The road to reducing greenhouse gas emissions to zero by two thousand and fifty has never been more urgent. I'm Alison nathan- and this is exchanges at goldman sachs hmm right now we're at a tipping point in order to reach, The climate goals set out by the paris agreement the world needs reduce greenhouse gas emissions by forty percent and cut methane emissions by over a third, but at the same time deal- political tensions, supply chain, structures and rising inflation have led to renewed focus on energy security, how governments, companies and investors a balance the need for this secure, one navigating the transition to a sustainable and more equitable future is one of the most pressing questions facing the world today. To help us understand, path to achieving this balance. I'm sitting down with care, mangoes global head of climate

energy and John Goldstein had of goldman sachs is sustainable, financed group which reach. We released its twenty twenty one sustainability report that takes a deep dive into these topics. John I welcome back to the programme things out. Since we last spoke on this, programme in november. The major development has clearly been russia's invasion of ukraine, which has led to a sharp shift in focus from the need for clean energy to the need for secure energy. Governments are looking to replace the energy they receive from russia, it seems in any which way or even hearing calls to bring back more coal. So what does the ukraine war mean for the future of climate change and the speed of the energy transition? But try

a situation that is unfolding in ukraine at the moment is absolutely underscoring what you just reference, which is it's going to be a really complex energy transition, and most folks who has done a lot of time on this issue, have known for a long time that this would not be an easy ride So I think the situation is absolutely bringing to the forefront, I think, are very important dialogue around. How do we, in the context of energy transition optimize for an integrated energy maxed? That is able to do at capital into sources that are going to optimize for clean, affordable, reliable energy right, and I think the good news is there's a tremendous amount of momentum in the system right. We know that almost ninety per of JD p is now represent environment. Zero commitments are really significant amount of cap. It all that's been

but on the table to say: okay, this is the direction and where we need to go, but at the same time we know that were nowhere near the three to five trillion and capital a year that needs to be invested to deliver on global climate goals and were now seeing, as you said, and added complexity of, how do we actually think about the potential shocks in the system? And how do we balance security? Related objectives been really interesting to see. I think that first question and we both have gotten questions of. Oh, my gosh his heart and complicated, as is the death of yes. She is this the end of energy transition, and this is actually what is growing up, looks like right, and I think we ve talked this idea, as it goes from once upon a time the friends to the periphery to the core. Once something is a core investment issues, central to the real economy, tied to what effectively as the next industrial revolution. Of course, it's hard to messy it's complicated there. Interdependency is the same thing with the issue once again have become central to the point of. In the last twelve months. Thirty five percent of equity, fun flows, rudy

she is very hard to raise money without an e s. G sorted answer right weather A company or ass, a manager, and I think Getting to that reality. Rolling up the sleeve and doing the work, I think for us: that's not a barrier, it's not a setback import. We celebrate the same thing here. We ve had conversations puss covet similar, as we were going to march of twenty twenties, is yes to over right in what we saw, as actually resilience, thoughtfulness, kerala things are turner had really good business cases. I think that's number one number two there's some accelerants their natural. Just too, you know economic situation when for gas, is expensive and volatile laws substitute start looking pretty interesting, right. You we see this westward of your fundamentally. The ultimate driver of your high prices has real impacts on demand and alternatives, and the other thing Mikhail involving our colleague pointed out that this is a time when you do have robust cashflows going two large energy companies which they can then reinvesting accelerating their own. True

is so that second point of I think dollars are there in the business case. Actually in some ways is a lot better. I think the third point we ve, seen as I mean to a metaphor that is sadly appropriate. We seen with that. we can do and it gets on a wartime footing. Billy to mobilise them in japan after fukushima, increase their diplomas, solar by seventy times before twenty eleven and twenty seventy. I was talking to colleagues remind me that yesterday thirty eight gigawatts and we've already seen some policy responses. More policymakers can lean and kind of push on that lever. I mean the he was already you know and increase their commitment around hydrogen by three point: five acts the uk is done it by to axe rated, so policy makers to some degree are kind leaning into that breach, because at the end of the day commitments are locked in. What do you mean by that? Go beyond what I talk to

