Canada: What Can We Learn From Cop26? (Podcast)

COP26 saw two weeks of debate and discussion in Glasgow on how to tackle climate change across the globe.

In this podcast moderated by Inspiratia, partner Ben Stansfield and Foresight Group's sustainability lead, Lily Crompton, discuss whether expectations were met and their thoughts on the draft agreement, the UK's Net Zero Strategy, how investors can incorporate more sustainable assets into their portfolios and more.

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Transcript

Omolola Coker: Good afternoon. My name is Omolola Coker, Head of Research here at Inspiration and we are back with another Joint Venture episode for you all.

Today's episode in particular looks at what has been on everyone's mind and, most likely, social media over the past two weeks; the COP26.

Helping me digest the outcomes of COP26 and the impact this will have on renewables and infrastructure is Ben Stansfield, Partner at UK law firm Gowling WLG with an expertise in environmental and planning law, and Lily Crompton, Sustainability Lead at Foresight Group.

Thank you both for joining me today.

To begin I think it will be great for both of you to tell us a bit about yourselves before we dive into your thoughts on the past two weeks.

Why not start us off Ben.

Ben Stansfield: Hi, so I am Ben, a Partner at Gowling WLG. I am a lawyer specialising in environmental and planning law so I have got a particular focus on low carbon projects and infrastructure across the UK.

I advise a variety of clients in our UK base and overseas, whether it is developers, investors, funders or public authorities, and across a range of lifecycle issues so whether they are consenting their project, whether they are dealing with operational and environmental permits or regulation reporting, that kind of stuff. The litigation when it goes and then through to decommissioning at the end.

Omolola: Thanks and yourself Lily.

Lily Crompton: Hi, I am Lily Crompton. I work for Foresight Group. I am their sustainability lead. I have been working in the sustainability field for about 13-14 years now.

Foresight is a sustainable investment manager and I am actually really new to the investment sector.

My background has primarily been in major infrastructure projects, particularly in the construction phase. But at Foresight my role is very much to focus on the infrastructure assets that they own and that they manage and so I am supporting them at understanding their sustainability performance over a whole suite of metrics that we have recently rolled out. Hopefully from there we will be able to set some really meaningful targets for continual improvement. Of course carbon is a huge one that we are looking at. Most of our infrastructure projects actually are renewable energy, but that does not mean that they come without a bit of a carbon price tag, so that is something that we are working on at the moment.

Omolola: So in terms of COP26 this has been all over the place in the past two weeks. I will be interested to kind of get you guys' views of the event so far. Today, as of recording, it is the last day. So what were your observations and thoughts of the event and were your expectations met? We can start with you Lily.

Lily: So I would say that my expectations were probably relatively low - I was trying to be realistic - but my hopes were high. It was a real buzz that we were hosting it here in the UK, really exciting. Lots of discussion between loads of different businesses and industry types that was really exciting, and it still is quite exciting. We are yet to find out what the final draft text is going to be following COP26 (at time of recording). I had a little look earlier and there are some positive things in there.

I think the topics that were discussed were good. The themes across all of the days were really interesting and it was good to see that they were touching on inequality in gender and culture just as much as environmental damage and degradation, as I think there has not been a lot of talk recently about how those two things, climate change and inequality, go quite nicely or badly together depending on how you look at it.

I would say overall I am not disappointed. I am still really hopeful, but the fact is it is all very well that commitments have been made and some of them have been great and really positive, but really the point now is that action needs to be taken and we are not going to know how that will unfold for another six months or so. But I think it has been really interesting to see that COP26 has not just focused on governments and government funding but also asking the private sector to get involved and to really help influence where their money goes. Where there is money often there is power and so I think that has been quite interesting over the last couple of weeks.

Omolola: And Ben did you manage your expectations the same way?

Ben: I think so. In the run up to it, it is a bit like holding the Olympics in London again, was it not, because it was happening here. It was the right timezone so you could watch it live rather than getting up at stupid o'clock. I am a glass half-full person so I liked it. On the positive side, yes it got climate on the front page. World leaders broadly, those who were there broadly said the right things and I think there is some real evidence that people got it, which was great. There was some controversy I think about people from the southern hemispheres struggling to get there because of COVID-19 and vaccines and all that kind of stuff and I think that is clearly a very fair criticism.

There are obviously some big headlines about the delegation being from the oil and gas and fossil fuel sectors and I do not think we have a major issue with that because if a sector or an industry is part of the problem it has got to be at the conference to work out what it needs to do, so I think that was fine.

I think much was made about the lack of the attendance from Russia, Turkey and China and I think yes that was a shame. I know they sent negotiators on their behalf so it is not right to say they were not involved, but as significant contributors to manmade climate change it would have been nice for some leadership there.

