Trane Technologies plc (TT) Earnings Call Transcript & Summary

So good morning and good afternoon. My name is Susan Gray. I lead the ESG and Sustainable Finance Business at S&P Global Ratings. We're delighted to welcome you to the 18th episode of ESG, The New Differentiator. Today, we're picking up on all the discussion around net 0, and building into its implications for corporates and financial institutions with the help of a great group of panelists. As we get closer to COP26 in Glasgow, the net 0 alliance is reportedly gathering significant momentum, with almost 50% of the funds management industry by volume signed up according to the FT to the Investors Alliance, over 40 banks as well as major asset managers. And additionally, around 1,400 companies have announced net 0 targets. So what can we expect the implications of this heightened focus on emission reductions and targets to be? And how is it going to play out? I'm really excited to introduce our 3 speakers today. We have Scott Tew, who is the Vice President for the -- of the Center for Energy Efficiency and Sustainability from Trane technologies; Roger Ballentine, President of Green Strategies and the convenor of the Aspen Institute; and Anne van Riel, who is a -- the Director and Head of Sustainable Finance Capital Markets at BNP Paribas. So welcome all of you.

And Scott, I'd like to start with you. Trane is a manufacturer of heating, ventilating and air conditioning systems and building management. And was previous -- and was previously division of Ingersoll Rand. And environmental issues are really pretty fundamental to your business strategy given the contribution to global carbon emissions from heating and cooling systems. And your company has set a public challenge to reach 1 gigaton, which is 1 billion metric tons, from your customer footprint by 2030. That seems to be a pretty ambitious goal. Can you discuss why you framed your business commitment around your customers in this way, please?

Yes. Sure, Susan. Thanks for the question. And it's great to be here with everyone in the audience and with the other panelists today. I really always enjoy these webinars as much as the rest of you do. So great to be here. And thanks for the question too about Trane Technologies' commitment. We've been on this journey and our commitment is more than -- it's actually a combination of things that led us to where we are with our gigaton challenge. The combination of things were: one, this realization that buildings consume a lot of electricity dedicated to cooling and heating. In fact, 40% of the electricity of the world is consumed by buildings and heating and cooling. And the direct and indirect consequences of that is it's a large greenhouse gas burden. 15% -- most estimates are around 15% of the world's greenhouse gases are related to heating and cooling buildings. And for Trane, when we began to internalize the impact of that, not only for the future of our portfolio and the products and services we offer, we knew that also that much of that happened after we left the products with the customers. And so it wasn't just enough for us to focus on our operations and ensuring that our carbon neutrality goals were in place and that we were progressing there. But we had to go further than that, and we had to focus on what most of us would know as Scope 3 are the impact of your product emissions. And for us, that's a big opportunity. It's a big opportunity to do better, either in design, making more efficient systems or approaching a building very differently in the future in terms of how we reduce the greenhouse gas footprint for a customer. But also, it's the acknowledgment that we will do it with the customer. Meaning that we have to partner with a customer who is also on a journey around reducing their greenhouse gas footprint. And so we're all in. The gigaton challenge is still the largest single commitment of a company to reduce product-related emissions. And it's a science-based target as well, so it meets the parameters and the boundaries of the science-based target initiative. And so it is our huge North Star as a company. It impacts everything we do on a daily basis, how we view customers, how we design products. And we're getting the sort of interest that you would expect from customers and from regulators about how we will accomplish what we set out to do. So thanks for the question.

Great. Well, it's really, really interesting to hear about it. And you recently completed an S&P Global Ratings ESG evaluation with a score of 78, including strong preparedness for the risks and opportunities of the future. And viewers can see that report as part of the webinar materials. Can you talk about, please, why you decided to do the evaluation and how you've used the report?

Yes. That's a good question. I think we -- probably everyone on this call could have -- there's the pros and cons of any ratings and evaluation. We've always looked at the outside or external ratings as we view them internally in the company as an opportunity for us to learn something. Typically, it's about learning something either on, what is the external party that's doing the evaluation? What are they looking for? Was there -- what are they trying to determine or understand about Trane Technologies? And secondly, for our internal team, it's about identifying gaps. These many times, these ESG evaluations can be early indicators of what the expectations are for some important stakeholders, in this case, ESG investors. And S&P has an incredible brand, and there's a lot of credibility in the marketplace. And so for us, it was partnering with S&P and participating in a sort of an early days of an ESG rating to learn how S&P was looking at the company in terms of our preparedness, but also the opportunities that we see in the market. That was one of our hopes of this, is that it was more than just risk based, more than just looking at the risk of climate impacts, but also the opportunities to solve it. And so I think S&P, we learned some things from the S&P evaluation. We like that it was robust enough to actually require input from our Board of Directors and also evaluations and interviews with some of our leaders. I think that's really smart. It's a unique part of the S&P framework, and so we appreciated the feedback. I'm still a little -- I still have some questions about 78 related to other things. I know there's a sector view we can discuss later. But we're proud of the score and proud of the feedback that we've got from S&P, especially some of the good comments we've got about the preparedness side.

