Keesa: [00:08:00] Welcome to the Refinitiv Sustainability Perspectives podcast. I'm Keesa Schreane. On the show today in the Green Room segment we’ll be hearing from Lisa Zelljadt from Refinitiv’s Carbon Research team. She’ll be sharing some really compelling findings from Refinitiv’s Annual Carbon Market Survey. But first, I’m so thrilled to share with you my conversation with Bahiya Yasmeen Robinson, Founder and CEO of VC Include, an ecosystem of women, Black, Latinx, Indigenous and LGBTQ+ fund managers and alternative investments. She is an innovator and a force in impact investing and I’m so glad we could get her on the show. Here’s my conversation with Bahiyah.
Keesa: [00:00:59] Bahiyah Yasmeen Robinson is a leader in technology, investment and social impact initiatives. In 2018, she founded VC Include, an ecosystem of women Black, Latinx, Indigenous and LGBTQ+ fund managers and alternative investments, Bahiyahh thanks so much for joining.
Bahiyah: [00:01:18] Pleasure Keesa, thanks so much for having me.
Keesa: [00:01:20] You know what? We are so excited. We've been trying to make this happen for a very long time now. I'm so excited that we're both here and we're getting the chat. First of all, tell us why you founded the VC Include franchise.
Bahiyah: [00:01:31] Thanks so much. Yeah. I mean, you know, I've been in the impact investment world for ten plus years, well 13 actually, to be specific. And one of the things that was a bit frustrating was as we were building ecosystems around innovation and investment, women and people of colour were not really being involved in the asset manager layer of that process. And so, as the impact investing and now kind of ESG movement has continued to grow, we wanted to make sure that that was the case and that the 1.4% of 80 trillion or so of assets under management in the US, that that number is ten x right that we continue to grow that number so that there's more opportunities to invest in historically underrepresented founders. And so that's our biggest mission is to really change and accelerate those investments. And so, VC include was originally built as a platform to just aggregate best in class fund managers. It has grown a bit broadly to make sure that we're also educating the next generation of institutional-grade asset managers. And so, we have a fellowship and a number of programs that supports and trains emerging managers as well as we have an asset management firm now, it's a fund to funds and direct investment product that we have through our sister company, which is Include Ventures.
Keesa: [00:02:50] All very good. And just getting into the meat of this, we hear a lot about double and triple bottom line investments. So double and triple bottom line investments are outperforming other investments. And really want to hear from you why this is the case. What shifts are we seeing to make this possible?
Bahiyah: [00:03:07] Look, we've always understood some of the impact investment community that doing well and doing good is not mutually exclusive. I think before the impact investment movement, we thought about investments being largely extractive. Right. And the give back, or at least the doing good part was separate. It was called philanthropy. And so over time, this idea of double and triple bottom line has really grown to create a framework for how do we invest in a way that is good for people and planet. And so, it's about returns, people and planet. That's the way that I think about it, that's the way that we frame the triple bottom line. And we want to make sure that we're looking at ESG. And I know we'll dig a little bit deeper into this, but that we're looking at the environmental and social kind of frameworks to identify, invest, grow, scale, and also measure investments. And particularly as we've been doing that, we've seen that those companies, those fund managers that focus on ESG are actually outperforming. Right? They're outperforming the market. And so, in the private market context, it's very exciting because we now have a proxy for this idea of doing well and doing good. It's actually it's actualized now.
Keesa: [00:04:24] That's great. And I know that earlier you talked about your work, the new fund to funds that you have. And I would like to get a sense of that work as well as the overall framework for VC Include when you're partnering with institutional investors, you know, you mentioned your engagement with them. What does that look like and how does that approach, what does is it lend itself to?