But I think my excitement preCOP was if you look at the COP26 presidency programme and they were talking about keeping 1.5 alive and there was not really talk about the 2 degrees that we had in Paris in the materials for COP. I was quite obsessed by that because I thought it actually showed the measure of expectation or aspiration.

So I guess when I looked at the draft COP26 decision most recently today and a couple of days ago, I am a bit disappointed to still see this focus on 2 degrees. It is healthy trying to keep it well within and aim for 1.5 but I really wish there were stronger words about keeping to 1.5 and having 2 as this horrendous stop. You know 1.5 is terrible, 2 is outrageous. So I would like that to have been a bit stronger, but I guess we will find out how successful it is in a couple of years' time. It is hard to tell in the moment how good it has been.

Omolola: So generally it seems that from what you were saying Lily that the engagement more from the private sector side was very much welcomed and it was good to see. So from your perspective then was there anything in particular that investors were looking to get out of COP26? Do you think they felt that things were made clearer or were there any pressing questions that they were expecting to be answered from their side?

Lily: I am not sure whether there were answers they were expecting to be answered but I think, as you know the company that I work for, we are very much driven by sustainable investments and that, like I said, tends to be renewable energy, but also transition technology such as like battery storage. Things that will help the transition to a greener energy economy.

So I think for us it was actually really important that there was real recognition that renewable energy should now be a real focus. Those of us in the industry already knew that the likes of solar power is quite an affordable asset to build but now that is actually being discussed as COP more people are aware of this. That it is not something that is out of reach and difficult to attain. If you have the means and you are a big business that can afford to invest properly in renewable energy then there is absolutely no reason why you should not.

So I think if anything that sent a really positive message. I think there is still a lot of clarity required around where some of the funding may go to and I know that large private businesses did commit to spending a huge sum of money on decarbonised technologies and that is really positive.

I think we need to be aware as well though that we should not just be investing in high tech solutions because with the high tech solutions there will be other problems as there always is when you are balancing the needs of sustainability, and so I think investors still need to maintain credibility in weighing up the sustainability of some of these higher tech solutions.

We keep hearing at the moment about supply chains in various parts of the world being linked to forced labour, for example. We all know that lithium comes from areas that are facing high environmental degradation. All of these will start to potentially get worse because of some of the decisions that are being made from COP26 and we all need to go into this as investors as does the general public, with our eyes wide open to the other issues that this may bring.

I think the investment field are just excited now that there is more scope for us to look at some of these things that potentially were looked at in a light where they were not particularly exciting. People really did not understand what they meant. They were seen as high risk. It has kind of de-risked some of the greener technologies now.

Omolola: Ben do you share similar opinions as Lily?

Ben: Yes I think, obviously you look at COP from an international perspective but you also look to see what the UK is doing, and I think the good thing about COP I guess is that it is the trigger, it is a focal point on policy announcements. The UK announced net zero in and businesses have gone and done their own thing and done so really successfully. Then we have the Prime Minister's ten point plan for a green industrial revolution, so again we knew the direction of travel, we knew we were in a good place. I think in the week or two before COP26 we have an agreed finance strategy, we had the net zero strategy including building, we had the Environment Act during COP, which was taking forever to get that through, so all of those things were in the pipeline and we knew about them but it is absolutely fabulous to have them as reality now. Again on the bigger international scale, I think my take away from COP26, not so much the promotion of renewables but the fact that everyone is giving deforestation and cultural some attention, and so I guess you can either promote the renewables in a clean text sector by doing wonderful things for that sector or tying hands behind the polluting sector, so I sort of saw it more as a yes green is good but these things are terrible and you have got to stay well away from that and that is I imagine sort of the renewable to the structure sector are taking from COP26.

Omolola: Both of you have rightly mentioned that a lot of pledges and commitments have happened over the course of the two weeks and even beforehand, from the first pledges to nil zero emission vehicle action plans and coal to clean power transition statements and the list goes on and one, but I am curious to know from your perspective what is new and exciting for the infrastructure and renewables industry.

Lily: I do not know whether I can say there is anything new and exciting. We have had the renewable energy industry in place for actually quite a long time now, it is just that I think it was not seen as a huge money making opportunity. It was only those brands that wanted to genuinely do something good and new and green that were really plugging it. Obviously some of the big power providers had green energy tariffs for those that wanted it, but it was never their bread and butter. I think what is exciting potentially is that the fact is these large organisations that have always been so powered by fossil fuels are now going to have to commit to some serious plans on how to decarbonise and how to, is completely over to renewable energy. It will be interesting to see how quickly they can do that. The likes of Australia, for example, did not sign the reduction in fossil fuel pledge because they were concerned and I can understand where they are coming from. They were concerned that by turning off the fossil fuel industry will have negative impact for communities across Australia and that will be the same in other parts of the world. However, surely there should still be some sort of plan so that investment could be made to ensure that those communities have new sources of income. We have got a long time, really 2050 is still a decent amount of time to start changing your perspective on how community or a local business could move towards greener production of electricity for example.

