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Interview
A crucial aspect of reaching net zero is actually about finding and funding the innovations which will help us meet and tackle the challenges of a warmer world.
In 2021, Michael Baldinger became ¶·Å£ÆåÅÆÔÚÏß’s first ever Chief Sustainability Officer. Sustainability is not, however, new to Michael. He is a true sustainability pioneer. In 2011, he was appointed CEO of RobecoSAM, the specialist sustainability asset manager behind the Dow Jones Sustainability World Index. Five years later, Michael joined ¶·Å£ÆåÅÆÔÚÏß Asset Management as the Head of Sustainable and Impact Investing. Today, he and his team are responsible for driving and implementing ¶·Å£ÆåÅÆÔÚÏß’s sustainability strategy across the entire firm.
We caught up with Michael to discuss hot topics in transition finance and the key role the financial industry has to play in shaping a more sustainable future.
The best example of this is net zero and the power of net-zero commitments to accelerate the shift to a low carbon economy. Today about 90% of the world’s GDP is covered by a net-zero commitment1. That’s a striking number and a powerful tool for creating alignment.
What it really means is that each year, every company that is committed to net zero will have to report on the progress they’ve made. They have committed to a prolonged period of transition and change. And that is where finance comes in, as we support and guide these companies to adapt their business models.
When we consider how our world will get to net zero by 2050, we naturally think about what we need to stop doing. But getting to net zero is about so much more than stopping harmful activities. It’s about changing our mindset and seeing the transition as an economic opportunity.
Here at ¶·Å£ÆåÅÆÔÚÏß we’re no different. We’re on our own transition journey. Our goal is to be at net zero by 2050. These cover the financing of real estate, fossil fuels, power generation and cement sectors. In 2022, we reduced our absolute financed emissions associated with loans to fossil fuel companies by 42% and reduced emissions intensity associated with our lending to power generation companies by 12%.
A crucial aspect of reaching net zero is actually about finding and funding the innovations which will help us meet and tackle the challenges of a warmer world. Financing the transition. That’s where the real power of sustainability lies: providing the transparency that helps all of us – investors and corporates – transform the way we look at new opportunities.
The numbers are striking. It’s been estimated that the net-zero transition will require a capital spend of somewhere in the order
Getting to net zero is about so much more than stopping harmful activities. It’s about changing our mindset and seeing the transition as an economic opportunity.
That’s an annual increase of USD 3.5 trillion versus what’s being spent today. And on top of that, an extra USD 1 trillion of today’s spend will have to shift from high emission to low emission assets. Investment of that magnitude means the ‘green’ capital markets will have to grow at an unprecedented scale, speed, and geographic scope. Or, to put it another way, the total green investment needed over the next 30 years will be about the same size as the current global stock market capitalization.
The world needs a USD 100 trillion green market.
It took us 150 years to build the existing equity markets. We’ve got just a fraction of that time to build a similar sized ‘green’ market. So, you can see, transition finance is going to play a massive and a critical role. The world needs a USD 100 trillion green market.
It’s within new and innovative technologies where the potential to generate new markets and opportunities for growth lies. For example: alternative energy sources such as green hydrogen or sustainable aviation fuels. And that, combined with the scaling of solutions that help us deal with existing emissions, like carbon capture and storage, is going to help drive growth.
Right now, many of these breakthrough technologies are at the early stages of development. Enabling their commercial-scale deployment will require support across the spectrum, from venture capital through to governmental backing. But, with the right disclosure frameworks in place to create that transparency, investors and financiers are better able to allocate their capital away from the climate laggards and toward the climate leaders.
As the world’s largest wealth manager we are connecting capital with ideas and supporting innovation in all its forms. Just last year we partnered with two really exciting start-ups, Climeworks and Neustark. Both companies are developing and scaling carbon capture solutions which would have been unheard of a few years ago. For us, it’s a double win – we’re supporting our own net-zero targets and we’re helping to scale innovation.
But it’s not just about scaling solutions; we also need 21st century trading platforms to accelerate the transition. That’s why last year ¶·Å£ÆåÅÆÔÚÏß joined Carbonplace, an innovative, front to back, global carbon credit transaction network. It provides digital wallets where ¶·Å£ÆåÅÆÔÚÏß, along with our clients and peers, can store and trade carbon credits. The platform manages the whole carbon credit lifecycle on a single blockchain, creating a fully transparent audit trail and a secure market infrastructure. We’ve already validated the platform with two pilot trades and it’s expected it will be fully operational this year.
Again, looking at our Asset Management business, last year we announced a USD 700 million investment in cold storage solutions, tapping into the demand for modern, energy efficient facilities which help reduce food and water waste. Another focus area is the real estate sector – buildings are responsible for nearly 40% of global energy-related carbon emissions. Our role is to support our own real estate clients in their decarbonization, both to protect their assets but also help them gain market share vs their competitors.
There’s a lot of new tech coming out right now. We are already seeing things like CDR tech, which literally sucks carbon dioxide from the atmosphere, on rooftops in Zurich.
Other ideas like vertical farming and low carbon construction are also gaining traction. Innovations like these are critical to enabling the transition to a net-zero future. As a bank, it’s key that we support the development and implementation of ideas and drive the power of sustainability as it impacts and shapes the world’s capital markets.
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