Matt Arnold is Global Head of Sustainable Finance at JPMorgan Chase & Co. His team’s remit is sustainable finance – helping firms capitalize on sustainability as a business and leadership opportunity, as well as navigate related policies and risks.

In 2017, JPMorgan Chase committed to sourcing renewable energy for 100 percent of its global power needs by 2020 – a significant goal given the firm has offices and operations in more than 60 countries across over 5,500 properties. In addition, the bank has committed $200 billion in clean financing by 2025, which will help other companies and governments accelerate their transition to a low-carbon economy.

Ahead of his speaker appearance at GLOBE Capital 2019, Matt shares his insights on the business opportunities in the clean economy.

The clean economy is good for business because it drives innovation, motivates employees, is increasingly profitable, and has the benefit of addressing climate change, one of our era’s major challenges.

The personal motivation angle is important to us at JPMorgan Chase. We are very proud of the work we do. We have three or four task forces across different business areas made up of a wide range of people who don’t normally work together, but who are highly motivated because the clean economy is our core business.

Many of our clients are pursuing renewable energy as a business opportunity. Others are exploring it from other perspectives: research, mergers and acquisitions, equity capital markets, and debt capital markets.

The early movers in solar and wind had to work hard to break down barriers, but are now seeing strong business results. I learned last week that there are 1,200 energy companies in Silicon Valley. There’s a great deal of innovation focussed on energy storage and energy transmission. You get a sense that people are working together on a huge societal problem, and it’s really motivating.

Three barriers to realizing the business opportunities in the clean economy

1. Economics
Fossil fuel prices are still very competitive, certainly for transportation fuel and particularly for aviation. I was in a meeting with a group of large integrated oil companies the other day, and some of them were investing in renewable energy but others weren’t. The discussion from those who weren’t was interesting: they said that the economics of fossil fuels are better, and that they didn’t really know enough about renewable energy to invest in it. Continuous education of the long-term economic opportunity that environmentally sustainable solutions present can therefore help boost investment in the sector.

2. Policy
We need clear policy signals in the U.S. on key issues like carbon pricing, methane emissions from energy production, renewables, and energy production tax credits. Having said that, many national and sub-national jurisdictions are making good progress. For example, Alberta has made strides towards cleaning up their oil industry, probably due to the province-wide policy framework.

3. Incumbency
A lot of new technologies haven’t been deployed at scale, and large incumbents in the power sector, including oil and gas, are not embracing these new technologies. It’s not that they’re against them, it’s that their business models don’t necessarily accommodate them.

Three ways to integrate sustainability in your organization

1. Develop a business case for sustainability
Without a firm business case, it will be difficult to overcome resistance to integrating sustainable business practices. Decision makers need to understand why it is good for business, for people, and for the bottom line.

2. Set strong environmental objectives and targets
Having a goal or a series of goals is really motivating, no matter whether it’s a revenue goal, capital goal, or installation goal. Measuring progress against your goals is also helpful. If you know you’re coming up short on your sustainability goals, you’re going to work harder.

3. Create a purposeful corporate culture
Ensure there is an employee engagement angle when embedding sustainable business practices – communicate, engage, and enlist the support of people throughout the organization. Employees often enjoy and are motivated by the notion that they are contributing to something bigger than themselves and the organization they work for.

The Capital conversation

Canada is an important market for us right now and I’m looking forward to meeting leaders from across the industry at GLOBE Capital 2019. We look forward to learning from them and sharing our own experience in advancing sustainability for our clients and in our own operations.

Ethan Zindler is Head of Americas at Bloomberg NEF (BNEF), the definitive source of insight, data and news on the transformation of the energy economy. Ethan manages the company’s analyst and commercial teams in New York, Washington, San Francisco, and Sao Paulo.

Ahead of his speaker appearance at GLOBE Capital 2019, Ethan shares his insights on the future of clean energy, including the top 3 trends to watch out for in 2019.

The shift to low-carbon energy sources is happening, regardless of policy

At BNEF, our view is that a fundamental shift towards lower-carbon technologies will continue. This shift will take place regardless of how much additional policy support is provided. Having said that, a concerted effort to achieve the goals of the Paris Agreement in the form of specific national, state or even municipal-level policies would certainly speed things up.

