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- Episode 5: The London Stock Exchange Group’s Climate Transition Plan
Episode 5: The London Stock Exchange Group’s Climate Transition Plan
Recorded on location in the studios at the London Stock Exchange, Keesa Schreane caught up with Jane Goodland, LSEG’s Group Head of Sustainability, to find out more about the organisation’s first climate transition plan and the importance of Scope 1 & 2 whilst opening the way for Scope 3. Jane shares how LSEG hopes to achieve its science-based targets to reduce carbon emissions by 50% by 2030 and to reach net zero by 2040. She also talks through the challenge of universal disclosure and the introduction of the International Sustainability Standards Board, as well as LSEG’s own role as it relates to social equality now and in the future. Finally, Jane gives updates on some of the initiatives LSEG is helping to drive, including the Glasgow Financial Alliance for Net Zero (GFANZ) and the U.K. Task Force for Climate Transition Plans.
This week on the Green Room we hear from Lily Dai, Senior Research Lead at FTSE Russell. Lily discusses the key trends and insights in the global green economy based on FTSE Russell Green Revenue data – a unique source providing granular, bottom-up information on corporate revenues from green products and services. https://www.ftserussell.com/research/investing-green-economy
Host: Keesa Schreane
Keesa: [00:00:07] Welcome to the Refinitiv Sustainability Perspectives podcast. I'm Keesa Schreane. On the show today in our second edition of The Green Room, we're chatting with Lily Dai from FTSE Russell, who has just co-authored a new report on the rise of the green economy, which is now worth $7 trillion. That's trillion with a T. We'll drop a link to the report in our show notes. But first we go to my interview with Jane Goodland, Group Head of Sustainability for the London Stock Exchange Group. I had the opportunity to sit down in London with Jane at our office in Paternoster Square to chat about LSEG's Climate Transition Plan and the challenge of universal disclosure. Jane Goodland, welcome to the show.
Jane: [00:00:55] Thank you. It's good to be here.
Keesa: [00:00:56] Absolutely. First of all, congratulations. I understand that the London Stock Exchange Group published its first Climate Transition Plan. Fantastic news. So we'd like to know just your overall vision or key pillars in terms of your process to create the plan? And then what do you think the next steps will be? What will next year look like, or what will the coming months look like based on what you've put together so far?
Jane: [00:01:21] So taking a step back, why we felt it was necessary to publish a Climate Transition Plan was really to flesh out our commitments. So we've made some pledges and we've made commitments. They're science based targets to reduce our carbon emissions. So we're looking at reducing our carbon emissions by 50% by 2030. They're are near term targets, but we're also committed to reaching net zero by 2040. So those commitments are great, but it's really important that we share with our investors and our other stakeholders how we envisage meeting those commitments because we're firm believers that it's not enough just to kind of make a pledge. You actually have to turn that pledge into a plan and that plan has to ultimately result in action. So the climate transition plan really seeks to kind of explain how we are trying to meet our targets. And in the Transition Plan, we set out the main, what we call glide paths or pathways about the areas that we're focusing on.
Keesa: [00:02:23] So you know that there are lots of other firms who are grappling with this issue. And I'm wondering, what's your advice for developing a plan and getting shareholder backing for this, whether it's a company the size of the London Stock Exchange Group or even other sizes?
Jane: [00:02:37] Well, I think one of the key things is not waiting for all the answers, because, you know, we are in this situation where we do lack certainty, we do lack information. But that shouldn't be a barrier for us actually publishing where we're at now and where we want to go for. So I think not letting perfect get in the way of good, right? And we do kind of set out in our Climate Transition Plan that we acknowledge that there are areas that we've still need to kind of improve upon or put more detail on, and we've committed that we will be updating that plan on an ongoing basis. And so our evolution and change. So I think the first kind of point is just start, take that first step of making a commitment and then starting to flesh out, well how are we going to achieve this, even if even if you don't have all the answers yet actually. I think the process of starting to work out how you're going to do it is really important.
Keesa: [00:03:33] And also to the challenge of universal disclosure. Are you having issues understanding which standard or which framework you need to use? And is that something that you've had to grapple with in the past?
