Welcome to part 1 of this day and evening at the Climate Investor Forum 20 March 2024, MCG Melbourne, led by Peter Castellas, Michele Hartz and Charlotte Connell.
Thanks to Event Photos Australia for some of the images, and please appreciate the summary, quoted paragraphs and points below are segments I’ve brought together from much longer sessions.
If we aren’t personally connected and you’re in the business, climate and investment space, do reach out and say hi!
Start again
Two words burnt into my mind through auditory repetition at Vipassana, thanks to the late, great, S. N. Goenka.
And each time I do, the outcome generally gets better.
And so it was for the 2nd annual Climate Investor Forum.
Based on the inaugural year, I thought it might have been a tough act to follow, though there wasn’t a hint of it, as the leadership team, commercial support, investor community, aspiring businesses and everyone I met brought their A-game.
A palpable “Espirit de corps” as the Hon Julia Gillard, past Prime Minister of Australia put it during her dinner address.
Let’s get into the day as I attended it;
Finding Our Common Language
Peter Castellas – “.. The challenge for us today is to make sure that we’re all talking the same language. My first job was as an environmental studies teacher at Keysborough Tech in the southeast of Melbourne.
The first class I taught, with the overhead projector and three little coloured pieces of paper that I put on there was the greenhouse effect, little squiggly lines going out and bouncing back down. We’re still talking about that.
But the question was “What’s this got to do with us, sir? Why do we need to know about this?” Fast forward about 15 or so years I was working at the venerable Commonwealth Bank and I was having the same conversation;
“We are bank, what’s this got to do with us?”
I was supposed to be a sustainability operative undercover, deep inside a big corporate building – why are people struggling to understand what I was saying?
I went to the HR rep, and he and I realised that 37,000 people in the Commonwealth Bank at the time, only two people had an environmental degree, and I was one of them. I thought, hang on, they’re economists and their actuaries and their accountants – I wasn’t talking their language.
My mother tongue was the environment. I need to learn how to speak the language of credit risk assessment or asset management.
When we start learning to speak someone else’s language, then we can communicate. Then we can get in a position where we’re having a conversation, where we’re on the same page.
The challenge today is for everyone to speak the same language. Technology, finance, markets, policy, community. Let’s see if we can actually speak that same language and as good citizens, then we can really have fun at the forum..”
Mayoral Impact
I’m a huge fan of Sally Capp AO , I’ve seen her work relentlessly over the past 8 years at nearly everything I’ve attended at Melbourne business events, from my time with the Australia China Business Council , manufacturing events, climate transitions, sports and entertainment, small business and the Vic Markets.. she was elected in 2018 and as I prepare this for you, I just read her announcement she won’t be recontesting the role of Mayor in the upcoming election.
I had to laugh when she appeared in front of me unexpectedly at breakfast and I exclaimed “You look like Sally Capp, the Mayor” and her deadpan response was “That’s good, I am Sally Capp, the Mayor”.
As is her form, she was enthusiastically pointing the way and celebrating all those on the path during her opening address at the Forum.
“.. I say it takes dreamers and dollars and doers to create significant change and all of you are in the room today and we want to be part of that momentum as we create change together.
Now all of the indicators suggest that the climate sector and climate tech in particular will be a significant sector for Melbourne and Australia, and we’re hoping it’s going to grow like the biotech sector has over the last 20 years, an incredibly steep and positive trajectory.
Economists in Australia forecast that the transition to net zero will deliver 680 billion of value to the Australian economy and 250,000 new jobs into our economy. And Melbourne is already home to many organisations and jobs that are really making a difference in this sector with world-leading climate technologies.
I wanted to mention a few that we are particularly proud of; HAMR – Fuelling a Sustainable Future , who’s developing renewable methanol, a fuel to help decarbonize the global shipping industry, one of the big contributors to emissions around the world.
Or JET Charge which is Australia’s market-leading EV infrastructure company working at a pace, or Climasons, who are specialists in digital tools for urban heat adaptation.
The City of Melbourne itself is undertaking opportunities to transition our organisation as a leader in this city and move to net zero emissions. Many of you know we launched the first Melbourne Renewable Energy project in 2017 to become the first capital city council, powered 100% by renewable energy.
