Kopi Time E117 - Munib Madni on the Gigaton Coalition to Decarbonize

legal accountability to balance profit and purpose. We last spoke with Munib in the middle of 2022. Let's get a sense of what pa partner has been up to since then. And I want to ask you a couple of questions in general in the world of eg type investing based on some recent headlines that I've been coming across. So Mudi Mali, great to have you back on Kobe type. Uh

Um Since then, um my team have obviously other than managing our global equity strategy, which is a strategy of purposeful companies. We've fine tuned and sort of strengthened our environmental capital sort of focus within the portfolios within our own portfolios. We've put in place certain climate goals and guardrails uh which is a must have nowadays for most

global equity strategies. Uh And, and, and we've also sort of now been engaging with our portfolio companies and also our investors, mostly most of whom are institutional investors on how they can do climate investing in the listed equity space, but with an impact focus as opposed to having just very climate conscious strategies. And again, later on, we can discuss the difference between a climate conscious strategy and let's say climate impact strategy.

So the focus over the last 18 months has very well been on how we can share our learnings and also help our clients move their portfolios towards a climate impact strategy within the listed equity space. And that's been taking a lot of time as well.

a bit more detail later. So when I and my team, when we look at a company, uh we definitely want to see some movement in the right direction we want to see. Are they genuinely doing it and have they got in place plans and to achieve that as opposed to someone who just goes and makes a blind uh sort of without no plans commitment,

uh which is not genuine. So I think to answer your question, you need to sort of open the hood and look under the hood to see what truly is that company, uh uh you know, doing delivering uh and not just go with headline numbers,

justify having that in our portfolio. Now, that is our approach, there are fund managers and in strategies that do you know, invest in companies in transition. And we again, we spoke about that in a bit

more detail last time we spoke. So I think the definition that and that's, I think that's where when I originally said that we've spent a lot of time putting in place in our global equity strategy, climate goals and guardrails and every investor who comes into our portfolio is, comes in knowing exactly what kind of climate goals we expect our global equity strategy to have and what guard rails and one of the guard rails is that there has to be, if we are going to invest in a fossil fuel company,

there has to be a clear line of sight of removal of fossil fuels over a reasonable and feasible period. It has to be almost in line with what IPCC or the S BT I folks are prescribing um for, for a fossil fuel company. Great. Again, that is our, our mandate, other people can have different mandates.

investment in the, in the green area. And yet M I recently read that last year esg job departures outpaced arrivals in the US and it marked a reversal of a multiyear trend. So just give me a sense whether you have been sort of following this and if there is anything to read from that, and also is there some counterpart of that observation with respect to Asia?

or Ira not being delivered. And there's at least on the ground when I speak to a lot of portfolio companies in the US who are considered beneficiaries of Ira, they would openly say that they're not seeing the money hit their accounts yet, right? And there's still bureaucracy, there's still a lot of sort of uh uh pent up potential. But whether they're seeing it actually manifest itself in more sales and therefore more employees and more production that

is not happened yet. So whether there is a little bit of, there was a little bit of excitement when it all happened two years ago and people hide people thinking OK, we, there's a tsunami of sort of environmental deals coming through and not showing up and then they're having to cut those people that could very well be happening on the ground in the US.

If I take a sort of a global sort of approach to sustainability esg roles, uh I think there is no doubt uh even in Asia, for example, uh there's, there is a, there's plenty of demand for folks who uh are either upgrading their own experiences and skill sets

to include sustainability. And I think especially if you look at environmental capital focused roles, especially in Asia, this I would say this there, there will be demand for a long time to come still because we are starting from a very low base as we will speak later on. The actions taken by companies, regulators organizations in Asia is still at a very low base. So then, and it's a part of it is the chicken and the egg. Many of them don't have the actual employee

capacity and the knowledge and know how. So I think that in Asia, I think there's still going to be plenty of demand for people who are, you know, who are skilled in sustainability and especially in the environmental space.