Great. Well, thank you, Scott. Roger, now jumping to you. We're in just an incredibly fast-growing and fast-developing environment when it comes to Climate. 6 months ago, we would probably talk more about carbon neutrality than net 0. What's your take on how the market is developing from a corporate perspective? And what's it mean for a company that's going through a strategic decision-making exercise at the moment?

Yes. Thank you, Susan. Those are precisely the relevant questions today, and thank you for having me. It's a real privilege and pleasure to be with you all today. So yes, the landscape is rapidly changing, as you say. And what is clear is that what was considered the best practice a year ago may not be best practice today and today's best practice may not be best practice next year. It used to be and how far -- we need to go back, but you can go back and say, okay, it used to be that the company agreed to report its emissions to do a footprint and report it to CDP and maybe buy some renewable energy on the side, that was just fantastic. Well, then -- okay, well, that's not good enough. 100% renewable is what's considered best practice. And then, well, no. Carbon neutral and carbon neutral in operations in Scope 1 and Scope 2, when companies started rolling that out not too long ago, that was a wow kind of moment, even though, often, those pledges that involve the use of some offsets. Well, then offsets were suspect. So maybe that's not good enough. And now some are saying that we are 100% renewable, that's not good enough either. And then, no, targets need to be science-based. And you must also include efforts to tackle your Scope 3 emissions, keeping in mind that your Scope 3 emissions are someone else's emissions, not yours. And today, as you noticed, companies are falling all over themselves to announce net 0 targets, and they're doing that just in time to begin to be criticized for that. So it's a really fluid, a confusing situation. So now let's look at it from the company perspective. And this is kind of what I do for living, is help companies kind of figure this out and what they should do. And as CEO who's asking, so what's leadership? What's expected? How do -- what do we need to do? And then the question that follows it, and who decides? Who decides if what I'm doing is good enough? And it used to be, not too long ago, a few NGOs kind of gave you a call out, well, that was great. That's what you were looking for. Now as this crowd knows better than I do, investors are becoming perhaps the most relevant stakeholder for many companies. So the question of, who am I trying to please is still one that's there. I think the entry of investors into this is really focused attention. That though has now led to another question, which is, well, how exactly am I being evaluated? By what standards? Do I have transparency into that process? And to the various stakeholders and even competitors within the same industry, sustainability ratings companies, for example, are they doing it the same way? Do they agree on what matters? And again, it creates a lot of confusion. So you have to work through all of that, even before you then get to the challenge, which I spend a lot of my time doing, and what we set commitments, we think they're best practice. Now we got to figure out how to meet them, which is complex, but terrific. So this is all a real challenge. I don't -- I want to be clear. This is all good news. It used to be -- I've been doing this for 2 decades. And it used to be that I spend all my time convincing companies that climate was business relevant at all and that someone that the company cares about what they're doing on. We are past that, and that is terrific. But the bad news is that today, it's still a bit of a jumbled uncertain process and companies are setting climate commitments on -- in what are really shifting sands. And this is an ongoing process, and no one can predict exactly where we're going. But again, high-level takeaways, this is really, really good news, and it's really, really hard for companies.

No. That's really helpful, Roger. And I think one of the reasons why we developed the ESG evaluation was so that companies could articulate and investors could understand how ESG strategy and business strategy were aligned over the longer term, because, fundamentally, it all has to be aligned or you're kind of not necessarily going to get the strongest longest term outcome. But can I -- Pardon?

You're great.

You're great. Great. Can I ask you? As the market evolves and as we get more clarity around, if you like, the baseline, so science-best targets, absolute emissions, longer-term commitments, what -- and probably Scope 3, what do you see is the risks that are there in terms of the pace of market development?

