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

Hi. I'm Lindsey Hall, Head of Thought Leadership at S&P Global Sustainable1.

And I'm Esther Whieldon, a senior writer on the Sustainable1 Thought Leadership team.

Welcome to ESG Insider, an S&P Global podcast, where Esther and I take you inside the environmental, social and governance issues that are shaping the rapidly evolving sustainability landscape.

Last week, I was in Phoenix, Arizona at the annual GreenBiz Conference, which is hosted by GreenBiz Group and focuses primarily on the corporate sustainability landscape and S&P Global Sustainable1 was a sponsor of the event.

This event is a chance to hear perspectives of sustainability professionals from across a variety of sectors. And today, we're going to be bringing you some of the key themes that emerged from the conference. So Esther, what was your overarching takeaway from the event?

Yes, I'd say it can be summarized in one phrase I heard come up multiple times, which is what will it take? So for example, what will it take for companies to achieve their net-zero goals? What must be done to decarbonize supply chains in hard-to-abate sectors? What will it take to ensure a just and equitable low-carbon transition? And what are the effective strategies for influencing positive change among consumers, within corporations and across supply chains. Lastly, what role do things like data, technological solutions and market mechanisms play? We'll be exploring these questions with our guests in today's episode. To help us set the scene, let's turn first to Abby Davidson, Managing Director at consulting company, ENGIE Impact, which advises companies on their decarbonization strategies, here she is.

I think we are -- and I saw this at Climate Week, too, we are so much in the how now with so many facets of sustainability. So a couple of years ago, the conversation might have been, "We're setting big, ambitious goals, and we're announcing this commitment and that partnership." And now it's, "Oh my goodness, 2030 is coming very soon, if we're going to get there, we need to make significant investments in many facets of ES&G and certainly where we focus on decarbonization." So I think everybody is in the details of the how. So that's a good shift because that is where we need to be if we're going to achieve our targets at speed and scale. And I think there's always been a recognition at GreenBiz and places like this that sustainability is a whole-of-business transformation. And really this transition to a low-carbon business needs to reflect a business transformation similar to a digital transformation or elements of a digital transformation. Some people have talked about cybersecurity and what that actually means across the business and how you transform a business to achieve that. But more broadly, how do you actually embed digital and AI into your business going forward? It's a similar whole-of-business transformation. And so we're hearing that, I think, increasingly spoken here at GreenBiz as well. I think it's possible that a lot of us who worked in this space recognized that, but we also wanted to support companies to take the first steps. And so we didn't want to scare people with this is a whole-of-business transformation, but it is a whole-of-business transformation. And I think the sooner now that we're honest about that, the sooner we can truly get to a cohesive how.

Yes. I think the fear is like, are they -- will they be relevant if they have to fully change, right?

Absolutely. And many are realizing we're not going to be relevant unless we change. And so what does an energy transition look like for us if we are a railroad that needs to run, what does it look like to run on sustainable fuel if we're a large railroad company? And what does that mean in terms of partnerships across the industry and with the government. So thinking about what it looks like to adapt and be relevant over time in a low carbon economy.

That idea, Abby mentioned the need for a whole-of-business transformation fits well with other topics we'll be covering today. I also heard how companies are looking to reduce their operational or Scope 1 emissions as well as their indirect Scope 2 and Scope 3 emissions that are derived from purchased energy in their current supply chains as well as when customers use companies' products and services. For example, let's look at the real estate sector, where buildings use purchased energy for electricity, heating and cooling to learn how companies are thinking about the real estate related emissions. Let's turn to our next guest.