Jane: [00:03:45] I think this is a common problem for lots of companies and financial services companies as well. Lots of people talk about the alphabet soup that we have at the moment, which is, you know, the amount of acronyms that we have for different reporting standards or different initiatives. And it really can be quite mind boggling, in fact. But we absolutely welcome the introduction of the International Sustainability Standards Board, and we're really hopeful that will provide a great deal of consistency to global disclosure. We're really keen that is a catalyst for a reduction in that alphabet soup. But we've published just this week our thoughts around global disclosure and what we need from a policy environment to really help create a better global framework to allow more consistent and more comparable information that investors can use about companies' climate risks and opportunities and how they're managing those so that investors can allocate capital more efficiently. It's really critical that we have the data, you know, really sort of high quality data, and we know that that's missing at the moment. FTSE Russell have just put out a piece of research which shows that we're looking at very, very limited data. And even if you look at global kind of large and mid-cap companies, there's at least 42% who are not disclosing scope one and two emissions. Right? So we've got this massive data gap, even for the biggest companies and what happens is, is when we have that data gap, we rely on estimates. And we also know that those estimates are not accurate. So we can see margins of error up to 100% either way of these estimates, right? And so what that does is it means that investors are grappling with absent information and what information there is there, you know, of questionable quality in terms of those estimates. So it makes the allocation of capital in support of a net zero transition even harder. So it's really important that we focus on getting data and we focus on getting data that's comparable and helps investors to work out where to allocate their capital.
Keesa: [00:05:57] So you brought up scope one and two emissions, and we know that scope three emissions is proving difficult for many companies. So I'm wondering in terms of how to take care of these challenges or how to move forward, despite that. How does good supply chain engagement, are there other ways in addition to that, to help support getting that scope three emissions information. What have you found to be most helpful there?
Jane: [00:06:20] So you're right. Scope three emissions are problematic. And just to be clear, I suppose scope three can come through supply chain but also use of product as well. So in financial services we do tend to think about scope three as being predominantly through our purchased goods and services. Certainly for LSEG we have, the vast majority of our scope three emissions are from purchased goods and services and indeed the vast majority of our emissions overall are from our scope three emissions. So it just shows how important it is to engage with supply chain. But in other companies, for example, in other sectors, their scope three emissions may be more about use of product. So product in use, for example. But in terms of how we've approached supply chain engagement, first of all, I would say is we haven't got it nailed, right? We are also at the beginning of this journey. But again, this comes back down to good information and data actually. So what we've been focusing on is trying to really understand the emissions from our supply chain. And we have a very extensive supply chain, but we also have a small number of big suppliers who are accountable for the majority of our scope three emissions. So really it's about focus as well. So we really want to get the information about our supply chain, where the emissions are coming on, and then focus on those where we can really see that actually we've got the majority of emissions. So we can enter into kind of much deeper engagement with those suppliers.
Keesa: [00:07:52] And this sounds like it takes a lot of resources to accomplish this, to reach out to those suppliers, to understand what they're doing, to hold them accountable. Is that the case? Is it resource intensive? Is it expensive?
Jane: [00:08:03] So I think, you know, supply chain engagement isn't something unique to sustainability. I think all good businesses are looking to have good relationships with their suppliers and their partners. So really what this is about is just trying to expand that engagement to encompass sustainability. And this is, it's not a new phenomena, right? So in the context of sustainability, we already want to understand about things like human rights or modern slavery, etc., and making sure that the suppliers in your supply chain are upholding certain standards of business conduct. So that's already kind of in the conversation. I think where we're seeing the extension is around actually getting numbers around emissions. And that's the thing that is the new element. But indeed, we are being approached by our customers because we are suppliers to those customers for exactly the same reasons. So we're seeing a lot of engagement. And my team gets involved with providing information as a supplier to those customers. And at the same time, we're working with our procurement teams to help them get the sustainability engagement going as well.
Keesa: [00:09:12] Looking at the London Stock Exchange Group or LSEG from a holistic perspective, your position is really a data leader, a market infrastructure leader. In addition to that, one of the things that financial firms are dealing with is creating this just society, reallocating capital in specific ways and redirecting that capital. And I'm wondering, in terms of the social equality aspect of ESG, we talk a lot about climate. What is LSEG's role as it relates to social equality now and in the future?
