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Investment Strategy and the Geopolitical Implications of Climate Change

First Republic Private Wealth Management
November 1, 2021

Will governments around the world move fast enough to address climate change? How will climate risks impact our future way of life? Should investors reposition their portfolios now in anticipation of more fallout to come from climate change? Ian Bremmer, political scientist, author, Columbia University lecturer and President of Eurasia Group and GZERO Media, analyzes these key issues in conversation with Hafize Gaye Erkan, Co-CEO and President of First Republic.

Read below for a full transcript of the conversation.

Bob Thornton - Good afternoon, and thank you for joining our 2021 Climate Forum. I am Bob Thornton, President of First Republic Private Wealth Management, and I'm thrilled that you've joined us today for the third and final session in our three-part educational series. In our previous climate form sessions, we explored leading research on climate science, energy innovations, and emerging investment opportunities. We encourage you to listen to the replays, which you can find in the link in the chat. Today's session will highlight investment strategy and the geopolitical implications of climate change and examine what's taking place around the world with respect to climate policy and impact at global and local levels. We hope this forum inspires you to consider new ideas and provide you with a greater understanding of climate fundamentals and the links between environmental trends and financial return. It's now my great pleasure and privilege to introduce today's speakers. Ian Bremmer is a Leading Political Scientist who provides independent voice on critical issues working with business leaders and policy makers around the globe. He's the President and Founder of Eurasia Group, the world's leading political risk research consulting firm. He's also the President and Founder of GZERO Media, a company dedicated providing intelligent and engaging coverage of international affairs. First Republic is a client of Eurasia Group and sponsor Ian show, GZERO World with Ian Bremmer, which airs on your local television stations at gzeromedia.com. In addition, as many of you probably know, Ian's a frequent commentator on Fox News, CNN, the BBC, and Bloomberg amongst others, and is the foreign affairs columnist and editor at large for Time Magazine. Ian has authored 10 books, including the New York Times bestseller "Us Versus Them," "The Failure of Globalism," which examines the rise of populism across the world, and he currently teaches at Columbia University School of International and Public Affairs. Ian is joined today in an intimate chat with Gaye Erkan, Co-CEO and President of First Republic, and Gaye also serves on First Public Sport Directors. Gaye joined for First Republic in 2014, and prior to her current role she served as our Chief Investment Officer, Co-Chief Risk Officer and Chief Deposit Officer. Gaye is quite passionate about giving back and recently founded the Hafize Gaye Erkan Fellowship Program, a first of its kind program that guide young woman from underserved backgrounds with purpose driven life through stem education, mentorship, and professional development. So without further ado, I'd like to turn it over to Gaye for what I'm sure is going to be a very engaging session.

Hafize Gaye Erkan - Bob, thank you for the welcome and kind introduction. Ian, we're so honored to have you here with us today. We have such great respect for your perspectives and outlook on a host of geopolitical topics, climate change, not at least among them. But before we dive into climate, let's start by setting the stage big picture. You talk about how we are living in what you call a cheesier world, meaning no one country has the power to truly drive an international agenda. So how do you think about the geopolitical environment today and as you look into the future?

Ian Bremmer - Well, first of all, great to see you and great to see all of you almost live as we say in the Gong show, but it's really good to be back in front of this audience and I hope we're going to be doing it in person real soon, but at least the two of us are in person real soon. No masks, we're getting through-

Gaye - That is the highlight.

Ian - These COVID times, absolutely. So in terms of the geopolitical environment, and it's good to be talking about this literally as President Biden is on a plane flying to Rome for the G20 Summit, is that there is a lack of global leadership and it's overdetermined. It's the United States focusing so much more at home and with a population that is really not interested in American policing of the Middle East or Afghanistan, America promoting global trade multi-lateralism. I mean the most important free trade, high standard agreement in the world today is what they call the CPTP, right? It doesn't involve the United States or China, the world's two largest economies, that says a lot. We're responding to the pandemic and for all of the big promises and commitments to we need to get jabs in arms with people all over the world. If you're in the G20, you've got access to jabs, if you're one of the world's poorest countries, you don't, why is that? Lack of global leadership. Even the Climate Summit coming up this weekend, which we're going to be talking about in great detail, there is a lack of global leadership. There's a lot of leadership, there are a lot of people that are saying we need to do more than a lot of people that are committing more, but they're not doing it in a coordinated fashion. They're not doing it as a global response to a global crisis and coming out of this pandemic, or at least getting through this pandemic. It's very obvious that this absence of leadership is a principal lesson that we need to take as we look forward to things like climate change.

Gaye - Now, bring it home to us here. How's President Biden and his current administration doing in this cheesier world?