My name is Brenden McEneaney, I'm a Senior Vice President on the sustainability team at JLL. JLL is a commercial real estate services firm. We do just about everything in the real estate life cycle, capital markets, brokerage, project development services, property management. Our sustainability team not only does our own consulting work, but we work to bake in sustainability considerations to those mainline business units. So we're really touching all aspects of real estate globally. So we have set a net-zero by 2030 goal. The biggest challenge there for us is that 96% of our emissions are our clients' emissions, which is part of why we have these consulting groups to help them figure it out, but also because we really think this is the future of real estate. This is not just the nice to have. It's going to be the baseline of how all our main business units do their job over the next 10 years. So as a service provider, our carbon emissions are mainly Scope 3. We do have Scope 1 and 2 emissions that we're working to address, but we can't hit our net-zero goals unless our clients also hit theirs. And we still actually hear a lot of common phrases on both sides of the table, whether it's landlords or tenants. The first one is data and access to data. And interestingly, sometimes in the same building, we'll have the landlord and the tenant saying, "I can't get the data from the other party." We're saying, "I think you guys should talk to each other." Some of that's handled through leasing and contracting others through software technology, but fundamentally, first companies are trying to figure out what is the size of my problem. The next thing they're looking at is what do I do about it? So that's where we're helping them figure out what are the possible options, how should that prioritize, where can I get paid to do this, where am I at risk, say, regulatory compliance, for example, if I don't do this and formulate a plan to get there. And then after that, it's really how do I report progress, what's next, how do I embed this into our core business operations, knowing that real estate may only be a small part of that.

Answering the question of what will it take to achieve net-zero emissions inherently includes a discussion of whether companies will use carbon credits to offset residual emissions. As such, carbon credits and assets were a popular topic this year says Brenden.

And I think maybe in some ways, what that is reflecting is that everybody is working on their decarbonization lens, but they also want to deal with residual emissions right away. So there's a bit more of an appetite for high-quality verified additional carbon offsets and removals. And so I think both those new trends are telling me a lot about what is front of mind for a chief sustainability officers where we're really trying to work is to bridge that gap between more of the C-suite corporate public-facing commitment and what does head of real estate have to do, and how are their KPIs aligned with what you're saying and committing to on your carbon goals.

So let's return to that overarching question I mentioned at the start of this episode, which is what will it take to decarbonize hard-to-abate sectors such as transportation, as we'll hear from our next guest, Sarah Mourino, the answer may not always be as simple as buying renewables or using electric batteries. Sarah is Senior Director of Sustainability for the Americas at DP World, which is one of the world's largest port operators. The company also handles cargo logistics and maritime services. Sarah recently joined DP World Americas after more than 2 decades of experience related to freight and maritime shipping. Her previous roles include heading Sustainable Logistics at shipping company, Maersk, and as a Technical Program Officer at the International Maritime Organization, that's the UN agency that oversees international shipping. Sarah starts off by describing the decarbonization challenges DP World faces.

The biggest challenge that we have is decarbonization. It's a very asset heavy industry that's highly reliant on heavy machinery that's operated by diesel fuel. When you go to a terminal in a port, you'll see huge pieces of equipment moving around anything from small pieces of equipment that are called yard trucks or yard hostlers to giant pieces of equipment that pick up a container from the top and move it around and can stack it 3, 4, 5, 6 high. And these things take a huge amount of energy. So trying to figure out alternative technologies, alternative fuels that can deliver the same amount of energy that traditional diesel can is our biggest challenge. DP World is very much committed to decarbonization with a goal of being net-zero by 2050 and interim targets that we need to reach in 2030 and 2040 in order to get us there. We are working really hard to test and demonstrate those technologies that we need to deploy at large scale in order to be able to make this transition. And at COP28 announced, in partnership with APM Terminals, a Zero Emission Port Alliance to bring together equipment manufacturers, port authorities, marine terminal operators and others in the marine terminal space to work together to figure out how do we create these technologies, how do we deploy them at scale and what is the tipping point that we all need to get to in order to make this a reality for our industry.

So what are some of the fuels or technologies you're currently looking at or thinking about?