Bahiyah: [00:04:43] So with institutional investors, we meet them where they are. Right. There's institutional investors that are some of them are ready and have the platform and the capacity to really dig into evaluating lower middle market and kind of smaller funds and smaller companies that are led by underrepresented groups. I mean, the sad fact is that there's not a whole lot of women-led and bipoc-led companies at the top of the funnel. So, we're talking about the ones that exit, M&A opportunities, acquisitions, etc. And so, what we're really doing now is kind of making, we're market makers or making the market of early-stage to mid-stage companies and firms that are really growing so that as they grow over the next ten years, they will continue to exit and provide liquidity events themselves. And that does a lot of things that drives generational wealth for those types of firms. It also creates a more holistic global economy that is inclusive of environmental investing as well as kind of social impact investing. So institutional investors are wide. It's a spectrum, right. There's a spectrum of where those allocators are. Some of them are ready to make investments at the earlier stage. And from their perspective, that's like the below $20m cheque, right? They want to write a large cheque usually. And so, there's a lot of facilities being built now and the institutional investor world to really look at smaller opportunities and kind of partner with organizations really VC Include is the best-in-class firm to partner and to really drive those outcomes.
Keesa: [00:06:22] And you mentioned earlier educating these institutional investors. I know if you're working with, you know, sophisticated investors with a certain amount of assets, then education is really important. Are you talking about educating the institutions or are you talking about educating high net worth individuals who are looking to get involved in that? What's the education and who's the audience?
Bahiyah: [00:06:41] It's actually both sides of the marketplace. So, it's the asset allocator and the asset manager side of the market. So, for asset allocators, again, there's a learning curve and there's a spectrum. We see it as a widening spectrum of firms and LPs that want to invest, whether they're ultra-high net worth, family offices, whether they're banks and financial institutions, investment firms, etc. And so, they are learning. They're coming up a learning curve into what the opportunities are, where the pipeline is, etc. And so, we really partner with them and educate them and really walk with them along that journey.
Keesa: [00:07:22] One other thing you talked about and we hear a lot about the numbers of underserved who are actually founders of organizations and companies. Are those numbers would you say that they're more than we would suspect or is it true there are a lot of people from underserved communities, women, BIPOC, etc., who have phenomenal ideas, who are founders but who just can't find the investment dollars or are the investment dollars there? And there's just not that connector? Which one would you say it is?
Bahiyah: [00:07:49] It's mostly the former and then also the latter, right? It's a bit of both. So, one of the things that is really important to note is that there's a very clear correlation between the 1.4% of asset managers that are women and BIPOC managers managing the total 80 trillion of assets under management in the US. That number correlates to the number of women that are invested in, particularly in venture but also in private equity more broadly, which is hovering around 2%, right? Sometimes it goes a little bit down, sometimes it goes a little bit up. But there's not it was really not that scale. And unfortunately, it's, even more, it's even less than that if you start to break it down by demographics. So black and Latinx is at the very, very low end of that of all of those numbers. Right. If it's 2% of women, it's 0.006%, black women. Right. If it's 1.4% of women and BIPOC led asset managers, then it's you know, we're actually doing a report to really kind of start to tease out those numbers because it's kind of all-in-one bucket, which is also paltry. But there's a correlation there. And so, we believe that as asset managers continue to grow and are continue to be included in the investment community and the investment industry, the numbers of companies funded will continue to grow.
Keesa: [00:09:10] Mental note. We're going to have to have you back to talk about the report, too. So, I'm glad you mentioned that. I know that a few of your folks in the year. Okay. All right. 2023 is never too early to plan, right?
Bahiyah: [00:09:16] In a year
Keesa: [00:09:17] In a year, OK! 2023, it’s never too early to plan, right?
Bahiyah: [00:09:20] Exactly.
Keesa: [00:09:21] I know a few of your focus areas here are really on climate justice, delivering success for first-time fund managers and underrepresented managers and also advocating for the managers. That's a lot. How do you prioritize what you really need to focus on initially in order to drive the change that you're looking to drive?
Bahiyah: [00:09:40] You know, I kind of harkened back to my design thinking kind of not just brain but training. We have developed a holistic infrastructure and ecosystem to really drive this change at scale. And so, scale is really what we're looking to build. And so again, we meet LPs where they are, we assess where GPs are in the marketplace and again particularly women and people of colour, and then we build solutions to actually help them to grow and help them to scale. Then on the investment side. And so yes, it is a lot, and we get that a lot, but there's a lot to do, right? 1.4%. And so, we are very, my team and I are very clear on what the next 5 to 10 years and what the next 30 years is going to look like in terms of us building out the franchise. But we take it in chunks, right? So, by 2030, we want to make sure that 100 emerging managers are growing from a fund one to a fund two and three and beyond. And again, continuing to build institutional-grade asset management firms and succeeding. And so that takes that training and that resource development and that ecosystem development to do that. And obviously from the asset management firm side, we're investing in the best of the best. Why? Because we've created this market and we see that the cream that's rising from the top, look, there's amazing managers, but if they're focused on ESG inclusion in and they're really driving market rates of returns, we want to look at them and potentially invest in them and double down even more as an investment opportunity. So, we're sequenced in a way that we know what the end goal is, but we're building for sequencing our growth to reach those shorter-term goals.
