DBS Kopi Time E083 - Munib Madni on Climate Investing

back in 2020 and episode 16. I think both panicky partners and Kobe time have come a long way since then. In preparation for this podcast, I went back and listened to that episode to those of you who haven't please do by all means. It's a terrific primer on a company's purpose and when it really draws from history as well as economic and finance theory to underscore that point.

And also in that podcast you will hear money delving into sustainability driven fund management, focusing on returns and progress on four forms of capital, human, social, environmental and financial. In today's podcast we will focus on the third capital, environmental and the investment side. Guys around that. With that context in place me welcome back to Covid time.

Um but you know, the team has come out of Covid, you know, stronger. I'm proud that we've kind of delivered on the the purpose that for which partners was built, we've been sort of diligently executing on our purpose of having a couple owners and users come together um to make a better place a better world. And then our own investing process has evolved since the last time we spoke and we've incorporated purpose into

how our portfolio companies are judged. And I'm glad to say that, you know, that that's been a sort of a positive sort of, you could say progress for anarchy since we last met as a b corp We've been playing a very important role. We believe in

building a sustainable investing ecosystem in Singapore. We've had almost 30 interns now with us over the last four years since we started, uh and and we were having our second Global Pandas Forum, so building and shaping the sustainable investing ecosystem not only in Singapore, and Asia is very important. And I think, you know, the last thing is and where we are right now is that that the team

has actually broadened its investment focus from sustainable investing. And now we're focusing and moving towards investing with environmental impact. If you recall my team and myself have, I've got and and spend a lot of time on environmental capital, injustice call. And the team is now ready to help our clients deliver on some of the environmental

ambitions that they have through their investments. So we're we're we're nicely placed in a world that most probably is not that nicely placed at the market.

Uh and I think that's where in the context of the markets, climate changes could be seen as a failure a failure of markets to incorporate internalize this very expensive cost that is now not only cost for the current generation, but for the future generations as well. And and I think that's an important sort of uh you know, uh realization that the world is having on various levels that Climate change is a market failure and the markets are

now trying to sort of correct for it. And and listen, I don't want to be too hard on the markets. You and I have have been market participants for the last, you know, almost 30 years now and we do believe in the pot the value that markets bring. But this whole challenge of climate change, it is so broad and global in its nature. Most other externalities can be very, let's say localized regionalized and therefore the cost can be very focused and that

the markets can become a lot more effective. But I think here the whole challenges that climate change, the costs are global and also political in nature. And that that is where climate change in in a way has been a market failure and for good reasons, it's just a very, very, very tough challenge to deal with. Um if you now move towards climate investing climate investing,

it's relatively new. The concept of climate investing, there's no clear definition of climate investing if you can in its essence is basically investing to help with solutions around climate change and if you go a bit deeper into it, its base basically investing to help decarbonization, you know, removing carbon, uh, from the environment or reducing the output of carbon into

the environment and various other emissions. So that is where climate investing has now uh, come to become a topic of discussion on various levels, especially within the investing community. It is all about investors. Also, the good news is the investors are moving from again risk and return to risk, return and impact. So that way, climate investing is different from traditional investing here.

Many of the investors who are actually wanting to invest for climate change are coming with, with a, with a strong focus on genuine environmental impact towards climate. If you look at climate investing, I would say it's almost at its Gatorade moment, not What I, what I, what I mean by that is that, you know, if you look at sports drink drinks and the phenomenal round sports drinks, right. The first sports drink was Lucas aid in 1927 and that was almost athletes that were elite

By 1965. When Gatorade came about, Gatorade was the first sports drink that was sort of popularized for average athletes, uh, for anyone doing any exercise. Gatorade became the go to drink for their sports sort of, uh, sort of needs. And I think where, that's where we are at now with even climate investing. Gatorade at that time, when it started in 1965, it actually was just sugar, salt and lemon juice to make it taste a bit better. But it's since then, you could say, as sport springs

have evolved and become isotonic and also very customized. We are going to see that happen with climate investing as well, but at this point in time, it's still very early days when we're having this conversation in two years time, when you're doing your 150th copy time, uh, some of the questions you'll ask me, maybe my answers will be slightly different because it is evolving very quickly,

But there is a huge community of climate skeptics out there who will challenge the first notion that there's a negative externality that manmade activities are causing the bulk of climate change, that some of it is, you know, something that's a constant through the history of this planet now, to those skeptics, I mean, do we just ignore them or there is a rational for even those people to be part of climate investing?