From a company perspective, well, I know I put it into categories. So if you are a company that is not aggressively moving forward, that really has not integrated ESG in general, climate specifically, into your core business strategy, the risks are pretty clear for the reasons you articulated, which is, this is not just a question of what is best ESG practice or what is best climate practice. It's about what's best corporate practice. How is the company demonstrating its ability to deal with very complex issues like climate change? What does it say about management quality? How is what the company doing reducing its risk to the climate risk, transition risk and physical risk? So certainly, a risk is a company that is not really taking this seriously, that company faces risk. For the growing group of companies that are taking strong action, want to be leaders, what's the risk? Well, maybe it's a different order of magnitude. But there is risk that some of the efforts that the -- a company takes may not be the efforts that stakeholders in particular are looking for, and some companies end up getting surprised. Wait, wait a second. I thought we were -- we -- I've convinced my Board. They got the whole company aligned. We're doing all this stuff. We're spending money. We're engaged. And now somebody is telling me that I'm actually not in the leading tier. I'm in the second tier. And someone does a rating, and my competitor's above me. And that's an outcome that is a certain degree of risk for companies. And again, there's some frustration as to potential arbitrariness to do with that. So in terms of risk, and the biggest risk is not moving in this direction. But there's still risks posed by just the bit of the arbitrariness of the process. Or maybe that's the critical, you can look at it in terms of this whole system, this whole ESG evaluation system and ESG investors and trying to get their hands around this, I like to kind of analogize it to an awkward teenager. This whole system is not fully grown up and filled out yet. But it's in the process. And that -- again, it's a good thing. We're moving in the right direction. But there's certainly some uncertainties and risks even for companies that are really moving forward aggressively.

Thanks, Roger. So I'm now going to turn to Anne, who is not on the screen but is online. Anne, your -- you've got a great sight on financing as companies look to raise capital with a green or sustainable purpose or to link their financings to sustainability metrics. How -- and an apropos of Roger's comments, I suppose, how are you seeing the focus shift for CFOs and treasurers? And what is the market looking for in terms of science-based targets and the articulation of emission reductions?

Yes. Thank you, Susan, and thanks for having me. So as Roger mentioned before, investors are becoming the major stakeholders in this discussion because ESG is no longer a separate team within a business. It has become core to a company's corporate business strategy. So addressing the challenges and the risks that the company faces down the road because of climate change and social challenges needs to be addressed. And investors are increasingly looking for a better disclosure and better communication on these topics. So one of the things that can work very well for our company is by tying all the work that they're doing in defining these net 0 goals and these climate goals to their financing directly. And we've seen [indiscernible] successfully closed last month or through tying it through a bond issuance, a public bond issuance. And this is the most direct way of asking feedback from investors, whether they agree with the approach that you're taking because you will get us very directly into them buying into these bonds. So to Roger's points, are we on the right path? I think it's still a bigger risk of not doing anything. The risk of companies forging ahead with things that might not meet the standards or best market practices, you're better off gauging that right now and making sure that you're on the right path as opposed to waiting 5 years. And then in terms of -- sorry, -- you were also asking about science-based targets. Obviously, that is an interesting one because there was a Bloomberg article today where it said that up until June, we've seen a huge increase in the amount of companies committing through the science-based targets initiative, I think according to the Bloomberg article, 150 commitments in June alone, which brings it to almost 600 companies year-to-date. So it's showing the increased focus on it, its alignment with the Paris Agreement targets for greenhouse gas emissions. And that has historically focused mostly on Scope 1 and 2. Scope 3, there's a couple of leaders, like Trane is one of them, that are very advanced in articulating the Scope 3. Within the financing world, it's still the minority that are successfully tying their financing to Scope 3 target because it's still very challenging to commit to something that you're not controlling, but your supply chain is basically controlling in terms of emissions. And then you have the added challenges on how -- where do you put the boundaries? How do you measure it? How do you audit it? And so there's a lot of challenges. We're increasingly -- investors are increasingly focused on it. And it's important to start addressing this before you're too late.

Thank you. And so when you look at this step-up in market activity across social and sustainability, and as a second-party opinion provider at S&P Global Ratings System, we've seen that as well, what's driving it? And are you seeing a scenario where investors are starting to choose to pursue labeled financing as financings of green, social and sustainability labels as a preference?