So I do not know whether it is particularly exciting for the renewables other than there is going to be more competition with lots more investment coming to the industry. There is going to be lots more investment in the transition side of renewables. I have mentioned already battery storage is going to be huge, that is going to come with its own issues, where do you store these things. Just like people do not want to necessarily be near a coal fire power station, people will not want to be near a battery storage unit either because some of these things are huge and there are still potential implications there for the local community. So there is obviously going to be some big change and it is exciting that the industry is now being seen as something that could potentially be much more lucrative then it was seen as before, but that is quite a money based opinion I think. You can tell I now work for an investment manager can't you?

Omolola; Those are some really good points. Ben do you have anything to add to that?

Ben: No I do not, I think Lily hits the nail on the head, that I think the UK have got renewables for such a long time it is just part of our cultural now and I think you look at the generation mix and I think we are a third gas but wind is the biggest source of electricity production today so culturally we are there. I think was really good about COP26 to see the environmental issues through other people's eyes because I think it is really easy to think that it is an easy thing to solve, you know climate change and decarbonisation because the UK is genuinely streets ahead.

Omulala: Before I move on to closer to home, focus on the UK, I actually thought to expand on what you said Lily in terms of greater competition coming in because more investment is coming our way in the renewables industry or more broadly as was I guess generally discussed in the COP26 as green tech. We had Bill Gates' one billion euro fund that they launched at the EU as well as other coalition. I think the Carney-led coalition saying companies that are signed on have 130 trillion dollars committed to the whole transition, so that is a lot of money. But one thing Bill Gates said was Africa should be trying to drive down costs of green tech which hence all this money. So essentially do you think this is key at this moment, especially in Europe when we are dealing with a pretty much subsidy fee world coming into play in the next few years, like making green technology solar, wind, etc, cost competitive to fossil fuel technology?

Lily: Yes I think it is really important, I do think it is going to happen. I mentioned earlier that solar is actually quite a cheap energy now to produce and so it is very competitive with coal and also like Ben mentioned, the UK is heavily invested in wind as a renewable energy, onshore and offshore, and yes I think there are some key big businesses at the moment that are building these renewable energy parks and farms and I think it can only be a good thing to bring further competition, you know, competition drives down costs. I think to begin with we might see an increase because of the initial competition in the market. Everyone is going to be trying to get in on the market and get the land and find out where they can invest in their renewable energy schemes, but I think longer term we are going to see the rates become more competitive and there is bound to be at some point some form of carbon tax, and that again will only enhance the renewable energy options available to us. I do not think I have seen anything solid around a carbon tax discussed at COP26, so perhaps that is something that will come out of some of these agreements as part of the way for us to transition. It is bound to happen at some point. Loads of us are thinking about what that might look like and what the price could be on a carbon tax. I think to begin with we are not going to have that carbon tax in place and so the competition will be driven by the money that is being made available to invest in renewables and then we will see the price change because of this carbon tax.

Omolola: So I was saying one of the things closer to home was the UK releasing its net zero strategy last week, or earlier this week (at the time of recording), which basically highlights targets and policies for key sectors including power industries and some buildings, transport, etc. Part of this also includes huge cash injections for transport, heat and buildings and power especially but how will this actually (1) going forward look in terms of benefits and then (2) what are the regulatory impacts to how these sectors will operate in future? Is that something you have considered or mulled over?

Ben: Yes as I said a minute ago the net zero strategy was not particular new to us. We have sort of been looking forward to it for a long time, then you read it, and you are like well I know that stuff. But it is nice to see it in print and it is a well considered document. As you are reading it, it is quite nicely structured and it is clearly just a business plan for each of those sectors. It is a high level information memorandum for Government to take around the world and say, you know, come to the UK and do business because, and it is very clear actually when you look at things like power and hydrogen and it states at the top how many jobs, what scale of investment is needed, what policies are we going to bring forward for various things and yes as I say it's power, it's fuel supply, hydrogen, heat and buildings, transport, what have you.

