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

Hi. I'm Lindsey Hall, Head of Thought Leadership at S&P Global Sustainable One.

And I'm Esther Whieldon, a senior writer on the Sustainable One thought leadership team.

Welcome to ESG Insider, a podcast hosted by S&P Global, where we explore environmental, social and governance issues that are shaping investor activity and company strategy. Every year, we bring new coverage at the conference of the parties or COP, and that's the UN's annual Climate Change Conference. So 2 years ago, COP26 took place in Glasgow, Scotland. In 2022, COP27 took place in Sharm El Sheikh in Egypt. This year's conference, COP28, is again taking place in the Middle East. It kicks off on November 30, in Dubai and the United Arab Emirates. Over the next few weeks, we'll be bringing you coverage of what to expect from COP28. In today's episode we'll start with an overview of what's its stake, what big themes will be discussed and who are the different players involved for both the public and the private sector, and we'll talk about how these gatherings have changed over the years. We'll hear the corporate perspective from Saugata Saha, the President of S&P Global Commodity Insights. And we'll talk to a cop veteran with experience in the public and private sector, Dan Feldman. Dan is former ambassador, who served as Chief of Staff and Counselor, Secretary John Kerry, when you as President Joe Biden, appointed Kerry the first special presidential Envoy for Climate. Dan is now co-chair of the ESG and business and human rights practices at law firm Covington & Burling.

Some quick background on a couple of terms we'll be using in today's episode. We'll be hearing today about the goals of the Paris Agreement. We talked about this a lot on the podcast. But a quick refresher, the central goal of the 2015 Paris Agreement on climate change is to limit global warming to well below 2 degrees Celsius above pre-industrial levels, and ideally, to 1.5 degree Celsius. To achieve that 1.5-degree goal, greenhouse gas emissions must peak before 2025 at the latest and decline 43% by 2030. This target was informed by the scientific research carried out by the UN's Intergovernmental Panel on Climate Change or IPCC. We'll also be hearing about nationally determined contributions or NDCs. These are the documents countries update every 5 years that outline the plans for lowering emissions in line with the goals of the Paris Agreement.

Finally, we're also going to be hearing on today's episode, the term loss and damage. This is a big area of focus at COP27 last year and will again be on the agenda this year. In simple terms, the impacts from climate change will not be evenly distributed around the world. Lower and middle income countries are more at risk than their higher income peers and also less ready to cope. At COP27 last year, an agreement was reached to form a loss and damage fund that seeks to address adaptation and resilience challenges in developing countries. But as we'll hear today, a lot remains up in the air about that fund. Okay. First up here, Saugata, with some high-level scene setting.

I'm Saugata Saha. I'm the President of S&P Global Commodity Insights, which is a data and analytics business at S&P Global, focused largely on the commodity and energy markets. Think of us as the folks who help our clients in the commodity and energy space, crack some of the toughest problems out there using our benchmarks, data, insights and professional services. COP, C-O-P, actually stands for a conference of the parties and 28 is the 28th one that's happening. And this time around, it's happening in Dubai. It is possibly the most significant climate conference that happens each year where all of the countries come together, stakeholders from the principal countries come together and talk about pathways to getting us to what we all want to do, which is reduce emissions and get us to a scenario in the future where we can have lower temperature increases. COP28 will be the conclusion of the first ever global emissions stocktake. And this will be really a defining moment for all of us to assess the gaps between all of the aspiration and ambitions that have been laid out towards getting to the Paris Agreement goals and how far along we've come on actual implementation.

A lot of people are paying close attention to this global stocktake, including our next guest today. Here's Dan Feldman explaining more about what the stocktake is and why it's significant. And you'll hear him mention in his answer, the Inflation Reduction Act or IRA. As we've covered in past episodes of this podcast, this is a comprehensive U.S. energy and climate law that allocated nearly $370 billion in federal spending and tax incentives to decarbonization efforts over the next decade.