Uh And the interpretation in the press was that they don't want to deal with the political and legal liability uh that the compact would have sort of, you know, push on them. Uh Can you unpack this development for us?

say mandates, they had obviously influence on companies. And the view was that let's go and focus on some of the biggest emitters and get them to actually commit to certain climate targets and goals. And that was the whole purpose of ca 100. And it's been relatively successful in doing that, you know,

the all these investors did come out did go. And I would say in some cases, name and shame some of these companies into putting in climate targets and, and, and, and, and the whole approach of C 100 has been very target oriented with very clear. If a company does not do it, they're going to take action almost in an activist way. Uh and, and sort of bring voting action against the management and the board. And I think uh that worked, it worked for a while getting people to

come and commit to targets. But once those targets have been put in place, many investors are like, OK, there's now a next level of engagement and that next level of engagement most probably cannot be aggressive. It cannot be the name and sort

of shame approach, maybe. So that's where I think some of these investors that you named may be thinking, OK, we've we've done what the coalition or this grouping initiative wanted to do for the first, let's say five years now, it's time for us to revisit how we engage with our portfolio companies. That would be my sort of observation, I think for me and my team at Panahi pans, the one thing that becomes very clear from this event is that there's two things that we've believed

in for a while. Now, the first one is that the name and shame approach does not work, you know, and this is me speaking for 30 years of doing investing and engaging with listed companies globally. Uh and especially in Asia, it doesn't work, but even globally to get management and boards of companies to act and act in areas that are not very, let's say, clearly beneficial to the shareholders in a very quick instance.

Uh the name and shamed approach does not, they might commit to targets, but they're not going to act on it. So that to me is very clear from uh what happened with this, uh you know, coalition is that you, you can't, you can't sort of uh force through name and shaming companies into acting. Um I think the, the second thing that became very clear is that investors have plenty of climate initiatives which they force their investing companies to adhere to, right?

Uh There's many of them uh I don't have to mention them here but they've been around for the last 5 to 7 years. Uh What is missing is the, how, how are those investing companies going to go and deliver on those commitments that these initiatives have forced them to make?

And we're at that moment now where uh even investors when they go and speak to their investing companies are saying, thank you for agreeing to the C A platform 100 plus or let's say uh net zero commitments or S BT I, you name it all these initiatives and targets. But the how is missing, not many people are telling their investing companies this is how maybe you can achieve that.

Um And, and I think that is also become clear from this reversal or let's say of people leaving maybe something like the C 100 is that investors know they've done their first big move of converting people to putting in climate ambitions and targets. But now we are in the next phase. How do we get these converted to actually act?

from here to there? Um So you said that, you know, there's no shortage of coalitions. Uh let's talk about one of those coalitions uh Gigatons coalition. Uh you've been working on it. Uh Let's talk about it. What is it? And where do you see it becoming over time?

Uh So a depleting carbon budget, how do we stop depleting it, conserve it if not grow. That pie is a challenge and that's a global challenge. Uh The second dilemma is that many invested companies, as I was saying to you who have committed to these initiatives, they don't know how to deliver on those. And I'll give you some numerics here, right to help you understand

this problem. Currently, there's only 7411 companies who have given S BT I, which is the science based target initiative, some kind of a climate ambition or target with a plan, right? Only 7411 globally, there's hundreds and thousands of listed companies let alone unlisted companies. And I would say the majority of the people are not giving S BT this information is because the majority of them don't know how to do it. So why would they commit to it?

So there is a massive massive disconnect between what companies know about climate reduction or carbon reduction and climate action and therefore the commitments they are willing to make. That's the second problem. And the third one is that investors, institutional investors, they now want to have climate impact but they can't find it at scale and with integrity, they can find it in pockets in small private investments and technology, hoping that, you know, they will find a

carbon capture technology over the next 10 years. But hope is not a good strategy when you are dealing with such a global existential issue. So these three problems, my team and I said, ok, how do we help solve for this? And we thought and having spoken to many investors and investing firms over the last seven years and especially the last six years at Pak Pans, what we needed is uh and what we've created under the Gatan coalition is a unique investor invest led

and this is very important. It's investor invest led uh uh grouping of uh or you could say investor investigated uh platform uh for solutions that are practical, financially feasible and tested for decarbonisation and the third player in this coalition, other than the investor in investing are solution providers for decarbonisation. And just like I know for a fact that when I go to and speak to many of my portfolio companies in my global equity strategy who have a net zero target or S BT target.