So I think in relation to power, clearly there is a massive ramping up ahead of us. There is the talk of 40 gigawatts of offshore wind. I do not know if that is going to be consented or operational by 2030, I think it talks about and I think there are sort of 10 or 11 offshore gigawatts of capacity now and so this is huge which ever sort of way you look at it, and obviously the UK has committed to decarbonise its power sector by 2035, which you know is 14 years. I know Lily said 2050 is a reasonable amount of time but you know when you start sort of breaking it down to these milestones of 2035 for example, there is a lot to do there. As I say when a third of our power comes from gas you can see that renewable power is going to be massive and it is obviously not just offshore wind, it is solar and storage and all sorts of other things. So when I look at the net zero strategy I guess I think I see consumers seeing the biggest difference or the biggest changes coming up, so the scale of charging infrastructure needed for example for EV's is mind blowing. It is sort of again easy for us to think, well we will all have charging networks on our drive and we will just plug in but actually it is mind blowing just in the UK what needs to be done. Again renewable heat for domestic homes, again, that is effectively a new sector. We have been talking about ground source, heat pumps, air source, heat pumps, no-one is going to have their own biomass boiler. I know we have been doing that at an industrial scale and so warehouses and what have you, so I think yes there are some completely new business areas and business plans for people to be looking at, which is exciting. The net zero strategy has sort of kick started hydrogen and DCS as well and saying look these are investable industries, we will have regulation behind it.

The net zero strategy I guess by definition is a high level document, so it is light on regulation and policy changes so for example in relation to offshore wind it says, I am going to make sure the planning system works in order to provide this and we know how difficult planning reform is. The Government have tried planning reform with a white paper last year and Michael Gove did when he became Housing Minister was sort of put that on the back burner because it was just too politically difficult so there will need to be substantial, in planning alone, substantial regulatory change. I think there are a couple of lines in there about we will look at how local communities will be affected by transition lines in East Anglia in particular where all the cables and so forth can come on site, come onto the UK onto land. So obviously there are twice as many questions raised as there are answers, but overall the take away is going to be very positive.

Omolola: I guess where investors, this kind of strategy, use documentation of targets and policies to provide some form of visibility for them in terms of like ok this is an area where we can potentially push our money towards just clearly for the sustainability target outlines have been detailed in the reports. Is that something that investors look for generally?

Lily: Yes I mean for us we obviously like to be as sustainable as possible and invest in sustainable infrastructure, so the way we would do that is that when we are looking at potential new investments or potential new assets we will assess it based on its sustainability credentials and will assess it based on whether it aligns with some of the STG's or not and the things that we align ourselves to as well. So the Government putting these plans in place really will help, it should actually help drive investment for those investment companies that are switched on to sustainability because, for example, there are some things that we know that are required to support communities, such as good investment in transport, so that remote communities and people can still get to work for example or get to healthcare. But at the moment some of those industries and some of those transport options are incredibly dirty and do not have any plans to change, whereas the government strategy is kind of forcing the hand of these organisations and of the sector to really start thinking about how they are going to improve and yes ok it is very much focussed on emissions and obviously that is our big driving force because that is what is going to have major implications to us in the next few years. But like I said some of these transport options and some of these industries already are fairly sustainable, but they are just by their nature they have never been able to decarbonise and so yes I think it is going to make some of these what we would call asset types much more investable because they are looking at ways to improve. I mean that is something that we would do anyway with our investments and our assets. We would look at how we can improve their sustainability performance. But it can be really difficult, say if you are working with a particular transport option that is a huge gas guzzler and there are no other options at the moment, this is going to hopefully open up some real opportunity which is quite exciting.

Omolola: Thank you for that. So talking more about sustainable cities and buildings and generally greenfield developments. The construction phase obviously entails a whole lot of different aspects. How are cities incorporating into the planning process, issues like biodiversity, how are those being taken into consideration in the construction phase?

Ben: I think biodiversity is a really important point and a really good thing about COP is that it has not overlooked that and we have talked about greenhouse gas solutions, we talk about the decarbonising, we talk about net zero, and those are important words, but it is all about what we put into the atmosphere and the bad things that business does. But if you believe policy and commitments, we will have cracked decarbonisation in 30 years in the UK and over a substantial part of the world. In relation to power, we talk about 78% decarbonisation across the UK by 2035 and power completely decarbonised. So we can have solved greenhouse gases fairly soon but that does not mean the world is fixed and life is wonderful. And actually things such as how we grow our crops, the natural world, habitat, eco systems, those are going to be problems that business and people will be dealing with for much longer than 30 years. So I think it is a much bigger issue that people have not been talking about enough. We talk about deforestation rather than reforestation and that is quite frustrating. But yes the Environment Act is now in force, which is going to have biodiversity net gain provisions so every development is going to have to increase biodiversity by 10% and that is ideally onsite or it might be offsite, or if the worst comes to the worst you buy credit and Government go off and do it. That is going to make a massive difference. I have a lot of real estate developer clients outside of infrastructure and it is the number one thing they want to talk about right now and some developers will say, right 10% is the minimum, well we are going to exceed that because it is important and it is a selling point for the development and all that kind of stuff. So I think the buzz around biodiversity net gain cannot really be overstated.