Ian - Well, he's doing better as of today. I mean, I have 1.75 trillion reasons to say that, right? This is by far the most important part of his domestic agenda, a human infrastructure plan that has not yet gotten signed to be clear and there will still be uncertainty and pushback, but I feel quite confident that this bill will get done. And that reflects the most important investment in domestic social infrastructure since Truman's Great Society. I mean, we're talking 50 years, it's a big deal and it will matter to working in middle-class Americans across the board and it won't be fully paid for and deficits will raise and taxes will not go up at a great deal as a consequence of that. That will be a relatively popular thing because as you know spending is pocket, right? People like spending, people were very, very divisive over Obamacare, but Lord knows they didn't want it taken away once they had it, right? People like spending, Republicans and Democrats don't care about deficits anymore, but Biden's approval ratings are low. In fact, with the exception of Trump, they're the lowest at this stage in his presidency of any president in recent history. And I think that there were a lot of reasons for that. One is just the challenge of living in a pandemic where there are a lot of people that are still have their lives very disrupted by the mask wearing and the shutdowns and the school challenges and the vaccine skepticism, hesitancy all of that. And there's also a lot of concerns about inflation, about domestic prices going up and price at the pump going up, this concerns about supply chain shortages. And Lord knows, these are first world problems for the average American, but people are still, they know what they know and their expectations are high and the divisions in this country are great. So I think at home, you'd say that this is going to be a real challenging time for this administration and your baseline expectation come next year is that the Democrats lose one or both houses.

And I will say that having spoken to people of both parties on the hill, that is the baseline expectation and that means that they know that they have a limited window to get things done. Internationally there is a little bit more success in the sense that so many, when you have Trump saying, "America first," that is not meant to appeal to non-Americans. And so there were lots of countries all over the world that just wanted anything but Trump, those countries had high expectations of Biden, especially when Biden says, "America's back." So then when America isn't quite back or isn't back the way they thought America was back, on Afghanistan, on the Australia, U S, UK defense pact, on even shut down the borders to the Canadians, the Mexicans, the Europeans, as many of them have higher vaccination rates than the United States does, they get angry. And so there's a lot of disappointment, but I would say that America-Asian allies are quite happy with the United States because they're much more concerned about China and the rise of China and what that means for them in their backyard than they are about inconsistency from Trump versus Biden.

Gaye - Now, let's stay on that. Given the increase of presence and power of China, how can U S, the United States successfully continue to lead?

Ian - Well, I think America's unwillingness to lead has less to do with capacity and has more to do with domestic constraint. In other words, I don't look at the U S today and say, this is a country in decline. I mean, the percentage, the U S percentage of the global economy is the same as it was 10 years ago, the inexpensiveness of resources, natural resources in the United States food and natural gas. And then it says, compare it to Europe, compared to Japan, I mean, this is a place you want to be, it attracts capital first Republic its clients know that. And so I don't think this is because America is suddenly cowed by China, I think it's because the United States today is the most economically unequal, the most politically dysfunctional, and the least vaccinated of the G7 of the world's advanced industrial economies. And that makes a lot of Americans angry about the idea of global leadership, say, no, we don't want to do that anymore and political leaders know that. Now interestingly, China has very similar problems right now. I mean, they've been under lock down mostly for almost two years. A president, she has not left the country since January of 2020, why? Because they have zero tolerance for COVID, zero, and they have vaccines that don't work very well, specifically against Delta variant. They're starting under the radar to let in some Pfizer vaccines, but most of the country it's still vaccinated with Chinese vaccines. And that's a problem for them.

They have their own supply challenges as a consequence of those rolling shutdowns, they have their own problems in terms of energy shortages. And so as a consequence industry has been blacked out to make sure that civilians in China aren't going to be called. I mean, that is the priority, of course. And then you have Ever Grand, you guys have been talking about that, a great deal I know. This major real estate bubble and company that's in real trouble, $300 billion of distress. And so I think that if you you're looking much more at home than you are about how you beat up on the Americans. And I think that Belt and Road, I mean, you and I over the years have talked a lot about China building this sort of wide network of investment to align other countries around the world with Beijing, and yet in the last eight years Chinese investment into Belt and Road is down 90%. And the reason for that is because they're focused on Chinese investment, Chinese infrastructure, Chinese supply chain, the Chinese consumer. So I do think that it is sort of the broad takeaway here is that it is true that the U S and China have bad relations. We don't trust each other, there was more conflict in that relationship today than there was five years ago, 10 years ago, it's true. But overall, the bigger trend is the Americans and Chinese looking more inward, and as a consequence not having the global leadership that is required to respond to the pandemic, to respond to the economic scarring that comes from that, to respond to climate change.