I'm very happy that they have it. But when I say, show me the plan and show me the suppliers who are going to help you get there and those suppliers can come in many forms, they can come in the form of consultants who are providing them with internal KPs and organizational structures to create this change. It can come in soft technology, software technology or hardware technology and it can also come in the form of policy and research support that they might need for lobbying. Right?

Many of these companies don't have that. And the whole gate coalition is about providing a library of solutions that help decarbonisation and it helps those companies that have already converted by having targets achieve those. And what it, I suppose that another way to look at it is that the Gin Coalition, what it's not, it's not an

initiative with plenty of signatories but no solutions. It's not a it's not meant to be a consultancy that goes into a company investing company and say, oh by the way, this is your problem because companies who have already got targets in place, they already kind of have to know what their problems are. This is meant to. And this is not also a rating agency that is forcing companies to tick the box and get a rating and therefore claim to have certain climate and then stop

there and say, ok, now it's not our problem. So, so I think for us this is a very practical, it's we envisage this to be a library of climate solutions that investors and investors can tap into to get practical, financially feasible and tested decarbonisation solution. So we can address this problem as soon as possible.

And from speaking with them, we already have a, a list of, let's say solutions that providers that we believe that should be able to help the companies and the investing companies who want to, who have, who want to deliver on their carbon ambitions, if not at a faster pace and at a bigger scale as well. So this coalition of investors, investors and solution providers is going

to grow over time. We have intentionally uh we intentionally have planned for the Gatan Coalition to go grow in three different phases because we want to do the test case in phase one, which is a very Asia Pacific centric because we are based here with the view that in phase two and three Giton coalition investor members, investing members and solution that providers by the by phase three will be global in nature. Therefore,

have an impact. I I if I may add one more thing that makes this Gigatons coalition different from most other dare I say, initiatives or platforms and all the rest is that it in itself has put on itself. I gat to 1 billion ton carbon emissions saving uh target for the next decade in phase one. because to us, uh we want to put the onus on the secretariat of the Gatan Coalition that are you truly delivering, helping invest investors who bring their investing companies to find solutions?

Are you truly contributing to that and contributing in an impact sense? Are you helping bend the curve for them? Because if you're not helping them bend the curve and then you're not really adding any value, right? So that's another place where the Gatan Coalition in our view is very unique. It helps bend the curve and it has to prove its own utility.

and it's an urgency thing as well. You know, if we spend a lot of time and energy just trying to convert the unconverted, what about the converted, being able to deliver that to us is, is a bigger opportunity and a challenge. It's easy to get someone to say, ok, I will commit to a 2050 target. Thank you. Now leave me alone and I come back in 30 in 20 years time, right? But it's harder to actually say to someone you've converted, you've given these targets. Now let's have a discussion and

then see how we can help you. So we are not going to force or judge people for their targets. Yes, the companies that we have selected are pretty ambitious in what they want to do, but we want to make sure they actually deliver on that and if not deliver at a faster and bigger pace. So I think uh you know, impact, I always say impact is in the eye of the beholder for some people very much. So what you're saying there's more impact in converting someone who doesn't believe

in this, to believing in it. The others like myself is like, I'm very much a practical person, I'm saying, OK, you know what? Even though if, if the metric of believers is that they are BT let's say, approved with their targets. Our global equity strategy portfolio has 78% of our portfolio has S BT I approved or committed targets. When I go and speak to all those portfolio companies, I would say only a handful of them actually have a legitimate

plan on getting there. And this is a reality on the ground which any investor or any investing will tell you that having a target. It doesn't mean that the game is over. It's how do you get there

going in that sector. Uh Do you worry that these sort of uh mans sort of crowd out investment away from uh climate related investment or the stock market is still being um sort of justifiably sort of, or rather it is so rewarding companies that are doing adjustment to their climate goals or is the focus all on who's got a I in their name? And should we just put money in them?

you know, big thing has, has decreased, right? Uh Prime example is look at evs, right? Uh EVs have taken a massive hit at the same time 1218 months ago, hydrogen lost its uh you know, can I say the word sexiness? Uh uh you know, it did, right? So there, there are pockets of environmental investing that will become relevant, irrelevant for investors. Uh And that, that happens over time. I mean, I've seen this over 30 years

of investing. Uh I don't think the environmental genie can be put back in the bottle that's not going away. Uh Now, yes, there's going to be sectors within the environment where for a while they might become the hot topic and everyone sort of gravitates to that and the money just flows and the media forces that sort of money towards that. But I think uh on the ground industrial policies are moving in the right direction whereby companies who are delivering decarbonisation solutions.

