 Aloha and welcome to JSA TV live from the floor at BTC 2023 in Hawaii. I'm Jean-Marc Sliman and today we're going to be discussing finance and investment between the digital infrastructure sustainability as part of the greener data movements. And to that extent I've got here with me an expert panel. We've got Michael Donhy from Managing Director of Commodals Data. We've got Tariq Junter, partner Paul's Hastings and we've got Raymond Rill from Citi. Guys, thanks so much for joining me. Before we get into the questions because there's a lot to talk about sustainability in this day and age from regulatory issues to finance to operation. Let's get you to introduce yourselves first. So let's start with Mike and go this way. Excellent. Mike Donhy, Managing Director from Cumulus Data and Cumulus Data for a brief introduction is a data center company that is building a data center directly connected to a nuclear power plant. We own the parent company owns the nuclear power plant and so we're basically taking the utility out of the equation and just keeping sustainability at the core by trying to keep zero carbon power sold to the data center 24-7. And the nuclear aspect makes it very interesting in the day and age that we live. Yeah, absolutely. Hopefully we can talk a lot about that later on today. Oh, we will for sure. And then Tariq. Thank you. Good morning. I'm Tariq Junter. I'm a partner with the global law firm of Paul Hastings. I'm co-chair of our ESG and Human Rights Practice and I advise boards and C-suite executive teams in terms of risk identification and mitigation. Thank you. Thanks for having me. No worries. Thank you so much for coming on. And that's a topic that's going to dominate 2023, as we know, especially across the north and hemisphere. And Raymond, I forgot to say your director for Citi. Sorry about that. Can you introduce yourselves? Oh, good. I'm a director at Citi. I sit in our team. So I spend most of my time advising companies, boards or investors around raising capital, M&A in the space and those kinds of things. Okay. Well, I want to kind of start by painting a general picture of what's happening within sustainability in additional infrastructure space. I mean, capital-wise, this is massive depth. It's not what it used to be. Sustainability low ends are different now as well, especially after the second half of last year. Regulatory, everything is changing. I mean, I'm based in Europe and there, sustainability is becoming very big. 2024 is going to be huge because all the regulations are going to come to force. So 2023 is easier. Everyone needs to prepare and then on the operator side, I mean, you're doing something quite amazing with nuclear power, but the operators generally need to become better at the game. So my first question is, how do you paint the picture of green sustainability finance within this sector? Who wants to be the first one? Is that with you? Sure. I guess that's because I said closest to you, but happy to. I knew this was a dangerous seat, but I think look, it's evolving and evolving in quite interesting ways. In 2021 or 2022, perhaps even, or most of 2022 is mostly a, let's tell the line, let's just do what everybody else is doing and not try new and creative things. Ultimately, I think that approach probably doesn't work in the long term simply because the space is growing so much. The space is growing so fast that if you need 1,000 megawatts, it's just difficult to find that anywhere. Now with the events of 2022, it's getting increasingly harder to find that. And I think people's thinking around renewable and the space in general has shifted and it's shifted to what's the dream, which, you know, long term is achievable. But let's think about how we actually get there because there are so many complexities from things as simple as load shaping, you know, solar power only being available for about half the day to being creative about, let's not use just the green paint, but let's make sure we're actually doing what's right and what's sustainable in the long term, not just, you know, trying to find a way of splashing some green paint on the data center. So I think that's that thinking has permeated most of the operators in this day and age and also most of the investors in this day and age where, you know, perhaps people are getting creative, people are thinking long term and people are also backing platforms that have the capabilities to execute on that vision. And I think we're seeing that when people think about capital allocation. And people are, and even when the regulatory aspect, and I'll defer this one to you, but just very high level from the regulatory aspect, people are asking questions about is, if we have 50 megawatts of power, is that 50 megawatts of power used best to build a data center? Because that, you know, in the long term may only create a certain finite number of jobs. Whereas, you know, is that perhaps better sort of to build an office building? I think the right answer is it's a little bit of both because the office building needs a data center to exist and function. But at the end of the day, you know, I think people are starting to think about those things in the right way, given the constraints that we're facing in today's environment. That's not a lot of