Gaye - Perfect. Now on that note, let's shift gears to climate change. According to UN's Intergovernmental Panel, climate change has reached a code red thread for humanity. How do we change course at this stage? Can we do enough soon enough?

Ian - So this is this big report that came out just a couple of months ago, basically assessing the state of the planet in terms of climate change. And yes, code red, right? I mean, basically saying that as my friend, the Secretary General of the United Nations, Antonio Guterres put it, he said, "We are sleepwalking towards the abyss." And my response to that was, "Well, at least it's slow and at least it's not very intentional," but that's not great news, right? What I would say is that report, one big piece of good news in that report, really good news.

Gaye - Give us the good, bad, and ugly.

Ian - The good news is over 190 countries came together and wrote and supported that report. 1.1 degrees, now 1.2 degrees centigrade of global warming, they all agree, caused by human beings, not random cyclical natural stuff, they all agree. And furthermore, they all agree with a great deal of granularity about what parts of the world are being most effected, least effected, what that means for biodiversity, challenges of pollution, extreme storm conditions and weather conditions, and projecting that forward over the next 30 years, 80 years, what the planet is likely to look like. I mean, just even 10 years ago, you had a shocking number of governments and private sector players that were saying that the science is still unproven. We're not sure about whether this is even happening. It might be global cooling, or maybe it's just cyclical, or maybe it's happening but maybe it's not human beings. No one credible is saying that anymore. And I think we all need to take a breath and recognize just how much progress that is in a world where there's no leadership and we don't agree on anything. This fake news does, this information, this polarization, we all agree that this is happening, and we agree with a great deal of specificity. That's the good.

Gaye - That's a good thing. Okay.

Ian - The bad news is that we are really not yet making the kind of progress that would be required to avoid incredibly expensive world changing demographics altering impact on our climate. And to use the term lightly, it's baked in. What's already happened, what we've already done since the COP Process started 27 years ago, which when all these states are coming together to start dealing with climate change, what's already baked in the next 30 years. We already know that we're on a target of 2.7 degrees right now, that is what we're presently heading towards with all the steps that have been taken. And we are virtually guaranteed to be over two degrees.

Gaye - So the one and a half degree is gone?

Ian - Is gone.

Gaye - Not even plausible.

Ian - It's got no one credible would say that the one and a half degree goal is plausible at this point, no matter what we do. Two degrees if we an optimistic path, you could maybe have two degrees centigrade. That is the bad, right? And the ugly is that despite all of that knowledge we are heading into a critically important climate summit with most of the world's leaders not yet taking the kind of political urgency that's required to bend towards two degrees. We don't have the political willingness on the part of the United States. Biden is very oriented towards prioritizing climate response, spending on climate response, but the constraints on the Biden administration, in his own party through people like Joe Manchin from West Virginia, which is of course is a big coal state and with employment that is tied to that and they want to do meaningful things and it's not just about giving them money because they don't want more meth addicts, that are unemployed but have cash, in West Virginia they want them to be productive, of course they do. There's big challenges in the United States around that. In China, we're just in the last two months, they said, we've gotta produce more coal at home. Why? Because there are shortages of energy in this environment where oil prices are up to 80, 85, 90 bucks, right? So all of that, that's the environment that we are coming to the COP26 meeting, not in environment where the countries are saying, "We know that we've missed all of these goals. We know we're sleepwalking to the abyss. We have to stop." This is not that, this is not that. And so the expectations should not be two degrees, at Eurasia Group our expectations are three to 3.5. And the people that I talk to that I consider most respectable in this field that are the serious conversations are closer to the high end of that scale.

Gaye - That's great context now. To avoid that climate disaster as you're describing, governments are going to play a key role in here. So if you had your magic wand, how would you have countries come to work together in a way that can effect trajectory, at least get us to a better place than expected?