We are now delivering our Power Melbourne project, which is about renewable energy storage around the city’s batteries. We’ve newly released our retrofit Melbourne strategy with 11 actions to be able to be involved in solutions to climate challenges, but we can’t do it on our own.
All of you recognise that, and I really wanted to highlight what we are here to address. Who was here last year?..”
Sally reflected on the sobering reality of Anote Tong’s address to the room last year, the Former President of Kiribati, whom I interviewed;
She continued “.. The UN tells us that adaptation needs in the developing world are set to skyrocket to require as much as 340 billion a year by 2030, and the adaptation support today stands at less than 10% of that. So we have enormous work ahead of us to connect, at pace and at scale, capital to good ideas. And I’m really doing a big shout out to not just the mitigation incredibly important initiatives, but also to adaptation initiatives, many of which also have important mitigation outcomes.
Anote’s plea last year was to recognise that climate change is not an event in the future. It’s an event that we are dealing with now. Our entire survival is at stake. Thank you for your efforts to change the future, now.”
Ministerial Perspective
The Hon. Lily D’Ambrosio, Minister for Climate Action, Energy and Resources and the State Electricity Commission, opened with reflections on the indicators showing we are far from meeting 1.5 degree warming targets, and that for every day and year that goes by, opportunities can be missed or taken.
“.. We’ve done a lot of work over a number of years to really shift the dial and reset what was business as usual in Victoria in terms of our view of the world, in terms of where our energy came from, in terms of the relationship that customers had with their energy supply, and our view of the world related to actions taken by government, but also the broader economy that contribute to increased global missions. And that massive shift has happened in a very short period of time.
But we know that there’s so much work that has to be done for us to really continue to hold that hope to communities, that governments are taking actions together with the private sector to make the big leap that we all need to continue to make, to get to where we need to. And that is to have a livable community, a sustainable planet, and we need to make sure that we just keep working very hard and at pace.
I’m pleased to be able to share some of the progress that we’ve made up to date. Legislation that brought together our increased effort around emissions reduction in renewable energy targets storage that finally passed the Victoria Parliament.
We’ve upped our targets. Our 2035 emission reduction targets is now 75-80% of 2005 levels we’ve put forward our previously legislative net zero target by 2050 to 2045. We’ve set new renewable energy targets. I mean we’ve had this in place but we’ve now upped them to 55% renewables by 2030, 95% by 2035. That mean no more coal generation in Victoria. A lot of storage capacity needs to be in the mix and of course offshore wind is going to be a critical part of that. So we’re also legislating to set our energy and storage targets, and all of these actions and targets are backed by strong programs.
Actions that actually get us there, and using that to discipline ourselves as a government and working with the private sector and the broader community to achieve things.
It’s going to harder, it’s not going to get easier.
We know that decarbonization of the energy system is the low hanging fruit. It’s not to say it’s easy, it’s not, it’s not a walk in a park, it’s not.
But the thing is it will get higher as we try to chase the emissions in sectors that are much harder to do. Basically the message remains that no government can do these things alone. There’s a lot of great leadership being shown in the private sector and we want to make sure that we work collaboratively. We combine efforts to really push, to really make take those big steps that we need to.
As businesses, community industry and policy makers position ourselves, Victoria is a force, and as an investment destination, there is an estimated $133 trillion in global private finance available for the net transition.
That’s what can occur for us to be able to meet that transition.
***
Energy security is critical to make sure that we keep prices as affordable as we can, keep the lights on and decarbonize all in time. There are other key direct investments that we’ve made to develop climate solutions in agriculture, circular economy, the environment and nature and transport..
.. and if anyone’s from the MCG here, it’d be good to have a look at your single use plastic usage.
I was a previous Environment Minister and so yes, please get with the program. It’s simple, really simple. We need to do these things, just cut it out.”
The Minister pointed to a series of other programs and emissions reduction through design, in that the best waste is the waste you don’t produce.
Peter then asked her to dig further on why it will get harder, and as a state and country, how we are in a global competition for capital and businesses that are looking globally.
The main line was the US Inflation Reduction Act, and as a personal aside how the Minister celebrated their approach as a terrific way to rebuild the countries manufacturing base, and the impact this was having to suck not only global capital though workforce over to the USA.