I think one of the troubles that planning has had to developing sustainable cities is that policy is really slow, climate policy is great, it comes out really quick. One statement from the Government and the business looks at it and goes right we need to do x, y and z and off it goes and does it. The more regular, sort of lets call it town and country planning, you know, that is very political and it takes forever to do and I think that has been a problem, but you have had a real lag between what national policy is saying, what regional or for example, the London plan and then at borough level and there has been a real mismatch to policies which has sort of hampered progress, which is a shame but we are starting to see local plans, local authority, a lot of them declared a climate emergency in 2019 when it was cool and fashion to do so. I think that will improve, I think there will be a greater understanding and more focus on how we tackle climate change on a building by building level. I think the pandemic has been a bit of a wake up call for many of us. I think we all understood that public open space is nice and it was nice to go and walk the dog there and play football with the kids and stuff, but actually we really understood how important it was for mental health and all that kind of stuff, so I think that has been really positive. I think the latest impacts of the pandemic have made us think well actually developments need more public open space, there needs to be more interaction with the natural environment, you know we need 15 minutes, and not spending an hour and a half travelling to work every day. It is a much more appreciation I guess of our time what have you.

We have had clients come and talk to us about urban parklets, tiny little slithers of land in an urban space and turning that into a little oasis. We have been helping a charity with micro forests, really tiny densely populated species, areas of land in urban areas with dozens of different types of trees and what have you and again, that focus I do not think we have had until very recently, so I think that is really exciting. On the building level yes obviously there is a focus on once a building is operational it is all about the heating, the cooling, but I would put that in a decarbonisation strategy and I think people accept that we have got a lot of retrofitting to do, putting up a new net zero building - I am not saying it is easy but it is not difficult, it is much more a focus on the retrofitting now.

Omolola: I guess generally that kind of touches on a point I wanted to raise earlier, that reducing emissions and decarbonisation always seems to be more on the technology side of things, so whether it is the power generation but actually now is a time where we have to think beyond that so biodiversity and the labour aspects and the mental social impacts of the day to day of the industrial in general but is there actually something that is easy to quantify or approach in terms of incorporating that into portfolios, is there something investors know how to address generally?

Lily: That is a really good question. I do not know if many investors know how to address that. They are often investing in tangible things or business so then to start thinking about investing in something that is green or what is now being termed as which is very much investment speak, natural capital, it is quite new, but lots of people and lots of firms are starting to look at natural capital. As I mentioned earlier we are expecting that at some point there will be a carbon tax in some form and we are also expecting that there will be biodiversity credits available for purchase. Now I am not saying that is the right way to go, yes potentially overcomplicating something that should be a nice and easy thing to address, but people have to make money and at the end of the day putting a price on something can help improve things. Putting a price on nature gives it value that it did not have before which cannot necessarily be a bad thing. Particularly at the moment during COP26 we have been reminded that just how depleted the UK's nature really is, it is really shocking.

I have been reading a book recently on that and I had kind of assumed that it is just the last 30 years or so that we have been terrible, actually we have been terrible for hundreds of years, you know clearing land to make way for animal agriculture and various types of agriculture and yes just a funny way of looking at the natural world and I think now as Ben said, COVID-19 has actually done our natural world a favour and reminded us of its importance. It is not just a nice to have, it is important for the health of the planet but it is also important for us as human beings for our mental health and animals are our physical health. So I think there is going to be quite a lot of investment now.

You have probably seen in the news there is a lot of talk now about organisations afforesting areas of land and obviously those forests are primarily for commercial use, but there is a change in how those forests are looked at and so in the world of forestry, 20, 30, 40 years ago, you would buy a piece of land, you would plant, you would cut it down and you would plant again immediately and you did not have any thought to what that piece of land could offer nature, it was just seen as a commodity, whereas now we approach this slightly different. I know it is where I work because we have recently invested in a number of forests and areas of land that we plan to afforest and we are looking at opportunities to re-wild those forests whilst still being able to maintain a commercial aspect of the forest as well. So sometimes that may mean harvesting timber but there may be other things that we can generate an income from that help people to enjoy the natural world. So that is quite exciting for us because we are trying to look outside the box whilst also making sure that we contribute to local nature plans. Most local authorities for example have a biodiversity action plan and that will highlight species, whether it is plants or animals, that really needs an investment and really need some attention. So there is definitely a different way of thinking now, which is really exciting in someone that has kind of been thinking this way for a while and now that there is a price tag on it people are starting to see that actually there is some really good stuff we can do and we can make forests even more beneficial by bringing wildlife and other aspects of nature into those assets, so yes it is exciting.