Ian - I mean, if I had a magic wand, then I would tell the Americans and the Chinese that you're the two largest emitters in the world. You have to sit down and have a real strategic dialogue ongoing, like with brain trust on both sides, building trust on this issue, irrespective of Taiwan, irrespective of the Beijing Olympics, irrespective of technology and IP theft and trade and all the other things, this is the most important global issue we have to work together. That is not happening. In fact, when John Kerry, who is as of today the cover of Time Magazine, the diplomat, which sounds great. And I write for Time Magazine, I like time magazine, right? I mean, I should be biased in favor of the magazine, but the reality is that when John Kerry was sent to China on his last trip a few weeks ago to meet with his counterparts to talk about preparations for the COP26 Summit, his counterparts chose not to meet him in person, and instead did the zoom call. And it wasn't because they were concerned about seeing Kerry in person with the pandemic, they had met with the Taliban just two weeks before in person. It was because they feel disrespected by the United States and the Chinese leadership after Kerry left said, there will be no Oasis in the desert. What they meant by that is if there is going to be a desert of relations between the United States and China, we are not going to be nice with you on climate. Now, I think that's shooting ourselves in the foot, but it's the danger. The other thing I would do with my magic wand after bringing the U S and China together on climate is I would force the wealthy countries of the world to take the conversation of redistribution and equity seriously. I saw Marco Rubio yesterday. There was a video of a wrapped door, a dinosaur that was in the UN General Assembly telling human beings that we're going to get extinct if we don't take climate seriously. And Marco Rubio said, "Well, you better teach that dinosaur Chinese can't speak in English," because of course, most of the emissions come from China, which is a fun, great political speaking point, right, because we like beating up on China. The reality is that China today is the largest emitter of carbon in the world more than two times the United States. The reality is also that historic carbon emissions up until today, the United States has admitted far more than the Chinese have. The other reality is that the United States and it's far more per capita than the Chinese do today. And so if we value all human beings equally, and I'm not suggesting we do, but if we did, if I had a magic wand, we would, right.

Then there would be an equity conversation in the same way that there would be on distribution of vaccines and we wouldn't have boosters that Americans aren't even willing to take before we start making sure that other people around the world have access. Your magic wand would do things like that, because it's not, you have lots of people, billions of people in Africa and in India and even in China that are saying, why should we take the hardship pay for the change in infrastructure and the redistribution that's going to be required and not allow fully fledged development of our own countries? When the wealthy countries used carbon with reckless abandon got really rich, and now they're demanding this of us but they're not willing to pay for it, why is that acceptable? So the lack of trust between the poor countries and the wealthy countries in the world at a time when the gap between those countries, which had been narrowing for 50 years because of globalization, that gap is now growing and it's growing because of COVID. So you can't talk about climate until you talk about COVID because this pandemic still playing out, especially in the developing world, right, is causing economic scarring that is affecting the way they think about their climate contributions.

Gaye - So anything that we as a globe we coordinated well or we did great during the COVID that can be applied more of to the climate change conversation, anything on the optimistic side.

Ian - Three big things that we've done. One is that the Europeans treated COVID in an all-continental way. So even though the EU did not have a healthcare regulatory responsibility, they decided they were going to together procure and distribute vaccines, which took longer than the U S operation work speed. But it meant that you didn't have poorer countries not getting vaccines and wealthy countries getting them first. So between Greece and the Netherlands, everyone gets them, right, that was a great thing. And also and you know this, there was a big redistribution plan of money. There was a massive in the same way the U S had the Pelosi and Minutian got together or back on the streets the Minutia and Pelosi got together, and put cash in the pockets of companies and Americans so that our poverty levels did not go up, they went down with the pandemic. In Europe it wasn't like they were squeezing the Greeks, they were sending money to the poor European countries to ensure that they would not fall apart as a consequence of the crisis. So that is one really big way that the world's largest common market came together, very different than what happened during the Brexit crisis or the Brexit crisis and all these. Another big thing that was very positive is the scientific community shared information. And so very early on everyone was trying to understand what the hell this disease was. And even though the Chinese government obscured the origins of COVID, obscured even letting us know that there was human to human transmission for weeks, while hundreds of thousands of Chinese citizens were leaving Wuhan for destinations international. But the scientists that were working on COVID got that information out, published it against the will of the Chinese governments, that's how we found out. And they started working together. And when I say working together, I don't just mean Americans and Europeans, everyone. I mean, Chinese doctors were working on it, Americans doctors, and they were sharing information.

They're sharing comments on blogs, they were working to understand what the hell this new disease was. And then the private sector worked really hard to get vaccines going, and that included sharing research, that included sharing information in the early days. So I do think that there was despite the lack of global coordination of which there was not, the lack of global leadership on the geopolitical stage of which there was none. There was an awful lot of global effort at the sub national level to ensure that we could respond much more effectively, much more rapidly. So when I look ahead in the next 12, 18 months, I don't think we're going to be talking about vaccine deficits anymore. We'll be three and a half, four years out from having first discovered this disease and we will have effective vaccines that will cover the entire planet. And in the broad scheme of things, that's pretty extraordinary.

Gaye - Now, bringing all those learnings to climate change, there's a bit of a difference however, there seems to be that we're faced with an inherent conflict what may be an optimal solution for individual country or a sector may not necessarily form the global optimal solution for the humanity in general pun intended. So is there a way to reconcile because there is a history of we have had several international agreements, do any one of them have a chance to succeed in the long run?