Relevantly, the current Government in working up “a massive package around skills development to make sure that Victoria remains a very lucrative place for capital to come, investments to be made and these changes to be brought about. We’ve got a fantastic record and a lot of interest remains, we just keep chipping away and evolving and moving forward so that we remain competitive and attractive.
Trends and forces shaping the climate investment landscape
Megan Flynn – “.. you’ve probably all been to quite a few of these climate and nature investor events. There’s a certain way these sessions usually go these first ones of the day.
Somebody gets up to show you the size of the mountain and they’ll say something like, we need to triple the investment in clean energy by 2030 to reach net zero by 2050 and then they’ll tell you that we aren’t getting there fast enough, time is running out and we all need to hurry up.
And then we all look up at that mountain when we feel like it’s really high and as we’re standing at the base we look up and it feels pretty lonely and intimidating and we’re worried about the landslides that we might face.
That is not how I see it. It’s not how I see it in this room today.
I ask you to look around and look at who’s in this room and ask yourself, could me or my organisation invest three times more in climate and nature solutions than we currently do?
What about if we knew that these were the technologies that were going to dominate the future economy and those who move early and capitalise on them, be in position benefit?
Could we be three times more effective or move three times as quickly if we could also harness the networks and know how and skills of the people at the table next to us and the table next to them or the chairs..
The answer is yes. It’s yes to all of us on stage. So to me it’s pretty obvious we don’t have a capital problem or a finance problem. We don’t have a size of the mountain problem.
What we have is a connectivity and network gap and the need for more bridges between the different pieces of knowledge that we have as investors, as innovators and as companies to affect the change that we want and the change that we need..”
This session was a highlight of the day for me, particularly Carol Schwartz AO getting serious, whilst the Mayor looked on (pictured below).
Carol Schwartz AO ; “.. I’m here because I represent a little bit of a different investor in that I invest in pre-seed and seed and in women entrepreneurs, and I’m absolutely passionate about supporting women entrepreneurs generally, and in this space, and also women setting up VC funds and being on investment committees in VC funds.
I think that we would all acknowledge that we would be doing a lot better in delivering climate solutions if we actually had more women investing, more women involved in control of investment decisions and more women being supported as entrepreneurs in that area. “
Debby Blakey spoke to investing $80 billion dollars and the savings of over 1 million, and HESTA ‘s position that long-term returns for their members are fundamentally linked to taking action on climate.
“.. As much as I don’t want to underestimate the power of incremental as we turn that vicious cycle of increasing carbon emissions to a virtuous cycle of decreasing carbon emissions, we sit at a point in history where we actually need transformational change. That is the big challenge, though also a huge opportunity.
We are at a point in history where we have made progress, though we are in danger of some of that unraveling with corporate apathy or corporate backsliding. And I think the real challenge for all of us is to make sure we keep moving forward and keep moving forward at pace.”
Christine Amour-Levar brought a broad perspective, with 15 years in Philanthropy, working with the Singaporean Sovereign Wealth Fund Temasek on their six foundations, also setting up two non-profit organisations and has since been working on many mountains as Megan mentioned –
“.. with groups and teams of women over the last 12 years, to raise awareness and funds for critical issues that affect women disproportionately violence, economic crisis, climate change. And through the funds that we raised, we try to support programs in education, conservation and entrepreneurship.
I’ve also setup cohorts of Investors for Climate, similar events to what Peter is doing, ours based out of Singapore, New York and soon to be London. So we’re proud supporters of the work that Peter does here and I have the privilege of sitting on a few boards that are focused on either nonprofit conservation but also on the venture capital space, such as Investible, supporting the team in both Singapore and Sydney.
I’m here because I really believe deeply and I’ve seen firsthand in transformative power of strategic investments in building resilience and sustainability. Sitting in Singapore the last 18 years at the heart of Southeast Asia, I’m keenly aware that our region is really at the forefront of what is happening with climate change.
We will see some catastrophic transformation in our area. Also brought up in the Philippines I’m very aware of the risks of what is happening with sea level rise as well.