By 2050, we estimate over 11 trillion dollars will be invested in energy power generation and power storage assets, and around 85 percent of that investment will go to zero-carbon generation. This represents a very sizable potential opportunity. The estimate is based on our long-term New Energy Outlook, which is a projection established on the trajectories we’ve seen in the learning curves of relevant technologies, as well as the progress we’ve seen over the last 10 to 15 years. It is not founded on assumptions about relevant new policies.

The clean energy landscape has evolved

This is an interesting time for the clean energy sector. BNEF has been around for 15 years, and for the first 10 years, the best way to conduct market analysis was to simply look at which countries introduced generous subsidies. Where subsidies were created, large volumes of capital would flow very soon after. As soon as the subsidy spigot was turned off, private capital would stop flowing, and markets would dry up very quickly. During this time, you could argue we were as much policy analysts as market analysts.

We’re now in a much more interesting period in which we see legitimate cost competition between zero-carbon sources of energy and incumbent fossil generation, and that’s exciting. It’s game on in terms of competition between technologies, and that competition can take place on an entirely unsubsidized basis.

The question is: When will we reach the point where this is no longer a competition, and clean energy technologies are the clear-cut winners and the cheapest in the market? We predict it will start to take place sometime between the middle and the end of the next decade.

Top 3 clean energy trends to watch out for in 2019

      1. Batteries will continue to play a key role

Not everyone thinks batteries are exciting, but I think they are. Batteries are an important instrument for enabling true clean power generation. Put simply, they allow us to use wind power when the wind is not blowing and solar power when the sun isn’t shining. We’re seeing incredible progress in terms of battery prices coming down, and around the world we’re starting to see projects that combine renewables and batteries to undercut fossil generation.

      2. Economies will grow without growing the demand for electricity

We are seeing a general trend whereby the world’s wealthiest economies can grow their economies without growing the demand for electricity, and in some cases without growing their demand for energy overall. This is important because it means there is the potential to keep carbon emissions in check, at least in the power sector.

      3. Basic energy needs will be met with existing technology

Around 1.5 billion people around the world have no meaningful access to energy. What’s exciting is that basic energy needs, such as running a lantern or a fan, can be served with existing technologies. The challenge we face is no longer cost, but the logistics of implementing these technologies.

As this group of people moves beyond basic energy access, the potential is there to do it cleanly, as solar, wind, microgrids, and other technologies render the concept of a hub-and-spoke grid outdated. The potential for addressing energy access issues – and addressing it without contributing to climate change – is very exciting.

The Capital conversation

At GLOBE Capital 2019, I’m curious to learn more from an investor perspective. What new risks are investors willing to take? What new markets are they looking at? What new technologies might they be willing to back? And what new types of financing structures are they willing to participate in? New risk and innovation around investment – that’s what I’m keen to explore.

Learn more about GLOBE Capital 2019: www.globeseries.com/capital

Highlights from our armchair dialogue with two leading finance-world luminaries, Robert E. Rubin, Former United States Secretary of the Treasury, and Robert Litterman, Founding Partner of Kepos Capital.

The session, which was chaired by Kate Gordon, Senior Advisor at The Paulson Institute, discussed the roles of corporate policy and practice in measuring and managing climate risk.

By Gregory J Smith
President and CEO, InstarAGF Asset Management Inc.

Cities of the future will require innovation in both infrastructure design and delivery

Quality infrastructure is necessary for communities and countries to thrive. As rapid urbanization continues globally, sound infrastructure serves as a major factor in where people decide to live, work and do business.  Moreover, it attracts the capital and talent that a city’s potential depends on.

While federal governments in Canada and the United States are doing more to provide for critical infrastructure, we are still facing an overall infrastructure deficit in North America in the trillions of dollars for roads, transportation, electricity and water systems and more.

A key challenge in overcoming this deficit is that traditional sources of funding are on the decline. Municipalities and core public institutions generally carry responsibility for 70% to 80% of public infrastructure assets, yet typically only collect 10% of every tax dollar. As a result, much of our infrastructure remains chronically underfunded.

The emergence of infrastructure as an asset class over the past two decades is largely a response to this staggering need for capital, and the incapacity of traditional models to meet it. New patterns of infrastructure demand, use and financing are materializing, necessitating innovation in the way infrastructure is designed and delivered, and how we collaborate in this pursuit.   Positioning our communities for the future likewise demands innovation in our partnerships, and transparent communication and cooperation between governments, the private sector, and local partners.