Jane: [00:09:46] Yeah, I think we have a really key role. And if you think about our corporate purpose, we're really about helping to deliver financial stability and powering economies and enabling our customers to deliver sustainable growth over their long term. And all of those things are integrally linked to a sustainable, inclusive economy, right? So financial stability is a good thing for society. Sustainable growth is a good thing for society. You know, so actually, I think we're well positioned because our corporate purpose is very much founded in economies which work well. And I know we've talked about climate, but actually I think it's really important that we recognize that we simply cannot decouple climate change and our activity to mitigate and adapt climate change with the social angle. There is a huge social angle associated with climate change, and that's why we talk about a just transition. And what we mean by that is making sure that as we transition traditional economies and grow the green economy, that we really do think about the social risks and opportunities that go alongside that. So that might be around jobs that potentially may be impacted through the sunsetting of some sectors versus new skills required to support the green economy. So all of these things need to be taken into account. Similarly, it's really about looking at the different countries and making sure that actually both within countries and between countries, that we're looking for an equitable and a fair sharing of both the kind of risks and opportunities of that net zero transition.
Jane: [00:11:21] And that's why it's so important that developed economies really do try to support the redistribution of capital into emerging and developing economies. It's absolutely vital. And often it's those kind of emerging and developing countries who are on the sharp end or sharper end of climate change. You can see that through some of the enhanced and more frequent extreme weather patterns: floods, droughts, extreme weather events. Often it's those countries that are hit hardest and often they are struggling to get back to some sense of normal when the next one comes, right? So it's really important that the finance flows into projects that will help to mitigate climate change, will make them more resilient as well, and help the adaptation and also the growing of renewables. So, for example, there's a lot of focus on South Africa at the moment to make sure that the world helps South Africa wean itself off coal and onto renewables. South Africa can't do that alone. It really needs the international community to help in terms of finance, in terms of infrastructure. So that's what we mean about a just transition. And it's really important that we don't lose sight of the social side of climate change.
Jane: [00:12:33] But in terms of other social aspects that LSEG is interested in, in the context of its sustainability commitments, we really are about focusing on creating inclusive economic opportunity. Absolutely fundamentally believe that economic empowerment is something that is a catalyst to help raise living standards and really improve people's lives overall. And so as a corporate purpose, we talk about we're here to empower economies. We've taken that philosophy and said, well, actually we should be empowering communities as well and individuals. We do that in a number of ways. We are championing diversity and inclusion both internally but also in the markets more widely. And also when it comes to the community, we've set up a new charitable foundation called the LSEG Foundation, and we're incredibly excited about that because it has a huge potential to change people's lives. And I know that sounds a bit corny, but actually when you see the power of what we can do in communities, it's really phenomenal. So that charity launched just last year. So we're really kind of getting up to speed at the moment and we are in the process of identifying charity partners that we can work with who will be deploying support on the ground in the countries that we're working in.
Keesa: [00:13:49] And so just with that, I know that there are some consortiums I'm thinking about GFANZ, for example, where various groups, various members of the financial services sector are coming together to support that. Can you tell us about the initiatives that you're working with, with your competitors or with others in this space?
Jane: [00:14:05] Well, to start with, there's lots, right. But I think you've called out GFANZ as being one, which is incredibly important, because that is probably the biggest coalition of financial sector organizations that we've ever seen, actually.
Keesa: [00:14:19] And the acronym is Global Financial...
Jane: [00:14:21] It's the Glasgow Financial Alliance for Net Zero. So these are organizations which are united in a common goal to reach net zero by 2050 or sooner. And really, I think climate change has been an issue which has in the past been dominated by governments and academia and some of sort of the real economy. Finance has arguably not played such a dominant role in the past, and that's changed. So COP26 changed that. And the creation of GFANZ has changed that. And Mark Carney, along with Mary Shapiro, runs GFANZ. And it's incredibly exciting because I think when you have so many organizations coming together with a single mission, the power of finance can be unleashed. And really, this is for me, this is what this is about. This is about ensuring that we are using the full power of the financial community to service society and to crack climate change, right? And so there's a lot of sceptics out there and pessimists. I'd like to call myself sort of a realistic optimist because I believe in the power of people and the power that actually we can do incredible things when we put our mind to it. So GFANZ I think is a great initiative and we're involved, we were a founding member. Our chief executive, David Schwimmer leads one of the workstreams on real economy transition plans so really helping to put in place some tangible ways which we can transition certain sectors or at least help to transition certain sectors. And then as a subset of that, we're also a member of the Net Zero Service Providers Alliance. So here we go, some more alphabet soup.
