Episode 104: Mark Lewis, BNP Paribas Asset Management
Today's guest is Mark Lewis, Global Head of Sustainability Research at BNP Paribas Asset Management (BNPP AM).
BNPP AM is a global investment firm with approximately 400 billion euros under management. Mark oversees a team of analysts that, among many other responsibilities, evaluates companies and prospective investments as it relates to their sustainability. Their analysis, which measures a company’s performance according to Environmental, Social and Governance (ESG) metrics, amounts to a rating which the firm assigns to every investment. Inherent with this score is the belief that companies that have a higher ESG rating will perform better over the long term than those with a lower score, ultimately delivering greater returns for the firm’s clients.
We cover a lot in this episode, including the history and current status of SRI and ESG investing. The difference between the two, the difference between dedicated ESG funds, and incorporating ESG principles across the whole suite of investment offerings. We also have a great discussion about the path forward with the clean energy transition, ESG's role in that process and how people like you and I can help.
Enjoy the show!
You can find me on Twitter @jjacobs22 (me), @mcjpod (podcast) or @mcjcollective (company). You can reach us via email at info@mcjcollective.com, where we encourage you to share your feedback on episodes and suggestions for future topics or guests.
In today's episode, we cover:
The focus and work of BNP Paribas Asset Management
Mark’s role in sustainability research
Sectors of focus for Mark’s team
How ESG is used as a lens to analyze different sectors
BNP Paribas Asset Management’s track record of Social Responsibility Investing
Asset management industry’s shifting focus into more SRI and ESG investments
The thesis that ESG investing will yield a greater return over the long term
How his firm has applied ESG into how the firm and fund managers operate
His firm’s ESG asset rating assigned to companies
How his firm balances return objectives, values, and sustainability considerations
The stigma around ESG
Reasons why ESG leads to better performing companies
Mark’s journey to sustainability-focused asset management
How clients are a major driver behind sustainability investing
Mark’s view on engaging with non-sustainable companies vs. divesting
Comparing the global economic toll brought on by COVID-19 with climate change threats
The need to make the world more resilient and adaptable to climate change
The opportunity around energy storage
How individuals should think of their own habits and behavior as it relates to climate change
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Jason Jacobs: Hello everyone. This is Jason Jacobs, and welcome to My Climate Journey. This show follows my journey to interview a wide range of guests to better understand and make sense of the formidable problem of climate change and try to figure out how people like you and I can help.
Today's guest is Mark Lewis, Global Head of Sustainability Research at BNP Paribas Asset Management, a global investment manager with about 400 billion euros under management. We cover a lot in this episode, including the history and current status of SRI and ESG investing. The difference between the two, the difference between dedicated ESG funds and incorporating ESG principles across the whole suite of investment offerings.
We talk about balancing sustainability objectives with return objectives and how BNP Paribas manages that tension. We talk about how clients are a major driver behind sustainability investing. We also have a great discussion about the path forward with the clean energy transition, ESG's role in that process. What else matters in that transition and how people like you and I can help.
Mark Lewis, welcome to the show.
Mark Lewis: Thank you, Jason. Pleasure to be with you.
Jason Jacobs: I'm so appreciative for you making the time, especially in this crazy time. Although it is a crazy time externally, but I don't know if given that we're sequestered here, I probably have more free time.
I don't know about you.
Mark Lewis: Yeah, I think that's true. I mean, I think, I think we're all learning to live our lives a little differently. And certainly my agenda has freed up a few things I spend, normally, I'm traveling a lot, I'm speaking at conferences a lot, and obviously all of that has been shut down, so it does give me more time to think.
And that's a good thing.
Jason Jacobs: So I don't know if you saw, but I did an episode with Kingsmill Bond a few weeks ago.
Mark Lewis: Right. My former colleague.
Jason Jacobs: So you guys overlapped at Carbon Tracker?
Mark Lewis: We did, yeah. Yeah.
Jason Jacobs: Yeah. I'm excited to get your perspective too. It seems like there's probably going to be some overlap in thinking, but, but also you've kind of come at it from some different places as well, so maybe, maybe some distinction.
So this is, this shouldn't be like a Marc versus Kingsmill discussion.
We pretty much agree on everything.
Well, maybe for starters, let's just take things from the top. So BNP Paribas asset management, right? What do you guys do?
Mark Lewis: Okay, so we manage, we manage about 440 billion euros. So I guess, you know, getting on for $500 billion of assets on behalf of clients that runs across the entire range of different asset classes, equities, fixed income, infrastructure, private debt, you name it. And my role within this large organization is I'm the global head of sustainability research. So we have a team of sustainability specialists, 25 people on the research side.