And I think that is one of the reasons why climate change, climate investing is very politicized this whole issue of carbon is very political, is exactly that, that a lot of people who are skeptics are coming from either a fear of this transition of decarbonization, impacting and let's face it, decarbonization is gonna be challenging and expensive from on an economy on companies and individuals.

And that's why we often talk about just transition. So, you know, the word just transition is also become very topical, especially in making sure that as we transition away from fossil fuels and let's say, other agricultural practices that are maybe not that positive for the overall environment, that we do it in a way that is just and fair for everyone, not just the global south, but also for the developed countries

and the various industry that they're operating. And I think the skeptics either coming from a lack of, let's say, the knowledge around the science behind it, Which I think now the skepticism is especially around climate change is definitely a lot more reduced than it was, let's say five years ago, 10 years ago. It's pretty much an accepted fact. Now, the size and scale of

it can be questioned. The timing of it can be questioned and the solutions are definitely going to be questioned but I think it's the few that are left the skeptics engaging with them, understanding what is their fear or the concern that is the one way to deal with this.

I want to put, you know, the risk of climate change into financial terms, They just need to see what's happening around the world in terms of temperatures and climates and all the rest. And let's say, even if what we are doing now helps that incrementally, that should be a positive for everyone. So I think making it a binary event is gone. It's more, you know, it's it's a scaling issue now for many people in terms of time size effort, fear everything right there's a whole spectrum,

I think there was a Bloomberg uh article last year that said that for us to get to net zero by 2050 100 and $73 trillion have to be spent uh, in climate investing. Um, in the same vein, there was another research done by another research house and, and they had just china alone needs to spend 100 and $65 billion per annum

to get to their carbon neutral 2060 target. So the numeric, from the government's perspective, a massive, even if you look at the Eu green deal, that the latest, uh, you know, the inflation reduction act of us, there's big chunks of these that I have got climate in it from the government's perspective. So if you look at governments and even companies that are transitioning their own models business models and the Capex that they're spending internally.

That's fairly big already. Now, that is one form of investing. But for the purposes of today, let's say, what we're talking about is private individuals, institutions investing in, let's say carbon and, and, and, and climate here. The dollar values are still very relatively low. Morningstar had a number in april this year that there's roughly 860 funds or E. T. S. That are out there in the market that are climate, or probably called climate related, right?

And the total value in that is about $408 billion according to Morningstar. And that number has doubled in the in 2021. And it's about 7 to 8 times what it was in 2017. But 408 billion is not very big. It's still very small. It's still very early days. And, and, and, you know, you ask also, what is the reason it's being held back?

I think there's two bottlenecks here. One is, the first is that, as I mentioned for climate investing, investors are looking for environmental impact as much as they're looking for risk adjusted returns, the impact, environmental impact data that people, institutional investors, even individual investors are having at this point in time is, uh,

still coming slowly. It's not well identified and structured enough for these institutional investors who are so used to their risk return frameworks to incorporate that into it. So, I think the impact, the more over time as we get more and more environmental data that can support the impact that investments are making, the more money we're going to see in into this space, Right? And so that's the first bottle, like it's just not enough data to prove that they

impact and investment is having, is there? That's one. The second one, I would say, is also a lack of genuine climate funds and investment vehicles, even though there were 860 climate or climate related funds. And E. T. F. As I mentioned very the whole spectrum, if you look at the if you break them down and look at the kind of climate of actions they were taking, some could argue they were not impactful enough and therefore,

the investors were not sort of enamored with them. So I think over time, as more and more genuine climate funds come through people like myself and my team can deliver environmental impact data points that are supportive of investing in climate, you will find that there's gonna be more, As I said, we're at the Gatorade moment of climate investing, we need to get to the isotonic very quickly and that will happen in the coming years, so that they're the two

bottlenecks why climate investing, I think has still been a bit, uh, you know, it's growing, but from a very low base and will continue to grow.