Under the Paris Agreement, the global stocktake was designed to assess the global response to climate crisis every 5 years. And the first ever stocktake was slated to conclude during this year's COP28. So this is really -- this is the first global stocktake. And it assesses climate progress over these 3 key areas of mitigation of adaptation and the means of implementation, which is frequently on the financing side, but also technology transfer and capacity building. This process started 2 years ago at COP26. It has several different phases, including this data collection phase and then a technical assessment and then output. And this helped to culminate in what the UN released called their Synthesis Report. So think of the global stocktake as a first global report card, and think of the Synthesis Report as we're not doing very well on that report card. The warnings are very dire when it aligns was we're rapidly narrowing the window to raise ambition and implement existing commitments to limit warming to 1.5, that we need much more ambition in action and support is needed to implement domestic measures for NDCs and elsewhere. We need to see transformations across all sectors and context, not just phasing out all unabated fossil fuels, but ending deforestation, reducing non-CO2 emissions and that this has to be part of a just transition so with economic diversification. So it's quite dire. One thing that we'll be looking to see how the Emiratis address is what do we do with this report card and beyond just waiting for the next one 5 years from now and how do we try to address the key issues there. And the Emiratis have said, they have this kind of 3-part vision for how we'll try to correct from that. The first is having a negotiated outcome that is ambitious in all these areas on adaptation, on mitigation, on loss and damage, on finance. The second is putting together an action agenda for the COP focused on the immediate responses of real world, including things like finance and again, policy. And then the last is this call to action with a very clear, not just for government but industry and individuals and everyone to try to course correct at this point. But this is about as stark warning based on a comprehensive amount of information as we've ever had.

Okay. Do you think there is a danger that people will be like, "Oh, it's another stark climate warning." Like how do we make this get through to the stakeholders it needs to get through to? Or do you feel like that's not something that is a concern?

No, I absolutely believe it's a concern. How do you make sure that this is not just another cold conference with lots of talking heads and so-so food at a bunch of cocktail parties. Like this is like a -- this is a critical moment. This is an inflection moment for our planet and our history, and we need to seize it and take advantage of it. I hope that it will be used in that way. It has the potential of being used in that way. There's lots of criticism of many of these conferences and yet, it's the best vehicle that we have right now. There's nothing else that brings together all the globe's key actors in this way. And so if we didn't have a forum like this, we need to create one that looked a lot like it. So how do you make it more effective? How do you make it more impactful? I think the attention is real this time and a commitment to having a real impact is real. I'd say for 2 key reasons. One is it's a moment where everybody recognizes these climate catastrophes that we're now having, these historic events that would be once a century that are now almost annual, the impact on lives and economies. And so there's a sense of people being personally impacted by this. This is not some time down in the future. This is not a gambling with your grandchildren's lives. This is what's happening right now. It was a very silver analysis that this July was the hottest month in the course of Earth's recorded history. But even more so ring was the fact that all the analysis is that will be the coolest July of the next 20 years. It will get increasingly bad. And so given all these events, there's a recognition that we must actually take action and implement. And the second piece, I think, coming out of the U.S. experience with the IRA and this investment in renewables is that there's also enormous opportunity here. This is not just government regulation. This is not just a stick approach to doing what you should do and eat your vegetables because they're good for you. It's a -- this could be the greatest economic opportunity in this energy transition and move to renewables that we've had since the industrial revolution.

So the global stocktake is 1 big area of focus. But what can we expect from the conference on the ground? Here's Dan explaining how COP28 will unfold.

So the COP is over a course of 2 weeks. The first few days are when they're expecting over 100 heads of state, it will be very significant at the head of government level and then it gets into the nitty-gritty of negotiations. But each of those days is a theme today and the Emiratis also kind of in a break with what had been done in past COPs, put out for kind of public consumption and input what each of those days would look like and then took that and have released it. Many people are going for kind of particular days. There's a day, not just on finance and trade, but which they paired specifically with gender equality and accountability, which I think will be very interesting. There's a day on energy industry and the just transition. There's a day of nature in land use and oceans and another on food and agriculture and water.