I head up a team of 10 people, nine 10 people, analysts who are specialists in their respective sectors, but specialists from a sustainability point of view, rather than from a purely financial point of view. So I think that's the key thing. We have analysts who've spent their careers or a large portion of their career becoming specialists in different sectors, but always from an ESG or sustainability point of view.
So it's been an area that's been attracting increasing attention for some time. But I would say in the last two years, sustainability investing has absolutely exploded. So there is a huge growth of interest in this topic, and we're seeing all the major asset managers around the world, frankly, not just in Europe, Europe is the leader on this, but globally, massive interest in this space.
So very exciting time to be in the middle of it all.
Jason Jacobs: I'm curious. So those nine people, how do you break down the sectors in sustainability? It's not a quiz, so if you're, if you don't know all of them by heart, that's okay.
Mark Lewis: Certainly what we try, and obviously we try and keep the sectors for which different analysts have responsibility, thematically linked.
So for example, one of my colleagues is responsible for covering all the energy sectors. That would be oil and gas. It would be a utility sector, would be mining metals, the mining sector. Another colleague of mine covers all the different financial sectors. Another colleague looks at the more industrial type sectors, so we really try and keep the overlap as much as possible between different sectors so that the topics, because sustainability is obviously a very, very wide ranging topic. My own area of expertise is climate change. Over the last 15 years, I've really looked for the last, for the last 15 years, I've spent my own career focusing on the overlap between energy markets and climate change, and in the same way with the same logic, we really try and get our ESG analysts to build up an expertise across a number of sectors, but clearly the more of an overlap there is, the better. So the logic, for example, just to take the obvious example, the logic for getting, having the same analysts cover oil and gas, metals and mining and utilities, is that the carbon climate change issue is the most important issue for those sectors from a sustainability point of view.
So if you think about sustainability from an investment perspective, we talk about ESG, "E" for environment, "S" for social and "G" for governance, and clearly between these different sectors, there will be varying degrees of importance attached to each of those E S and G pillars and in the energy, all of the energy sectors it's really, at this point in time, it's really all about the environment and it's in particular about climate change, right. If you think of some other sectors like the banking sector and financial services industry, you're probably going to be more interested in governance issues that they've got good controls in place and so on.
So that's the logic for the way in which we get our analysts to focus on different sectors.
Jason Jacobs: So is your team then focused on the "E," only?
Mark Lewis: No. No, not at all. I mean, as I say, I would describe it this way that the analyst who covers the energy sectors, so oil and gas, metals and mining and utilities will spend an awful lot of his time.
On the E pillar cause the E pillar is going to be the main driver of of sustainability linked tissues in those sectors. I mean, right now, and this has been the case for the last four or five years, if you're operating in the energy industry in almost any part of the energy industry, then you've been under a lot of pressure around the topic of climate change and reducing your emissions and that pressure is only growing.
There are certainly other topics that that my energy analyst has to look at. You know, there are social issues around mining for examples, huge social issues, safety issues, for example, which would come under the S pillar. And there are governance issues for all companies in any sector around the world.
So GE is always a big part of the focus. But, for energy companies, absolutely. Environment and climate change would be the main focus.
Jason Jacobs: So I'll try asking the question a different way just because I want to make sure that I understand it and for clarity for listeners as well. So, so it's a sustainability focused team, right?
Is it an ESG focused team or though, I mean, are there, is the term ESG and sustainability, are they synonyms?
Mark Lewis: Yeah, pretty much I would say yes. You know, if we really want to get into the terminology just for a couple of minutes, because it's interesting to give the historical context here. I would say until really very recently.
So when I was on the sell side of the investment industry, rather than the buy side as I am now, you know, sell side being the investment banking analyst to produce research and quote unquote sell it into the asset management industry. ESG as a name wasn't really the first name. It was "SRI": "Socially Responsible Investing" was, was the first term.
And SRI investing is really, this is a self-selecting category of investors who, when they are looking to invest money are of course looking for the best financial return they can get. But within the parameters of certain values that for them are very important. So in other words, so let me explain it more concretely.
Of the 440 billion euros that we have under management. Okay. 40 billion of that is in what we call our dedicated SRI funds in any case. We have been offering SRI funds, socially responsible investing funds to our clients. I think since 2006
Jason Jacobs: And these are not ESG or is that term interchangeable?
Mark Lewis: This is the point I'm getting to because it's a really crucial point that you've raised here.