it doesn't look that impressive. And then we have famously had Elon musk of Tesla come out and criticized because in certain perspective his companies are are not as climate friendly as one would think, given that they make electric cars and other you know, climate friendly products. So gives a sense of where you stand on this issue that some backlash about the E. S. G. Ratings, the backlash around um you know, which companies should be, you know rated highly or low and so on.

s the social side is being separated. G. Has always been there. So I'm not surprised that there's been uh you know, uh breakdown of E. S. G. Into its components and rightly so, so anything that is new and evolving is gonna get flak is gonna get questioned. And and E. S. G. And E. S. G funds and E. S. G. Investment strategies are rightly being questioned, you know, and and and but only to

make them better. So, you know, if you look at various regulators globally, again, just focusing on the E. S. G. As an investment class, if you want to call it, if you look at all the regulators globally from europe with S. F. D. R. Article 89 rules that have come in to even M. A. S. I think a week and a half ago, two weeks ago came out with new E. S. G. Fund disclosure requirements. H. K. M. A. Had theirs last year Australia as it came up with

this last month as well. We are finding that investors and invest in E. S. G. Strata, even climate strategies are being monitored now as an investment class and therefore being required to step up and no longer can be sort of green washed and and you know, rainbow wash as people often say. So, so this is this is part and parcel of an evolution of an investment class as a class that is required. I've been

uh you know, I welcome it. I think it's great, it's making sure that fund managers who are claiming that they are spending time and effort like we are at an occupied doing and spending time on uh the environment side, social human capital side that that they can prove it and and people who are not, or have no intentions of that, they don't then participate in the space. So it's a welcome space. I'm not fearful. Most genuine E S. G, or e investors are not

fearful if anything welcome this. Um, so, yeah, it makes us makes the whole process a lot more christmas and correct and accurate.

for staff. So I think that, you know, as you said, that it's getting sliced up in a way, it's probably the right thing to do that. You know, if you are an activist investor who really cares about the s and the g part, it doesn't have to be attached to E and he should not be like a company like Tesla, which arguably is doing a lot for reducing our carbon footprint should not be mixed up

with it. Again, you know, workplace environment and so on. Um, so if I'm an investor, where should I focus on as a climate or a carbon investor.

footprint and the carbon. But I think there's a third element to that, which is maybe less talked about, and I think very, very important without it, you cannot as an investor make money on technology or on just pure following carbon prices. And that is policy, uh, carbon policy that countries have, as I said, and these carbon policies of countries are still very national, uh, nationally focused at best, regionally focused in the case of Eu, but

most of it is uh, nationally focused. Now, if I to show you what I mean by this first, if you look at carbon price. Uh, and, and the cost of carbon. People often look at the carbon cost of an industry as a proxy for the investment opportunity. And that is mathematically, carbon price, times volume, volume is for carbon is now identified underscore 123, you can do it for a country, you can do it for a company, you can do it for sector, you can even do

it for you? And I write carbon volumes is fine, It's a carbon price. That is very broad spectrum. So you have anywhere from carbon taxes of $2.50 in Mexico, 230 in Sweden. You know, you can have carbon prices that are under the compliance markets at 80 euros in europe where you can have under the East Coast R. G. D. I initiative at 6 to $12. So you have carbon prices that are very broad range

even though we know the volume. So people who are looking at carbon cost in totality as an investment opportunity or focus area, I think what they need to do is they need to move it around and say, who is willing to pay for the cost of the carbon, is what I mean by here is the people who are paying for decarbonization are again, either the governments through their, let's say, the eu, uh, carbon border adjustment mechanism for example, or tax, uh, government taxes or even, let's say regulators

like the California Air Board, Air Resources Board, they're paying for carbon decarbonization with their credit systems. Even let's say, companies who have regulated carbon taxes, they would be willing to pay for carbon offsets because they know they've got taxes to pay for. So for for for for most investors, I think one needs to look at, who are the decarbonization payers, what is their size? What is their ambition and what is their ability to pay?

Because you as a carbon investor don't want to be relying on someone who is promising you a price for carbon, who then disappears in six months time. And I'll give you a live example of that. Is that if you have a look just last week, uh, India decided that they're not going to allow for any carbon offsets to be exported

their offsets to be exported. Indonesia being 11 of them papa new guinea, another Uruguay another. So, so again, carbon policies superseded any kind of carbon pricing that you could get from a carbon market. Now, if you look at technology again, technology in a carbon policy vacuum does not work. Um, but where there's a carbon policy or let's say carbon related or climate related policy is to encourage technology. It can, it can flourish. And a prime example of that is hydrogen electrolyzers.