In upcoming episodes of this podcast, we'll be digging into some of those themes covered during different days at COP that we just heard Dan talking about. I asked him, what discussions will be taking place and key outcomes is he expecting from COP28?

The Emiratis who are hosting this COP have actually laid out 4 very kind of ambitious goals of the conference. And they all aim to deliver on the Paris Agreement by focusing on these paradigm shifts. The first is fast-tracking the energy transition and slashing emissions before 2030 at getting to the 2030 goals as quickly as possible, as effectively as possible is going to be critical. The second is delivering on old promises. There have been any number of commitments already made over many years on climate finance and setting the framework for kind of a new and more achievable and more impactful goal on cloud finance. The third, they label that's putting nature, people lives and livelihoods at the heart of climate action. This means for all intents and purposes, working on issues that effectively address adaptation, resilience, the effort at last COP to set up a loss and damage fund. And then lastly, to mobilize for the most inclusive COP possible. And so on that issue, they've tried to ensure that there is a greater voice for youth. They've set new topics for discussion like health and trade and relief, peace and with a real focus on gender, in particular, given the impacts of climate on particularly vulnerable communities.

I asked Dan about his experience with previous COP events. You'll also hear him talk about the first movers coalition. This initiative was launched by U.S. President Joe Biden and the World Economic Forum during the COP26 gathering in 2021. Coalition members use our purchasing power to create early markets for innovative clean technologies across several hard to abate sectors. Okay, here's Dan explaining what he has seen work well at past COP gatherings that this year's participants could look to emulate.

There are several points that we've seen in the most successful COPs. First of all, it's important to have a chair of the COP that is really trying to drive to key goals. And I believe you do have that in the Emiratis at this point. There's been some criticism of petrostate chairing COP at such a critical moment. But the Emiratis have been very transparent about how much pressure there going to bring to bear on petrostate economies that the Chair of COP, in particular, Dr. Sultan Al Jaber, has talked very openly about the need to transition away from fossil fuels and doing it much more quickly and with real accountability and how to accelerate that. And I think that they'll do a very good job of convening and trying to drive some of these quite difficult issues. I think the other thing that's very important, which the Emiratis have really tried to make a key staple of this COP is trying to make it inclusive of all stakeholders as possible. So that's obviously, governments, but it's also the private sector and corporations. And so they have sought to engage the private sector significantly more in this COP. And because this is in all hands on deck moment, because we won't possibly have the amount of finance that we need just through governmental commitments, and we will need to ensure that corporate commitments are made and executed effectively, having all key stakeholders at this COP in the way they will, will be quite important, and I think that's also a key lesson.

So Dan, in light of what you've just described, can you say a little bit more about where do you think some of the sticking points might be at this COP? Where will there be resistant in terms of regions or issues that are being covered?

There are likely to be some signal points which we can all anticipate. And then there are ones that we'll have to see what actually transpires. So I'd say in the category of ones that we expect, one is the follow-up on the -- what's termed the loss and damage fund, which was established at the last COP after a number of years of key countries seeking something like this. But really with many of the difficult questions about how it will be operationalized and executed left open. So over the course of the last year, there's been several meetings about how to actually set up this fund. At this point, it's still open even in terms of how that fund looks, how it will be capitalized, how it will be utilized. It's been made very clear by some key countries that this is not meant to be a reparations fund, but really used more for impacts of major events that look a little bit more like adaptation, but it's still going to be distinct from adaptation resilience. And so there's not really a great track record with regard to big global funds being adequately capitalized even when they're very clear about their goals. And so adding another one at this time that has all these questions about it, I think, will be 1 key issue that many stakeholders are focused on. Are they actually able to get this up and running and what does it look like? But it's quite possible that there's other issues. We're having a conference like this at a time of real global schisms, including in the fallout from the Ukraine conflict, what that means for seeking energy supplies and stability of energy suppliers in Europe and elsewhere. And so how various countries make commitments based on what their national security and energy needs may be versus what their climate commitments may be will be very interesting to witness. And then there's this continued discussion between many of the key emitters of the world, that over 80% of the world's emissions are produced by 20 major economies versus the vast majority of nations that have very small emissions, but are disproportionately feeling the impact of climate change, particularly low-lying island states or others that have been affected by natural disasters, impacting climate migration and how they work with each other. One of the things that was sought at the last COP was that each country should come back with an even more aggressive nationally determined contribution to make sure that change is accelerated. And we'll have to see how many actually do come back with that. And how much is still in the commitment area versus what's really important, which is the implementation. How do we actually get to a point where we are making real progress in trying to bend this curve so that we have a fighting chance of keeping to 1.5 C.