So my point there would be that investors who invest in those kinds of funds are really looking to align their values with their investments. Okay. So I'm not saying they don't want the best financial return possible. They do, but they want that return within certain parameters that may be mainstream investors are not so concerned about.
Right. So there's very definitely an ethical dimension to the way those people invest. And as I say, that's already about 10% of our entire asset based on the management. Now. What's been happening in the asset management industry for the last, I would say five years with increased, and this has been accelerating very rapidly in the last two years, is that more and more of the focus is around how do we integrate sustainability issues not only into these dedicated SRI funds, but into all of the funds we have under management. So the challenge for us now, what we are actually in the process of doing is integrating ESG. And that's where, if you like, the terminology is changing in to all of our investment offering. So every single fund that we offer by the end of this year.
So all of our clients will integrate sustainability issues or ESG issues into those portfolios. That will be a score, an ESG score for every company that in our investible universe, in the SRI funds, there's probably a, an investible universe of about 3000 companies. Obviously, if you open it up to our entire asset base, there are 14,000 companies that are in notionally investible for our entire asset base, and the challenge now is for us to give a sustainability score to all of those companies. Here's the crucial point. The crucial point, Jason, is that we're going beyond values based investing here. What we're saying as the mainstream asset manager is we think that if you take into account statements, the sustainability issues in your investment choices, whether the client cares about sustainability issues or not. We think it's in the best interest of the client to take that dimension into account because we think that over the long term, you will get a better return by investing in companies that have over the long run, a more favorable sustainability profile than companies that do not, and I think this is the trend in the asset management industry now where we're really moving beyond values based investing that will remain.
Of course, there are going to be people who will be very strict in the parameters that they set within which they are comfortable to invest. But what we're saying is anybody who wants to invest in any of our funds in the future will be investing with us. In a firm that all will be entrusting their assets to us as a firm that believes in the alpha generation capability of sustainability, linked investing in others.
We just think if a company has a good ESG score, it's likely to perform better financially over the longterm than a company that has a weaker ESG score.
Jason Jacobs: So do you expect your clients to judge you strictly on returns relative to the benchmarks, or are there other metrics that matter that more speaks to this mission that you're describing?
Mark Lewis: No, I mean, absolutely. That's what it's all about. What the entire purpose of this whole push is to say, we think taking sustainability into account in your portfolio will give you better returns over the long run. So it's, it's values neutral in that sense. We just think it will give you a better financial performance.
But, clearly, we think that as responsible, we very much view ourselves as a longterm based investor, that that takes our responsibilities towards society very seriously that it happens to align with our values as an asset manager. But we also think it will give a better return to our clients over the long run.
So there is an alignment of values between our sustainability strategy as an institution and the product offering we're giving to our clients.
Jason Jacobs: And what does it mean for a company to take sustainability into account? And, and I guess a second part to that question is, I would imagine that sometimes there are things they could do from a sustainability standpoint that are not actually good for business, but are good for the environment. So, are those things always aligned or or are you just going with like the greenest thing that you can do that happens to be the best thing for, for business?
Mark Lewis: Well, I think it's, you know, it's, it's actually, there is an entire industry out there. Called, you know, the data provision industry for sustainability. So companies like Sustainalytics, MSCI, True Cost, these are all companies that have spent the last 15-20 years building up databases on the sustainability indicators for different sectors and different companies within those sectors and assigning scores to those companies.
So again, the fundamental philosophical assumption is that companies that score higher on those metrics will do better over the long run, whether to your specific question. In some cases, there is a short term misalignment. I don't know. Trying to think of an example off the top of my head, which would satisfy your question, let's say of a company that is not subj...
It's in a jurisdiction where it is not itself subject to any carbon pricing. Let's say it produces a lot of CO2 emissions, but it is in a jurisdiction currently where there is no price on emissions. You might think rationally. They would be penalized by the financial markets if they spend more than their peer group investing in emissions reduction technology, because that would be capex that they could be spending on their underlying products.
Right. I think this goes to the heart of your question. In reality, what we would say is they would get a higher score because they were taking the environment into account in a way that their peer group were not. And over the long term, our argument would be, and all the more so now that they will reap a return from that because they will get a first mover of benefit advantage when the pricing in all likelihood does come at some point.
So there may be short term misalignments of the kind you're talking about. But our fundamental belief. Is that over the longterm companies that do the right thing from a sustainability perspective will out perform their peer group over the long run.
Jason Jacobs: Are you essentially saying that every fund that the firm offers is an ESG fund by definition?