We know hydrogen electrolyzers, whether it be from fossil fuels or renewables have been working perfectly fine for the last 100 years. But guess what? Green hydrogen now is considered as one of the energy and sort of transition for for for energy. And that is purely because of the last decade and a half, we had some serious policy incentives given to so and to wind and other renewables that brought down the prices of renewables, which then can be deployed into green

hydrogen or to create green hydrogen. So technology was there for 100 years, we needed industrial policies to be ramped up to bring the input price cost down. And now there's plenty of also if you go to Korea who wants to become the hydrogen hub of the region, is industrial policy that is incentivizing technology to

be deployed. So to answer your question, when people are looking to focus their investments, climate investing, just focusing on carbon prices or focusing on technology by itself is not good enough. One needs to focus on who are the decarbonization payers and who are reliable, what is their size and ability to pay and then also what is the carbon policy that is being deployed in different areas and different regions

and different sectors. That to me is another to go to place for focus for carbon investors.

Um, I have seen the chinese do a lot of work with the Europeans in recent years, whether it is taxonomy or getting their emission trading system going by looking at the experience, the Europeans and so on. And to your point about the recent bill passed in the US ostensibly called inflation reduction act, but really the focus there seems to be used on climate change. So, are we seeing a lot of tailwind with respect to climate regulation? And are the regulations going in the right direction?

seen big back and forth, right? And that will continue. Uh, but if you look at somewhere like europe, I think the consistency and the momentum has been made and even with eu taxonomy and the green deal and even some of the laws now that I mentioned in the article 89 for investment vehicles, this consistency for climate investing, climate change uh policy making carbon pricing the C. B. A. M. That was brought into place. All of these things seem

to be inconsistent. But I think one thing people need to keep in mind that europe is only 8 to 9 per se total carbon footprint so they can get to net zero for themselves. That's only 9% of our problem. There's another 91% that and a big part of that which is coming out of Asia is still growing is still growing. Even if some of the climate ambitions that were announced by

Asian countries through their nationally determined contributions. NBC's last year in Glasgow cop 26 incrementally they were good incrementally they were positive even though the let's say the more ambitious environmentalists would say was not good enough but incrementally India saying they're going to be net zero by 27 70 china saying they're gonna be carbon neutral by let's say uh 2060 even Australia coming back into the into the game and saying that

they're going to reduce under the new Labor Party they're gonna they're going to reduce their carbon emissions by 40% relative to 2005. These are all positive incremental steps. So I think the the ambitions for most countries have definitely gotten stronger where I think there's a disconnect still especially in asia if we and I'm going to just maybe focus on Asia where the disconnect is is the policies that are gonna be there to support and deliver some of these N. D. C. S are not there.

There's a massive disconnect massive gap in industrial policy design tools, frameworks that need to be created within Asia. Uh, and my team and I, we believe in one of our area focuses exactly on that is that we believe that there's gonna be a tsunami of policies, tool frameworks created in Asia to help them deliver on the NBC. And they will take guidance and and let's say lessons

learnt from places like europe. Uh, and we already know that the european, let's say carbon markets, the E. T. S. Carbon markets have been around for a while now and they're in their 3rd 4th version And now they're finally, I think getting to a workable model on 34 sectors. So I think the lessons learned from Europe will be deployed in Asia that need to be deployed fairly quickly this decade. If we won't have any chance of getting to our climate change ambitions or prevention of that.

price and allowing the market to clear around that through volumes. Um, so carbon markets, I mean, which has been around for a while, Ikan 11 suggests that's the way to internalize externalities. What's your view?

doing the E U E T s. Right? That's the compliance market, then there's the voluntary market and hear what I will be talking about is more the compliance market because the voluntary market is still very small, even though it's growing, but it's still very small.

The problem. And this is my again, my humble view is that over the last 20 or so years that we've had various forms of in europe E T. S being the most the oldest form of carbon compliance market. The problem is that we have not seen a stable rising, uh, carbon price, let alone a reduction in carbon emissions by the participants of those markets. So That leads me to believe that there is some inherent problem.