Yes. The market has been growing quite quickly. if we look year-to-date, we've almost reached the same volumes as we did for the full year of 2020. So it's like a 90% growth rate year-over-year. If we look at the percentage of what that means for the total bond issuance in the U.S. market, it's still single-digits, right? So we see a big growth. But in terms of the total issuances in the U.S., it's still the minority. In Europe, that is already changing. There is -- 20% of all new issuances about are green or labeled. And I think Europe is a few years ahead of the U.S. so we will probably see the same trends here. And what is driving that is different things. Investors are more and more focused on this. However, a company can articulate their goals, and they will focus on getting paper in their mandates that meets certain ESG requirements. So there's a big focus from investors, driven by their investors, which is the end user like you and me in our pension funds. Then there's the huge economy. So Europe is very focused on making sure that new investments in Europe are mostly aligned with the Paris agreement. So that is driving issuers, but also financing companies, to greenify their balance sheets. So those trends will definitely push the market towards more sustainable financing, whether that remains in the long term label products or whether we will just expect companies to integrate ESG in our decision-making overall. And all the bonds that issue, it's a little bit too early to say. But this is not something that will reverse.

And just one final very quick question, which I know everyone is very interested in is how are you seeing the pricing implications of pursuing sustainability linked or sustainability aligned instruments today?

Yes. So there's still a scarcity of issuers that come out with the label bonds. So what we've seen in recent issuers, especially the ones that we've done in the last couple of months, is that there is a distinct pricing benefit. We call this a negative new issuance concession, where companies that come with the label bonds have so much demand for the bonds that they are able to price it slightly tighter than what their other bonds trade at. And this has been consistent in the last 12 months. It's primarily driven by the fact that there's not a lot of supply of green and label bonds. And there's a lot of investors that would like to hold that paper and fill their mandates. And then you were talking about a few basis points, right? It depends a little bit on which market, which rating, what -- how the bonds trades generally. But we're seeing many issuances that we've lapped recently.

Thanks. That -- it's very interesting to see how this market is evolving. So going back to all of you. This is a whole discussion ultimately come back to, the ability for a company to articulate and map out its future strategy and set aligned, credible and meaningful targets to the market, and how do they do that in terms of Scope 3. And also, it would be great -- and maybe, Roger, do you want to jump off and then Scott and then Anne? I think we've got a couple of questions in the chat box around what are science-based targets? Who determines them? So maybe, Roger, if you would like to comment first and then Scott and then Anne, please.

Yes. Sure, I will. And Scott's -- I know Scott has a lot to say about this as well. Scope 3 is a -- Scope 3 is a real challenge and -- and it is our science-based targets. And this may get to my point of perhaps a bit of a suboptimization in terms of how companies are evaluated on what they're actually doing. So some companies, minority companies are just getting to the point of trying to measure their Scope 3, which is very, very hard. It's completely an exact science. There's lots of very rough modeling that goes into that. But it's still good to do. And it's expected now. And certainly, as you start looking towards science-based targets, action to reduce on Scope 3 is now becoming expected. But again, in Scope 3 emissions, there's somebody else's emissions. It's really difficult for a company to control. And what's happening now increasingly in the direction we're going is looking for a hard number of targets in Scope 3. That's a real challenge. And in my view, qualitative efforts should count as well. And which leads you to science-based targets. How important are science-based targets? Personally, I think they're -- to a company right now, they're probably a little more important than they should be. And I don't mean that in any way to discount the science. The science is very clear. The steep reductions we need to get to a net 0 stasis in mid-century at a survivable level of global temperature increase is completely undisputed. And it's totally fair and appropriate to ask companies, how are you going to fare during this transition? And are you doing your part? Totally fair. But the kind of shortcut we're taking there, I see in the marketplace is checking a box on whether or not a company had a specific target approved by a particular set of third-party NGOs. And to me, it's not entirely clear that that's an appropriate box check. There's things that companies can do that can have a tremendous impact consistent with what science says we need that may not qualify to the satisfaction of the gatekeepers of a science-based target. So kind of like the way it was and maybe still is for some ratings agencies and others to kind of check a box for a company to see if they have an RE100 commitment, if they do, you check a box. It's really an imperfect shortcut that leaves a lot of potential value and credit on the table for companies. So I'm not sure I got the answer, but the -- so the 2 main problems of science-based targets is for companies that have to set a Scope 3 target. That's really, really hard. And the approval to science-based target certainly is a sign of company is really doing a lot and making an effort. But it could leave behind some companies that are similarly doing a lot and making serious efforts that just don't meet those particular criteria of the science-based target initiative.

So again, we're back to communicating to the market. Scott, can I ask you to jump in here? You...

