This article is the first part of a series on policy driving engagement and investment into climate solutions.
In partnership with Impax Asset Management
The COP 28 meeting in Dubai earlier this month drew lobbyists for the oil and gas industry. A lot of them.
In fact, there were more than 2,400 people representing the interests of the fossil fuel industry at the conference, according to an activist coalition – all of them anxious to grab the ear of the diplomats and policymakers who were meeting to discuss the future of the fight against climate change.
The inclusion of oil and gas lobbyists at COP meetings always draws criticism. And this year’s record numbers underscore the uncomfortable truth that the fossil fuel industry has a lot of money at its disposal, and they aren’t afraid to use it to get in front of government officials to try to ensure that any new laws and regulations are as friendly as possible.
“The clean tech industry is outmanned 100-to-one when it comes to communicating and lobbying,” said Charlie Donovan, senior economic advisor at Impax Asset Management. A growing number of asset managers are working to help counter that, trying to educate government officials about how they feel things should be, and urging their peers to do the same.
“It’s a really interesting time, when you can see that there are investment opportunities that are going to come from the transition,” said Chris Dodwell, head of policy and advocacy at Impax. “Everyone wants a piece of that funding.”
Governments can impact climate policies – and climate investing – in myriad ways, of course. The most recent example is one of the biggest: the U.S. Inflation Reduction Act (IRA), the federal legislation that has already led to nearly $300 billion in announced investments in climate projects, according to a Goldman Sachs analysis, with more still to come.
And as agencies and departments decide on the policies that will dictate how those dollars come to market, managers want to be able to weigh in so they can help design those investment opportunities.
“We will have more things to invest in if the markets grow for climate solutions and environmental solutions,” Dodwell said. “Therefore, talking to policymakers to get them to do more is exactly in our interest.”
What governments are doing for the transition
There are endless other ways governments can impact the energy transition and climate investments, such as the SEC’s work on carbon disclosure rules – something Impax officials have talked to the regulator about. Dodwell himself worked for the government of UK Prime Minister Tony Blair and helped implement a carbon trading system in Europe and in the UK.
And in California, the state issued rules that new heavy-duty trucks must be zero-emission starting in 2024, Alejandra Nunez, deputy assistant administrator for mobile sources, in the U.S. Environmental Protection Agency’s Office of Air and Radiation, noted. “Now all of these startups, funded by venture capital, are starting to emerge there,” she said, “to build charging depots for these heavy-duty trucks.”
Among the many areas that will benefit from the IRA, according to Keith Martin, co-head of projects, U.S., at law firm Norton Rose Fulbright, are hydrogen, sustainable aviation fuels, electric vehicle charging infrastructure, and direct lithium extraction from geothermal brine. Also on that list, according to Marrin, are pumped storage hydropower, renewable natural gas, standalone energy storage, direct air capture and dynamic windows for buildings.
In all of these cases, it’s very much in a manger’s interest to help design the regulations and programs though a form of engagement that’s just as important as the engagement that asset owners do with their portfolio companies. It comes down to “direct engagement with policymakers,” Dodwell said.
Sometimes that means one-on-one conversations with government officials. Or it can mean something like Impax Founder & CEO Ian Simm, who sits on the UK government’s Net-Zero Council, representing the investment industry as the government looks to form the best policies to decarbonize the economy.
Managers and cleantech companies also work through organizations to talk to the government. For instance, US SIF – the Sustainable Investment Forum – has a dedicated public policy arm and states that “engaging policymakers is vital to the continued growth and positive impact of the industry.”
The group’s current policy recommendations include having the SEC improve their in-house sustainability expertise, and improve ESG disclosure rules at multiple federal agencies.
More global is the Glasgow Financial Alliance for Net Zero, the international coalition of financial institutions working to accelerate the decarbonization of economies around the world. Amlog the group’s priorities are “advocating for credible policies and standards to enable net-zero transition across the globe.”
Two-way street
Even as asset managers and other financial services firms talk to government agencies and officials, both sides recognize that it’s a two-way street, with governments often wanting to listen to those experts as well. “What we want to understand is how we can design programs in a way that crowds in more private capital,” Nunez said.
Indeed, “The policymakers themselves really want to understand what makes an investment bankable,” Dodwell said. “We want to reach those tipping point moments where you’ve designed your policy framework, you’ve identified the problem, you’ve got a shared vision, you bring together the stakeholders and you identify a solution. That’s when the money’s going to come.”
Interest in this kind of engagement is rising among all parties.
“It’s been quite remarkable, the level of interest that we’ve had in working on policy and also in the pull that I’ve had from policymakers to come and talk,” Dodwell said. “It just feels like there’s now much more incentive for policymakers, for investors to get more involved in that process.”
Asset owners are also encouraging their managers, and their portfolio companies, to engage around policy issues.
“I’m seeing a different engagement agenda,” said Kirsten Snow Spalding, vice president of the Ceres Investor Network. “Some of our biggest asset owners are just beginning to ask their companies, ‘How are you taking advantage of the IRA? How are you weighing in on the regulations or the policies so that you’ll really be ready to step into those opportunities?’”
Dodwell said much the same. “I’m seeing policy advocacy start to appear much more in asset owners’ expectations of their asset managers,” he said.
Still, asset managers have a fiduciary duty to their clients, which means they can only go so far when it comes to lobbying. “We can encourage, we can say what we think would be helpful,” Donovan said. “But at the end of the day, we have to accept the world as it is and perform our duties to clients, which is to earn them the best risk-adjusted returns possible.”
Looking forward
As interest rises, managers are hopeful that more government will come on board. “You’re going to see [growing] interest in investors becoming part of those conversations [with governments]. We still need to see governments welcoming that and working out how to deal with that enthusiasm to become part of it,” Dodwell said. “I hope we’re starting to see some of that.”
That’s part of the growing pains of this new twist to engagement. But with climate change accelerating, and with major elections in the US and UK in the next year or so, it’s clear that government policy has to remain a focus of the asset management industry.
“It’s essential to identify where the barriers are, to think about what policy solutions do. We’ll ultimately end up with a series of new markets that we’ve generated” through these discussions, Dodwell said. “I think we can get there.”
Related Videos (Video clips from Transition-IQ’s forum during Climate Week NYC 2023 on 9/18/23)
How are allocators engaging with companies around opportunities to invest in the energy transition?
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Click here – https://bit.ly/48kQoGU
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Alejandra Nunez, Deputy Assistant Administrator for Mobile Sources, Office of Air and Radiation, U.S. EPA
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