We haven't sorted it out for 20 years. There's some underlying challenges to the structure of those compliance markets that need to be addressed. And and what are the challenges? The challenges are that most compliance markets, when they get set and put in place there and their prices have

not gone up. It is because the government or the regulator has given out free allowances, free credits to certain industries or sectors who are participating in that market because their political, because the voter bank, if if they didn't get those allowances, the price or the carbon impact of that industry would be so tremendous that the political parties bringing it on

to be out the next voting session. Right, So the allowance is one of the problems, secondly, you also have a lot of these allowances being allowed to be carried forward for much longer than they should have. So they kept the prices down. And that was another problem. And then there was a little bit of, let's say,

voluntary carbon offsets. And again, I think what you were referring to Tamar was that the E. U. E. T. S. And one of the one of the reasons people blame for its initial failure was there there was a significant amount of carbon offsets that were being exported from china into the EU. And and that was a problem that

is being rectified. And that's why you are finding that the EU after 20 years of version three or four has finally got its E. U. E. T. S kind of stable and they've got their own reserve management system that is excluded all these offsets. So there are three reasons why prices have not been stable and not been good enough incentives for polluters to feel uncomfortable because they've been able to get away either through free allowances or prices staying.

The other problem with these markets, carbon markets or I should say challenge uh structural challenges that the money that the government's generate from these, right? Because every time the government issues some of these credits for people, they supposed to get money that can be deployed in climate action. Right, uh europe, for example, had $14 billion worth of credits issued in the last round that money doesn't and has not been fairly deployed uh

into pure climate action. Right? Even the allocation of these monies in europe from the E. U. E. T. S. System. If you look at the breakdown of the percentages that went to countries within the EU that actually had no climate ambitions versus those that were actually deploying climate ambitions. It was disproportionate again, political structures of Eu, same way in California, how the money gets sort of what they call green pork, pork barrelling

is happening at the moment. So a lot of the deployment is just out of whack from a revenue from

a revenue allocation perspective. So they're some of the challenges, inherent challenges that you can find that in my view of sort of keeping carbon markets from delivering what you and I would otherwise expect and and they're not going away, sadly, the last reason why this doesn't work is that when you put four or 56 sectors in to be covered by one, let's say carbon market, let's say, you put transport, you put uh metals and mining, you poured aviation, you put industrial production,

all of these under a carbon electricity generation, all under let's say one carbon market and say, okay, all you for emitters in Country X, you're gonna be participating in this carbon market, buy sell credits and your cap and trade schemes. What ends up happening is that the sector with the lowest carbon ambition becomes, if it's big enough and can vote out the next government, they bring the

whole structure of the carbon market down. And that is again, where the politics of carbon and its impact just make for carbon markets to become less effective. And that's why again, my humble opinion is that carbon markets will be there, they will take longer than we think to come up with a fair stable carbon price, we should not completely discount them, they let them operate. But in the in the meantime industrial policy and carbon policies from governments targeted uh focused uh so that they

can deliver their NDC need to come into place. We can't just wait for carbon markets to sort themselves

your view on this issue. It seems to me that now for the reason that you mentioned that if you do something very draconian, you're vulnerable in the next election cycle.

So the thinking behind the latest package out of the U. S. Seems to be more carrot than six, I give you incentives and tax credit to embrace climate action as opposed to I penalize you for being a large immature uh Do you think this is a student has a greater chance of success in the previous regimes, which seem to be more about, I'll tax you, penalize you output quotas on you.

tax rebates because of carbon reduction. You know, that seems to have been, have had a much better uh, and focused, uh, result from my reading and therefore I think deploying that rather than having to penalize people, but then also let them have out through, let's say going and buying carbon offsets from here there and everywhere, which people have been doing that's one way to sort of sort of neutralize your penalties

is going by. Again, one of my fears is that if you keep on pushing the penalties, it incentivizes people to go and find solutions to get out of it and the voluntary carbon market, if left unchecked could easily provide that out, You know, because regulators, regulators, but voluntary, uh,

and finance the finance sector is very good at securitizing things. So, you know, give finance folks, you know, opportunities, securitize the carbon offset and sell it to someone who otherwise would be penalized, You're, you're playing into that space, which I think can lead us to a fake transition as opposed to transition. So I think having actually, incentives and carrots is a much better approach then if you just keep on penalizing, it's gonna be, it's gonna work

both ways. And some of the best policies are where you do say to people to industries that if you do x, y, z, you will get priority when you're bidding or when you're tendering in government projects and all the rest and those folks who are not, by the way, you'll be excluded. That's a penalty, Right? And that's a penalty where they don't have to go and cheat too much for them to sort of step up. They need to step up.