Partnering for innovation: renewal and refurbishment

Urbanization poses complex demographic, technological and environmental challenges that are putting municipalities, universities, schools and hospitals (known as “MUSH” institutions) under substantial pressure to modernize and elevate the condition of their infrastructure while still meeting their core purpose.  These MUSH institutions underpin the health and growth potential of our cities, bear a majority of the infrastructure burden, and are increasingly financially constrained in their ability to meet the needs of their constituents, which has clear consequences for long-term innovation and economic growth.

By collaborating with the private sector, such MUSH institutions can find new funding solutions, including through traditional public-private partnerships (P3s) or government asset sales, and also through newer contractual or alternative financing frameworks ranging from concession-like structures to green bonds.  MUSH institutions are also increasingly evaluating ways to leverage and modernize existing assets, thereby realizing sustainability gains and reducing future infrastructure expansion costs.

For example, InstarAGF is working with partner Johnson Controls Inc. to offer energy infrastructure refurbishment, retrofit and efficiency solutions to help MUSH institutions better manage their central utility or district energy systems. This provides a long-term, fixed-price contract or concession that delivers an immediate upfront payment and material savings through lower utility costs, energy conservation and sustainability improvements over the duration of the contract. Importantly, the MUSH institution retains ownership of its energy system, but transfers the entire risk of funding and operating it to an industry leader. As a result, the institution gains new, state-of-the-art energy efficient infrastructure and technology along with cost certainty, performance guarantees and customer service commitments.   At the same time, the MUSH institution can re-focus on fulfilling and funding its core purpose, whether it is academic instruction, health care or other vital community services.

Partnering effectively for the future and attracting private capital

With institutional investors increasingly seeking infrastructure investment opportunities, there is a real opportunity for our cities to more effectively tap this growing, global pool of capital.  By partnering with the private sector, governments at all levels can build higher quality infrastructure more efficiently and at a substantially lower cost — or no cost at all, in some cases — to taxpayers.

Using a local Toronto example, Billy Bishop Toronto City Airport, located on an island just south of the city’s downtown core and owned and operated by PortsToronto, is a unique collaboration between federal and municipal levels of government and the private sector.   Billy Bishop Airport is a critical transportation hub for Toronto, hosting 2.7 million passengers in 2016 and delivering more than $2 billion in economic output to Toronto and the surrounding region. It is also a great example of how infrastructure, innovation and public-private cooperation work in tandem.

The airport’s terminal building is owned and operated by Nieuport Aviation Infrastructure Partners, a consortium of local and international private investors with deep aviation infrastructure expertise that runs the terminal under a long-term lease with PortsToronto.  In addition, in 2015 PortsToronto successfully completed a pedestrian tunnel underneath Lake Ontario, the first P3 in Canada to be procured without a government guarantee.  In both partnership models, the private sector bears full responsibility for operating and maintaining this critical infrastructure according to stringent requirements, thereby preserving the value of the asset and enabling its significant community and economic contribution.

Notably, projects delivered through public-private partnerships have been shown to consistently outperform traditional models of financing, reduce the risks of infrastructure delivery and to amplify the economic benefits generated by infrastructure investments. Here in Canada, in a 10-year period, P3s have generated $92.1 billion in total economic output and more than 500,000 full-time equivalent jobs, and saved taxpayers a total of nearly $10 billion in costs, according to the Canadian Council for Public-Private Partnerships.  These statistics, and the success of infrastructure assets such as Billy Bishop Airport, clearly demonstrate how innovative partnerships can — and must — play a role in addressing our trillion dollar infrastructure deficit and accelerating infrastructure renewal.

Simply put, embracing new partnerships to deliver quality infrastructure will enable our cities to thrive and grow in the 21^st century, resulting in more vibrant and sustainable communities, reduced income inequality, and greater opportunities for all.

By Markus Lampinen
CEO, CrowdValley

Making Economic and Regulatory Sense of Investment Channels

On an institutional level, there are a number of barriers that impede both clean-tech innovation and the implementation of available green technologies. Primarily, these barriers appear to be economic in nature and are most obvious with attempts to adopt new technology or engage in disruptive practices.