The one that is the focus right now of the Zero Emission Port Alliance is electrification, to battery electric, trying to develop the batteries and the charging infrastructure so that it's sufficient to meet the electricity needs that we have for these large pieces of equipment. The other promising technology is hydrogen. Nobody really knows how this is going to play out yet, but the likelihood, in my opinion, having done this for quite some time is that it will be a mix of both technologies. In previous positions that I've held in this industry, there has been some lack of success with the battery electric for the really large pieces of equipment like a top handler, just because the batteries haven't matured yet to the point where we can put enough electricity in the battery to power the equipment and still be able to have that piece of equipment move. Usually -- and there's so many batteries on it, it was just too heavy to move. So those are the types of equipment where hydrogen may be more promising as the technology just because of the ability for it to deliver more energy. Each solution has its pros and cons, right? Where are you going to get the hydrogen from? What color is it? What did it take to make it? How do you get the electricity infrastructure? What else needs that electricity? Where is the electricity coming from? What do you do about batteries? So it's not clear yet as to which one is going to work out the best and neither of them is a silver bullet solution.

We just heard Sarah mention COP28, the UN's Climate Conference that took place in Dubai in December 2023. I asked Sarah, how big of a priority is decarbonization to the industry.

For the freight and maritime industry, huge. This is, I think, the #1 thing on every sustainability agenda for every major company that operates a freight or maritime operation, this is almost at the expense of other sustainability-related issues. Decarbonization is the #1 focus area for 2 reasons. One, it's hard. It's really, really hard for us. These are hugely expensive pieces of equipment that have long lives. And as I was saying, the technology isn't necessarily there to the point where we know we can go and invest in this particular type of equipment, and it's going to work for us in the same way that diesel has for 10, 15, 20, 30 years, we're not there yet. And the second one is that when you look at an end-to-end supply chain, from the time it leaves a factory to the time it gets to the consumer, you can calculate the carbon emissions in each mode of transport that's happening in there. But you can also do another cool thing where if you look at the utilization and the efficiency of the supply chain and the efficiency of how you're moving that particular shipment, if you improve your efficiency, increase your utilization of a container or a truckload, you usually have a pretty strong correlation of 1:1 carbon emissions to dollars. So there's a lot of incentive for a shipper to increase their utilization, increase their efficiency, decrease their carbon and also decrease their spend for their freight.

Let's turn now to the question of what will it take to decarbonize supply chains? Specifically, why are supply chains such a hard nut to crack. For this, let's turn to Annabelle Stamm, Senior Director of Sustainability Strategy at Edison Energy. This is a company that helps corporate, industrial and institutional clients understand and navigate energy management. Here's Annabelle on how companies are approaching supply chains right now.

It's a challenge that's coming up frequently right now. And I think some of the big reasons is just that it feels really out of control of some organizations. And I think that's due to the sheer number of suppliers, the large global complex nature of supply chains. But one of the things that I do think is exciting is the conversation is shifting now, which is so important. And we're starting to move away from just talking about data and actually thinking about decarbonization and providing solutions. One of the messages that I think is really key when it comes to supply chain decarbonization is that we must not get sucked into the data black hole. Scope 3 data is challenging, don't get me wrong. There's a lot of uncertainty, and you have to really evolve the data over time. but we have so much to do to decarbonize supply chains. We really need to be taking action now. There are multiple things that you can be doing to decarbonize your supply chain right now. So there isn't a barrier there. I think the biggest hurdle right now is moving past that data issue and kind of greatly stepping into the world of action and working with your suppliers on decarbonization.

What we just heard from Annabelle, that's the theme we hear often on this podcast. How companies don't have time to wait for data to be perfect to act. This idea that we can't let perfect be the enemy of good.

This fits well with another topic that we've heard about recently. That is AI. Earlier this year, we published an episode looking at how AI was a big topic at Davos, the Annual World Economic Forum Meeting in Switzerland. Well, AI came up quite a bit at GreenBiz too. I heard in hallway discussions, interviews and panels, how companies are looking for practical ways to use AI to facilitate the low-carbon transition, including for reporting and analyzing their data. This came up in an episode we published earlier this week where we talked to Debbie Lizt, Head of Global Sustainability for the big software company Intuit. We'll include a link to that episode in our show notes. But I'd like to include another clip from my interview with Debbie in today's episode where she goes into greater detail about how AI and advancements in data science are helping move the needle in areas like decarbonizing supply chains.