pension funds sovereigns others have made these commitments. The conversation is not, should I reconsider the conversation is not. Should I lower my target, I sat down with a very large pension fund yesterday and they have a twenty forty net zero target. They were working on setting the twenty thirty goals like. How do we do it? There is no, shall we step back and reexamined, so I think those commitments from these, particularly ass. It owners and companies are real, but the other point about lock in I think is subtler, but actually important, which is with the growth in yesterday, assets for the growth of these commitments, systems changed process cease change if you look at an hour, F p, showing up for almost any ass a measure mandate, the requirements, the questions, the focus that utility crushers. All of the systems that DR, how money moves in the world have really been augmented to address st questions. Add climate questions. Add that to the process that point that Johns touching on which I would just underscore, I think, as crucial as, despite all of the momentum, this really so we are in pretty early stages, style and ass. If you look at some of the mark

it's under gonna be really critical to transition. Look at the voluntary carbon markets, for example. Right I mean fifty billion an annual trading volumes last year relative to the compliance markets, which are eight hundred billion right, and we know that offsets can play a really important role in funding a lot of these technologies that we talked about in the beginning that are going to be critical to transition right things like carbon capture. You know south sea question Shan direct air cap sharks under us. So I think, like there are just parts of the market, and there are a lot of folks focused on macerated john mentions policymakers. It's private sector rolling up, saves getting to the table, but we know there's a lot of things that need to be improved around quality and tracking, etc, and I think there's lots of other things you can say around.

Closure in other parts of the market as well- and I think there is so much kind of fire power and focus on this, but we just need to acknowledge that it is going to take some time there's an inner workings of the system that do need to be ironed out, and I think the most important thing given that backdrop is that we understand that the more we can actually appreciate the nuance and treat this as an investing discipline, versus the side area. I think the more you're going to get you know: stewardship teams working with portfolio managers and credit analysed, and they may not even call it he s Janni more. That might be a good thing. This may be how we invest in energy. When we talk about it,

sting theme is on having ass gb investing theme, if you look at where returns are being me today, there being made in conventional energy because of the very high energy prices as a result of the supply shortages that have evolved from the focus on energy and, of course, for having these major disruption that exacerbated that. So do you have a conversation with clients? I mean, if you're, really looking to make returns the market today, you'd actually want to be investing in conventional oil, and that might not be a bad thing, because we can't autumn. the star of companies of that convention oil base before the transition. So I just curious as to your conversation, you're learning. To that extent the having a couple men for the number one, I think there's a little bit of. I think, understanding of some of what has happened with the access to capital for the sector. Writer

I mean somebody did a survey recently and they asked ceos of energy companies in terms of capital access and actually the overwhelming answer was not yesterday, investors or fossil fuel divestment. The overwhelming answer was just to push for capital discipline right because with the and flows of energy prices, I think how to be wise and prudent when, where and how to invest. So I think there is a little bit of a kind of the issue gets blame for something that actually is, has been a core investing foam and based on experience over the decades, and our colleagues have done a great job doc. thing that number one number two this is part of the issue growing up right. It's not about good bad company is good bad sector it having a little bit of nuance right begging, where I like say it's going from kind of yes beta two years s alpha once upon a time you could. with a broad brush and try to navigate early days the market, but now you gotta figure out who is going to take it was profits and invest in a way that is going to help them be resilient and successful over the long term, and I think this gets to take

more finer, grained view company by company sector by sector business model by business model, and I think one of the things that the ukraine or has done is it has led people who thought The olives could be daisy by destroying some bright lines, maybe so easy right. At the end of the day, you gotta look a little deeper. You gotta to the works which your point about you know where returns are being generated. Absolutely There's cash flow in etc. The question is going forward. What is the I gee that's going to leverage the cash flow of the day to build a great business tomorrow and if we think about the capital gaps that we talk about that are so imperative to achieving their climate transition? We all want. What do you think are the most effective means from here to fill those gaps? Where do we go? I think before you got there, and this I would say couple follow points to on your last question. Allison, I think at the map, love all so much of our strategy as a firm has been around. How do we

engage all parts of the economy across industries across client base is to actually liver on their sustainability objectives right because we ve taken a view- and this was an David solomons up and when we first came out with our seven hundred fifty billion dollar sustainable, financed target then of twenty nineteen. He was really clear to say: look. This transition is only going to be an inclusive, effective transition right if we actually engage our clients in these sectors and support them on transition, because guess what that three to five trillion in capital year, half of it needs to go into technologies that are not yet economically viable right, other really important. Consideration is supplied. Demand dynamics We know that take the iron at zero scenario, for example big headlines. That was no new oil filled development, however, also in that that was assuming that There were significant changes to consumer demand, preferences effective immediately. We would drive at different speeds. We would heat and cool