Ian - In the Paris Agreement has made a difference and even when Trump left the Americans from the Paris Accord. And let's remember that when the U S left the Paris Climate Accord, every other country in the world opposed us, not just a hundred or 150, every other country in the world said, why are you doing this? But here's the interesting thing, most of the Americans opposed it too in the sense that most American cities and states were still trying to abide by Paris. California did, right?

Gaye - The alliance.

Ian - Yeah, it's extraordinary, right? And a lot of CEOs did, and the banks were all leaning into ESG and diversification of their portfolios away from fossil fuel investment. And those announcements continue. And when Biden became president and he brought the Americans back into Paris, none of that changed. So at the subnational level, so when I think about climate change today, the interesting thing is we're about to have this COP26 Summit and the Americans and the Europeans are all going to put their best possible face on it. And a good friend of mine was actually with John Kerry a couple of hours ago and I spoke to her right before this meeting. And she said that Kerry was already in defense mode, he was already starting to talk about, well, not everything is happening through COP, and here are the things that will persist irrespective of Glasgow. You can already see the talking points that are coming out of it, but the point is that today most of the progress happening on climate is happening with the banks, and it's happening with the private sector, and it's happening at the individual level in pressure and in social changes that are occurring, and is happening with the European Union. Most of what's happening on climate is not happening in Washington and Beijing. And that's okay, it's not great, it's not optimal. But we are still, if it turns out that in Glasgow the thing just fails, or it's a complete nothing burger, that's not going to make me suddenly feel like, oh my God, we've just lost the plot on climate, because most of the action is not happening there.

Gaye - And we'll touch on that in a second before we get there. Now, the climate change is real as you're saying, how will the climate change affect the global geopolitical balance of power, who will be the winners and losers?

Ian - So when I first wrote about the GZERO World, it was overdetermined, it was very clear that the United States didn't want to lead that no one else would be able to step in from Europe, that the Russians would undermine us, that the Chinese would build alternatives. When I look at the implications of climate, one of the things I see is growing inequality and that growing inequality is overdetermined. It's in part by technological displacement of labor, it's in part by the scarring from COVID, both the healthcare and the vaccine rollout but also the economic wherewithal to provide for your citizens, given that kind of shot, the wealthy countries have it, the poor countries don't. And now you've got climate change and who's climate change is going to hit, right? Who were the people that aren't insured, right? Who are the people that don't have the ability that their houses are washed away to move? Who are the people that end up like in environments, already living in environments where they know that they don't have enough access to food or clean water, or that they're subject to massive floods? It's Bangladesh, it's Sub-Saharan Africa, right? I mean, it's places that are deeply stressed already and it's going to get worse. Even Syria, a lot of problems in Syria made worse by serious record level droughts, which meant that the farmers had to kill their livestock because they didn't have the feed that was going to allow them to continue to graze. And as a consequence, one season later what did they have? Nothing, they moved to the cities, they were pissed off. What did that lead to? It led to explosive revolution. And what happened 10 years later, 11 million refugees.

Gaye - Immigration.

Ian - Right. Forced migration. So who are the geopolitical losers? Those people.

Gaye - They're not at the table, are they? because the world is bigger than the G5, G7, G20s.

Ian - They're not at the table, they're not at the table. So Bhutan today is one of very small number, a very small number of countries that is carbon negative. So they're not contributing to the problem, they're a part of the solution. 2 million people, landlocked, mountainous, middle of nowhere. Former prime minister, Bhutan, good friend of mine. Great guy. And I remember talking to him, he first saw, you might remember the Maldives and the Maldives of course is one of the first countries in the world that's going to lose their actual country because as water levels rise and the Maldives are all very, very low lying, islands, they're just going to have to move. And they about 15 years ago, they organized a summit that was underwater. It was a cabinet meeting with a lot of media that was meant to display, this is the way we would have to actually run if we were going to stay here. And it got a lot of attention. And at the time he remembered seeing that and saying, this was a really good way to get attention to the right. But I know that nothing's going to happen because it's a tiny country they have no power and no one's going to listen to them. So I sat down with him right before the pandemic hit. And he said, "I've been thinking about that conversation I had with you a lot. And I think about it differently now." I said, "Why?" He said, "Because it's very clear that through our inaction in Bhutan, we're going to lose all of the ice that's in the Himalayas, in the polar caps, and that's going to cause enormous flooding, which will wash away all of our agricultural land and then we won't have water after that." And this is a country that is mostly about agriculture and the tourism because it's so beautiful, and those two things will go away. And he's a tiny little country that doesn't have any carbon footprint and they can't do anything and it's happening to him next. So what's happening is that as the people who aren't at the table become more numerous and become louder and become angrier and start to move, some of them to places that do have seats at the table, it moves us, it moves us and that's what's happening.