Jane: [00:16:06] So that brings together particular service companies. So in there we've got exchanges, data providers, proxy advisors, auditors, and I'm sure there's index providers. And so these are the companies that I like to think of, these are the vital connections. So if you think about the financial ecosystem, you've got some of the sort of well known actors such as the banks, such as the insurers, the asset owners, the investment managers. But the service providers are the ones that join all the dots, right? So they're really, really important to make sure that we have all the infrastructure and the information and the services to really deliver the commitments that have been made by the members of GFANZ. So the Service Providers Alliance was formed just at COP26. So it's really new and LSEG is absolutely a member of that, an active member. We're going through a process to set targets, to be able to track and follow progress about how we are realigning our services in support of net zero. It's not an easy task, but we will be publishing in September 2022 our targets as an alliance, so we will be accountable to report on those targets. David's involved in GFANZ, but there's also something that he's involved in which is really exciting actually. It's the recently launched UK Taskforce for Climate Transition Plans, and it's a small expert group of people coming together from academia, from business, from finance and policy to craft best practice guidance on what a Climate Transition Plan should include and what it should cover. And the reason why this is exciting is because that guidance doesn't exist. And I was talking earlier about the fact that one of the key things that we're encouraging is don't wait for the rules, don't wait for guidance, don't wait for full information, just get your climate transition plans going, because actually it's only through doing these things that you can understand what should be in them and where it's tricky.
Jane: [00:18:12] So David's role is really to help that process. And later this year there will be a consultation coming out around the guidance. And what we're really keen to see is that the UK is clearly taking quite a proactive approach here, but it would be our hope that other countries around the world would seek to follow and improve on if necessary, but really emulate. Because actually, I know it sounds all very kind of dramatic, but we don't have long, right? The world is setting targets for emission reductions by 2030. It's only eight years away, I think sometimes I don't know if you're like me, but I hear the word like the year 2030 and it feels like forever away. But actually when you realize it's only eight years and that's really not very long. It's like less than 3000 days or something, you know, we don't have long and we do need to treat this like an emergency because actually up until now, we really haven't. So the Climate Transition Task Force is a really good example, I think of the UK taking a really proactive role and LSEG's really delighted to be in that conversation. You know, this is actually quite a small group of, of key actors who have been deliberately invited to participate into that taskforce. So we're really pleased to be in that group.
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Keesa: [00:20:07] And I'm wondering if we look at LSEG and what LSEG is doing, is it reflective of the UK really taking a leadership role as it relates to climate? I mean, if you look at a lot of the regulations, you're talking about how other countries are joining other countries or emulating these regulations. So how do you feel about that in terms of leadership coming from the region?
Jane: [00:20:26] At COP26, the UK Chancellor set out his ambition for the UK to be the first net zero financial centre. And of course at the time everyone said, well, what does that really mean in practice? What does that mean? Actually, what we're seeing is we are starting to see some evidence of that, which is great. So talking about creation of Transition Plan, Taskforce to actually get best practice out, mandating climate disclosure again is something which is really needed. And I think that we need the data. Investors need the data. You don't get the data unless actually you kind of mandate it. We really need to accelerate this kind of disclosure gap. So that's one way to do it through mandatory disclosure and certainly that's something that LSEG, we've talked about our, our views around what's needed from a policy environment. And so we're calling on governments around the world to really accelerate and focus on disclosure rules. So we're asking for mandatory disclosure of sustainability issues and principally climate by 2025. So we really think that governments need to be implementing domestic disclosure rules in the same way that other countries around the world, including the UK, have. Second, we think that we need mandatory disclosure again by 2025 of companies to break down their revenues by green or non green revenues. And the reason why that's important is because investors need to know which companies are contributing to the growth of the green economy and where they can allocate capital if they wish to do that.