Mark Lewis: No, I wouldn't. I wouldn't go that far. No, because then I think you're back to the, I mean, this whole question of definitions and taxonomy is a very hot emerging topic in itself and, and there will be more and more regulation around that. What I'm saying is that that's, that's going back to the SRI funds.
Those are the pure, the pure offering, if you like, where there is clearly...
Jason Jacobs: And those will stay?
Mark Lewis: Because the investors that the self selecting group of investors, I would say, who are very concerned about aligning their values with their investments. That's a separate category of investors from the mainstream.
Even though there is ever rising consciousness around all of these topics, ES&G ultimately at the moment, it is still the case that most people just want to see the best return possible.
Jason Jacobs: So ESG funds are concessionary from a returns stand point. I think that's what I'm hearing?
Mark Lewis: Sorry, what do you mean exactly?
Jason Jacobs: So if you invest in ESG funds, one should expect that they will not perform as well.
Mark Lewis: No, I didn't say that. I didn't say that. I'm saying that SRI, and let's be clear again, we're talking here now about what I call the SRI funds, where people definitely are investing on our values and we make tougher. The criteria for those funds are much tougher.
You know, we will exclude certain kinds of companies. That perform poorly there from our investment universe. That's one of the reasons why the investment universe is smaller for SRI funds than it is for our mainstream funds. I guess what I'm saying is that this is the sense in which we're integrating it in a mainstream way.
So to your point, I would say that is a very important point. Am I saying by definition all of our funds are ESG funds? I'm not going that far. I wouldn't make that statement. What I would say is often managers in the future are going to be judged not only on their financial performance, but on how well their fund performance from an ESG point of view when compared against the benchmark.
In other words, we will be assigning an ESG score to the benchmark and we'll be assigning an ESG score to every company, and the benchmark obviously ultimately reflects. The weightings of the companies in there, and every fund manager will have to show that their portfolio of stocks at any given point in time has a better ESG score than the benchmark.
And they will also have to show, by the way, that the carbon footprint. Is lower than the carbon footprint of the benchmark. So that's the way in which we are saying we're integrating ESG into all of our funds. That is not the same thing as saying all of these funds are by definition, ESG funds, because that's, you know, ultimately that's for the regulators to decide where the definition is drawn of what constitutes an ESG fund and what does not.
But clearly you can see that it already involves a high degree. A high degree of coordination between us as the sustainability analysts and the portfolio managers.
Jason Jacobs: So why do you think ESP gets such a bad rap? Like what are the critics say and what and why?
Mark Lewis: You know, that question begs another question, which is what is the bad rap you're referring to?
I mean, it's, it's a very broad topic. I mean, I think you have to separate the name ESG from the broader concept of greenwashing, if that's what your question is getting at.
Jason Jacobs: Well, so, so there's two different scenarios. One scenario that I've, that I hear, and I mean, I'm just in the cheap seats, right? That's why we're having this discussion is because I don't know and I want to learn, but one thing I hear is, Hey, you know, what should I do with my 401k in order to align it with my values.
And then the answer is just put it in funds that are aligned with your values. Check out ESG. Right? Right. So that's kind of one side. And then another side is, Oh, I mean ESG means well, but it doesn't actually deliver either. Either it's, it doesn't return or it's, it doesn't actually return in terms of doing good.
Like, did you know that fossil fuel or. I don't even know what the objections are. I just know that there's a, there's a contingent of the traditional investment management world that doesn't seem to take ESG seriously. And I don't know why that is.
Mark Lewis: Right. Okay. So there's a couple of issues in there with your question.
So I think, let's take the first one. The idea that ESG shouldn't have anything to do with a mainstream investment portfolio and that all you should be concerned about is your return. I mean, I think there, look, there simply isn't enough longterm back-testing academic research on this topic to be able to form a clear judgment on that, but very clearly, obviously from everything I've already been saying on this, in this conversation, we take the very strong view that integrating sustainability will improve performance over time. At the end of the day will be for the market to judge. But if you look at, and of course there's a, there's a kind of transatlantic divide going on here as well, Jason, in the sense that Europe is further down the track on this already than the United States and North America.
But what you're seeing in Europe is a huge flow of funds into ESG and ESG themed funds. I mean, another. Another dimension to this sustainability investing topic is the rise of sematic funds. You know, water funds, low carbon funds, lots of you know, ideas around this, different thematic funds that have emerged.
And at the end of the day, the market will judge, you know who's right, but our strong belief is that integrating issues that can have a clearly can have a financial impact. It's simply not true to say that taking the environment into the account into account can't help your financial performance. When increasingly around the world, regulators are looking at environmental impacts.
