Ep95: Mindy Lubber "The Voice of Sustainable Capitalism"

Cleaning Up Episode 95 Edited Highlights – Mindy Lubber


ML I think we need to start by you explaining what Ceres is.


Mindy Lubber Ceres is largely a US-based NGO, with a global reach, meaning we have formal partnerships around the globe. We are an advocacy organization. The work we do is with capital market leaders - large companies and large investment firms - to integrate climate risk, or water risk, or sustainability metrics into all that they do. The other two things we do is we bring the voice of capital market leaders into the regulatory process in the United States, then we also work on public policy. We can do a lot to change the way companies behave on climate, on water, on sustainability issues, we can do a lot with investors… but unless we change the rules of the game, we get rules that are applied to absolutely all players; we can't address climate change in a really systemic fashion.


ML What's the role of policymakers? Sustainable finance has been acting as though what is going to solve the problem is fixing the flows of money, then everything else will work. I'm not sure that's true. What do you think?


Mindy Lubber It's definitely not true. We are looking at the real economy. In the US, we need every regulatory agency. We cannot solve this problem company by company, or even by just finance alone. We've got to deal with the financial regulators, the Federal Reserve, the SEC, the Department of Energy and the Department of Commerce, Transportation. And the administration itself has to save the billions of dollars of procurement they do for every contract that they put out there. In addition, we've got to change demand. People need to be buying the right things. We've got to change the grid, how we deliver energy, and make it easier for renewable energy to be pumped into the grid.


ML Let's assume that that real economy and their regulators are doing their bit more or less - what is the role of finance in getting to net-zero?


Mindy Lubber At Ceres, we work with 700, global investors, small, medium, and large, some of the largest pension funds in the world, on a project we call Climate Action 100 Plus. We’ve determined that if you're a well-managed company, you are setting goals, at the board level all the way through to the organization, on greenhouse gas emissions. Well, the 100 largest emitters aren't necessarily doing that. So, the investors we work with are starting out by meeting with, talking with, negotiating with the companies in which they are invested. Now, those investors don't want to see the companies go bust, they don't want to see the companies be a catastrophic money-loser. I mean, these are investors who are protecting pensioners’ future funds. However, they've determined that the highest emitting companies that aren't acting on climate are companies that are not getting it right.


ML What you're saying is that the owners - maybe because of the work that you've done - are more progressive in many cases than the corporates themselves?


Mindy Lubber Michael, that is the case. The investors who we're working with believe that investing in companies that are not acting on climate are not well-managed companies, and not companies that they necessarily want to keep in their portfolios. The second thing I want to say is that investors are moving extraordinary amounts of capital. We need to see more capital flows into renewable energy versus fossil fuels. The third thing is standing up on public policy. Until we put a price on carbon, we've got our hands tied a bit. We need to price carbon for its real cost to society. That's when capital markets really can play a greater role.


ML What mystifies me though is how carbon-pricing gets translated into actual asset managers and portfolio managers placing different bets. There’s an alphabet soup of different initiatives. Isn't it just overwhelmingly complex?


Mindy Lubber The Paris Agreement was profoundly useful for coming up with a global roadmap. There is no political infrastructure on policy beyond the Paris Agreement. But we're trying on disclosure, just a start, for a bare minimum. We're saying companies need to disclose their climate risks so investors can make smart financial decisions. We’re pushing very hard for the SEC to come up with a standard model. We're asking every financial player and every company and certainly those who have made commitments to now show us what they’re going to do in 2025 and 2030, and make it public.


ML Let me come to those 100 biggest emitters – amongst them oil companies Exxon and Chevron. They're not emitters. The emitter surely is United Airlines, or it's some transit agency, or it's you and me heating our homes. Why are they the emitters? What can they do about it?


Mindy Lubber Well, they're emitters, or they're creating the fuel that is creating the problematic emissions. They have to start looking at the future. They should have started 20 or 30 years ago, because the oil companies do better scenario planning, 10, 20, 50 years out than almost any industry sector. So, they've got to be looking at what other fuels they could create, instead of investing more and more and more in a fuel that is choking off our economy and our ability to build a future for our kids. I've been told by oil and gas companies “telling us to become a renewable energy company is the same as telling us to become a women's underwear company.” Either they've got to find a way for those energy sources to be less problematic, or they've got to start shifting.


ML I worry because society is sending this tremendous mixed message. We’re not innovating efficiency solutions on the demand side that would actually choke off the demand for that product. So, you're almost asking somebody to go out of business when there is still perfectly legal demand for their product. That feels to me irresolvable.


Mindy Lubber This is a hard problem. Some people like to say “wind and solar are here, they're doing great, they're price competitive, problem solved.” It’s so much more complicated. Continuing to drill new wells, or new coal mines, frankly, when those energy sources are not likely to be welcome 10 years from now or 5 years from now, is not a good bet for our energy economy, or for the particular financial bottom-line long term of these companies. And oil and gas companies and coal companies are not in a great position.

ML I’d like to have a discussion - that can get very technical - around scopes. Where is the Climate Action 100 Plus on scope three?


Mindy Lubber We can't with climate change without regulating scope three. And let me be more specific: if you're a large oil company, you're dealing with 1000s of vendors, 1000s in your supply chain, that are a big part of emissions, but they don't have the technical expertise to address their climate impact. And so, we do expect a Ford Motor Company or a Walmart to say to their 5000 vendors or 10,000 vendors, “we want you all to show us how you're reducing your emissions.” We just can't solve the problem by only going upstream.


ML What about when it comes to investors? Because then it starts to get really complicated with double counting. You simply can't say “what is the scope three of this portfolio?” It's an unanswerable question, in my view.


Mindy Lubber I think it's hard to calculate, but I don't think it's unanswerable. We cannot make the fact that we don't have all the answers a reason not to move forward and move forward quickly.


ML I'm going to push you on this because I have to be honest. What about derivatives? If you buy a call option on a company's stock are you responsible for some of its emissions? And what about if it's a credit default swap? Or if you borrow the stock, and then sell it short? Where I think this has to go is that the investors should only be allowed to invest in companies that understand their own scope three. But when you start trying to add it up and saying what is your scope three, as an investor..?


Mindy Lubber My answer to try and simplify an extraordinarily complex question is that we develop a methodology. The SEC could not have been more clear in asking for scope three over time. No methodology will be perfect. The theory that we use is that an investor shouldn't invest in a company that is not managed well, and not exercising their fiduciary duty to analyse risk and act on it. We've got to find the right incentives. We've got to stop incentivizing fossil fuels, which in the United States, we've done for decades, and we've got to incentivize carbon capture, or renewable energy or upgrading our grids in a way that really drives the new economy.


ML What’s your view on central banks? Should the central bank be tilting the playing field through manipulating asset ratios, or changing costs of capital so that money flows down into solutions?


Mindy Lubber They've got a duty to make sure that the financial sector is stable. The Federal Reserve shouldn't be saying to investors “invest in A, don't invest in B,” but they should be saying through their regulatory authority “show us that you're stable, show us that your risk is clear over the short, medium and long term and let the investors make the decisions.” And that will shift the way investors put money into different financial institutions.


ML Are you doing any work on offsets? You can tell I've left some of the harder questions towards the end…


Mindy Lubber I believe offsets need to be really well defined, and scientifically proven. That by putting money into them, they really are going to capture carbon, and make a difference, not just randomly plant some trees. It's not about buying a way to have more emissions. We can no longer talk about climate change as only about greenhouse gas emission reduction, we will have to capture some of those emissions.