We are very much building walls around Singapore, so I’m aware of the risk and also deeply committed to taking action to do everything I can, firing on many cylinders.
That’s why I have so many hats to try to move the needle and I’m here to learn as well from every single one of you. Australia has so much to offer!
What keeps me up at night is really the increased natural catastrophes that are happening with climate change, and that the vulnerable, the poor, are the most effected and continue to be the most effected.
Four out of five people who will be affected by sea level rights reside in Southeast Asia. So I’m here with a deep sense of purpose to help contribute to the conversation and bringing more capital to Climate Solutions.
Kobad Bhavnagri , Global Head of Strategy for BloombergNEF , came in with several key data points;
- The investment in the clean energy transition reached $1.8 trillion this year, marking steady growth in the sector.
- Investment in the electric vehicle supply chain and clean transportation has surpassed renewable energy as the primary sector for expenditure.
- To stay on track for net zero by 2050, it’s estimated that $4 trillion will need to be invested on average annually by the end of this decade. The cumulative capital spending required by 2050 is around $200 trillion, aiming for a scenario that is compliant with 1.77°C, not the 1.5°C target due to the complexity of achieving such a goal.
- For Australia specifically, about $2 trillion worth of capital expenditure is needed.
- Last year, around $50 billion was spent globally on venture capital in the climate tech space, which is a decrease from the previous year. The decline is partly attributed to the current interest rate environment. Additionally, private equity and equity raising for early-stage companies, which typically amounts to about $100 billion annually, significantly dropped to approximately $30 billion due to the global equity market’s softness.
Speaking to challenges, Debby Blakey, CEO of Hesta focused on active ownership
“.. we focus a lot on decarbonizing and what we can do to deliver stronger outcomes to our members through that. But I do think the bigger opportunity is how we use our seat at the table as active owners with a global investment portfolio – that we engage with every companies transition pathway to lean into that timely, orderly and equitable transition that we all want to see..”
Carol Schwartz AO
“.. women and children and families need to be really thought about in the context of climate justice. And I think that this is something that sits to the side of all of that. My takeout on funding for women entrepreneurs is that really they are very much often at the coalface of solutions and they need to be acknowledged as being innovators in the sector. I think that what differentiates me from other investors in this area is my appetite for risk.
And I think we all need to think about our appetites for risk in this type of funding. And the Minister was talking about the private sector and what the private sector should be doing.
I think that we as the private sector should be taking on risk that government’s not prepared to take on. What the government needs to do is create the policy framework that allows us as the private sector to increase our risk appetites and to, if you like, precede these ideas that we can then prove up to government this is something that really works, this is something that you need to take on. And that’s something that I’m very, very focused on.
The practical fixes nature requires
Kobad Bhavnagri “.. I hope everybody in the audience already appreciates, that climate and nature are two sides of the same coin.
You cannot fix the climate crisis without addressing the biodiversity crisis and vice versa. So they’re often very complimentary investments and what we see is that our current trend is the economy is very resource intensive and often grows at the expense of nature, and that we are on course to sacrifice about $2.7 trillion worth of global GDP from the damages that we are inflicting on nature and the loss of the services that nature provides.
So everything from clean water supply to erosion control to pollination of crops, et cetera. That’s the sort of conservative estimate from the world bank of the damages that we’re facing, the lost growth that will occur.
To get off that trajectory and get on what is termed the nature positive trajectory, the estimates are that we need to spend about $1 trillion – spend 1 trillion save 2.7, a pretty good investment thesis there!
Most of that capital requirement of the 1 trillion isn’t being met, there’s a gap of $800bn or so. About $200-300bn is spent mostly by governments on nature related things and a lot of that is conservation finance. Most of that gap needs to flow to the agricultural sector and needs to go into land.
It’s in things like better machinery so that we don’t overly use fertilisers and pesticides. It’s very practical fixes. It’s not just exotic products for very weird and wonderful ways to finance conservation..”
Speaking to an audience question on Supply Chain Resilience
Kobad “.. Investing in the resilience of supply chain of course sounds like a very good thing to do. And we know that by nature, a clean economy and also a more nature positive economy would be constructed that it will be more resilient because it’s more distributed. It’s got all the attributes of greater system resilience.