You talked about the fact that this COP will see more corporate involvement. And I understand that's been the direction of travel for the past couple of COPs, more and more of the private sector showing up to the party. Has that been your experience?

Yes, certainly, I think the early COPs had very little corporate engagement. The COP in Glasgow had some as did Sharm, but this is really a real focal point of the Emiratis for COP28. In fact, I think they're expecting maybe double the number of participants from last year's COP in Sharm El Sheikh, with the vast majority of that increase due to corporate representation. And as I said, we need to have everyone here under the tent and everyone, including the private sector has a really significant role to play. As I said, it were the estimates are that to try to keep to the 1.5 C commitments will cost literally trillions of dollars. The estimates are at least $2.5 trillion of annual investments in climate action by 2030. A small fraction of that will be met by commitments from sovereign entities or from multilateral institutions. And so getting the private sector engaged in this, having fossil fuel companies part of the solution has got to be part of this because the key part of this energy transition is accelerating away from the use of fossil fuels and into renewables as quickly as possible. And you've seen some real progress over the last year, especially in the U.S. in its ability to meet its NDC through the passage of the Inflation Reduction Act, the IRA, which infused with hundreds of billions of dollars, energy production, efforts at greenhouse gas reductions and really accelerating the energy transition through investments in renewables. And so we will be much more able to come close to meeting our NDC given this infusion of capital from the U.S. over the last 1.5 years. But that's got to be replicated many times over. And so we are seeing the private sector in virtually every sector and certainly, obviously, energy and finance in technology, in agribusiness, in manufacturing, all making quite significant commitments in terms of carbon neutrality and the energy transition. But now they've got to demonstrate how they're actually doing that. What are the methods of accountability, of transparency? How are they reporting on that? And how is this being done in as cohesive manner across the globe to have the impact that we need?

So you get everyone under this big tent, right? You get the governments and you get the private sector, the financial institutions, technology companies, renewable energy companies, fossil fuel companies. They're all there. What needs to happen? Like what does that engagement look like from your perspective?

Yes. Actually, the COP28 presidency has actually laid out some of those kind of very specific steps. And for instance, they've said that we need both industry partners and sovereign governments to do things like triple renewable energy capacity and double the rate of energy efficiency across sectors by 2030, that means ramping up electrification, all to be able to enable this phase down. And hopefully, I do at some point soon, phase out of fossil fuels. It's looking at particularly heavy emitting sectors, and there's an excellent initiative of close to 100 at this point, leading companies in these hard-to-abate sectors called the First Movers Coalition, which was launched at the COP in Glasgow. But looking to see how we use scale up, use of things like carbon capture and storage, carbon dioxide removal, low-carbon hydrogen and kind of a range of other issues. And then in particular, taking action to really accelerate the phase down and phase out of unabated coal power because that's really one of the most significant causes of greenhouse gas emissions and phasing out as well, this kind of inefficient fossil fuel subsidies, which helped to support it. So yes, there's a whole range of kind of specific initiatives where the private sector and governments can really partner.