And as we spoke last time, as and when carbon pricing becomes also a lot more firmer and impactful for companies and their profitability, investors will see through that. So I think I'm not worried that A I is taking away all the money from environment. I think the hot money will always flow from one place to another. Then the kind of money that my team and I are focused on is not your hot money. That is just

looking for a quick buck. We are looking for investors impact investors, climate, impact investors who want impact at scale and with integrity and our focus on listed equity space. And I think that that is still at a very early, early, early stage,

name it right. There's all these things and then I'm the CIO and I've been given the mandate now you convert your portfolio. Now, my portfolio is very broad wide and for me to achieve that, I need to start moving as many levers as I can, right? Uh and one of the biggest levers and one of the biggest asset classes for any institutional investor or CIO is their listed equity space. And up until now, most people have just ignored the

potential for decarbonisation in their listed equity space. And this is where the Paki team has it as their mission is to show and, and bring to uh the CIO s of this world that listed equities. You can have climate impact with integrity there. Our new strategy which is 2.5 years in the making and third iteration of the Asian Environmental Action Fund that I first sort of spoke to you about uh in 2022.

It in our, in our view and our belief is that it comes as close to being a genuine impact investment in the climate space with all the credentials that is needed for an impact investment. And the gatun coalition,

by the way, is a big part of that. It's the Gig Aon coalition and the strategy is very much in line and it goes back to sorry, why would an investor want to do that is because an investor wants to decarbonize their portfolio companies and the biggest part of their portfolio companies uh sorry of their portfolio is listed equities, a fairly big part. But within that the scope of decarbonising and therefore moving

the needle of your oil portfolio is massive. And as I shared with you last time we spoke one company in Japan has scope three of about 400 million tons, two companies. And to put it in perspective, Australia's carbon emission as a country is about 550 million tons per year, right? So one Japanese company almost makes that two companies put together in Japan have scope 123 greater

than all of Australia, right? For one year. So if if these companies are in your portfolio and you help them decarbonize and your whole portfolios, uh sort of carbon emission numbers become better, the chances are you're going to achieve your overall portfolio goals. So that's for why investors would join, why would invests join, right? These are companies, right? And and this is a very, very important topic. Many people have said, why would a big listed company talk to

a gig to coalition? First and foremost, we're not an initiative which is forcing a carbon or a climate target down their throat. We're saying to them, you already have a carbon target. We are here, you are, your investor has brought you to the Gigatons Coalition and we are here to help you solve for the challenges that you have. You tell us what your challenges are right? We are going to provide you various options

solutions for that decarbonisation challenge. And from a management perspective, if the management of the board of a company know that an investor has brought a few climate solutions to them, I think they will listen to that climate solution a lot, a lot more proactively than uh you know, if it was just coming from the sustainability team, that's, that's the first thing internally, an investor bringing a solution has a lot more impact than if the sustainability internally is telling

them to do that. I think it's also the name and fame part of it being part of a coalition and being supported by other investors becomes a sort of almost like a badge of honor for some people as well. So that's where the investing companies should come on board and take these solutions in a proactive way. And, and the last one is why would solution members come to it? It's a commercial arrangement. The Gatton coalition is only a matchmaker at

the end of the day. The companies are going to have to say, OK, is this consult going to help me I'm going to pay for it. Is this solution software gonna help me I'll pay for it. Is this hardware going to help me I'll pay for it. Is this research going to help me I'll pay for it. So it's, we're not, it's not meant to be for free. The, the, the, the solution providers they are going to have at their disposal companies that are converted companies that have investors,

taking them to them. And they will also have investors who potentially could be investing in some of these solution providers because they see that they're growing in size and scale. So I think it's a win, win, win for all members of the coalition.