Omolola: I think you summed up nicely for what I was going for, how do we think outside the box beyond what we normally focus on, so thank you for that.

Talking about the commercial aspects of natural capital, biodiversity and you have mentioned carbon taxing a few times Lily so I was wondering actually because of Brexit, we have a new structure to emissions trading, so I was wondering if anything has come out regarding that new structure, new process essentially, from COP26 or even beforehand and how that is going to roll going forward? Is that something you are looking at then?

Ben: Yes so obviously business is familiar with emissions trading. We have had the EU Emissions Trading Scheme for pretty much most of my career as a solicitor so it is well known to many of us. Obviously Brexit has meant the UK has gone and done its own thing, so it has set up the UK Emissions Trading Scheme that went live towards the end of October 2021, so really pretty recently, and it is following the EU system that we are familiar with so there are not massive changes to the structure of it. It is established, it is a cap and trade system, so if you are in a sector that is captured by the scheme you are going to need to acquire allowances equivalent to your emissions and that is the way it works. There is some interesting stuff in there and there is interesting policy announcements, a minimum price for allowances of £20 which I think there is an aspiration that one day soon that will not even be necessary because the market will just push the price higher and higher, but there is a flaw so I think that was one of the early criticisms of the European scheme where prices plummeted and did not really work and it was flooded with free allowances and so forth.

I think there is certainly a divergence from the EU system now, I think that will probably continue in relation to all areas of emissions trading, but there is a lower cap then the EU was envisaging. There were again some free allowances for aviation, which is going to be a new sector in it and I think what when you look at the European Green Deal and they talk about bringing commercial property into the EU Trading Scheme, I do not think I have seen anything where the UK has been quite so bold and said that. I may have missed it, but again you can see that as some sectors or you know carbon, sort of heavy sectors are on the decarbonisation timeline you can see the Government are again looking at the EU Trading Scheme and saying, well actually if we were to bring in property for example, would that speed things up. So regulatory certainty is great, but actually people like to understand how regulations are going to work and have confidence in them, but you do need a bit of flex, Government does need to be able to look at sectors and say well actually that needs a kick start, that is not doing enough so I am going to bring it into this, the UK and encourage more and faster. So yes, it will support low carbon technology by placing additional regulatory and financial burden on carbon intensive sectors.

Omolola: Before moving on to more of the strategies and approaches that investors can take in the industries taking generally for their reporting standards, I actually want to touch a bit on the role of technology, especially since we know construction or greenfield side of things has a lot of considerations to go through, but that also applies to more brownfield developments as well and I guess for them it is more so how do they become more efficient. So is this something that technology can be used for, whether it is digitalisation infotech, you know very fancy innovated things that come along that can help in this area at all, are we banking on that too much as the silver bullet?

Lily: I can answer that one. So obviously, I have worked in construction for quite a few years previous to my current role. Very recently they have been looking at understanding building performance. Most newer buildings now will have what is called a BMS, a building management system, and that essentially controls everything from lighting, heating, security doors, fire alarms, everything, and those systems are now becoming more and more intelligent for the clients that want them to be, so they can now better understand the behaviour of building users. By understanding the behaviour of the building users you can then try to build in efficiencies into the way the building may be run. So for example, there may be meeting rooms where they are very rarely used and so it is ensuring that those lights turn off automatically. That is a real basic having a PIR system that can also be manually operated is really useful, so if someone did switch a light on, something somewhere will be able to say well no-one is in that room any more so I am going to switch it off. The same with heating, so it might know that actually there is a cluster of people working in one part of an open plan office but not another part and so lighting and heating can be targeted there rather than heating the whole floor or heating huge spaces that just are not necessary. Buildings are becoming more intelligent.

There are some really brilliant organisations out there that offer this and it helps you build in efficiencies and also helps you to design better for future buildings. I know some construction companies actually, at the point of handing over the building to the end user, they request that they still have access to the building management system so that they can understand the performance of what they have built, which is understandably better than walking away and never knowing whether it worked. By understanding their building performance it means the next time they come to build something similar, they have a real understanding of how that building is used, how it is managed, and they can make design changes based on that which I think is brilliant. So yes that is coming, well it is already installed in many places but I think that will really help building efficiencies. Once that is used more and more, I imagine it will influence general design standards, I mean that is the point of organisations like the Building Research Establishment. It is hopefully going to build some of these efficiencies and some of those learnings from monitoring real buildings in real time so that design standards can improve to building these efficiencies in a uniformed way.