We just heard Dan talking about the importance of phasing out and phasing down fossil fuel usage. This is also a big focus in my interview with Saugata from Commodity Insights. Earlier, we heard him talking about the importance of the global stocktake. Here's Saugata again, talking about the other key topics he's focused on heading into COP.

The second I would say is we need to be paying attention to the language that gets used around fossil fuel phase out versus fossil fuel phase down. That will also be a key negotiating point among the parties who will be attending. We believe that the EU will be proposing a deal to phase out unabated fossil fuel use, leaving the window open for continued use of oil and gas, but only if emissions are captured. However, we believe that there will be others who will have a more moderate phase down approach and want to make a distinction between unabated versus all fossil fuels. The third big thematic area I think we should expect to see is a focus on industry-led solutions and low-carbon innovation. You mentioned that this will be one of the COPs where industry, the private sector will be out there in full force. And we would expect to see industry-led solutions being put forth on the table to help with the common emissions management and carbon emission reduction goals. The fourth, I'd say is that COP28 will offer a chance for negotiators to make further progress on Article 6 of the Paris Agreement, whether it be on carbon markets, which we expect will be a big theme or even language and recommendations on methodologies of how carbon credits get calculated and how carbon removal is included or not in calculations, and we expect there will be a formal adoption at COP. And then the last, I'd say that the big thematic area we should watch out for is successful, likely hinge on negotiations around financing from the developed nations for the developing nations. In the last few months, we've heard quite a bit of physiology around some of these new terms around the Global North and the Global South. And we believe how the Global North lends a helping hand, so as to speak, to the Global South in helping meet the emissions goals while the Global South brings a few billion people out of poverty and onto a path of prosperity will be an important defining factor of COP. So clearly, a lot to take in. A lot's going to happen over the few days in Dubai, and we'll be watching very closely.

Okay. If I can dig in on one of those points you made, you're talking about phase out versus phase down and also about unabated fossil fuels. For our listeners who might be less familiar, can you just dive in a little bit deeper and explain what do you mean about phase out versus phased down? What are the prospects for a global agreement on either of those approaches?

The 4 phases, I think are 4 words one should be paying attention to. This phase out, phase down and then unabated versus all fossil fuels, right? And I'll start with the easy question, which is it's really difficult to answer at this point what the prospects of an agreement are. We think the best case scenario is that there will be progress in terms of both the goals of where we can get to, and I'll come back to that. And the alignment among the various parties. And more importantly, the resources that are made available to attain those goals. It's not really helpful if there are aspirational goals that get agreed to. However, there is neither financing nor a viable path to get into that. Now unabated versus abated versus all fossil fuel means well, if you said no to all fossil fuel use, that basically means that over a certain period of time, all fossil fuel usage has to be cut down. Unmet abated means you can use fossil fuels, but only if the emissions related to those are abated. And that's a pretty big distinction, which we think will be a key sticking point for many countries in the negotiations because for several countries, they have to continue to use fossil fuels, especially for the so-called hard-to-abate sectors, and abatement is going to be the key part to using that. And phase down and phase out, of course, there's a gradual path to getting it lowered in terms of consumption and emissions. And phase out, of course, you take it out fully out of the mix. So as you can tell, these are going to be pretty sticky negotiation terms and we anticipate a fair amount of action in terms of the negotiations. But I don't think I'm going to try and predict what some of the outcomes might be.

Okay. I won't ask you to look in your crystal ball, but I do want to ask, how does the discussion of a just transition come into play here when we're talking about phase out, phase down, et cetera?