Yes. I mean Roger made some good points. Here's what I would say about some of Roger's points. So I think we need -- I think companies need to be subjected to something external. I think gone are the days for a company to get into a conference room, and within the company, they agree on what's our incremental change. We -- I think we're past that. And so we have to have some way for asking a group outside the company that is -- has some credibility, is this enough? That's the question that you were asking. And so the SBTI, this group of climate scientists that says, show us your data, show us your footprint, show us the impact your products have. Tell us what you think you can do. And we'll tell you if that we think that's enough, using the best thinking around climate science. That's what it really is, at the end of the day. It's not a hard concept. Is it complicated? Extremely. Roger mentioned that. And it's not an exact science how you arrive at any of those conclusions. Like how big of an impact do your products have? And that depends on the sector of the economy you're in. Our products last 20-plus years when we leave them with a customer. And by the way, the way the customer maintains those systems inside the building, many times, it's not up to us unless they've also contracted with us to do some servicing and maintaining. So if those systems aren't maintained properly, it's just like the systems in your home, the heat and cool your home or your apartment, if they're not maintained appropriately, if they're going to use more electricity over time. So to keep their efficiency, they need to be serviced. And so my point is it, that's very complicated. Our assumptions and the modeling that we put into place to calculate the impact of our products and systems over a lifetime is very different than another sector of the economy that might be making toothpaste, which is not going to last 20 years. And my -- when I use it, I use it up. I throw it away. But there's a different type calculation of the impact of a toothpaste than an air conditioning system. That is the complication that Roger mentioned. It's just not an exact science. Do we need to be subjecting our assumptions and data to outside parties so that we can get some validation that it's enough? Yes. I think we absolutely do. And that's what so far the SBTI is attempting to do, the science-based target initiative is attempting to do. It will change over time, but I'll defend it now because I'm a firm believer that we have to keep asking others, is this enough? And is our timing right on this? The other question we've not addressed yet is this whole issue of timing. How much can be done by 2030? In reality, what really can you do by 2030? What can you do by 2040? And do we have enough time to wait around to 2050? And those are the things that I think many companies are struggling with now. There's this question of, how much is enough by 2030 and then how much more should we do by 2040? That's where many companies who have been on this journey are focused right now. And I think some of that is -- certainly, Roger, I think Roger probably is of things similar to me here. This seems to be the big question right now, is that how much can we -- how long do we have to wait on companies to figure some of this out now for the 2030 time lines versus 2040 and beyond?

Thanks, Scott. And I think the other question here, which I'm sure Anne will jump into, is if we're going to successfully finance the transition, we need to be able to finance at scale. And so having some sort of quality independent benchmark becomes increasingly critical for that to get to that scope. Anne, do you have a comment on this?

Yes. And I think I echo a lot of what Scott and Roger have been saying, is that, yes, it's very difficult. It's complicated. It may not be completely objectively verifiable. But it's the best we have at the moment. And investors need to be able to make a comparison, whether it's within a sector, between sectors. And external rating agencies and companies like the SBTI are doing a lot of that work of looking under the hood of the company and seeing what initiatives they're having, how they're making the assumptions, and trying with an objective lens to make it as clear as possible of what the impact is. And investors need an independent party to do that work because they don't have the resources or the time to do that work independently for every company. So I do think it's very important that we have these independent bodies despite all the caveats and the challenges around it, because it's all we have, right? And that goes back to Scott's point. Do we have enough time? You hear a lot of rumblings in the market, we don't have the right data. We don't have the right resources. Can you really require us to disclose if we're -- if there's not a real standard yet? And the answer to that from my point of view is, yes, because we're running out of time, right? Like you have to act now on the basis of imperfect information and do the best you can with that, because otherwise, if we wait around and not for perfect, that we're going to be too late.

Yes. And I think everyone's nodding in agreement with that comment, Anne. So I think the other thing that we've seen quite importantly is this focus on looking forward and looking at what a company is doing in terms of its future plans and future strategies and business strategy. And again, that -- we've mentioned, Scott, that was the preparedness aspect of the ESG valuation. And there's a question in the chat asking you if you could go into a bit more detail on the preparedness analysis, and what it looked like at, and how it, if you like, informed investors around what steps you're looking to take and the context of those steps.