Omolola: Moving on to more elaboration on different strategies and approaches. I will start with you Lily because Foresight has already elaborated quite throughout the conversation that your goal is pretty much being sustainable and part of that is having renewable assets under your management, so do you mind elaborating a bit more for us, what approaches you are using to keep your portfolio sustainable and the kind of KPI's this entails?

Lily: So the financial services industry over the last couple of years has faced regulatory changes around sustainability because they want to phase out green washing. They have realised that loads of investment managers are claiming that products are sustainable and perhaps they are not so sustainable, so you can now no longer call your fund or your portfolio a sustainable fund or portfolio if it does not meet certain criteria. The EU recently launched the EU taxonomy, which is still a bit of a work in progress in some areas and I think the UK are planning to launch their own, hopefully it will be very similar so it does not overcomplicate things for the industry. That helps businesses to demonstrate that they align with certain criteria and that they fall within what has been commonly agreed as a sustainable asset or a sustainable business. So that is really helpful and many businesses now are reporting on how many of their assets meet that criteria so that is quite a nice and easy way to label your product or your asset. There is also a regulation such as the TCFD that is fairly new as well, which is around climate related disclosures and also carbon reporting, so businesses are looking at the implications about climate change based on a couple of different scenarios, a couple of different temperature increases, how that would impact the portfolio, how that would impact your assets, and then also making sure that you are monitoring and understanding your carbon impact as you go forward. That is relatively new and I think that is really helping businesses to really get to grips with how at risk potentially their assets or their portfolios are based on climate change. It is also enabling transparency across the industry in terms of carbon impact and how much carbon is being generated, and it ties in also with what has been discussed recently at COP which is the climate transition plans that businesses are being asked to produce, and actually loads of businesses, because of things like TCFD, are starting to produce these anyway because you cannot really make improvements without a proper plan and you cannot make improvements without monitoring your performance. So I think actually there is some confusion at the moment about whether those climate transition plans will be mandated or not. I think there was a statement that they will be and then in an article it said that it would not be so hopefully we will get some clarity over the next few days on that one. But like I said lots of businesses are doing that now anyway because it just makes sense to understand how you monitor and measure your carbon and your emissions and then how you could put a plan into place to reduce them and fully decarbonise.

So at Foresight we have two parts of our business, private equity and infrastructure. At the moment I am very much working with the infrastructure side of the business and within that we have laid out a whole suite of KPI's, they are really new, to monitor our scope 1 and 2 carbon emissions. Next year we will be looking at our scope 3 carbon emissions as well, but that is also to look at things like social value, where we are working in remote communities, how we are engaging with those communities, is there something that we can do that can support them and it is tackling a number of kind of key sustainability or ESG issues, so also looking at the circular economy, understanding what waste products will generate as a result of having a particular asset. When we are maintain our solar farms and our wind turbines, what happens to those bits of equipment and those items that are involved in that maintenance process, how can we make sure that we now start to properly monitor and understand what happens to them? Some of them I know at the moment end up in landfill and that is not right, but at the moment there is not necessarily an easy route to create this circular economy approach to some of these products so we are really starting to investigate that now. So I would say the key themes for us are social value, natural capital, because we are also asking all of our assets to look at biodiversity, get an idea of what their baseline biodiversity was pre-asset, and then what it is now and how we can improve, and then social value as well.

Omolola: You touched on the fact that the UK is going towards producing its own standards but generally would it benefit, I guess, across industries having a global standard to adhere to because most investors or developers kind of operate cross borders, so is that something that is easily transferable and understandable? And also I do not know if either of you can speak on this, the UK mandates that I think Chancellor Rishi Sunak released and announced earlier this week (at the time of recording), is pretty much putting a lot of pressure on financial institutions and publically listed companies. I have seen quite a bit of debate around a disparity between the pressure on public companies versus more private businesses, and do you think again this global standard or having a general standard would help push us closer to reaching the transition goals?

Ben: Yes, obviously I am not an investor so I can only speak from what I see. I think with the ESG standards everyone has got their own line in the sand, and for some people the social issues will be sort of a no-go area if there are problems there. So I do like the flexibility of there should never be a pass fail on that but in terms of consistency of information and being able to benchmark and compare across sectors, the standard of those has got to a good thing. Whether that has to come from up above, I think I remain to be convinced on that, I think if the market or sectors want to go down a particular route and adopt a particular standard or way of doing it, I think that is probably just as good.