or homes at a different pace, and it also assumed that we would have tripled our renewables capacity, which we haven't been able to do right for supply chain and other reasons, intermittency issues etc. So I think that demand. Peace is so important and we haven't really got mare. So I think your question on capital access. and how do we fill those gaps? I think it's a couple of things. One is how do we address the demand peace? How do we actually start to shift and change consumer behavior? I think the second How do we ensure that this is now aid divestment, move member that were actually engaging. The sectors of the economy that are going to be critical to transition. Think that too and I think three is how do we love reds, other tools that we haven't a tool kit? And I think public private partnership is an incredible example of the way, you can drive innovation through procurement, mass procurement programmes.

Things like the deal. We are looking at how you can develop the ability to bring together different pools of blundered capital. So great example is what we're doing alongside the asian development bank and bloomberg philanthropies, particularly looking at ways we can address the climate, finance gap and south and south east asia are actually piloting projects where were bringing together the expertise of the asian development bank down on the ground in the region, as well as the philanthropic capital of goldman sachs and bloomberg philanthropies to be able to actually model to private sector investors. Here's projects that actually can achieve a market rate of return, be able to crowded, the snow interest and then start to get more capital flowing saving, there's a lot of examples of ways that we actually be doing more in the private sector and then more that good, absolutely be an acceleration through these kind of partnership models and, of course, the policy provisions islam and for this reason,

since that have success in their climate goals. Does that go hand in hand with the overall success arouse success of the company to couple things on that front no care has some thoughts as well, so number one I may equip I made to some one which actually is real, is near with what we're with the energy price spikes in russia, ukraine and this question of is this: can accelerate company progress or slow slowed down? I said well, the happiest people are the folks that did this five years ago. Right that all billy green, their operations that they have some of those dependencies right. They created some of that resilience. They created some of that leanness in terms of their need for natural gas in terms of other inputs and so honestly, folks, it a bit ahead of the game, have had some real resilience relative to what we are seeing in the energy markets now, and so I think, that's one specifically. With this works, but what we generally found is a couple things number one in view sitting in being more efficient with human and physical capital tends to be good for business, tend to be good for margins, attends make your product or service more appealing to

summers who actually care about that to supply chain partners who have made their own commitments right, so there's an underlying economics, but what it also does for people in your supply chain, and I think, frankly, I had one of the more impressive conversations I had recently I've seen x, the ceo of a large industrial company at dinner for forty five minutes. They talked in granular detail about exactly what they were doing. Two basic create or circular economy, models for their factories in their plans It was so in it that it didn't either. Are you an engineer by training by chance it was a very methodological, very thoughtful that approach from a governance perspective right from leadership from management like the engagement and strategic issues at the top of the house to set the priority, but also to course anybody to execute that well is an awfully good side of the prospects for a company and look out, and I would just something that we know

here a lot from our own shareholders and clients as well, which is not only? Is it critically important for you to be thinking about the potential impact of climate risk on your business right, not only thinking about, but actually modeling it and managing it and then disclosing it? So not only is that a core part of what is going to make you successful and effective as a business in europe and tenderness- sustainable way right for sustainable, long, lasting returns, but in turn investors are really looking to see if your sustainability strategy is commercially viable as well. So is there some not you're just kind of doing on the side and in talking about alive some philanthropic vestment. Perhaps some community engagement or actually are you really thinking about how this does represent a driver of risk, an opportunity, and are you

actually disclosing at that way. Are you having integrated conversations on your business strategy when management prisons- and this is a core components- are actually think? Not only do we see our clients being successful when this is an integrated part of what they do, but we actually see their stakeholders, whether that shareholders, their own customer suppliers, etc. Really, a lot of resin ends when that is not. Surf side thing, but that's actually really a poor, critical criminal part, and not only as a corn, critical but there's metrics to support it, and on that point I do think so. Central to the conversation we're having today is around. Where are we? Where do we need to go in one area that actually we haven't talked a lot about, but I do think John and I spent a tremendous amount of time on this with clients and partners. What are the right, metrics that we actually have to be measuring all of this, because I think it's completely fair to say, there's been a tremendous amount of work around voluntary. You know standards and disclosure size btc fd, but I think it's also fair to be a little bit.