And carbon emissions in particular, but the way you, the way you use water, if you're more efficient in your management of water, that can have an impact on the bottom line. I mean, we're not doing this for fun. You know, we're not integrating ESG issues into our portfolios just because we think it's the right thing to do.
Even though we happen to think it is the right thing to do, we're doing it also because we think it will improve financial performance. A company that's, that's doing more and is thinking harder about how it manages the inputs, the water and how it deals with the outputs, the waste of manufacturing a product.
For us is likely to have a better grip on, on the fundamentals as well. But very clearly, if you're more efficient in the way you use your resources, and therefore, if you're thinking about your impact on the environment, there will be clear financial benefits from that as well. So that, I guess is the point, right?
This is, this is something that we think can have a clear financial impact. Companies that are looking to reduce their carbon emissions over the long term ultimately are going to reap a financial benefit from that, and they're certainly going to read the reputational benefit from that.
Jason Jacobs: And do you think ESG as it is currently set up?
So putting aside returns for a minute, does it actually fulfill the promise as it relates to mission?
Mark Lewis: Yeah, so that's the second question you raised. I mean, I think this goes into the much broader question and we would need a whole other conversation just on that one question to do it justice. This is, this is then the whole topic of greenwashing right.
Which is a danger. I mean, clearly the more that ESG goes mainstream, the greater the focus will be, or the greater the risk that that some people using it as a marketing opportunity rather than really going into depth in the subject themselves. So clearly, I wouldn't for a minute, dismiss the risk around greenwashing as ESG becomes more of an established feature of the investment, the asset management industry landscape.
However. Again, the companies that do the hard work and think about this hard and do it holistically. So the way we do it, for example, I can't speak for other companies, but the way we do it is I've mentioned we've, we've talked a lot about how we approach this from the research side and that I lead a team of analysts that are sector specialists and look at it on the research side, but the research and the integration of our research rankings of companies is only one part of what we do as a sustainability team. We also have a very strong stewardship focus, so we have specialists who effectively spend all day every day engaging with companies and thinking about how to engage with companies to get companies to, to do the right things around a lot of the topics that we care about.
And we take our voting responsibilities very seriously. You know, we put a lot of time and effort into engaging with companies and then voting at their annual general meeting. So we want to be engaged owners of companies and engaged investors in companies rather than simply passive investors who are going to vote through whatever management proposes at the annual general meeting.
So it's all of one piece. And, and the, I think the asset managers that can prove that they are integrating not only integrating ESG considerations into their investment decisions, but are also integrating ESG into the way they themselves, they comport themselves across. All of that activities are the ones in the future that people would say, well, they are walking the walk as well as talking the talk.
Jason Jacobs: So who is the customer for the research that your team produces? Is it internal, external, or both?
Mark Lewis: It's a bit of both, obviously, but I mean, first and foremost, because it's for the portfolio managers that are managing the portfolios, they need to get our views. So that's, that's our primary audience. At the same time, I think where we think we have something interesting and important to say for the entire industry. We are very keen to get that message out. And I, my, I myself, last year, for example, publish an in depth research report called Wells Wires and Wheels, which was really a deep dive analysis of the improving economics of, of renewable energy compared with oil. And I think that the conclusion that over the longterm, the oil price will have to fall to $10 a barrel in order for gasoline to remain competitive with renewable electricity in tandem with electric vehicles.
And when I say long term, it's like 10, 15 years. And for other reasons, but here we are nine months later and the oil price has got down to $20 we're not a million miles away from $10 a barrel, right? I mean, we're in a, we're in a very rural town, but my point is where we have ideas that we think deserve a wider audience.
We certainly look to publish white papers as well. And as a former sell side analyst, I see that very much as part of my job. To get these ideas out into the public domain and then in front of a wider audience.
Jason Jacobs: Is there a progression in terms of the criteria that your portfolio managers are using to kind of live these values across the portfolio?
Is there like a small, well-defined entry point and then they have a more DISA, you know, like a more comprehensive purview over time in this regard? Or is it more like what you see is what you get in? As long as we stay disciplined over time, then we'll live that day in and day out and we already are.
Mark Lewis: Yeah, I think it's more the latter. I mean, I think, you know, we generally have, you know, one of the interesting things to me as someone who's been looking at the interface between energy markets and environment. Climate change in particular for 15 years now, I've been doing this kind of, as long as the topic has been around, right.