And now you're starting to see some of the people that aren't at the table are young people in powerful countries. And the reason they are not at the table is not because they're in the wrong place geographically, but because it's the parents and the grandparents that made the decisions that they're not going to be around for, but the kids will be and they're going to have to pick up the pieces, they're going to have to pay for this. And they're angry about it. There is an American association for retired people today. When I hit 50, they sent me a card even though I did not ask for one and I am not a member of it, but it exists. It's powerful and it helps to ensure that we have the highest healthcare costs in the world without actually getting great service for it. All of those things are true. There is no American association for young people that has the effective ability to capture the legislative process and spend lots of money and lobby to make sure that their interests are served, and young people don't vote to the same level that wealthy people do, but in the last election college students voted much higher percentages than they did previously. And I think there's going to be more than I think climate is driving a lot of that. So I do think that your question of these people that aren't at the table, you know what, they're increasingly coming to the table, they're coming to the table and it's going to matter.

Gaye - So we're going to give you the magic wand now. Now tomorrow morning you'll get the call from President Biden and he needs your advice on climate. What are the top three things you're going to tell him?

Ian - I think that the $1.75 trillion is the best he could do and it's going to get passed and it should be his priority. And beyond that he's going to need to do a lot of executive orders that will try to align the United States at least with the Europeans. The Europeans are well ahead of us on this stuff. So one thing I would say is before he is out of office and preferably before midterm elections, we need the Americans and the Europeans aligned on the carbon border adjustment mechanism, CBAM because we don't want to be in a tariff fight with Europeans. Now we already have basically resolved the Boeing Airbus flat, we're going to resolve the steel and aluminum gap, and we should not be fighting a trade war with the Chinese and with the Europeans at the same time. And to have a trade agreement with the Europeans, we must align on carbon. So I think that has to be his top priority. And again, part of the problem is he knows this. Like they have very smart people that are advising them on these issues right now. How much political will he has to get it done and how much strength he has given the nature of Congress today and his own Democratic party is another story. But I would consider that to be a top priority. And beyond that, I think we have to do more on, we promised in, I think it was in, I think it was in 1990 where we promised that there would be a hundred billion dollars a year that would go from the advanced industrial economies the developing world to help to get them on a more equitable-

Gaye - How much did you say?

Ian - A hundred billion a year from the wealthy counties.

Gaye - So the World Bank estimates that almost $30 trillion will be needed by 2030 in emerging markets infrastructure.

Ian - We promised a hundred billion. Not just us, the wealthy countries, we still aren't there. We're probably going to be 90% of the way there by 2024 given Biden's latest commitments that are not yet in the budget that he made at the United Nations General Assembly meeting in September. So I just want to how far we are from where we need to be so that the majority of the people on the planet who are presently responsible for the majority of the emissions on the planet are going to be able to meet some of the, I mean, China's made a 2060 commitment for net zero, but they have no mechanism to get there.

Gaye - What should be the mechanism for governments?

Ian - There's going to have to be, they will not have the political will to make the kind of investments we're talking about unless you see much more redistribution. The Brazilian people don't care about the Amazon serving as the lungs for the planet, unless we're going to help them get there. Because the reason why the rainforest is damaged is mostly not because of Brazil, it's mostly because of multinational corporations going in and developing Brazil and taking resources out of Brazil so that we could consume. The Brazilians are a lot poorer than we are. So what are we going to do about that? Those are the conversations that need to be had, but to get there Americans have to think of themselves as global citizens. And we don't and that's a second order problem. Because first, increasingly today in the United States we think that the biggest enemy we have our other Americans that on the other side of the political aisle, so that the Trump supporters if you're Dem, and they're the Dems if you're Trump's supporter. You have to get through that, and once you get through that you have to start actually believing that other people on the planet matter.

Gaye - Correct.

Ian - Right. And you can't just say it, you have to act that way. And there is a reason when everyone on the planet has access to the grid, the power grid, when everyone in the planet has access to enough food to eat, when they're educated, when they're online, they're going to tell you in no short order that they're really angry that you don't care about them.

Gaye - Yeah. And how come we don't hear a lot about Russia?

Ian - Well, one, the population isn't that big, two, they are net beneficiaries from climate change because they will end up with more arable land as a consequence. The polar ice caps melting means you have a shorter shipping lane rather than going through the Panama Canal by taking the polar route, three, there are enormous mineral and other resources that will be available to be mined once the polar ice cap is done. So Putin is more comfortable with where we are heading. I mean, there's a level of chaos that actually serves the Russian national interest much more greatly than other countries around the world, but also because the total Russian carbon emissions compared to the U S, China, India are just small. Why don't we hear much about the Gulf States with all of their air conditioning, everything because they're tiny, because they're tiny.