So there are ways to penalize people other than just throwing, you know, penalties, taxes, sorry, uh, taxes and penalties on them. Right.

climate investing is about risk return and impact. Will we be able to deliver the impact that we're investing for fast enough is a big risk that anyone going into this space. Will they come out of this in five years, 10 years time and say, but the impact happened, but it was too late. So that's, that's a risk. And I think that will take its time. Uh, the second risk

I think in climate investing. Okay, and this is not a climate change mitigation adaptation that companies are doing this is for investors, uh, is the funds management industry or the providers of uh,

investment vehicles. My peers uh, that the whole greenwashing concept and idea that you brought up providing genuine, uh, climate investing vehicles, uh, with impact that is going to, that is a big risk as well, that we don't do that, we don't do it well enough, and people kind of lose interest, or, as you rightly said earlier on, you know, people start questioning it and therefore give up

on it. And I think the, the, the genuine climate products investment vehicles with no greenwashing, giving confidence to investors is the second biggest risk. And, and I'm glad that that's being tackled on by various fronts, one with data coming in much more so that me and my team can come up and deliver, uh, you know, impact numeric, but also the regulators making sure that myself and my peers are kept held accountable to what claims were making. So that's the second risk.

I think the third risk and that we touched upon briefly was this, you know, for me, is again, the ability of financial markets to securitize intangibles, you know, especially when you have something that is hard to monitor, as it is, which is carbon, whether carbon is being admitted or not admitted, it's a sign that it's a science, but it's not, it cannot sort of prove it in some ways, uh, if something cannot be sort of, let's say monitored, uh, that easily, and only a few people

are measuring it, and no one's regulating it, but someone's securitizing it, you're leading to potentially a challenge for climate investing and the financial securitization of carbon. And again, we go back to the whole climate investing is, what is the price

of carbon? How do we incorporate it into our systems if we financially securitized carbon in a way, which is done with the view that this is for just transition, but it ends up being a fake transition because one we didn't deliver on those, you know, carbon reduction targets that this was supposed to do. And also we took many people down the, you know, the wrong path, show them ways to sort of claim offsets when they weren't there.

That is something that can be damaging not only to the investing, climate investing, uh, universe, but also to the, you know, let's say to the to those people who for whom we're trying to get just transition right, whether that be the indigenous people who are living off the land and and trying to sort of benefit from that,

and also support with legitimate carbon offsets. If we, for example, tell them that the price of carbon offset is X, Y, Z. And then it turns out that five years later, they've given up all their other activities and focused on this, only to find out that that those offsets are not being internationally accepted and that the price is not 100 bucks, it's like not even a buck that's going to become not a just transition for them,

it's gonna be a costly transition for them. So I think that's my third and last sort of risk is that how do we do, how do we make sure that in, you know, as we move towards a just transition and create these carbon markets, especially the voluntary ones that we do it in a way that does not need to affect transition for ourselves. And even for, let's say the people who really we should be benefiting in the process. So that's the risk to climate investing

top down approach. If I start with the top down approach, as I mentioned earlier on, as we, as we were discussing that asian countries, climate ambitions becoming better and better, uh, Incrementally with most companies having in cop 26 come out with incrementally better targets related to climate and also separately on some environmental issues as well, but climate definitely they've gotten better isn't good enough. Many people would argue not

good enough. But to me I'm one of those, I take the incremental change as a positive start, the absolute will will catch up hopefully over time. But when we look at it from the policy perspective to support those NBCS, then there's a massive gap as I said, you know, in what they're trying to achieve under the N. D. C.

S and what their policies are in place. So I think ASIA's impact in terms of helping the global climate change challenge is very much from a top down perspective going to be driven by whether or not the countries whether be India china Australia and Singapore. Everyone in in Asia are actually delivering the policies to support uh their specific NDC s. So that's one way that one needs to map out ASia to see what's happening at the margin. Are they

doing the right thing? Just looking at targets by themselves? Maybe not good enough. You've got to follow the follow follow down to the policies if you look at it from a bottom up perspective.