I mean, and that's because I was a mainstream analyst. I mean, I was, I was an energy analyst that was covering utilities and a lot of people would say utilities, very boring industry, very technical industry. And I might agree with you on some aspects of that. But the interesting thing about the utility industry is power generation because of the CO2.
It's the largest carbon dioxide emitting industry in the world. And so in Europe, a carbon market was introduced as early as 2005 and that impacted the utility industry more than any other industry. So I became very interested in the dynamics of carbon pricing. Wrote a lot about that. At the time I was working for Deutsche bank and they expanded very aggressively into commodities trading.
And so I found myself working in a about as mainstream unreformed kind of old school market environment as you could think of. Commodity traders are not known generally for their politics and finesse and for creeping sustainability into their everyday thinking. But because the great thing was because we were talking about a commodity carbon emissions that had a price.
It became the same as trading oil or trading copper or trading gold, right? You put a price on carbon emissions, however abstract that might sound, it becomes a tradable instrument. Just like anything else. And a ton of CO2, is, is from a financial trading point of view. The same thing as a barrel of oil.
It's got a got a dollar price. You can buy it and sell it. There's a forward market in it, you know, and, and it takes this whole climate change dimension out of the equation, because don't forget, in 2005 that was the very climate change was still a very, very hotly debated issue, let's say from the science of it.
And it still is in some quarters, but thankfully not, not in Europe anymore, but my point would be this, that, so I, I've kind of followed this trajectory where the sustainability dimension has been at the core all along, but it's also been a very neutral thing because if you can put a price on something, if you can quantify it, you neutralize the issue from a, from this whole argument you mentioned earlier about the school of thought, which says sustainability shouldn't really be taken into account.
It's all about the hard dollars. Well, this is about the hard dollars because there's a price on carbon emissions in the context of the European carbon market. But, to come back to the, to the question you, you, you were just raising. The reason I give that background, so the following reason, you say, do we live these values day in and day out? I perhaps the biggest surprise, and it was a very pleasant surprise to me. Coming from a very mainstream background, including, you know, the rawest of red meat, kind of financial markets and commodities. I was very impressed by the extent to which the portfolio managers at BNP Paribas and management had already developed this kind of mindset. So I would say we, we, we do in our thinking, we are thinking about this on a day to day basis. It might be a European thing as well, although we have a great team in Boston, you know, that are very focused on, on ESG as well.
Jason Jacobs: And how do you guys think about divestment, if at all?
Mark Lewis: Well, look, I mean, I've always been, okay, so let me give you my personal view and then tell you how we think about it. My personal view is, I know this has been a theme that's been around for a long time, the sort of division between engagement and divestment. And to me, I don't take a kind of theological view on this.
I think the complimentary approach is, I think engagement is quite literally the flip side of divestment, because if you have, if the risk of divestment is there. The engagement is going to be all the more powerful. I think so. So divestment to me is always something that is there in the background as a possible option.
If the company you are engaging with does not seem to be willing to move. In the way that you as an investor wants it to move. I think there's a very important role for divestment as a movement. I think, for example, the divest invest movement where you know, that puts pressure on investors and on foundations and universities to divest from their fossil fuel holdings has played a very valuable role generally in the investment landscape because it has forced companies to take these issues seriously and it, and it makes life
uncomfortable for companies and it gives asset managers that are very keen to engage an extra argument. Our approach as a firm is to engage wherever possible initially, and as I mentioned earlier, we have a very strong focus on stewardship. We take that very seriously as long term investors and we try to engage with are the companies we're invested in and some companies that were not invested in that we might want to invest in, in the future to move in the direction that we want to see them moving. And you know, the ultimate sanction is to sell the shares or to sell the bonds if we think that they are not moving after we have been engaged with them over a period of time.
And of course, you know, the trigger for that will be different in different cases, but a bit. But it's there as an option. If companies are not moving in the way that we would like to see them move.
Jason Jacobs: I mean, given what's been happening with COVID-19 where the global economy essentially is more or less shut off, at least for for some period of time, how do you see this playing out?
I mean, when this, when the spigot turns back on, do you, do you see a bunch of the progress we made being displaced by just looking to get us as much infrastructure built as quickly as possible, regardless of of how clean it is?
Mark Lewis: My personal view on that is the more I think about this because obviously.
Everyone's thoughts have been developing at lightning speed over the last two, three weeks. As we adjust to a new reality, the more I think about it, the more confident I become actually, the more optimistic I become that the longterm dimension will be taken into account and the people and governments will view this as an opportunity.