Yes. That's a fair question on the preparedness side. And so we look at a variety of areas for the preparedness side. On the operations front, we -- obviously, we're looking out to evaluate the impact of climate to our own operations, our supply chain and supplier sets regionally and globally. And for too many times, that sort of takes on a regional approach. We tend to manufacture for a region of use. So we look at the impact of manufacturing with climate impacts. How many locations are located along coastlines? What's the likelihood of an impact there? Do we have redundant manufacturing somewhere? Could that be a possibility? Or do you harden the sites? After going through all the laundry list of options for making sure that you're ready for unexpected issues related to climate over time. We also have to look at the supply chain. Of course, the pandemic, I think, top most manufacturing companies, all companies, but in particular, manufacturing firms, the impact of a supply chain disruption, and some of those were global and many times regional. And so I think that was a great teacher. One of the unexpected teachers that would help a company be more ready for future climate impacts. And so we certainly have done the work there on the operations and supply chain side. Preparedness though for products, you have to take into account things like possible compliance with future regulations related to climate, maybe carbon taxes. Maybe it's a regulatory move to phase out things or to increase the volume of things. In our case, it could be heat pumps. I don't think we all -- I've seen the IEA report from May. Heat pumps were the #3 item in terms of solutions of the future. Heat pumps, of course, use -- help us decarbonize buildings by moving us away from burning fossil fuels to heat buildings and instead use something much more climate friendly. However, the issue is there aren't many heat pumps being used globally, especially in commercial buildings. Do the solutions already exist? Yes, but there are some barriers for market entry. And so there's a preparedness side that's on the opportunity for growth. And there's also a preparedness for the things that I mentioned, whether it's regulatory or just market shifts because of markets getting ready for the impacts of climate. And so we've taken a full view and continue to do so sort of on a continuous basis for preparedness for climate risk as well as opportunities of climate impact globally. And I'm happy to answer any other detailed questions with that too, Susan, if someone has more questions.

Thank you. And the actual methodology around preparedness for the evaluation is available on the S&P Global Ratings website if anyone wants to delve into the actual methodology further. So when -- we're talking about this then -- the future, what additional capital markets infrastructure is needed to support the significant amount of transition financing we're talking about and to achieve the pace of financing that we're talking about? Maybe I'll start with Anne and then go to Roger and Scott. Anne, would you like to kick off on this?

Yes. I'm happy to do so. And this also goes back to the right valuation and profitability of assets, right? Because a lot of these new technologies that we need to get to net 0 will require investments. And the operational ability of them is not up to par with the more dirty technology from an operational profit standpoint. So what we need is either carbon tax or the realization that there is something to pay for continuing our old ways scaling up because we -- and it also means that the end consumer will probably have to start paying for it, right? Like you can't have companies just making all these investments and not expect to be made whole at the end of the day for these things. So whether you do that left way or right way, we need to make sure that new technology becomes scalable and profitable to make sure that we continue to invest in this. And some of that is already happening, right? Like you see some of the coal properties in Asia were not able to refinance our debt. They tried to issue debt, and they didn't get it. So the market is responding to old type of technology or fossil fuels in a way that will make them obsolete over time. We just need to decelerate.

Yes. I'll echo that, Anne. That's what I was going to -- some of the points that I was going to make. In the EU, they've developed their sustainable taxonomy, which I think is terrific. Whether that's leading the market or following the market doesn't really matter. It just shows the direction we're going. I have trouble seeing something like that in the U.S. But maybe not sure we need it. The market is working, maybe not fast enough and at enough scale to redirecting capital. Yes, to Anne's point, try financing coal plant today. So the market is responding, but I think more information is needed, for one thing. I think climate risk disclosure, which the SEC is looking at, I think would be very, very helpful for enterprise-level climate risk. I think climate metrics need to be better integrated into the economics of projects, infrastructure projects, other projects. It's not in the economics that are being done for these projects today in a hard way, only a soft way. And certainly, a carbon tax is an example of how you can improve that, which is -- to lead to my last point on this, which is the -- I wish I had the numbers off the top of my head. But credible evaluation of the amount of capital is needed to finance the mid-century net 0 transition is staggering. And the amount of capital -- that amount of capital is not ready to all move in this direction. Part of the answer is public policy. I do think we need durable public policies which will accelerate these trends in the marketplace, make low-carbon investment financing more attractive, could be incentives, could be regulatory measures like putting a price on carbon. And how do you put a carbon number into an adaptation investment, for example. So policy can help the markets moving in the right direction. All that leaves aside, do we have the pace and scale that's ultimately going to be needed? But I don't think we should spend too much time worrying about that and just stretch forward and try to move as fast as we can.