Then you asked about the pressure that non, well there is obviously those who are mandated, you know the mandatory reporting and so forth, and yes I spend a chunk of my time advising on the mandatory reports, where at, relating to SECR or Companies Act type stuff on environmental issues and climate issues. There are a lot of businesses and entities who are not required still to produce materials, and yet they still do, because it is the right thing to do and just because regulation does not require it, the stakeholders expect it, every employee want to know that they are working for a socially and environmentally responsible business. Their customers are expecting it. Gowling's clients want us to talk about our green performance when they are procuring legal services and rightly so and we should have accountability and be told to do more and improve. So have any of my clients complained that they are unhappy that I am having to do mandatory reporting, no, and similarly no-one is feeling unhealthily pressured into reporting on a voluntary basis because again I just think that is just the way we are now. Five years ago, sure, that was a big issue, but it is just expected and a client has got teams that are fantastically brilliant people, who are all over this stuff, I do not know Lily how long you have been in post for, but businesses are hiring great people to do this stuff.

Lily: Yes just to add to that. You are right. My role was a new role altogether. We are now hiring someone to look after sustainability at a group level so that we can be more strategic. So yes I think everyone understands that there is a real drive and an incentive from shareholders, stakeholders and also now Government to do better. But just to quickly touch on the idea of a global standard. It would be brilliant, particularly when it comes to emissions because it would just help standardise the data so much better. There are some really useful international tools out there depending on your sector. Tools like BREEAM for buildings, you have got LEED, BREEAM even does infrastructure now so you can do like railway developments for example, and then we have got things like WELL that focus not just on environment and sustainability from that perspective, but also the comfort and wellbeing of building users which is brilliant, and again they are internationally recognised so you could potentially compare a building with another building on another side of the world. I think the finance sector is now looking more at this as well so that there are international standards that we can kind of measure ourselves against so it is easier for the global community to understand our performance.

Omolola: Ok. I am mindful for my own rule of wanting to keep this to an hour which we have gone over, which is not a bad thing just in discussion, but I think we can kind of conclude our conversation and pose to you guys two questions each: it is pretty fair to say that investors and the industry as a whole are interested in strengthening their commitment and upping their game and obviously it will not be an easy task. So my first question is: looking ahead what are the transition risks that the industry has to consider, and also to that, what is outlook for, I guess the outcome from COP26?

Lily: To try and keep my summary short I would say key transition risks now for moving towards a greener economy and a better way of doing things is, for me anyway, primarily around the supply chain, because the supply chain is going to now change across all sectors and we really need to think about where our products are coming from and where our money is going. I am thinking about this very much from a renewable and high-tech perspective because where you solve a problem in one location it could then create a problem somewhere else. So I think yes, there is a big risk there that supply chains could be overstretched and therefore become not sustainable for a variety of reasons.

Things to look for hopefully are basically a bigger push towards the natural world and the natural environment. Ben mentioned earlier that actually there has been lots of discussion about how this should not just be a tech solution. Obviously that is greatly needed but understanding that even just in the UK we have a lot of work to do to improve nature and there are lots of things that we can do that will help sequester carbon that essentially requires us to just go back to basics and not overcomplicate things and just allow nature to thrive and how can we build that into what we are doing, whether it is the built environment or whether it is looking after a natural asset, so I think that is something that I am really looking forward to seeing play out over the next year or so.

Omulala: Thank you Lily. Last but not least Ben.

Ben: I think one of the biggest challenges in the short term is getting the tabloids on side. I think if you look at the Insulate Britain reporting, these were people who, yes they were causing disruptions but they clearly passionately believe in what they are saying, their message was good, and I am not going to comment on how they delivered it, but the tabloid coverage was horrendous in the sense of there was not a focus on the message for the climate emergency, so I think getting the tabloids on side is important. I think again if we, when we are talking about EV's, and we are trying to persuade the public to ditch the internal combustion engine, let us have the media, not start worrying about anxiety and all these kinds of issues actually can be a much lesser an issue than they are. So I think there is a disproportionate reporting of pros and cons. Obviously money is a big risk, and Government will need to look at whether some incentive kicks starts them, you look at offshore wind, you look at solar, plus they are now based on what was done five or ten years ago to kick start those. Then obviously, the lawyer in me says we need a reliable framework. You need clear and simple laws that are readily understood. Biodiversity net gain is a fantastic policy but if the subsequent regulation or the guidance are muddled it is going to be a nightmare. You look at the green deal, what was that, sort of seven, eight, nine years ago and it kind of failed because it was so complicated, so I think simplicity of frameworks will be really fundamental and that is a real challenge in this sector.

Omulala: Thank you so much Ben and thank you so much Lily. It was a great conversation and I guess we all have our eyes on the final statements from today and what will come of it. Thank you so much for your time.

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