I think there's a couple of reasons for that. Number one, we're all having to change our behavior in the short term and it makes us, we've got the time to think about how we might start thinking, rethinking aspects of our behavior when things go back to normal. You know, am I as somebody who, given the nature of my role, spends a lot of times speaking a lot of conferences quite often in the U S or in Asia, not just in Europe.
Am I going to go back to getting on so many airplanes in the future that, I mean, I think that is one example of a sector where I think there are, there's a real question mark now over whether the aviation sector goes back to where it was before this crisis and the longer, the longer we are in lockdown, obviously the greater the uncertainty about that will be, but the other, the other aspect of this is that it's a fantastic opportunity for governments if you're thinking about where they can put dollars to work. Not only to get people back into the economy quickly once we are out of the lockdown, but how we can make very important longterm infrastructure investment decisions in a way that will at one in the same time, put people back to work, but also provide a more sustainable future for future generations.
I think. I think governments have got an opportunity now to think about that and that, let me put it this way, if I can draw a parallel between the terrible costs. Human costs, health costs, and economic costs that the Corona virus has imposed upon us as a global community, and the increasingly burdensome human and financial costs of climate change, and that will only become greater over time.
The key parallel I would draw between the two. Is around the issue of fragility and resilience. You know what the, what the COVID-19 virus has shown is that as a globalized world, we are more fragile than we thought we were. But it's also shown that as human beings, we are, we can adapt very quickly to new threats when they emerge and we can change our behavior when it emerges.
And you know, the social distancing, for example, is a very good, that goes completely against our social instincts as a social animal, as a species, and yet we're doing it for the greater good, for our own good, but for the greater good as well. And I think that's a key lesson that we could learn going forward to deal with the climate challenge in the future.
That that is also a very big and a longer term threat. To us as a species and the right conclusion to draw in my view it seems, speaking me personally is, is I would say that the key lesson is the fragility that has been revealed by the Corona virus in terms of our public health systems, in terms of economic supply chains, in terms of how much we depend upon one another, that the extent to which we're interconnected means that we should be thinking about being much more resilient for future pandemics.
But the reader read across for the climate change debate is we need the equivalent of social distancing policies in the short run to deal with, with climate change. And the parallel that springs to mind there is carbon pricing. You know, that would be a way of slowing. If you think of the pandemic as manifesting itself in the form of the rate of infection.
We can think about the atmosphere and the amount of carbon dioxide and other greenhouse gases that are in the atmosphere. We can think of that as a kind of atmospheric infection rate, and we need to slow down the rate at which CO2 and other greenhouse gases are being pumped into the atmosphere. And the way we do that is via putting a price on those emissions in the same way that we slow down the infection rate of the Corona virus by implementing social distancing.
Okay. And in both cases, social distancing and carbon pricing, these are policy responses that can slow the rate of infection and ultimately reverse the rate of infection, get it going down again in the right direction. And then. The broader piece is, and this is more related to your question, I guess it's the resilience aspect.
How do we build a greater resilience over the longer term? And that goes more to the longterm kind of infrastructure spending that we could have to make the world more resilient to the impact of climate change that we know will already be happening. Because a lot of the warming future warming is already baked in because of the choices we've made in the past.
So whatever we do from today onwards with regards to climate change, the world will continue to warm. It's just how quickly it will continue to warm and to what degree it will continue to warm that's where the debate is now, but there is definitely going to be further future warming, which is already baked in and we have to become more resilient and that means greater infrastructure spending on adaptation.
To the future climate change that we know will come. So that's a great infrastructure, spending opportunity for governments to think about making our world more resilient to future climate change impacts and providing employment opportunities as well going forward. So I think, you know, there are lessons that can be learned from this, and I'm, I'm actually, the more I think about it, more optimistic that governments and individuals will be able to respond positively to the challenges going forward, because as I say, it's revealed, the coronavirus has revealed fragility, but it has also revealed solidarity and interconnectedness. And I think that's a very positive lesson that we can take away from this.
Jason Jacobs: So if you had a big pot of money, call it a hundred billion dollars.
That was outside of the scope of investible apps, assets for the firm. It was more just a pot that you could allocate towards anything else besides what you guys do to accelerate the clean energy transition, where would you put that money and how would you allocate it?
Mark Lewis: Yeah, I think, you know, for me it's all about energy storage now.
It's really about, as renewables become more and more important to the global energy system. We're going to need more storage and to really solve the problem of climate change, we have to get renewable energy to 70 - 80% of the energy mix globally by 2050 if we're going to do that, we're going to need a massive increase in the energy storage capacity.