Yes. And I love this idea that Roger has about the low carbon signals for financing. I think it's really needed, especially in infrastructure. The IEA report recently just reiterated once again that I think we've done a relatively good job of the transportation sector over the years in terms of moving it towards something that's much better today than it was 10 years ago. There's still -- the biggest opportunity still is in the infrastructure of retrofitting buildings. It's not in new buildings, like Roger just mentioned, we know how to build a really good climate friendly, climate-sensitive new building. Retrofitting though, that's where the big opportunity is. That's the largest single opportunity globally for doing something about climate impact. And so we've got a -- as we think about the future in infrastructure, we need some financing signals, some market signals that trend towards opportunities for retrofitting them the right way, using the best available solutions and approaches that bring that sector's greenhouse gas footprint much lower than it is today. And that's where I believe we should push all financing and policies, all those signals that are needed that Roger just mentioned. It's really important that, that sector gets some focus.

And when you're talking about those signals, are you talking about things like sustainability-linked financings? Or are you talking about something more fundamental than that?

No. I'm talking about all those things. I'm talking about the sustainability linked financing. I am talking about the special incentives, our financing incentives towards a combination, our systems, level impact that things that deliver more than just incremental improvements. I'm talking about all sort of systems level improvements. And we also knew that at the policy level. I mentioned heat pump. We don't just give waving a magic wand and everyone nodding their heads to get heat pumps in buildings by removing barriers that are in place today that will not allow those solutions to be broadly adopted in cities in some countries. And so this has to be an all-in approach. My bigger point is that we need those signals pointed towards built infrastructure and retrofitting the buildings that already exist in the world.

Thanks for that. And so we'll do just a couple of quick rounds to wrap up because we're almost at the end of time. Can I ask each of you what is the most critical innovation you think that is needed? Roger?

Well, it's hard to pick one. And I've already said that...

Not 2...

Our policy is in the background, okay? So -- but let me just -- I try to make a simple carbon -- put carbon on the balance sheet and put carbon into project economics in a real and well-priced way, and that will change things rapidly. We want to lower the cost of capital for the things we want and increase it for the things we don't. And I think putting that carbon metric into the economics directly will do that.

And do you need carbon markets at the same time?

Absolutely. Absolutely.

Anne, your thoughts?

I think that's an -- that would be the most direct approach. I think it will be hard to get that on a global scale, right, and get everyone to agree with that. But barring that, it would be the perfect solution. I do think that investors are pushing for it and having their own internal requirements to slowly move in that direction, but it may not go as fast. So I don't really have a better answer than what Roger said, I'm afraid.

Okay. Thanks. Scott?

Well, we can't all give Roger the total win here. So I think that he -- carbon on the balance sheet, I think, is an excellent idea. You can't do that without having a carbon in the marketplace, though. There has to be some -- there, the market wants winners and losers. And so you if get that not only in the balance sheet, but that has to mean something in the marketplace. I think the focus though is on barriers. We have to identify some barriers unless all agree. I think the IEA report gave some good indicators of what some of the barriers are to next level change in reducing greenhouse gases. The built environment, like I mentioned, is right in the center of that. And so we need all the things that it takes to make a big shift globally in that arena. And that is winners and losers in terms of how we retrofit those buildings, its policies in place that incentivize the right things, that disincentivize the wrong things like fossil fuels. And I think we -- those things need to be really clear and very consistent in every country and globally for us to make the huge step change as needed by 2030.

Thank you. And then one final question from the chat or from the questions that have come in. Noting that real decarbonization is expensive, will companies that lead ongoing green lose out to those who hang back? Each of your views on that, please? Starting with, Scott.

Yes. I would say that if you want to play to where your customers are headed, then you have to do more than they're doing, in my opinion. You have to be ahead of them with solutions, and that's the way we view it. We believe that we -- I mean we want to be a sector leader. We want to be a company that's moving to where we know or believe that our customers will be very soon. And we want to be there before they need us to be there because our solutions need to be their top-of-mind choices. And so I think that's our viewpoint. I think any company that's looking sector-wide what's happening, I think you want to identify those who are the sector leaders, those who already see a future and they're playing to the future. And they're there even before their customers may need them to be, so that when the customers arrive, there are solutions available.

Thank you. Roger?

Yes. I -- part of the answer to the question depends, give me a time frame. I think if you -- over...

It's until 2030.