There's always been a sense of urgency around taking action and at this particular event, I think the evolution that I've been seeing in the conversations that I'm having is really more expansive. So the fact that we're talking about things like generative AI in the climate space. That was something that we weren't discussing a few years ago. And because of the innovation, I feel like is happening so quickly in this space. There's just so much opportunity. When I look at tech companies, we share the same suppliers, and we have now gotten that greater view and perspective on our emissions through the advancements in data science that's allowed us to have that view, we then can form partnerships to understand, okay, how do we move that needle? We have supplier goals, like how can we partner together to reduce the burden for our suppliers to whether it's disclosing their emissions to us or just helping provide them with access to tools, technology, et cetera, that would help them reduce their own emissions, which then would help every -- us and others reduce their emissions. Really being able to then like have those richer, deeper conversations, I think, is something that is happening this year that, I think, started perhaps happening in the past year or 2, but now there's really like a chorus of people talking about that. With data, we're moving from a place of little information to a place of loads of information and having tools and technology to help you filter that information to prioritize impact is critical.

Let's turn now to another topic that came up at this conference, which is how to ensure a just and equitable transition. This was the focus of a panel that featured Robyn Luhning, Chief Sustainability Officer at big bank, Wells Fargo. I sat down with her after her panel ended. Robyn starts off by explaining Wells Fargo's approach to a just transition.

There is an incredible economic transition underway right now. And we are working to support those most vulnerable communities to ensure that they're not left behind in this economic transition. So we've got more than 68 million customers and 1/3 of our branches are in low-income communities. So we're constantly evolving to address the needs of our customers and our communities. And I think the way I think about the just transition is the economy and industry together are really poised for this historic transition and ensuring that it reaches and addresses the needs of all communities is really essential. So we support communities and organizations as they strive to develop a future where all families and all households can access affordable and stable housing options and also adapt to environmental and social changes that are happening. So an example of that is a grant that we provided to Eden Housing and the Tenderloin Neighborhood Development Corporation in the San Francisco Bay Area. And this was a grant that we provided for them to really do an energy audit on a number of their aging affordable housing structures. And through what they learned there, they were able to prioritize which buildings they could do energy efficiency improvements on or install solar or renewable on. What we see in this is not only is this like great for decarbonization, but it's really great for the residents to live there. It improves their quality of life dramatically to have air conditioning, to have reliable heating. And so all in all, it's, again, thinking about this from a really holistic picture and not only one lever, one lens.

At the start of the episode, I mentioned one other thing that came up, which is how to influence change. This topic came up in a number of sessions, including in a workshop where Kevin Rabinovitch was a panelist. Kevin is Global Vice President of Sustainability and Chief Climate Officer at big food company, Mars. And we recently published an episode where Kevin talks about how Mars is reshaping its supply chains. Kevin said the workshop included questions about how to influence within your company when you don't have authority. So I asked him, what answers the panelist came up with. Here's what he said.

Yes. So I think one of the big ones is, certainly, if you're a large, well-established business that's been around 10, 20, 50 or more than 100 years like Mars has. Your business already knows how to do big things and knows how to make difficult decisions, right? The trick, if you're in the sustainability world, is figure out how your business does that and even better figure out who in your business knows how to make that stuff happen, right? Now maybe the thing that happened was we're expanding into a new market or we're acquiring a competitor or something that has nothing to do with sustainability, but somebody knows how the machinery in your company works to do stuff that's not just the day-to-day. So find that person, study them, study the process, make a friend, find -- learn from the how and then figure out how to adapt that how to your particular what, which is a climate target, a deforestation policy, a packaging project, whatever. And that was -- like that was one of those sort of as we were -- a couple of us were on the panel talking about it, you could see people's eyes light up and -- so yes, and there were a few others, but yes, that's the first one that comes to mind.

So today, we've explored how companies are focusing now on the nuts and bolts of achieving their ambitious targets and in a just and equitable manner.

And please stay tuned as we continue tracking how these topics and other sustainability discussions continue to evolve. Thanks so much for listening to this episode of ESG Insider. If you like what you heard today, please subscribe, share and leave us a review wherever you get your podcast.

And a special thanks to our agency partner, the 199. See you next time.