Jane: [00:21:59] But to underpin that type of disclosure, we need good green taxonomies because, actually, and we need interoperable green taxonomies because it's no good having a taxonomy, let's say in North America that says green equals X, Y and Z if in China it really doesn't, right? So that's going to confuse the global economy because investors invest globally. So we need green taxonomies. We need transparency around green and non green revenues. And then finally, we really do need to recognize the fact that transition finance is absolutely critical if we're going to achieve net zero. And so we need kind of mechanisms in place which will support transition and get finance. And that, we believe, is where voluntary carbon markets have a key role to play. So the London Stock Exchange announced last year its intention to create a new mechanism on the London market to support listed carbon funds, which we're really excited about. Again, it's a first. We don't believe that it's been done anywhere else. And what this really does is, is create two key benefits. One, it creates a simpler and more straightforward mechanism to get capital into projects, mainly in emerging and developing economies, which are focused on climate mitigation adaptation, which would then create carbon credits. So we're scaling finance into those projects, but at the same time, we're scaling the projects themselves because effectively more supply of finance will drive greater availability of projects.
Jane: [00:23:32] And we need both of those things to happen if we're to create these kind of a voluntary carbon market. And as we're seeing that companies are making commitments to reduce their emissions, but there are always going to be some emissions that are simply not possible to mitigate. And that's where carbon offsets come in. Now, people get very excited about, oh, you know, you can't use carbon offsets, but we are very clear that we agree carbon offsets is not a substitute for reducing emissions. Absolutely. The first and absolutely important thing to do is get those emissions down, switch to renewable energy, invest in energy efficiency, do all the things necessary to get those emissions down as far as possible. But where you've got residual emissions, they should be offset as well in order to be net zero. And it's really important that obviously that the offsets that we access and use are of really high quality, that they're credible, that they are indeed delivering those kind of offsets in practice. We don't want to just to be kind of investing anything. So yeah, voluntary carbon market is really, really important. And we really think that policymakers around the world have got a key role to advocate, catalyse, support, the growth of that market.
Keesa: [00:24:46] And one of the things to wrap this up, when I talk to asset managers, you know, when the microphone's turned off, cameras are off, one of the things that they say, frankly, is that there are so many resources being allocated to net zero by 2030, which you mentioned is not that far away. You know, the involuntary carbon markets discussion there. Because all these resources are being allocated to climate, there are just not a lot of resources left to be allocated to the social piece. You mentioned earlier that there is a combination or interrelationship between the social and the climate. But do you feel at the end of the day that because so many resources are being allocated right now and the focus is on climate, that the social aspect will suffer?
Jane: [00:25:27] So I don't believe so. When we think about sustainability, there's so, so many issues that actually need to be looked at. But I think that we need to be realistic about time frames and materiality here, right? So what we do know is that the climate crisis is very near and very present and it demands and requires our attention. It doesn't mean that other issues aren't important, but it does mean that it might be that for now we are focusing on climate. But it's really important, like I said before, that we make sure that the social side of fighting climate change is absolutely prioritized. There are other issues like nature and biodiversity, which are, again, absolutely critical to fighting climate change. And we're seeing initiatives like the Task Force for Nature Related Financial Disclosures, TNFD, another acronym for you, which is publishing its disclosure framework around nature. It's incredibly difficult, though, for companies to assess, quantify and disclose how their business is reliant on nature, basically. So all of these things need to be tackled. And I guess if you've got finite resources, then the allocation of those resources needs to take into account the importance, the materiality, the timing. And so climate is getting quite a lot of the attention, but social issues as well continue to be focused on. If you look at inclusion and diversity, that is absolutely high on the agenda for many, many shareholders. And it's certainly something that we routinely talk to shareholders about, literally just this year already lots of conversations about that as well. So I personally, I don't think that the social side should suffer because of our focus on climate change, particularly if our focus on climate change includes the social angle. Because actually then we are naturally picking up on kind of people as well as planet.
Keesa: [00:27:24] Absolutely. So talking about publishing the first Climate Transition Plan to the importance of setting goals, also the importance of scope one and two, but really opening the way for scope three and understanding where use is important as well as engaging with suppliers. And then obviously the importance of aligning with other competitors, others in the market space to produce opportunities like GFANZ where you can really create an opportunity for a just transition. Lots of great work from you, Jane, and look forward to seeing and hearing about lots more.
Jane: [00:27:57] Thanks very much.
Keesa: [00:27:57] Thanks for joining.
Keesa: [00:28:02] I hope you enjoyed that conversation with Jane. Now let's get to my chat with Lily Dai, Senior Research Lead at FTSE Russell on the new Green Economy Research Report. Lily, thank you for joining us.