I would just say though that a lot of the times when people talk about supply chains, they’re talking about onshoring and trade wars and deglobalization and it’s code for “we’re too reliant on China, we need to make stuff here”.
As the evidence builds about really what that costs, I think that thesis faces increasing head wind, so it costs about three times more, if I’m remembering correctly, to build a solar PV manufacturing facility in Europe or the United States instead of China.
And what that means is that the clean energy transition is going to cost us more. It means that we are going to go back up the learning curve if we’re starting to make things in places that don’t have the skills to make them, and then we are going to come back down that learning curve slower and there’s a real risk that slows down action and also means that we are not efficiently investing in the places that we could get the best returns.
So I’m sort of glad that Australia isn’t going too far down this path because actually we really have an opportunity to say, you know what, we’re not going to play that game. We are going to buy things and take things from whoever can make it the best with the caveat that it doesn’t involve slavery and that could mean Australia is more competitive than all other places.
Final asks from the panel to the audience (and you too, dear reader)
Carol Schwartz AO:
Take more risk.
Quoting Barack Obama, we are the first generation to feel the effect of climate change and the last generation that can do something about it. So let’s do something spectacular.
In this room we have policy makers, investors, entrepreneurs, we have so much talent. Think beyond your role and see how you can collaborate more closely to move the needle. There’s a great book by Wharton Professor called Give and Take, and in his book, Adam Grant says that there are three types of people in the world; givers, takers, and matchers.
So givers give without expecting anything in return. Takers take without giving anything back and matchers give as much as they receive. And he found through his research that most people prefer to operate as matchers because they think it’s a zero sum game, less risk. But unfortunately that doesn’t help with collaboration. And so my ask is please keep operating as givers, be a smart giver because he has shown actually that givers influence the success of people around them in ripple effects.
And for us to solve this climate crisis, we need to operate that way. We need to be a giver with our social capital, with our network, with our experience, with our mentorship. I’m sure you all do that already, but let’s keep doing more of that so that we can collaborate more closely and make some real big changes. We have huge opportunity in front of us. I’m very passionate about this and I believe that we can do it together and be prosperous as well.
Think big. In Australia, because of our resource wealth, I think we’ve slipped into a corporate culture of being very conservative and not looking outward enough. And there are huge opportunities in this space. And the rules of the game will keep changing as the climate changes and as the response to it builds. So think big, think long term and take those risks to make really good bets.
Which boundaries matter?
Standing room only as Ben Krasnostein took us into the next session, to discuss financing the transition to a decarbonized economy.
“.. We live in somewhat of a troubled world – there’s lots of consternation, challenges and threats that we face, both politically and that relate to climate.
There’s too much fighting, there’s too much challenge around boundaries. We need to break those boundaries down. We need to collaborate and we need to do that with the right intent and the right spirit.
We’ve heard that already from Megan about breaking down boundaries and how collaborate. That’s one thing we need really focus on today and I hope that we can all take that spirit with us and really learn and share and get some deals done.
Which boundaries actually matter if we think about the world we live?
Natural systems don’t care about geographic boundaries or boundaries between people. From an existential point of view, planetary boundaries are really all the matter because if we don’t respect and respond to them, then we don’t have a world to live.”
Ben went on to detail these systems and if you go back to this last edition of this newsletter titled ‘Doughnuts, Nature and Figuring this out’ you’ll see a map of what he’s talking about.
At this point Ben took us to a great analogy of the building we found ourselves in, which is quite the magnificent and somewhat ominous structure when empty;
“.. if we look outside to the big beautiful green field, well taken care of week in, week out, the great games of the world are played out there on that field and they’re played down there with a set of rules.
There’s this big white line that goes down the outside of the boundary line. You cross that boundary line with either intent or by mistake and be penalised or there’s a reset, a pause at which point in time you have the opportunity to do something.
That rule book is quite simple and we need to apply similar thinking to the way we deal with our planet.
If we cross a boundary with intention, we should be penalised. We should pay for that. There should be externalities that we start to pay for.
We need to be aware of this rule book that we’re playing in order to balance out the equation. If we can bring it back to that same set of simple rules and often I think humans are quite simple, we need these analogues to play towards in order to achieve these outcomes, cross the boundary line, we have pause and reset to try and achieve these outcomes.