The just transition, this concept has been talked about quite a bit, and this also becomes more relevant now that countries have kind of divided themselves into blocks such as the Global North and Global South, so to speak. Just transition comes into play as countries need to really think about the social and economic impact of phasing out or phasing down fossil fuels on their populations, especially the most vulnerable groups and provide adequate support and path to remediation as the energy transition happens. We are talking about a couple of billion people who are looking at a path ahead where we are now asking them to change their energy mix and potentially move to higher cost, less secure forms of energy and that could potentially get in the way of a lot of people coming out of poverty, on a path to prosperity and improving the standards of living. I also would like to remind our audience that when we talk about energy transition, it's generally not energy transition alone. It's the trilemma that policymakers and companies and governments have to solve, which is energy affordability, energy sustainability and energy security. We need to solve for all 3 of them. And a just transition lends a helping hand, so to speak, to countries which need more time or money to be able to be on that path to transition to less carbon-intensive forms of energy, while at the same time, providing viable means for their populations to get out of poverty, be on a path to prosperity, et cetera. At S&P Global Commodity Insights, we look at the world through various scenarios, right? Nobody knows what a point in time in the future will look like. And everything we've seen indicates, all our models indicate that hydrocarbon-based fuels will continue to make up a significant portion of the global energy mix even by 2050. It's about 80% right now, and most of our models indicate that it's going to be down to somewhere in the 30% to 50% range. The point being, it's not going to 0 anytime soon, and we need to have a pragmatic approach, which recognizes that hydrocarbon-based energy sources will be around, and we need to make sure that the transition is just and fair so that countries which are working hard to get their populations to a better life can do so.

Okay. And just so I'm totally clear. When you say hydrocarbon-based, you're talking fossil fuels or?

Essentially, yes. Anything which you when write down the chemical formula has an H and a C in it. But yes, fossil fuel is another good shorthand we are describing it.

So given this landscape you've just laid out, how do you anticipate the discussion around renewable energy targets to unfold during COP28?

I'd start by saying our scenarios indicate that we are not on a path right now to get to what Paris Agreement wanted us to do, right? So if you look at the 3 scenarios we typically look at by the 2050 scenarios or the 2100 scenarios. Our base case actually estimates a decline in fossil fuel share, which is great and a 25% reduction in greenhouse gas emissions by 2050. But this still falls short of the Paris Agreement goal and implies a warming of about 2.5 degrees Celsius by the end of the century. Our optimistic scenario, and I won't even talk about the pessimistic scenario right now, our optimistic scenario gets us to about 1.7 degrees warming by 2100, but that still surpasses the 1.5-degree target that exists. So if you look at currently what's happening, most of the scenarios get us to a path, which doesn't -- get us to the warming scenarios that would be acceptable. And that's largely linked to the fact that the current models predict that emissions will be much higher over the next several decades than we need. So there is this huge push and need to get us to renewable forms of energy, which have low carbon emissions associated with them. And we can talk a lot more about them in terms of what some of those technologies are. But I think it's fair to say that emissions management is going to be possibly, a key linchpin to getting us to net 0 or even 0 in the future.

We heard Saugata mention Article 6, which involves international cooperation through carbon markets. If you'd like to learn more about this topic, we'll include links to previous podcasts at our show notes. We'll also include links to some of the events that S&P Global will be hosting on the ground in Dubai during COP28.

Okay. So just to quickly recap what we've covered today. We heard that COP28 will be an important chance for countries to assess the gaps between their aspirations and ambitions on the one hand and then the actual progress they've made in implementing those goals on the other hand. We heard about the significance of the first ever global stocktake. We heard about the challenges of implementing a loss and damage fund, and we also heard about the opportunity the energy transition could present.

We heard about the role that different actors from both the public and private sector will play in finding solutions, phasing out and phasing down fossil fuels and moving into renewables. And we heard about the importance of a just transition that is executed in a way that considers both social and economic impacts. These are all themes we'll continue to cover in the weeks ahead, so please stay tuned for more coverage of COP28.

Thanks so much for listening to this episode of ESG Insider and a special thanks to our producer, Kyle Cangelosi. Please be sure to subscribe to our podcast and sign up for our weekly newsletter, ESG Insider. See you next time.