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TCW is a leading global asset management firm with over 50 years of investment experience and a broad range of products across fixed income, equities, emerging markets, and alternative investments. In each episode of TCW Investment Perspectives, professionals from the firm share their insights on global trends and events impacting markets and the investment landscape.
Welcome to TCW Investment Perspectives Podcast.
My name is Cindy Paladines and I'm a senior
analyst on our Sustainable Investment Group team.
I'm joined today by my colleague and co-head of our team, Jamie Franco.
And we're live from New York for New York's Climate Week and
the opening of the General Assembly of the United Nations.
So there's lots of activity in the air.
Jamie, of course, our participation in Climate Week has been really important
and we've been able to hear from a lot of investors and policymakers
about themes, investment themes related to the climate transition.
You participated in several events related to the theme.
I wondered if you could speak more about some of what
you've been hearing from other investors, policymakers
and other actors that are here in New York with us.
Thank you so much, Cindy.
You know, this is such an exciting time to be
in New York and there are so many things to do.
Unfortunately, we haven't been able to go to all of them.
But what I've really appreciated this week
is the intense focus on climate transition.
How can we in the private sector accelerate finance,
find investment opportunities and contribute to
the broader decarbonization of the global economy?
You know, this has been pointed out a number of times across events and across
asset owners, asset managers, companies, that really what's going on right
now is pretty much the most radical change in the
global economy since the Industrial Revolution.
So as an investor, this is a very exciting time.
And it aligns nicely with a lot of the ways that we think about this mega
trend, you know, both from a risk perspective and an opportunity perspective.
So I spent time at a conference that Moody's hosted, talking a bit about
how can we actually think about quantifying the effects of extreme weather.
The models that we have today don't work.
You can't use, you know, the past 10 years worth of trend to predict the future.
So one of the themes was exponential risk.
And how should we think about that from a
credit risk underwriting perspective, too?
So that was a very interesting conversation.
And obviously, we don't have all the answers yet.
But a lot of people are very focused on this, because in our investment
portfolios and across the market, we're mispricing this risk and need
to have a better handle on some of the scenarios that the scientists
have told us could materialize over the next 10, 20, 30 years.
I also spent some time at the Climate Bonds Initiative conference, which
was a fabulous conference because everyone was really focused on the
core issues of unlocking barriers to accelerating climate finance.
And so to give you some examples of that, obviously, definitions,
data, standardization, all of these things are always a challenge.
But what was a really clear takeaway, whether I was talking to companies,
or asset owners, or even other asset managers was we can't wait.
The time is now to take action.
And so there was a lot of very creative thinking
around how do we define a transition asset?
How is that different from a green asset?
This is really important, because if we can't get on the same page, we're
all going to have different definitions of what fits in that bucket.
And so it was actually a very practical conversation around solutions there.
And then we heard from some companies who had very
much embraced sustainability from the perspective of
improvements and efficiency gains, and their bottom line.
So it is possible to do transition and
decarbonization in hard to abate sectors like steel.
I just heard from someone who manages and operates
a green steel plant that got LEED certified.
I mean, that is the kind of thing-- That's great.
--that we need to amplify across the market.
And so it was really nice to be a part of that.
And I think the last piece, which is an important conference that
we just hosted here in partnership with the IIF, was one to focus
on how do we galvanize climate finance in emerging markets.
We can't just talk about companies.
We have to talk about countries.
And there are so many different practical barriers to financing
climate-related activities, whether that is transitioning or resilience.
Another really big topic across the board was climate resilience finance.
And if I think about it from an emerging market perspective,
we talked about practical challenges of capacity.
How do you identify the projects?
How do you pool the projects?
How do we get a financial wrapper that works for different investor types?
These aren't new issues, certainly, for any of you out there who have been
working with the international financial institutions or in development finance.
But it's one that we now have to solve in a more critical way if we're going
to help unlock the necessary financing that's needed in emerging markets
and developed, and even in low-income countries, I mean, across the board.
So it was a really, really productive start of a conversation.
We brought together practitioners, asset owners, asset
managers, country representatives to try and figure
out whether there were ways to better collaborate.
That's the type of conversation that I want to be a part of
and one that we try really hard to facilitate in some of
our broader engagements that we do across the industry.