Gaye - Now, and energy prices are increasing as we're speaking and how will Saudi Arabia, the Saudi Arabia in the future as we transition from fossil fuel era to sustainable energy era?

Ian - Well, the transition is going to involve a lot of oil and gas because you still need to have the ability to power your countries. And until you change, not just the energy source but also all the infrastructure attached to that, you will not allow your population to go without energy or the industry that is required by that population. Now, when we are in an environment where all of the banks in the private sector and all of the pension funds and Harvard University's endowment and the rest are saying, we're not going to invest in oil companies or gas companies anymore, never mind coal. Where are you going to get those investments for critical transition fuels? It's going to be the sovereigns, it's going to be the Emirates, it's going to be the Saudis, it's going to be the Russians. So for at least a few decades, the multinational corporations and the private sector will need to move away from oil and gas much faster, and the coal will be shuttered much more quickly. And the state owned enterprises, including coal in India and in China will be doing a lot of additional investment. So it's not like the planet suddenly just moves all together to net zero, there are a lot of complicated moving pieces and there will be transitioned fuels, but the transition fuels are not going to be funded by Harvard and by the California by CalPERS, just not going to happen. Right. So that money will come from somewhere else where you don't have that level of governance scrutiny.

Gaye - So let's touch on that now. In case or in lieu of inaction or less than desired action at the government level, what could local governments, private sector, big tech or us individuals do?

Ian - Well, those things are happening. I mean, as we discussed the Paris Climate Accord, you had commitments that were being made by mayors, by governors, by CEOs, by bankers all over the country that really met. In many ways Mike Bloomberg did more to ensure that the Americans stayed in the Paris Climate Accord than any other human being on the planet in the same way that Bill Gates personally did more to help ensure American leadership on vaccines than anything that was being done in Washington. So I mean, the fact that we live in a country where animal spirits are supported and where entrepreneurship is supported and where the companies have a lot of power, there's a downside which is the lack of equality of opportunity and in the United States. But the upside is that when big government fails, you've got a lot of people that have capacity to move. And there are a lot of very powerful people, very wealthy people in the U S that really care about climate change, and in fact, they are a majority of the vested interest today than they weren't 10 years ago. Another big reason for that is the tech companies. I mean, the tech companies have done fantastically well. Now the tech companies have their own carbon footprint issues, right, because in order to power all of that computing you need a lot of energy, but that energy can come from anywhere. They're not selling oil and gas, so they want to move towards renewables much, much, much faster. And so you see tech companies saying that they're going to move towards net zero pretty fast, and not only move towards net zero in terms of the annual emissions but even historic emissions so that the company itself over the course of the longevity of the company is not a net positive in carbon sink for the world. It's good to have the U S tech companies taking the lead on that because other companies will get them off.

Gaye - And bringing the government side and the private sector and the big tech together, again, if you were to put on the mechanisms and the incentive structures in place, where would you start?

Ian - I do think that one of the ways that the Americans are going to take as a government will take climate very seriously is competition with the Chinese, because much as the Chinese right now still have to have a majority of their electricity is coming from dirty fossil fuels, but they're also spending far more on wind and solar and nuclear than we are in the United States. And they are far more advanced in terms of their smart grid than we are in the United States, and their supply chain for rare earth minerals that are going to power electric batteries are much more developed than those in United States. Now, 10, 20 years ago when Americans talked about climate, we were largely talking about saving the whales and hugging trees and stuff like that. Today when we talk about climate, we're increasingly talking about transitioning away from fossil fuels towards post carbon energy. And the United States is the most powerful country in the world, we are going to want to dominate the post carbon energy field, the supply chain, the corporations, the technologies, we're going to want to win. Right. And if the Chinese have been investing in this for the last 10 years and they ahead of us, we're not going to like that. So the way that the government and the private sector need to align is on investing in that, in the education that will allow the labor force to allow that to occur, the immigration that will support the labor force that will allow that to occur, the infrastructure that's required to build that. And even in some cases, direct co-investing and subsidies to allow those companies to have more of a head start, because of course in China those companies are fully funded by the government if they need the money, that is a national priority. So we will do that, we will do that, we will be late but we will be strong. I really do believe that the way the Americans ultimately get this right is because our competitive instincts kick in in the world's strongest free market economy.

Gaye - And let's shift gears now to private capital a bit, because you talked about investing, we have some of our clients also watching. What are some of the opportunities that you see for private capital given the push for net zero emissions?