However, looking deeper into these barriers reveals that in the long term, they no longer hold argument. Over time, the energy and cost savings more than compensate for the upfront costs associated with the implementation of green innovation. Alternatively, businesses, government, and municipalities need to consider the implications of not going green. Dismissing or delaying the transition to clean infrastructure has the potential to cost far more than embracing it does, considering the emergence of stricter environmental regulations, stakeholder demands, competitiveness, brand image and corporate social responsibility.

A recent HBR blog highlights a new study that reveals sustainability is an increasingly important factor in attracting and managing talent. Current employees also indicate that they want to be involved in developing a sustainability strategy. When you consider that 50% of younger employees and 20% of older employees expect to play a role in how their employer approaches sustainability and building for the future, this factor is extremely important.

The Future of Green Technology Investment

2016 saw significant gains in green and sustainable energy investment. While there was a reported 18% decline in the level of new investment (falling to $287.5bn in 2016, from $348.5bn in 2015), such investment was indicative of gains in infrastructure and economy of scale following lower equipment and implementation costs. Additionally, we saw a 40% increase in capital spending commitments for offshore wind power, hitting $29.9bn in 2016, highlighting a strong institutional belief in the efficiency and returns that this industry presents.

Factors contributing to the slight decline in green infrastructure investments include the Chinese economic slowdown and the fact that both China and Japan have cut back on large scale renewable development projects in a bid to focus on the capacity they have developed to date. Reduced equipment costs can also be attributed to competitiveness in solar and wind power. This is an early indicator of the future benefits society will accrue as efficiency becomes an increased focus in this sector.

In the past, most corporations and institutions tended to ignore the public benefits of clean technology and green innovation. Employment, fuel diversity, price stability, and other indirect economic benefits of renewables also accrue to society as a whole. With fossil fuel infrastructure previously being the best cost-effective option, along with it yielding greater returns, a company would experience more inertia from it’s investments in sustainable practices. At this time, we are privileged to enter an era in which green technology is attractive both from a societal and economic perspective.

Creating an Enabling Environment for Green Investments

Public finance is a key policy instrument to both incentivize and enable the transition to green growth. Some estimates suggest public finance has the potential to mobilize 5X the contribution of the private sector. However, this mobilization is thought only likely if combined with aligned policy and regulatory measures.

We cannot over estimate the need for a strong and binding policy and regulatory framework. Having this in place will create demand for investment in green products and services. Additionally, new standards should be given sufficient lead-time to alert and encourage investors in clean-tech growth.

Price signals can create both incentives and disincentives for investors. Green taxes and prices should be kept progressive to promote equality among income groups and, if necessary, provide grants to low income sectors especially if other subsidies are removed.

In the early stages of sustainable market development, governments should have active financial programs to develop investable projects. Public finance can be used to lay foundations through demonstration, public procurement, and support for project preparation.

Regulations need to be complemented by infrastructure that creates channels of investment for both institutional, accredited and non-accredited investors. Recent years have seen the rise of a number of financial technology firms providing these channels, among which Crowd Valley stands at the forefront. Crowd Valley provides a comprehensive back office cloud and API-based infrastructure needed for the creation of streamlined investment and capital marketplaces. As well, Crowd Valley seamlessly integrates 3^rd party payments, ID verification, credit review and equity management, to name a few.

Channels such as Crowd Valley increase accessibility for a majority of the population to partake in alternative finance and provide the necessary ability for individuals to have a direct stake in the future of the planet. Through its internal infrastructure, such channels demonstrate the fintech industry’s commitment to a more sustainable and efficient future.

Will There Be Profit?

Today’s highly dynamic technology environment increases the profitability potential of clean-tech investments as nations lay the physical and regulatory infrastructure for a greener future. Hence, it is in the best interest of both corporations and civil society to funnel investment towards green technology and low-carbon infrastructure. Practically speaking, the boost in financial inclusion is increasing the volume of funds into this sector – incentivized by societal benefits and a high rate of return due to clear long-term efficiency gains.

Increased democratization of finance, the challenging of cultural norms, and the circumventing of institutional inertia opens the door for green technology and infrastructure to provide a huge financial and public interest pay off.

References

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