Pacific focused. Secondly, the Gig Aon, meaning that it is going to invest in companies with a view and with an ambition that it will deliver at least at least 1 billion tons of cumulative savings over the next decade. That's at least if not higher. And that is the focus of this impact fund. Now, this is where I think I need to be also for the viewers.

One thing that we have been sharing with our uh investor, institutional investor partners is that there is a thing called climate conscious strategies, which is majority of the strategies currently. And then there's a climate impact strategy and and the difference being climate conscious strategy are strategies where risk return are still the number one priority. Uh And but the portfolio is creating in a way where it has certain climate goals, Guard rails.

As you asked me a question, would you buy in a company that is a fossil fuel but is expanding but not doing this or doing that? Those guard rails as long as their climate, everyone will have their own climate, guard rails and therefore climate goals that becomes a climate conscious strategy. And even some of the very thematic climate strategies out there come within that because they still focus on risk of return. But then you have a smaller but growing focus on

what we call pure climate impact, right? This is where these are, you could say concessionary strategies where financial returns are expected. But the first priority is can

they deliver carbon outcomes that the investor wants? And as I said to you in the listed equity space, many people have not been able to create this because the rules around impact investing that have been now put in place by developmental financial institutions over the last four decades, even, you know, uh uh uh uh various foundations like the Bill and Melinda Gates Foundation Ford Foundation, all these folks who have been doing impact investing for

decades now, they have very, they are very well established now, rules on what is impact investing and not many people have been able to put the put those, let's say uh rules and frameworks in place and deploy them in the listen equity space. And when we embarked on this ambition to bring to our institutional investors, a climate impact strategy as genuine as

you can get to impact investors requirements. Gigatons Coalition was the missing element that we had to create because the Gigatons Coalition, what it does, it proves to investors that what they brought to the table was not just financial capital, but some kind of add on contribution that helped their investing companies bend the curve which I talked about earlier. So the Gig Aon Fund and the Asian Gigatons Fund and the Asian and the sorry, the Gigatons coalition

have a symbiotic relationship. They sort of kind of help each other support each other and especially in phase one, the Asian Gigatons Fund is the sponsor of the Gigatons Coalition. In phase two, we expect other investors to come in and use the Gigatons Coalition. And in phase three of the Gigatons Coalition, we expect Panahi partners and the Asian Gigatons Fund to be just another investor utilizing the Library of Solutions because we want the

Gigatons Coalition to become an open source solutions platform. But phase one, the Asian Gigatons Fund is basically uh the, you know, supporting and growing the Gigatons coalition if I may now for the gat to fund the Asian one. And these are some interesting numbers. Again, the the Panache team has identified 585 listed companies in Asia Pacific. Their total scope 123 is about 18 billion tons per annum. That is 35 to 40% of

global emissions. 585 companies, these 585 companies have given us targets of reducing about 4.5 billion tons of that 18 over the next decade or so. So for us as an investor in listed equity space, uh now having the Gatan Coalition in place, we can go and identify a smaller subset of these companies and say, OK, we're going to invest in you. The Gatan Coalition is going to provide a whole uh solution set of options for you to choose from to help you uh expand your

uh decarbonisation plans. And that's how the gigatons Coalition and the Gigatons Fund operates and works. So that's the, that's the relationship, that's the size and scale of what we think. Both the Gigatons Fund, Asian Gigatons Fund and the Gigatons Coalition can have a climate impact. And that's why I get so excited uh because this is sitting right underneath uh under our noses and, and, and we just need to have a solution and a platform to sort of catalyze all these sort of impacts

should be in the coalition. Secondly, that the Asian Gigatons Fund is up and running and we have deployed a lot of the capital in companies and we're engaging with them and on track to start contributing to what their impact is.

And I would say we are in talks to expand the Gatan Coalition into phase two, which is where investors who are our founding investors in the Gigatons Fund, Asian Gigatons Fund, they can bring their portfolio companies from outside of the Gigatons Fund into the coalition because the solution sets that we have provided and shown are actually working. They are practical, they're financially feasible and they are tested.

And so so therefore we get a broader, we, we, we, we can give an ambition for a greater than multi gat to of uh contribution from the Gigatons Coalition. So that's my sort of ambition uh for uh and, and you know, I'd be very happy if in 18 months time, uh I was ticking those three boxes.