Ian - Well, I think that anyone that is thinking about not ESG per se, but broad changes in the world's climate is going to see enormous investment opportunity, because the amount of infrastructure that will need to be built is, I mean, it's staggering. It is literally world changing and that is going to require enormous amounts of capital most of which the vast majority of which has not yet been deployed. So you want to be early in that, and you want to be early in the United States. If you know there areas we're going to be competing with the Chinese and the capital's a lot safer here than it is over there, you want to invest in those things. So I think it's very clear that that is going to be one of the most exciting areas for future investment globally. And it will be also adaptation measures will be so important. When the COP Process started 27 years ago, adaptation was a dirty word because it was tantamount to surrender, right?

Gaye - Yes.

Ian - And they said, no, no, no, we can't be talking about adaptation, we have to talk about how we stop the world.

Gaye - Climate changing.

Ian - Right. Now that we know that ain't happening, now that we know we're on track for two centigrade warming, we have to figure out how we're going to remediate all of these places that are going to have extreme floods. So just the hard infrastructure build of what does it take to move a million people in Louisiana that you're not going to save their houses and where are they going to go and who's going to build that, and what are you going to do to make sure that the broader New York area is able to respond? Because those people you aren't going to move, but a lot is well under the flood zone, you've seen what's happened with the subways and all the rest, that's a lot of spend. So people can invest in that, right? I mean, because you're not going to just sit and move your companies but you're going to invest in that. So I think that adaptation measures are going to be an extraordinary area of investment opportunity all over the world.

Gaye - Ian, you have taken us on quite a journey today. So to summarize it all, I would like you to leave us with one piece of advice for governments, for private sector, including big tech, and for all of us individuals. Let's start with government.

Ian - For governments I guess a piece of advice would be don't allow the COP Process to define the future of climate. I would be spending much more time in asymmetric issue area and multi-stakeholder conversations. You're talking about adaptation, it's not principally with other governments all over the world. I'd love it to be that way, it won't be, it's going to be with members of the private sector. And you need to think about treaties that involve multiple types of signatories on those climate issues. So it won't just be treated as between states, it'll be treated between states and cities and private sector companies and that's okay because they're going to get things done. So that would be what I would say.

Gaye - How about for private sector and big tech?

Ian - Well, I think for big tech it's an interesting one. I think that increasingly they're carbon, they're not going to be left alone on carbon footprint. People are going to really look into what it is that they are contributing to carbon sink in the world, and they're going to need to get ahead of that. I think that this is right, they have been left alone in part because the fossil fuel companies have been the big bad guys. I think that they're going to have to be more heavily involved in a productive message on how they're going to address that. That's far they've been talking a better game than they've been acting, that's probably a change.

Gaye - I appreciate that.

Ian - Yeah.

Gaye - And for all of us individuals, what's your advice? How to live our lives.

Ian - I think that any time you have this kind of change, there's a big difference between disparing from uncertainty and recognizing that this is the only time you get to matter. When things are stable, when things are fixed your role is not going to move very much. When the world is changing, when the actors are changing, when suddenly we're living in a completely different environment where capitalism needs to change, when the ideas of growth and what it means to be successful needs to change, you need to reassess. How many people change their lives through the pandemic?

Gaye - A lot.

Gaye - A lot of people, they suddenly say, wait a second, going into the office I've been commuting for an hour both ways and killing myself in this job I don't really remember and do something a little different. I want to think about how I spend my time a little differently on the planet. That happened all at once over the course of a year and a half, climate change is a longer but much bigger version of that. A much more structural seismic in some ways even philosophical version of that, where people have to ask themselves how you think about you and your family and how you relate to this planet we live on. I think it's an opportunity for us to reassess.

Ian - Now on that note, final question, Ian. And I would like you to paint a picture for all of us here. It's year 2050, and assume we followed all your advice that you have given us today. How do you envision the world we live in and how we're living our lives?

Gaye - I think that if we get it right, it is not that we've somehow avoided these horrible cataclysmic climate changes and they're baked in. We'll have far more refugees, we'll have far more inequality, those things are all going to happen. But in 2050, we will have the architecture, we will have the technologies, we will have the leadership to respond. We will be in the position in 2050 on climate that we are in at the beginning of next year on the pandemic having lived with this horrible, horrible thing for two years and with all this pain and scarring, but we'll have the tools to get through it. And we'll know that we'll have confidence that we will be able to live as a human society with the pandemic in the rear view mirror. I think that if we do it right by 2050, we'll be able to say that and we can actually have a conversation with our kids that's a little more constructive.

Ian - Indeed and it's good to have you here in person today. Ian, thank you for a truly fascinating conversation and for sharing your wisdom. And thank you to everyone for joining us. I hope this session has been as enlightening for you as it has been for me. It is our to serve you, have a wonderful afternoon and stay well.

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