Go into say. If so much of what we're talking about today is how do you do this in an integrated way where we're thinking about a set of different factors were up? missing for which have to do with a gun. You know energy access, affordability, energy, security, renew balls and clean energy than we, arguably mean probably to cover really focus out of that checks. Actually allow us to measure financial impact performance across those different areas and John Walter in our president and ceo wow, has a great phrase where he said: what is the berbatov decarbonization, for example? Do we need you know two hundred different metrics, or do we actually need to just be really precise within a sector within a company within an industry? How are we measuring transition and let's reward that behavior as well right? So how should we measure it? You know what do you think and how far away are we from that? While I think so much of it needs to not be about just good bad right. Green brown, but actually needs to be progress over time, and I

you're gonna start to see more and more around. How do we measure transition? Not just our spot where we are today or where we need to be, and in our twenty fifty, but actually What are you doing in your business to be able to advance on those objectives? I think a lot of it actually will be more dollars and sands through the transition month. This is one of the most common conversations we have with clients? I had it with three different client yesterday right. This is all the time there's a history of looking at I met and serve step. One was very blunt: what do you do as a business step to us? A cigarette emissions? That's a metric it that eighteen months lagged then there's realisation? Ok, we needed before looking right, let's have whatever crystal balls out and so then, Sorting, ok, let's look at targets. And people realise that helpful. But at the end of the day, I d the quantitative analysis effectively of everybody's weight loss goals, doesn't tells rulers wait right, and so we need these things. That really show. Where are we tracking right? And so this

Progress from using lagged historical metrics then for looking commitment, but like one of the things that actually show your on track, I think that back to this issue, but I d harmonization and similarly, how is today has been used, has evolved once upon a time screens. Then people largely outsourced it right. by extra scores from an embassy. Ire sustain linux, where the many other vendors out their increasing We see now people are enforcing it right. There are coming up with her views of number one had used material data that give insight into company performance. You know care talked about saxby things kind of in that general vein and then often they realize wait. I got a lot of smart analysts that really know these companies really know these sectors. How do I get the benefit of their knowledge right, and so getting to? This is all back to that theme of e g growing up getting more sophisticated, getting more new out. So do you think the future- and of metrics is not some stand position, but actually go. to these experts in house and mad developing these metrics individually

at your expertise. Allows is really where we're headed. We don't standardization at I think, he's gonna look a whole lot like other investing questions right, which is as it grows up as it mature Yours number one, the baseline of common practice, will be rising for everybody right, there's a certain baseline as you navigate markets to everyone's gonna need to have them. Number two that fine will need to get fuelled by good data that come from company and I think this where the work of says be. I, for us- is sustainable standards board to try to come up with a template so that, hopefully there's a good baseline of is material metric simile, the work around tc hefty, which has become a useful format to share this year. We use this is widely using arming people with those data. On top of that people, log meant that, with insight analysis, research from other folks and with our own people. Don't

in different mixes they'll. Do it in different proportions. Some folks will really lean into this. This is going to be their edge. I'm going to be better at this. I'm gonna have better insight on human capital analysis. I'm gonna have better insight on consumer purchasing trends in sustainability and have better insight on transition, and others will just try to keep pace that's what kind of normalizing really looks like right is it becomes A more widely understood, appreciated tool that era, I have a version of it. They'll have different flavors and different approaches that baseline of data will going to confuse the innovation with great research providers, really try to add value and support people in that process. But I think it's going to look a lot like investing. lot of time talking about the ii and iii as g during this conversation, but you're sustainability report also focuses on the ass, your social issues and inclusive growth, so weird companies on advancing social goals. A couple things- and I was talking to

a colleague Johnny find the other day in his lens on this as you describe it, and I love this phrase inside stealing it, but with credit, is your ie is than now present value of ass right at the end of the day, if we think about climate in addition, fundamentally it's about people, because the human cost of the worse him acts of climate change, in particular in the most vulnerable, is tremendous, and so that, ultimately, is the huge motivating force that said their human ass, if we dont navigate that well, energy is, I think, about twenty three percent of the after tax income of low income, households and that's before there. The recent energy price bikes food, which actually very tied to this and is also being disrupted, is thirty. Four percent, so end of the day, your price banks have a real human cost, and this is why navigating this effectively and efficiently touching demand, like you separate these two items. I think that's number one here too is people, are getting clear on this issue met needs elsewhere was huge markets right and better business

