the beginning of today's webinar, that big annual climate conference is taking place in Dubai toward the end of this year. And I think everything we've been discussing, so transition and physical risk, the Just Transition, climate financing, role of the Global South, role of technology, these are all topics that are sure to be big areas of focus at this event. And in just a minute, I'm going to ask our panelists about your COP28 expectations. But I did just want to introduce now our audience polling question because we want to hear from our audience and get your perspective. So if we could go ahead and just bring that up to the screen, please, Tom, would be a great time to hear from our audience on their perspective on sort of what are they watching for? What economic trend are you paying the most attention to? And so the choices that we are giving our audience here are geopolitical tensions globally, the cost of climate risk and energy transition challenges, inflationary pressures and interest rates impacting sustainable investments or global pressures for transition planning creating conflicting paths. Out of these 4, and obviously, there's many more choices that could be on this list, but we'd like to hear from our audience what are your expectations. And then once we go ahead and we pull up those audience results, I think we'd like to turn back to our panelists and just hear from you about what are your expectations out of COP. And being mindful of time, I also am going to want to know sort of as you look ahead, what is the #1 challenge that you're paying attention to in the sustainability space as you look at the next 6 months of the year. So we'll go ahead and pull up those polling results and see what our audience has to say. Okay. So I guess, perhaps unsurprisingly, given the direction of this conversation, 57% of our audience thinks the cost of climate risk and energy transition challenges are the biggest thing that they're focused on. And then we have much smaller numbers for the other choices on here. Given that audience perspective, Paul, maybe I can turn to you and just hear what are you paying attention to heading into COP28? What are you expecting to get answers on?

Yes, I think my expectation -- I'm not a super close follower of the COPs. But I guess, depoliticizing all of this, right? So I think we're talking a lot about externalities and measuring emissions and getting the policies right, including carbon prices and all these issues have been -- transfers to the Global South, et cetera. Economic things that interact with that as well. So I think it would be great to get just a less politicized process around this and some key wins on carbon pricing, maybe some acknowledgment on mechanisms to transfer technologies, et cetera. But that to me, as an economist who follows climate rather than a climate expert, would be the sorts of things that I would be looking for.

Great. What about you, Amit, what's your perspective?

Yes. The way I look at it is I think the COP process is inherently political. The fact that it is being held in Dubai has its own set of issues related to that process. So I'm not expecting any kinds of decisions on carbon pricing, et cetera, to come out of the COP. I would anticipate, though, that -- and again, given the poll results, the fact that we are seeing cost of climate risk and the energy transition challenges as an important issue, I think that is going to continue at COP and there is going to be more and more discussions about the issues we've just raised: the technology transfer issues, how do we address risks and how do we get monies to the developing countries. There's going to be, again, lots of rancor and debate around the commitments that have been made in the past and have not been met, including the fact that we have a climate fund that was supposed to have been funded to the tune of $100 billion per year starting 2020 and we have not even come close to that. I think the highest we got was $83 billion. And so there's going to be, again, discussion around that. And I think there's going to be a renewed discussion around what came up in COP27, which is the loss and damages. The fact that, that has been put on the table, but there is no money, there is no agreement to put money in there and then, of course, the U.S. statements that we're not ever going to touch reparations internationally, that's being stated very clearly. It was even in the Senate hearings a few days ago, we had that reiterated. So that's going to create the kinds of discussions that will be around how do we have an assessment of the loss and damage. There are, of course, the data, technical analysis, economic analysis issues [ on ] the technical side of things. But again, on the practical front, is there going to be any money that is going to be available to the countries that face these loss and damages. And again, the discussion is going to revolve around, well, yes, we can do that. Perhaps we can agree to make a commitment or discuss further, but hopefully, we'll get something more clear and get past this blanket assertion that we are not ever going to pay reparations. That will then create the kinds of side discussions, which I hope we don't get into. So that's kind of my thought there.

Thank you. Building on that COP28 outlook in just the last few minutes here, I'd like to end on a forward-looking note and ask, starting with Ludovic, what are the 2 biggest sustainability challenges facing the global economy and the remainder of 2023 from your perspective?

One, which is very -- you want the audience to answer first? Or I can speak at the same time?

Oh, no. Please go ahead. This is a question for you. Please go ahead.

The first thing is this bridges back to COP28. COP28 will be where the 2 phase congregates. My biggest challenge is that we've been tripling fossil fuel subsidies last year, year-on-year basis. So if we could just -- before reengineering a green world, if we can stop with fossil fuel subsidies, that would be fantastic because that's a major challenge and we can definitely use that money for something much better. And the second topic is biodiversity. We've been talking a lot about emission and CO2 and -- but I think we don't speak enough about biodiversity. My team, we did a piece of work with the [indiscernible] University on trying to understand the first -- for the first time, trying to have a framework to think financial losses related to biodiversity. It is hitting Wall Street as we speak. So we're going to have -- because of double materiality, because of what's going to go into some of the corporate disclosure, we need to get our head around, especially in the financial sector, about what really are the investment needs to keep biodiversity as safe as we can because this is not for 2030 or 2040 or 2050, it is for now. And so I'm concerned that it is a bit on the back burner.

I agree with Ludovic that biodiversity is becoming more and more important. And in our discussions, we are finding that, that is moving front and center looking at the materiality of biodiversity protection. And sort of coupled with that, issues related to the land rights of indigenous people in particular because globally close to 70% of the biodiversity is owned by the land that is -- in question is owned by indigenous population. So there is that added element. But these issues are important, are becoming more and more important. And hopefully, the COP will look into that. But I think, as I mentioned earlier, the fact that COP is being headed in -- is being held in Dubai will continue to generate controversy and it is not likely that we will see fossil fuel subsidies removed or any kind of movement towards significant phase-down of fossil fuels. And in this context, I think we already see and there's a lot of discussion about China putting in the equivalent of 2 fossil fuel facilities every 2 weeks. But we also have to recognize that China is also a leader in renewable technologies. And so I mean this is what was discussed earlier that countries like China, India, Brazil, Mexico, Indonesia, we have to recognize that they are in a phase where their energy demands per capita are going to increase because, if nothing else, there's more and more people that are getting energy access when they did not have any. So the fact that we are living in a world where we have to recognize the need for addressing climate change, at the same time, we are trying to square that with the development and economic growth aspirations of a vast majority of the world, I think that's the balancing act. We have to accept, and we cannot sort of ignore one for the other. So I think we will face these challenges and the discussions will continue at COP28 and beyond.

Yes, Lindsey, maybe one concluding point for me. Not all fossil fuels are created equal for the transition. If we can get out of coal and even into gas as a transition mechanism and then go to green, that would be a huge help. So getting out of coal and then doing things like methane capture, which are relatively straightforward, that makes a big dent in the very, very short term and then we can work on the transition after that.

That's a great point to end on. And there's so much more that we could dive into so we're going to need a whole another hour, an additional webinar. I hope you'll all come back. Thank you so much for your time, and thank you to our audience for your engagement and attention and questions. We covered a lot today. So if our audience has any follow-up questions, please use the contact us widget, and we'll be happy to assist. For anyone who wants to review anything we covered, again, this session was recorded and so you'll receive a copy shortly that you can access on demand at your convenience. In addition, when we close out the webinar, you will be routed to our webinar survey form. We'd love to get your feedback, so please take a few moments to complete. Thank you again, Amit, Paul and Ludovic and to our audience. And look forward to the next one.

Thank you.

Thank you, everyone.