Uh my team and I over the last uh you know, a couple of years since we last we last spoke we've spent time creating our own climate and environmental frameworks and one of them is our climate mapping framework and we've also got a database of about 450 asian companies that either have have a C. D. P. Or S. B. T. I. Or transition pathway in it based data that we have focused on and with the aim that we want to see companies and their industries

and what is their actual climate footprint or environmental footprint? Is that high or low? And then we want to map it against. Are these companies actually making an effort to reduce the climate or the carbon footprint or the environmental footprint? And when we overlay the company country policy, let's say initiatives onto our mapping of the company and sector plans, it gives us some very interesting sort of picture of on the ground what is happening from a

company and an investor's perspective. There are and and you know, some of this is going to be a bit of a going to be sort of hashed out in our we have a asian environmental Action fund planned in the coming months, many of the companies in there will be a result of this analysis that we're doing to show what kind of environmental impact that they can make. An Asian companies can have a

massive environmental impact. I'll just give you an example of one asian company, one company in Japan won't name the company but its scope three carbon emission is 435 million tons,

tons from one company, that's this code three. So if you can get companies like that on your radar but also with very strong, let's say environmental actions in place as an investor that impact becomes easier to achieve because the size and scale in Asia of the carbon footprint or the climate footprint is massive compared to some of the developed market companies that

most people are used to investing in. So I think ASia presents some great opportunities to help the fine on climate change but how you go about doing it, you've got to be very, very careful and sensible about it,

tax emission targets, etcetera. So the thesis that companies that are ahead of the game will prosper more and provide better returns. Has it panned out?

year game. And so from that perspective, I think for many of our companies, the jury is still out, both actually on the impact side were convinced that they've been delivering on their human social environmental capital progress on the financial side, the jury's still out for for many of the companies in our portfolio. If I was to break down our portfolio companies into the e part, the part there is definitely our companies who have climate or environment as a tailwind in their

business models. Examples being in the space of legislature, back systems, the heating, ventilation, air conditioning, uh, uh, sector or whether it be the electric electric electrification industry. They definitely in the last two or three years since we've spoken have delivered better than their own past performance and also against their peers.

Uh, it's interesting says even in this, even in this, let's say downturn that we've had the global recession fears that have been created in the last let's say six months time. The cyclicality and the nature of these companies being part of the global cycle has come through, they have they have suffered as well. But the there when you listen to them and speak to them, they're there, you could say, uh, outlook is better than most. Don't have the tail winds of

environment behind them. So it gives us conviction and strength in our view that having tail winds of climate solutions and environmental is a good tailwind to have. So, I think the financial return from that perspective, we are confident of. One of the things that again I would like to mention is that when we started this conversation is that anyone who's coming coming into climate investing right, they're already coming in with with this new mindset that they're looking for impact

and they're looking for risk adjusted returns with impact. So the impact part is very much going to be the driver of anyone coming into this investment space. If you look at us, us and our portfolio that we're planning, it is going to be based on an absolute return approach where we're going to share with our investors that there's a certain percentage return, uh, we aim to deliver, but more importantly, it's going to

be returns with impact. So the impact part of that, we're going to have to really identify what that impact is going to be in terms of carbon emission reductions intensity reductions in terms of peak carbon, especially if we're looking at climate but we're looking also at other environmental issues.

So I think the definition of returns especially for climate investors is going to be and is already the conversation is a very different conversation to when we last spoke, where a lot of people looked at E. S. G. Investing and still compared it to some index returns, bench microtones here. The conversation on climate investing starts with show me the climate impact first and then tell me to get that climate impact.

What is the financial let's say makeup or or expected return that you think you can get out of it? So it's it's for for climate investing. I think people are going into it should be and are focused on the climate impact. And then what kind of financial returns one could expect from that universe of companies because let's face it, that universe of companies is going to be a very different universe of companies then you broader index that most people compare their financial returns to.

So it's it's a conversation that we're having with our parliaments on the expected returns. But but first glance of Our sort of model portfolio a 5-7% per annum return should be deliverable in an Asia pack context.

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