Keesa: [00:11:25] And let's talk a little bit more about that. Specifically, how do you measure progress? So, you talked about the 2030 goal and then you talked about just engaging and aligning with these asset managers. What does it look like between 2023 and 2030? So, some of those short-term goals that you talked about, those markers.
Bahiyah: [00:11:42] Sure. So, 100 emerging managers growing and thriving that are led by women and people of colour is one particularly in the US. But globally is part of our larger longer-term strategy. Also, we are raising $250 million, half to invest in funds, have to invest in direct opportunities and co-investments. And so that's a marker. Obviously, we're closing those two products at the end of this year. And so that's another kind of short-term marker. And as we continue to grow and show the alpha driving alpha across the board, we’ll be able to continue to kind of build-out. So, I think we're in a really good place. We've got 20 funds that we've supported, both through our fellowship, training, and education as well as through working capital for these climate funds, which, by the way, are seven of them of the ten are US-focused public and private market funds focused on investing and climate solutions, particularly those that are providing solutions for communities of colour. And then three public and private European focused funds, all led by women and people of colour. So, we're on our way. We're at a pretty good clip to get to our 100 by 2030.
Keesa: [00:12:54] That's so amazing to hear. That is very just astonishing. Do you find many others in your space you've seen to be quite unique? And that's one of the reasons that we talked in the first place with some of the work that that I've known you to do. Do you have very many others in your space who are doing this, or are you the unicorn that we think that you are?
Bahiyah: [00:13:14] I'd say I'm a unicorn, but I don't want to be the only unicorn. Unicorns can get lonely. And I tell people, you know, I'm not here to be the only one that's I'm here for scale. That's my mission, that's my purpose. And so, you know, I'm flattered by, you know, being the first. I'm always baffled by why did it take this long right? To build a platform for best in class, women and diverse led firms, particularly in venture and at this intersection of venture impact and ESG. And then know how can we continue to serve as a model for other firms? We want more funds to funds investing across these, this strategy. We want more training organisations in regionally specific and globally specific to do some of this work. Yes, we're a leader in the space, but we don't want to be the only one because there's just, again, too much I mean, 1.4% to raise that with just one firm or one franchise is a bit daunting. But we are here to move that needle.
Keesa: [00:14:15] And speaking of moving the needle and scaling, let's talk a bit about prioritising and driving the S, if we look at ESG, you know, you mentioned the work that you're doing with climate funds. How are you really looking to position and restructure the conversation to be one that includes social and governance as well as environment, with so much conversation going around climate and standardisation as it relates to sustainability, with the E being the first thing on the list, how do you go about driving that conversation and actually actioning the social and the governance part of the conversation?
Bahiyah: [00:14:53] We drive it by showing how it can be done because I think what happens in a lot of these nascent market conversations is how and what can we and do we have the resources and who to trust, right? It's like this is a new thing. And so institutional investors don't like new. They want replicable, repeatable franchises that they're continuing to double down decade over decade. Right. That's just how this market and the investment industry is structured. And so, when you introduce a new type of anything, right, there's I mean, even when you look at Web3 and Blockchain, there's you know, there's this divergence of folks that are willing to put their toe in the water and others that say, no, no, no, no, we're not going to be able to do that. And so, I think that's a good proxy for what's happening here. It's like there are folks that know that if you take a long-term view, if you look at the data Morgan Stanley, Goldman Sachs, JP Morgan have all come out with UBS even most recently who's been supportive of our work has come out with reports around building multicultural platforms, right? And making sure that those firms are taking advantage of this massive market opportunity to capture Alpha because these firms are really solving local problems, but also able to support companies in their growth and scale as they solve problems that also drive revenue. And so, the S is something that we live. Obviously, I'm a woman of colour, African American woman, but also to show that in less than six months, a lot of our fellows this year have of the ten fellows we've got four that are either have already closed their fund from launching it last year or about to close it and oversubscribed. Right. So, these are this is action. This is like impact in action. It's impact at scale, at ESG and at scale as well. And so, we're here to and of course, we have to talk about it and share kind of the data points. But we're also here to show that it is not only possible, but it's lucrative to start to invest in firms and founders that are led by women and people of colour.