So I would be putting as much money as possible into R& D on energy storage and into incentives, you know, subsidies for, for energy storage because the biggest lesson of all that I have learned in the last 15 years following the development of renewable energy in the power sector is that the reason the costs have fallen much more quickly than anybody thought possible is that there's been a virtuous feedback loop at work between the public policy incentives that were put in place in the, in the first instance, and the technology and investment response you get to that. So if you have governments giving subsidies on certain kinds of renewable energy that's attractive for people to come in and put money in there. When the money is put in at scale, you get economies of scale, the cost of the energy comes down, and that makes it easier for governments to set more ambitious targets, again, with with incentives but on a falling slope, declining slope. And again, that leads to a second wave of investment. And then the whole process keeps repeating itself at ever greater speed and with ever greater momentum. And that is why the cost of renewable energy has come down so much. I'm optimistic and confident we can, we can repeat that with energy storage, but it needs to be kickstarted and it needs to be kickstarted now.
And that's what I would do with the notional a hundred billion that you're giving me.
Jason Jacobs: And last question is just for anyone listening who's trying to figure out where to anchor themselves to try to maximize their impact in accelerating this transition, what advice do you have for them?
Mark Lewis: I guess there's two aspects to that question as I would read it.
One is what to do with your money and what to do with your everyday habits, which comes back to the question we were just discussing about the read across from, from the Corona virus and how we can rethink some of our, some of our daily behaviors so that if you take the second part of that question first, I would say, you know, we all need to think more about how many, how many flights we take in the future.
How much meat we consume in our diet, how often we take the car, when we could be taking the public transport or the train, these, these kinds of day to day issues, energy efficiency, how often we leave lights on now. How often we leave, you know, simple changes. I again, I would make the parallel with washing your hands, but coronavirus we all wash our hands every day anyway, but with the Corona virus we're washing our hands more carefully. We're washing them for longer and we're watching them more frequently. It's not a big hardship if it's going to stop the Corona virus spreading, right? So we're all doing that very willingly. In the same way, there are simple changes that you can make to your everyday habits.
Being more conscious about energy efficiency, thinking about the best way of moving from A to B, thinking about the food on your plate and the environmental impact of that. These are all things as well that we can, we can think about more clearly to have a real impact at an individual level. And then, you know, from an investment point of view, it's looking at the investment opportunities that are available that are going to give you back to the very beginning of this conversation, right? It's how can I get the best return, whilst at the same time making the best impact from a sustainability point of view.
And again, you know, that's looking at low carbon investment opportunities. It's looking at investing in companies that take the social dimension of their contract with society seriously. So, you know, how many women have they got in senior positions? You know, the gender diversity part of the equation.
What's the pay ratio between the guy at the top and the average worker in the firm? These kinds of things. Thinking seriously about how companies are integrating these longterm factors into their business model, I think is the way that as an individual investor you can, you can make the best impact.
Jason Jacobs: And what about with someone's time or their profession?
Mark Lewis: Yeah, that's a tough one. I mean, I'm in, that comes down to your individual choice, right? And what you want to do with your life. I wouldn't, I wouldn't venture to offer an opinion on how people should follow their career that you go, you follow your heart and you follow your passion, I guess, and you do whatever you can to make that choice as sustainable as possible.
Jason Jacobs: Anything I didn't ask you Mark, or any parting words for listeners?
Mark Lewis: I think, I think we've covered quite a lot of ground there. Jason. Been pretty intense conversation, which I've enjoyed greatly. I guess. No, I think, I think we've covered everything there. I mean, just prepare for a future where, you know, my parting message would be prepared for a future where sustainability is going to be an increasingly important aspect of investment choices and of the way we live our lives.
I think it's unavoidable, and I think in that sense, again, the lasting impact of the Corona virus once we're through this acute crisis phase, will be all about how can we rethink some of our habits? How can we become less fragile in the future and more resilient across all aspects of the way we live our lives.
Jason Jacobs: Great. Well, I really enjoyed this discussion and thank you so much for coming on the show.
Mark Lewis: It's been my pleasure.
Jason Jacobs: Hey, Everyone. Jason here. Thanks again for joining me on my climate journey. If you'd like to learn more about the journey, you can visit us at my climate journey dot C O note that is dot C O not dot com.
Someday we'll get the.com, but right now dot co. You can also find me on Twitter @jjacobs22 where I would encourage you to share your feedback on the episode or suggestions for future guests you'd like to hear. And before I let you go, if you enjoyed the show, please share an episode with a friend or consider leaving a review on iTunes.
The lawyers made me say that. Thank you.