Lily: [00:28:14] My pleasure.
Keesa: [00:28:15] So, first of all, tell us a bit about yourself and your work at FTSE Russell.
Lily: [00:28:18] Sure. So I'm a senior research lead at our Sustainable Investment Research Team. So we are focusing on developing IP and methodology for innovative, sustainable investment data solutions. And for myself, I particularly focus on green revenues data which basically capture companies with revenues generated from green activities, which is, I think, fundamental data sets to the green economy analysis we are doing. And I'm also a member of the UK Green Technical Advisory Group and the Singapore Green Finance Industry Taskforce, very long name, to support the taxonomy development around the world. And I previously work at Climate Bonds Initiative with a focus on green bond markets. So I guess my kind of career is pretty much about defining what is green and the data solutions for sustainable finance taxonomies.
Keesa: [00:29:16] So does this mean essentially that you're focused on bringing information to benchmarks or informing certain indices? Is that what the focus is?
Lily: [00:29:24] Yeah, I think we are developing data set which can be used as inputs to benchmarks. We also have, I think, investors directly use our data to inform their investment decision making, you know, what company they should be looking at, what companies might be excluded. So I think at both data and benchmark levels.
Keesa: [00:29:46] So let's talk about the report. Your research more specifically, what would you say would be the top line, are some of the most important couple of pieces coming out of the latest report?
Lily: [00:29:57] Yeah, sure. Happy to do that. I think I want to kind of highlight three key points from the report. The first is that the green economy is actually a growing and significant investment opportunities. If you look at I think a few years ago, people were more thinking about the thematic funds, but now I think it's becoming quite significant to even, like, generate investors. So it's too big to be ignored. And if you look at the size of it, currently the market capitalization of the green economy stands over U$7 trillion and it's about 7% of the global equity markets. And if you look at green economy by itself, it will be the fifth largest industry. It's now currently larger than the fossil fuel and larger than retail sectors. And in response to the current global environmental challenges, the green economy actually is growing at a compound annual growth rate of about 14% over the last 12 years. So it's actually growing rapidly. I think the second part is that, it is not like a niche market. It's quite diversified with a growing range of technologies across different industries. So if look at, for example, the auto sector, 42% of it is green because it has green technologies or solutions like electric vehicles. And for utilities, this is the second greenest sector with 27% of its market capitalization being focused on renewable energy, for example.
Lily: [00:31:37] And it's not just about end use. So if look at the development of electric vehicles, it's not just about car manufacturing, but also about the growth of lithium materials, batteries in upstream and the charging infrastructure and recycling in the downstream. So there's a lot of kind of small kind of activities and nuances across the value chain that is being captured by our data and the report. And lastly, I want to mention that there's a, I think, a good chart in our reports describing the performance of the green economy. In the long term, actually, the green economy has been outperforming or performing very well in the last ten years. And to give you some numbers here, our FTSE Environmental Opportunities Index, which captures companies with green revenues more than 20%, it has been outperforming the global benchmark by 6% over the last five years and outperforming the oil gas sector by 20%. So I think in long term, because there's increasing focus on climate finance, we have investors growing interest in sustainable investments and sustainable taxonomists coming into force globally. So we can see in the long term it's a sizable market and it's growing and performing very well.
Keesa: [00:32:58] And Lily, when we're talking about the green economy, I know we're presenting global numbers here, is there a way to separate the growth in developed countries versus what we call emerging or developing countries? Can you separate that to tell us if the growth is consistent in both?
Lily: [00:33:12] Yeah, sure. I think if you look at the size of the growing economy in terms of the market capitalization, it's quite diversified. You can see every countries have a bit of green economy, but the size of it's broadly follows the trend of the global equity market. So if you look at the size, I think US is quite dominated, followed by China. But then there's also other countries like Japan and European countries like Germany and France. But that's, I think, only one part of the story if you look at the exposure, so how green the economy is. In fact, I think European countries like Germany and France, they actually have quite high exposure. So meaning not just the size of it, but if you look at the economy as a whole, they are quite great. So we say it's like green exposure rather than the size.