Keesa: [00:17:01] And who else do you partner with? Just as we close this to make this happen, we understand that you're engaging with these investment managers. You have this huge community. What does the community look like? Who are you engaging? What types of organizations or individuals are you engaged to make this happen?
Bahiyah: [00:17:16] It's really across the board. I mean, the asset allocator side, we've got family offices, Blue Haven, supports VC Include, there's different types of firms and LPs and asset allocators that support different parts of our franchise. On the VC include side, MacArthur Foundation, Visa Foundation, UBS, obviously, we've got a couple of other banks that are coming online now that I can't announce quite yet, but we've got anchors for our products around energy companies, financial institutions, family offices and foundations that are supporting our work on the asset management firm side. So, it's pretty holistic around the type of allocator. And those are some great names and big names that have kind of been supportive of our first phase. And as we go into our second phase, we're continuing to onboard investment, some of the top tier investment firms and other financial institutions and asset allocators that are aligned, mission and values aligned with the work that we're doing and the scale. And they want to take advantage of the scale that we're building and be first movers in the space.
Keesa: [00:18:23] So from the first phase, to the second phase, it is only going up from here talking about 100 emerging managers in the US and globally by 2030, 250 million and investing in funds as well as co-investment opportunities, driving alpha, and obviously, the work that you're doing in climate funds, spectacular and we're so excited about the paper for 2023 and getting you back on here to talk about that as well as the overall look ahead for you. Bahiyah Yasmeen Robinson, thank you so much for joining.
Bahiyah: [00:18:51] Thank you Keesa appreciate it.
ADVERT
Keesa: [00:19:28] I'm here with Lisa Zelljadt from Refinitiv’s Carbon Research Team. Lisa, welcome to the Green Room.
Lisa: [00:19:35] Thanks.
Keesa: [00:19:36] Well, I'm part of the team doing carbon market research and analysis with Refinitiv’s wider commodities research branch. And over a decade ago, I actually worked at the predecessor to the current configuration. It was a private company that provided news and information about carbon markets, that's now part of Refinitiv and in between I was a fellow at a European environmental policy think tank called Ecologic, and I taught some courses on environmental finance at Johns Hopkins University in Washington DC, and I currently also manage our family farm here in northern New York with some Scottish highland cattle and goats and pigs and chickens.
Keesa: [00:20:17] Wow.
Lisa: [00:20:17] As a contractor, I think my title has been contributing editor or senior analyst for this survey.
Keesa: [00:20:23] Excellent. So, you know, jumping into that great segway, you recently published the findings from Refinitiv’s Annual Carbon Market Survey. So, I'd love for you to start by giving us just an overall 30,000-foot view. What are the basics of emissions trading and where is the carbon market at right now in 2022?
Lisa: [00:20:43] Great question. First of all, there isn't just a carbon market. Emissions trading systems exist in many places wherever policymakers have implemented a cap-and-trade system for greenhouse gases. So that's where they set a limit on the amount of greenhouse gas that a covered entity, which is typically like a power plant or an industrial installation, can put into the atmosphere in a given time frame, which is typically a year. And that cap decreases over time. So, the cap’s volume, which is usually an amount of tonnes of CO two, is broken into individual permits or allowances and those each represent the right to emit one tonne of CO2. That's the principle of cap and trade. So, the European emissions trading system, the EUETS, which is the oldest and still by volume the biggest carbon market out there that we analyse, those permits there are called EUAs, European Union Allowances, and as of today, they're trading at about €85 a tonne, which is much higher than in previous years. And our survey results show that there's big expectations that that price is going to get much higher. But to come back to the 3000-foot view, there are other ETSs around the world. There's the Western Climate Initiative in North America, and that's a program that covers emissions from the state of California and the Canadian province of Quebec, and it includes emissions from the transport sector, which is kind of unusual in the carbon market world. Then there's the Regional Greenhouse Gas Initiative, which covers 11 states in the Northeast and mid-Atlantic of the US, including New York State, where I am currently. And it only covers power generation, so that's a little different. New Zealand has a national ETS, South Korea has a national ETS. The allowance units there are called NZUs New Zealand units and KAUs, Korean allowance units. So CCAs in the Western Climate Initiative costs about $33 per tonne at this point. And the Regional Greenhouse Gas Initiative ones cost about $14 per tonne at this point. So, to come back to where the carbon markets are in 2022, in total we estimate we put out a yearly year in review report for carbon trading all over the world and the combined traded value of all these markets was a record $760 Billion in 2021, which is more than twice as much as the year before. And that's because market value indicates all transactions. So, it's not just like the actual tonne of carbon they can just like in oil markets and everything else be traded back and forth multiple times. So, it's like the amount of oil being traded is only so and so much of the value of the oil market with futures and options and all of that. So, the EUETS is about 90% of that. It's worth about 680 billion.