Yes. Okay. So in that case, then I think the answer is the opposite. And is there some short-term margin somebody can capture as peers are kind of moving in a decarbonized direct? Yes, maybe. Maybe. But that is not sustainable. Everything we're seeing in the marketplace from what customers want, what shareholders want, what employees want, if your business strategy is to try to pick up that near term, short-term margin as others move forward, yes, you might succeed in the short run. You're going to fail in the long run. These drivers are too powerful. They're too strong. Even without the prospect of carbon pricing from a regulatory perspective coming forward, you're going to lose out the -- and I sure hope I'm right because what we do -- our theory or -- at Green Strategies is all built around the concept of climate capitalism, which is that the smarter, more profitable way to run your company is with climate-sensitive and a strategy that eliminates those risks, builds in the opportunities from the energy transition, in the climate transition and make your company more resilient, more profitable in the long run. I still believe that, that is overwhelmingly the truth. So I guess that's a long way of saying no.

Great.

I think there's also something to be said for company-wide learning, right? Like we -- I think if you wait on the sidelines to see until other people have figured it out and then jump on the bandwagon, you will be too late. You need to be prepared. You need to start thinking about it as a company as a whole, which means top down and bottom up, you can have a few people in a separate department thinking about these things and as you try to continue doing business as usual. Now is the time to integrate it in your thinking, think about the long term and start incorporating it. Because if we've learned anything, right, is that everything is accelerating, whether it's the developments in the market and whether it's heating up of the earth. So we probably won't have the luxury until waiting until after 2030.

I'll say one thing about that, Anne.

Anne, 100%, Anne. And I say that all the time and -- but who the heck am I to hear someone like you say, it's absolutely right.

And that's been our experience. When Trane Technologies set our first climate commitments, which were big and bold and we didn't know how to get there, we learn -- I mean, it's one of our greatest learnings, was the engagement from our own people and the innovation of our own teams. It's exceeded everyone's expectations. I mean it was a rally point because our employees began to really try to figure out what is possible here. And that's the question that if your employees can be engaged around what's possible, it's a very new level of engagement, and we've lived it. And it's made a huge believer out of us, these old commitments, like our gigaton Challenge, and what it can do for engaging your people and your innovation.

Yes. And I would absolutely echo that. We've certainly seen at S&P Global, the enormous interest in energy and engagement across all our teams and all our divisions, whether it be Platts with energy scenarios and benchmarks, true costs with climate analytics, the SAM team with data and analytics around performance. It's -- there is -- and our Index team, as well as our Ratings team where the engagement in developing products was really significant. Any -- and any final comments around these issues that you'd like to leave our audience with before we wrap up? We've got 2 or 3 minutes left.

Well, let me just throw a little accolades towards Trane because what Anne articulated in terms of how to do it right, integrating this into the business and the benefits you get from that and not just having your little green office stock in the basement somewhere, no company that I've worked with, and I've worked with a lot of them, does it better than Trane. And Scott is -- and his team, they're central to the company strategy. They're not a side show. So that's a great example of how to do it right.

Yes. Thanks for that. I think many companies are figuring that out, that Anne mentioned the whole integration. And there are companies who have -- I mean, I think some are still struggling, what does that mean? And what it really means is that is the -- what is the strategy of the company? And I think that's the question that -- if you're asking yourself that. And it's a long-term view strategy, then I think it has to take into account these ESG factors that S&P has done a really good job of figuring out how to evaluate. Are you prepared? And are you thinking about it the right way? And so I appreciate S&P's feedback too and their ESG evaluation. And I think that that's the direction we have to go. We should look at these types of ratings and evaluations. If you're on the -- from the company side, like I mentioned earlier, which is it's a point-in-time view of, are you doing enough or -- there's never the too much. It's, are you doing enough, to Roger's point. And so I think that's how companies like Trane Technologies are viewing the S&P and other ESG evaluations of us, which is to answer the question of, where are we -- where are there still some gaps that we have to work on so that we ensure that we're ready for whatever the future strategy -- wherever the future strategy leads us?

Great. Thank you. Anne, last word for you.

Yes. And I think that's very much aligned with what investors want to see, right? Most bonds that are issued are 7 to 10 years. So that gets you into the 2030 time line. And being prepared to that are not the next 2, 3 years, but what happens after that is very important in corporate communication and also to be able to continue to access the markets. So indeed, I would echo in applauding Trane of doing just that.

Great. Well, thank you all. Really enjoyed this discussion. And thank you to the audience for the great questions, that took the discussion to another level again. And we look forward to seeing you in August for the next ESG, the New Differentiator webinar. Thanks all.

Thanks, Susan.

Thank you. Thank you all.

Thank you.