That’s all great, but how do we do it? We’ve got to pull levers and we’ve got to make investment decisions and we’ve got to collaborate.”
Ben then introduced the panel and shared a sentence that felt almost off-handed and yet had such a significant weight behind it;
“Koban said we need about 2 trillion dollars – there’s about a trillion in this room so we shouldn’t have much of a problem”
Andrew Bullock , Adamantem Capital “..a few years ago we identified partly through our investment in climate friendly through our second fund that there are a lot of companies that were too small for our private equity strategy for investing, but were clearly needing growth, equity and support to grow and all of them were enabling the transition to net zero.
So we have a fund with 350 million fund looking to put 20 to $50 million into businesses that are enabling the transition to net zero. It’s growth equity, sometimes it’s small buyout.
Sometimes the strategy is buy quite a few other things and do a roll up. Sometimes it’s just to fund the organic growth and sometimes it’s to help a business pivot from a traditional model which isn’t leveraged to net zero, but they’ve got a clear opportunity now to do that and so we invest in profitable businesses that have a clearly demonstrated business model, that there is customer acceptance of their technology and they are using it, and where there is a clear proposition for a private equity firm to invest.
I think one of the areas where Australia is demonstrably leading at the moment is in innovation and small companies innovating at the edge of the grid and it’s supported really because of the industrialization really of the subsidization of solar panels to go on houses.
Also companies like Plenty and Bright who are then providing all of the finance to make that happen so that you can generate a lot of your power off your roof and industry, and so accordingly we’ve got a third of Australian homes have got solar panels and we leave the world in that regard.
That also sets up a bunch of other innovation, the electrical vehicle chargers that we largely use in Australia are made in Australia or New Zealand run by companies like that.
There’s a lot of other innovative Australian companies at this edge of the grid where this generation of electricity as well as an increasing load of electrification of the residences creating business opportunities for people and problems for people to solve across the world.
To the extent the same thing is happening, it’s always small companies, they’re acting in this low voltage area and that are investable by private equity and those sorts of things.
But when we look at the same thing in a non residential environment and an industrial environment, the capital intensity gets to a place where it’s really hard for our money to fit and there’s great technology developed in Australia that could basically decarbonize food and beverage production in Victoria in five to 10 years.
But the item costs millions of dollars, not thousands of dollars. So it’s much, much harder for people to step up to it. So there is a funding gap in all that and a problem to solve.
We’ve got plenty of things to look at from services companies, from system integrators to people who just need to build the inventory of items that are worth thousands of dollars and therefore people able to fund them and buy them and that sorts of things.
So we certainly have plenty look at there. The challenge that I was just alluding to is one where a company will need to spend four or 5 million to buy the equipment, but would be happy to rent it actually and if they rented it, they would rent it for the cost of the solution, which would completely decarbonize the creation of steam for example in their business and would be less than the equivalent cost of gas, but if they rent it, someone’s got own equipment and so that’s the role for some sort of capital provider to play – and it’s such a long payback period that it’s beyond the role of our firm, but there are many others..”
How do make things boring and predictable, as fast as possible?
Paul Hunyor , Wollemi Capital “.. We established a couple of years ago with a view that we do need a new type of funding in the climate solutions space, particularly in the growth gap between venture capital and at scale infrastructure.
We do see that there is a sea of patient capital waiting for proven predictable at scale infrastructure style assets that are as boring and predictable as wind and solar is today.
But yet the tension we see is that as every sector of our economy needs to be transformed, there’s a whole new wave of emerging infrastructure if you like, that needs to be created, whether it’s a shift to different types of fertiliser, whether it’s all sorts of waste to value streams from building waste to EVs and batteries through to plastics, whether it’s industrial decarbonization and the assets that need to be deployed onto sites to help sites decarbonize.
There’s a whole way that new emerging infrastructure that needs to be created.
The issue is, as Andrew pointed out, this is typically CapEx intensive and you also need project development skills and so we’re only a piece of that puzzle. The way we’ve tried to approach this is to say Wollemi today for example is 30 strong people across North America and Australia and we sit side by side infrastructure and project finance experts who have spent a lot of time investing in renewable energy transition, alongside folks who have operated and helped scale up new emerging technology businesses in the agriculture and energy transition space.