Keesa: [00:23:29] So what's interesting is that, you know, 680 billion, you're quantifying the markets here, but I know you have a bit of a distinction in terms of not categorizing these markets as part of the broader ecosystem of sustainable finance and investing. Why don't you categorize this as part of that overall sustainable finance investing? What's the key difference here?
Lisa: [00:23:56] Yeah, it's really because emissions permits or allowances, as they're mostly called, are tradable commodities. So, we provide data about prices and volumes like these for agricultural commodities like wheat futures and pork bellies or metals like gold and copper, or in this case, more directly related energy commodities like oil prices and gas prices. So, they're generally considered part of the energy commodity complex. Since power companies, for instance, need information on future fuel prices to hedge their electricity prices, like what they should charge their power customers and what they'll have to pay for emissions permits for generating that electricity, that's just part of their calculation. So, subscribers and clients are power companies or energy intensive industrial facilities that need to pay attention to carbon prices because they have a compliance obligation under their emissions trading system, or they're traders and brokers that play in this market, even though they aren't direct emitters who need to surrender allowances. So just like most of the folks who trade oil futures don't actually take delivery of barrels of oil at their contract expiry. So, from an environmental perspective, that's the beauty of this market. It makes emission reduction a fact of life, a necessary part of doing business. You've got Wall Street folks who don't necessarily care about global warming, informing themselves about energy efficiency upgrades in the cooling sector or methane reduction at dairy farms because those lower the demand for carbon permits. And that in turn affects allowance prices. So, by creating a cap and trade system, regulators actually make carbon into a commodity that is its own thing and not like a special environmental thing that only green people are interested in carbon as a commodity, well, it's unique in that it's entirely created by a policy measure, but it is now sort of mainstreamed into being a commodity that people are trading.
Keesa: [00:25:44] So that's fantastic and very interesting. We see commodities, but then separately we see this sustainable finance and maybe this is a bit of an intersection, but not all part of the same pot. So, thanks for explaining that. Just jumping back into the report, you've been involved in the team as well as the survey since its beginnings. Tell us a bit about the details of the survey. We have the overall view. Did you see any key findings that were important that you want to share with our audience today around specific areas that we should be thinking about from a forward-looking perspective?
Lisa: [00:26:22] Sure. So, the questions have changed a bit over the years as more and different countries have created emissions trading system. So, we change our questions accordingly and there's more indifferent factors that influence carbon prices and the trading dynamics. But one thing the survey has always included is questions specifically for covered entities. So, like the actual emitters I was talking about before, as opposed to traders and brokers or policymakers and academics and consultants, take our survey to anyone who watches carbon markets. But these questions that are to specifically emitters are about whether or to what extent the ETS is actually working. So, do companies actually find their emissions are affected by the existence of a carbon market or would they be reducing their emissions anyway for other reasons or other policies? Renewables, quotas, really high fuel prices. So, this year has revealed that carbon markets are seen as more important than ever to reduce greenhouse gas emissions. Respondents were asked to rank the importance of various factors, including policies introduced in reaction to Putin's war in Ukraine, for instance. And 98% said that the ETS is an important factor. 80% even characterized it as having large importance to emissions reduction. So that in turn correlates with another interesting finding, namely expectations of price increases. So, respondents were asked to mark which ETS they're most involved in or they follow like a lot of folks in China getting into the new market, there are checks that they were mostly involved in the Chinese market. And for each of these questions, there were decisions on where prices would go in the near future. Are prices going to go up? Is an allowance going to cost more next year? And nearly all of the respondents in almost all of the markets expect steep price increases.