Keesa: [00:34:10] It's interesting too, you mentioned US then followed by China, and by many definitions China falls into the emerging category, even though the size, etc. would likely contradict most people's thoughts on that. But yeah, interesting to see so that's across both ways. And so just moving forward to the single biggest takeaway for those who are focused on SFI, for those who are really looking to drive and really move the needle, what would be that single biggest area that they would need to focus on and take away from the report?
Lily: [00:34:39] I think we talk about what is green economy, how does it look like and how it's performing. But I think fundamental to this is actually the disclosure and how we measure green economies, to measure the, I think, the company's green activities, the size of green economy, we have to check companies one by one and we need to break down their business segments to identify growing and non growing activities. And for each growing activity, we have to understand, okay, how much revenue is generated from your growing activities. But I mean, despite all the kind of taxonomy development around the world or what is green, in fact, the quality of disclosure right now is not sufficient. So if you look at our research companies who fully disclose growing revenues normally only account for less than 30%. And to kind of improve the disclosure, we not only engage with companies, we ask for additional information or we conduct a bottom up assessment to estimates. But I think to accurately measure this green economy and the size of it, the corporate disclosure is fundamental.
Keesa: [00:35:46] That's interesting. Only 30% of companies disclose green revenues. Are we talking about worldwide? And if so, are they disclosing because of regulatory reasons largely? Or do you find that that's not really the key driver there?
Lily: [00:35:58] I think regulatory requirements will become a key driver, but we haven't seen it yet. And even the EU taxonomy regulation just coming into force this year, companies are starting to disclose, but you can see the level of the quality of disclosure is not that there yet. So we are hoping to see more disclosure based on regulations. But it will take time, I think, for companies to understand how the disclosure and taxonomy works and the 30% number it is at global level.
Keesa: [00:36:31] And will the uniform or bringing together clarity around how companies should disclose, , you know, having one kind of source of disclosure at ESRB, will that really support this effort around green economies as well?
Lily: [00:36:43] I think so. I think a broader kind of disclosure framework like TCFD, IISB, I think they're all going to kind of provide support for companies to understand what should be disclosed, what level of granularity we're looking for no matter, you know, its carbon emissions or climate risks or green revenues, which represents more kind of opportunity side of the climate change and low carbon transition.
Keesa: [00:37:08] So we talked about the single biggest theme or take away. Let's talk about the most compelling data point. So if there's one single data point that you think is the most compelling from your findings, what would that be?
Lily: [00:37:19] It's a very difficult question because, you know, so many numbers. I love them in our report. But if I really need to choose, I think I want us to remember that currently the size of the green economy is 7 trillion. It is growing, however, it's only 7% of the global equity market. And if you look at the investment need, we should have to achieve this net zero by 2050. The estimate shows that it's going to be about 125 to 275 trillion investments by 2050. So this is a number by McKinsey, by GFANZ, by IEA or the organizations working on the scenarios and investment needs. So I think we still have a very long way to go. Maybe, I don't know, after a few years, we talk about it again, maybe the number will be much larger. But we want to see the green economy grows like almost like technology, right? It's currently embedded everywhere. If you look at retail, there's e-commerce. It's like banks. Banks are almost like fintechs. If you look at agriculture, there's precision technologies to monitor the soil and crops closely. I think, I would hope one day the green economy can grow like that and embedded everywhere in our life.
Keesa: [00:38:34] So great information. So the report really speaking to a few key areas. First of all, the growth of green economy representing 7% of the global equity markets. Wow. And then it's not niche. You know, people I think what categorized a few years ago as being niche, that's no longer the case and it hasn't been the case for quite some time. 42% of the auto sector is green and we have EVs and other things to thank for that, 27% of the utility market cap because of the focus on renewables and the like. And then finally, the performance of the green economy, or should we say the outperformance of the green economy is really helping to drive it forward. So great information, Lily Dai, thank you so much for joining us.
Lily: [00:39:15] Thank you for having me.
Keesa: [00:39:18] We invite you to subscribe to the Refinitiv Sustainability Perspectives podcast on Apple Podcasts, Spotify or wherever you stream your content. What did you think about the podcast? Leave us a review on Apple Podcasts or follow us on LinkedIn and Twitter for updates on our show. Thank you for joining and see you next time.
Episode 4: The journey to Net Zero with the City of London Lord Mayor
Episode 3: Sir Ronald Cohen, the father of Impact Investing and European Venture Capital