We try and ask ourselves those questions as to how can we get these technologies to scale faster and some of the answers lie in flexible finance, so we do think it’s important to be able to raise money into projects or for example, warehouse assets into an SPV rather than just raising money into a business.
And we do think some of the answers lie in the expertise of people who have thought about how to bridge the bankability and set up finance structures in a way that banks will come in and eventually repeat cycles are done enough times such that big infrastructure can look at these new emerging fields, be they soil carbon, be they waste to energy capture on industrial sites, and recognise them and know how to finance them at scale in the same way they know how to finance wind and solar.
That’s what we’ve set about to do and that’s what we spend a lot of time thinking about. It’s really exciting. I’d say the tension is the excitement of coming across all sorts of new and emerging technologies which have the potential to be absolutely game changing and holding that tension between the excitement around that new technology and how do you get at the same time, make it as boring and predictable as fast as possible and that’s the tension in the growth space in climate that we are really focused on trying to address..”
Who pays?
Elizabeth O’Leary , Macquarie Asset Management “.. I’ve talked a lot with you and others about the need for us all to challenge existing paradigms and business models assessment said to solve for nature and the reason’s really simple and it’s a question I asked this audience last year I think I asked very regularly and that is a question we have still failed to answer as failed if it was to challenge and that is ‘who pays?’.
When we’re looking at most data business solutions and business models, we can see a customer, we can see a paying customer or we can see a marketplace that has a propensity to pay something for a product or a service, nature hasn’t fallen in and still really at scale hasn’t found a way to solve for the who pays.
I’m going to prod and poke this room to keep thinking about new ways to imagine revenue lines associated with nature or ways that government can get more comfortable that they’re seeing a sort of nature positive action that means government and ergo the taxpayer is more willing to pay for nature than is today.
And that will require measurement, that will require us thinking about proxies we have like carbon and saying where does nature and biodiversity sit and stack with carbon as a monetizable commodity?
And then more importantly, how do we think about agricultural food, agricultural commodities and layer on the nature positive elements to that style of production system and be willing to measure, attribute and pay as a way to send a sensible economic signal to a primary producer to change the way they manage landscapes.
I’m lucky enough that I Chair our Australian agricultural investment business.
It is sort of the boring, predictable end of the investment universe. So we are targeting superannuation and pension funds globally, very long term, very patient capital with a slight conundrum to solve for and that is that unlike infrastructure and renewables, no disrespect to my colleagues in that space, achieving some of the boring and predictable element is really hard when you are dealing with biological processes.
So we deal with a lot more volatility, a lot more unknowns in this space. Our job is to build very large diverse portfolios so that we can smooth out some of that volatility and be a bit boring and predictable. In the Aussie context we’ve got about 4.8 million hectares of farmland under management, across two and a bit funds, across most major commodities that we export and you consume.
This business has changed just so fundamentally over the last 12 years I’ve been involved with it. Historically we were all about large scale efficient commodity production and value chain presence through that scale. And really over the course of the last half decade in particular our business models has changed to take into account climate risk but also climate opportunity.
We’ve got about 4.8 billion in assets under management. The first thing I would say is the vast bulk of the investor universe we talk to, they still want boring and predictable and they want commodity and agricultural exposure first and climate second, probably with the exception of a very well known supporter of ours and that’s the CEFC who really, quite frankly there’s a hint here on the role of the investment community, they more often than not make me feel very uncomfortable because they’re pushing the boundaries around what practice change can happen on farm.
And so what we’ve seen through our work on a net zero ambition by 2040, farm by farm, bottom up, paddock on paddock, decarbonization plans is some exciting stuff around incremental change. They talked about it before, there’s a lot of incremental change.
We’ve got a huge amount of space to make change and that might look as simple as direct drilling fertiliser instead of aerial spraying and allowing nitrous oxide emissions into the atmosphere from the fertiliser sitting on the surface while we wait for rain.
Really simple small stuff that actually reduces that our emissions profile by 30%. So incremental decarbonization initiatives, absolute must.