Keesa: [00:28:09] So let's look at this globally, because you just brought in China and we're talking about the EU. Where do you see the big areas taking place? So, we have the EU, we have China. Let's discuss those as well as other areas where you see this happening.
Lisa: [00:28:20] So China formally launched its ETS way back in 2017, I think, but the actual trading of allowances just started last summer. It took a while to get the logistics of the program up and running because it's a 1.2 billion population with all of these covered entities. So, the first compliance deadline for Chinese companies turning in their allowances to cover their emissions was at the end of last year, and it was to cover the emissions that they had in 2019 and 2020. So, by the end of 2021, they had to surrender allowances for those. And given the sheer size of the market, because it only covers power generating facilities so far, but that's already about 4 billion tonnes of CO2, so that's as much CO2 as the US emitted in 2020, it looks to be a big growth market. And then we've got the other emissions trading programs in North America and like I said, New Zealand and South Korea and those are moving forward. New Zealand has just done a revamp of its program, so the caps are tighter, their prices are going up and the Western Climate Initiative is in the middle of a similar process. And of course, oil prices and fuel prices in general are getting higher, which means that it pays to not emit so much or not burn those fuels which cause emissions. So, we can see that reflected in some of these survey results as well.
Keesa: [00:29:42] So let's get into voluntary carbon markets. Now, there is a hot debate going on over whether this is just carbon offsetting is greenwashing, to be quite frank. Did the respondents in the survey have a view on that as it relates to voluntary carbon offsetting. Is it greenwashing? Is it legit?
Lisa: [00:30:05] Yeah, we had a question on that. We have quite a few respondents that are involved in the voluntary market. So, we asked a couple of questions on that. We had one that was formulated in a way that gave choices about a sort of range of views on what voluntary markets mean because there's a big distinction between the compliance markets that we were just discussing that are created by governments making a cap and trade system and the voluntary markets, which are offsetting by companies to be able to make claims on their net zero targets, for instance. So, when we asked about views on carbon offsetting, most respondents were pretty positive. More than 60% of the respondent pool disagrees with a statement like ‘Offsetting is pure greenwashing’. And about 90% of the respondents agree with the idea that offsetting allows companies that do not actually emit greenhouse gases to contribute to emission reduction in some way because they're purchasing the credits for emissions that were reduced elsewhere. And about over 80% agree that offsetting assists developing countries in getting access to climate technology and finance. Because a lot of these offset projects happen in poorer countries where there's more bang for your buck in terms of reducing emissions for the money that it costs to do that. So less than half of the respondents who responded to that part of the survey agree that having the option to offset emissions reduces firms’ incentive to cut their own GHG output. A lot of them think that they still go ahead and do the greenhouse gas cutting in their own company and then additionally go for offsets. So, it seems that the survey responses were more positive on the voluntary market front.
Keesa: [00:31:44] So, Lisa, what is the single most compelling point of the survey that you want to get across?
Lisa: [00:31:50] All right. At the climate negotiations in November last year, negotiators decided new rules for carbon trading among countries, so one party can pay for emissions reductions to take place in another country and get credit towards its own domestic mitigation target for doing that. And so far, the rules on that have been very vague, and countries have not declared that they want to engage in that kind of carbon trading. But the rules got hammered out to a good extent back in November. So, survey participants reflect this because we asked a question about how much they think countries will start trading carbon reductions. And about 70% of the 175 respondents who answered that question about carbon trading among countries expect more countries to use the carbon units generated abroad to achieve their national mitigation goals. So that's a really interesting outcome that we've seen directly reflected as a result of the negotiations.
Keesa: [00:32:47] You know what? I think that having you back here in a years’ time to let us know how countries have performed against what they wanted to do in 2022, what the actual outcome was in 2023 will be a great goal for us to set. Lisa, thank you so much for joining us here on the Green room.
Lisa: [00:33:05] Thanks.
Keesa: [00:33:08] 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.