So I've thrown a lot at you, but clearly it was a really energizing
week and lots of takeaways for our team and our investment team.
Yeah, I know for sure.
I mean, on that last point on the blended finance roundtable that we hosted here
at TCW with the Institute for International Finance, we have been part of these
discussions for a while, seated by the IIF, and we were
excited to host further discussion on that same topic.
And that topic will continue.
I mean, there's a lot of events upcoming, including the annual
meetings in Marrakesh next month and a couple of weeks,
the UN Climate Change Conference in the UAE in December.
So I think that having a platform for those discussions to productively happen
can hopefully bring more collaboration and more cooperation with country
authorities as well to build project pipelines, to bring the public sector and
the private sector together, to seed more of these transactions and more
liquid instruments to emerging markets and channel more finance to them.
I also wanted to touch on an event that I was happy to attend
with the Partnership for Carbon and Counting Financials.
We're really excited to be a new member of
that organization as of November of last year.
And we have committed to, of course, taking account
of our finance emissions in the securitized space.
And we're really excited to bring our expertise to bear in those discussions.
PCAF has grown tremendously, so from a group of 40 asset owners, asset
managers, and other financial institutions to a group of more than 400.
So they were excited to announce a few developments on their efforts to improve
carbon accounting, to expand it to new asset classes, and to really ensure that
the financial community is behind this important practice of being able
to identify and account for carbon emissions across our portfolio.
So we were excited to see that progress take shape.
Yeah, and that's an important meeting to point out because carbon
accounting needs to be done across all asset classes everywhere.
For sure.
So bringing that back to that mega trend here of climate
transition, we need to decarbonize the global economy.
If you look at, say, green bond issuance, primarily
that's happening in energy and transportation sectors.
Right.
That's not enough.
You know, this has to be across sectors.
It means that we need better approaches,
common definitions of transition assets.
What's an enabler?
Who is transitioning?
How do we do sustainable agriculture?
Those are the kinds of things that we're trying to tackle on our end.
It's so nice to get into a room of people who are also struggling
with the same things and trying to come up with creative solutions.
And carbon accounting is something that we're all going to have to do.
And we're seeing that in regulation that's coming out in California.
We're seeing that potentially with the climate rule that the SEC is working on.
But it's not just in the United States.
And so it's nice to be part of that broader global conversation.
We're talking to colleagues from Singapore.
And the monetary authority there has come out with guidance.
And so everyone is trying to think of, how do we green our portfolios?
How do we decarbonize our portfolios?
But importantly, how do we do it so it has a real effect?
Right.
And what does that mean from an investment construction perspective?
That means that you're going to be investing in
assets that maybe have high carbon intensity today.
It means that you're going to be investing in names that some
sustainable investors might be really uncomfortable to invest in.
But this is the first time this week that we've really dove
into that conversation and highlighted that distinction.
Do you, as an investor, want to be low carbon today?
Or do you want to contribute to the global decarbonization?
Those are two different conversations.
And so it was really nice to partner with CBI
and others to have that broader conversation.
And so we greatly appreciate all these partnerships
that are in part why we come to New York.
And they really help us build out our broader understanding of what
we need to be doing to deliver the best in class for our clients.
Yeah.
And to support also the industry in undertaking better practices
in the same, where we have expertise, we like to be part of those
discussions to ensure that the industry as a whole benefits as well.
So Jamie, I can tell that we're really energized
by the discussions that we've had here this week.
What are your parting thoughts?
What are some of the key things that you're going
to take away from this week moving forward?
Well, certainly we have our work cut out for us across the board.
But what was most energizing was to see companies really
making these changes because it mattered to their bottom line.
They thought it mattered to their bottom line.
We tend to agree with that.
And so that was really energizing to see.
And that's happening across a number of sectors.
I really also appreciated organizations such as CBI that is
trying to help collaborate on standards across the industry.
We have to take a page from Sean Kinney's advice and
run but not walk towards figuring out how we can take
advantage of this investment opportunity in front of us.
Private sector broadly has such a large role to play in underwriting our future.
And we want to be a part of that.
100%.
I think you've fully captured our enthusiasm for the work to come.
And there's surely plenty of it.
So looking forward to further discussions down the road.
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