models in people if it had to invest a medically in serving those needs and then finally, People are realising that, ultimately, what it means for business in terms of how effective it runs. Hawaii It's managed having the right workforce, the right governance right management having the right relationship with their workers having the right relation with their supply chain, partners that that matters in a dollar and cents kind of way mean two very different parts. investing radiation came to the same conclusion on worker engagement, right, a quantitative investment found. There's an alpha signal tied to really work engagement, worker satisfaction, that's in just their core quant model, because it's an additional source of insight separately are proud, equity. Business has really worked with a great group. Called ownership works to figure out how it is widespread. Employee ownership and engagement actually drive productivity, not just wealth creation, for a much wider base of people in a company, but ultimate has a dry performance, and so I think, invest you're, getting a better sense of how to take what was maybe a broad priority to a business case

to execute him- this is about looking at this as an integrated, inclusive transition, which means we're looking at affordability of energy, reliability of energy and how clean energy is right for the environment and all of those are social components right. Those are just environmental component. So I think that is where we are going. I think now, understanding that we can't just have wanted expense of the other tim and alison I'll. Just had one last point, which is you know, we put our sustainability report out last friday, and I think this is just such a great example, because there may be people listening thing. Okay, that sounds great but like how do you actually do this in practice and, of course, there's always more progress that can be made for any organization, including ours, but I do think that gives you an example of how you actually can start with what is your purpose as a company to advance sustainable economic growth and finance opportunity? Okay, that's your purpose. How does that

it's how sustainability connect to that mall here the two ways we define it and includes climate transition, inclusive growth. These are drivers of risk and opportunity across markets and geographies. We have data that supports that from our colleagues in research, and then ok how do you actually execute upon it? While it starts with our clients? That's our business. Then goes into how we manage our firm or operations. Are people are diversity, inclusion goals and then last yeah, it's around. What else can we do in the broader ecosystem? So I do think there is a lot of power and telling your story as well, because we have a lot of clients who are doing incredible work in the space. The other thing I would, say about our sustainability report. For us, its also free They are good. You could call it excuse. You could call a catalyst to step back and see what are we hearing? What do we think it when we learn right. What have we seen? Actually work? Gonna walk through these four to five innovations. One is technology right text

Ecology allows you to extend reach without a whole lot of marginal cost and sometimes leverage that to drive better outcomes right so yeah. We looked at examples like our work with a company called propel a whole host of examples of where technology really is that lever to change that algebra number. Two this wall innovation, if you're trying to do that for daily for low income? muse. Who may not have the purchasing power to pay for it? Have you and some other revenue source ride. Me walk through some examples. In the report we talk about ever fi. We look at different models. There were a great comical block power, which takes the fact that building owners need to do energy retrofits and basis as an alternative to paying a fine pay less money retrofit the building, lower energy cost lower emissions so these business model innovations. The third is partner with the public sector right. At the end of the day, they are great ways their social bonds. You can leverage multi, lateral bank, too, busy lower the cost of capital for them. like social housing. We see that even in the u s right, we leverage programmes in the state of California. We could, by market rate housing convert to affordable public private partnership forth is the power of data

big data actually can allow you to generate insights that can open up doors open up new products services. We go through some examples in the report of that and finally, sometimes it's just roll up your sleeves making a commitment right thinking about from your date Its commitment in terms of companies will take public me. Expectations run diversity and see that cascade out, and sometimes as leaders, putting a stake in the ground and everyone else, I had a mobilise, and so this is able, for it's been a great service innovation excuse catalyst for us to figure out. How do we do still were learning share with there's an and figure out? What's next any agenda, John Kerry, so much food for thought here. Thank you so much for joining us again. Thank you outlook, thanks so much for joining us. This third April, twenty eightth, twenty twenty two for another episode of exchanges of goldman sachs. If you the show. We hope you follow on your platform of choice and tuna next week for another episode. Make sure to like share and leave a comment on apple podcasts, spotify, stitcher, Google, or ever you listen to your part, gas

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