Game changer big picture stuff in Australia, it really comes down to how do we solve for diesel, fertiliser and methane – and how do we get all the enabling innovations in the system that help us solve there. But more importantly back to our original point, how do we look at our landscapes differently and say, when I was a kid growing up in the Riverina, the only way my dad made a quid, was to farm fence to fence as intensively as he could with a single commodity.
Our landscapes now look a bit different where we have an opportunity to step back. Firstly, we know a lot more because of technology mostly about what goes on beneath the surface. So we know a lot more about the potential of our soil, the strengths and weaknesses.
We know a lot more about the fact that straight line fences don’t make a lot of sense when dealing with natural assets. But we also know there’s now competition from other production systems, whether it be a carbon production system, whether it be the renewable energy production system. And we also know there’s pressure from our customers down our supply chain for nature positive credentials, climate positive credentials in our food and fibre.
So lots of tension in the system for change that starts to see us having to underwrite deals slightly differently. Without taking up too much time, there’s one deal I really love. It’s a deal where it’s actually a particular asset in New South Wales. It’s a livestock asset, it farms black Angus breeders, but it also has a biodiversity project with the biodiversity conservation trust in New South Wales and it also has a carbon project, so it’s stacking of revenues showing the primary producer there’s a different way to think about it, that scales..”
Unlocking the potential of a layered client base
Christina Tonkin, Managing Director of Corporate Finance at ANZ “.. our business involves three main areas. It houses the institutional loan book for our large both corporate customer and investor customers. About 7,000 of them both here in Australia and across the globe, the book size is roughly about 147 billion at 1st of October last year. It also houses what we would call our specialist loan capability, areas like loan underwriting, project finance, export finance, asset finance leverage and of course importantly,sustainable finance.
And for Australian commercial banks, how do we make a difference or bigger a difference going forward? It has occupied my mind and my team’s mind is what do you do differently going forward and how do we make a difference, and I think it does go back to the previous panel when we were talking about how do you deepen the collaboration and particularly the kind of reach when you think that commercial banks bank, everyone from personal customers all the way to large institutions, how do we amplify that message working with our customers and working with the different stakeholders?
So that’s driven some of the strategy in my team particularly a couple of years ago in things like our US $50 million investment in Pollination and in terms of being able to not only have pollination and introduce them to our customers but also particularly have we upskill bankers and relationship bankers internally within a instead. So we’re running internal program mindset 2030 where we are really trying to lift the knowledge base within our bankers across all the different industry sectors and geographies about what does this really mean?
Why does it matter about the intertwined reliance of climate and nature that is being spoken about?
I think there’s an opportunity for us all to work more collaboratively because back to Carol’s issue about taking more risks, yes, we would love to take more risks that would probably get my management and the board and indeed APRA pretty excited – how much risk can I actually take in what is of course an Australian deposit taking commercial bank.
So there is obviously a role in challenging ourselves in how do we be more creative in solutions, how do we take more risks?
But really if I think of the next decade, it’s really how do you unlock the potential that sits within our customers across many regions, across many sectors working with the people that are in this room, on how do you really drive true innovation and how do you work on closing those gaps?
This is the end of part 1 – thanks for tuning in!
And greetings from myself, Dr. Jodi York , Heidi Lee and Anna Boin PhD .
Next Thursday I’ll bring you part 2, detailing more of the folk I met, and the showcase sessions I attended;
Nature Based Solutions moderated by Skye Glenday , Co-CEO of Climate Friendly, featuring Stu Adam and Agronomeye , Daniel Mission for World Vision Australia and NatureCo, Dr Debbie Saunders and Wildlife Drones.
And secondly Food and Agriculture, moderated by Kristin Vaughan of Virescent Ventures , featuring Professor Joe Jacobs and EllinBank SmartFarm, David Messina of Rumin8 , Jan Pacas of All G Foods , Bobby Miller and Ruminati .
Then we’ll look at the Government and Corporate Plenary sessions, and particularly where Katie Valentine , Head of Decarbonisation Integration and Execution for Fortescue , delivers a mic-drop session on what it means to get a business moving towards ‘real-zero’, and finally we will recap the Hon. Julia Gillard’s inspired gala dinner address.