good point, especially the green bandages that we see for the short term. But Tara, on the regulatory side. Yeah. So as you started out with this, well, Joe, I mean, there is, there's been a lot of movement on the regulatory side, as you noted, particularly coming out of the EU, really focus. Russell loves the Bureau of Regulations. They sure do. And so in the US, we're playing a bit of catch up candidly, in my opinion. But what's coming out of the EU, and we're really seeing here as well as this focus on, and you mentioned it too, real impact, like real results, right? And so, and then from a disclosure standpoint, how are you really backing up your representations of being green of your greenhouse gas emissions output? And so I think you're going to see this year, and in going forward, and you see it at the SEC as well, we'll talk about that. But is the focus on how to focus on the impact of each of these initiatives, and then the disclosure side of being being able to back up what you're saying and what you're representing. So if you look at the SEC is one of the active regulatory agencies here in the United States, you know, since the beginning of the current administration, you have seen aggressive forward movement in terms of climate in particular, but not just climate. ESG writ large with the ESG and climate task force and them holding firms, organizations accountable for potential greenwashing, you know, just not slapping on the green paint, right? But actually being able to back up, you're seeing not only in the climate disclosure rulemaking, which is expected, they've the SEC has said it will be out this year. It's the rule makings out that they're actually going to pass the rule this year. And that will trigger a lot of litigation and pushback and everything. But you're also seeing on the names rolling, you're seeing it on how investment advisors are characterizing their ESG or the green funds. And that gets into data, how are you able to back up your representations in terms of your loans and your green loans, your green bonds, your green funds, so that it's really affecting the change that you say you're trying to make. And so I think you see out of the EU and of course, US companies that have presence in the EU with the due diligence directive that will be out this year as well, right? How are they going to be able to keep up and to because a lot of them will be subject to it if they have operations in Europe. So how are they going to be able to respond concretely? I was going to ask actually, and then I'll get you in a second, but just on the especially the European side, is there a disconnect between operators and what's happening on that front? Because the tiers at which they're going to be impacted by it's a very low. It's 250,000 dollars in revenues or something, which is basically everyone's operating this interest. Everyone is impacted by it. Do you think our SEC is a little bit out of those conversations because they don't want to be part of it? Well, I mean, I think they're going to have to be a part of it. In other words, that is, as you noted, I mean, that is definitely going to be out this year. At least that's the expectation starts in June, right? Starting June, right? So so how are they going to be able to live up to that? And I think the big challenge to with the due diligence directive, though, and corporate sustainability reporting directive is how do the organizations have the systems in place to be able to live up to the obligations because it takes significant time to build the internal control framework, the data, how are you going to be able through your data to be able to live up to those expectations? And I think, and my colleagues here are interested in their views. It's important to have a seat at the table and to be part of the conversation so that you can provide the input. I think that's part of the pushback, I think that we're seeing here in the US is, you know, it's a bit of a pendulum and that that there's a pushback because I think in part, at least in some of its political, but in part is because you're pushing so far one direction that it may not be achievable. And we also need to make sure that you're able to be financially concrete and solid and right and hit your bottom line and making sure that when you are making commitments that they are achievable and that you are also watching out for the bottom line of your organization. And I think you see that in a lot of the pushback because it's great to have the green commitment, it's important to have it, but how are we going to get there? You said that, right? How are we going to get that there? And so you have to continue to fund the organizations that are may not sit nice, neatly in a green bucket, but they're moving and it's a journey and we all need because renewables aren't at a point where everybody can have renewable energy. So how are we, right, so how are we going to get there? And I think that's part of what you were, being realistic, right? Exactly. I mean, just I fully agree with everything you said, including, you know, I think that there was perhaps too much of a swing in one direction, like people who are just, you know, setting targets that just weren't achievable and there was too much focus on frankly the green paint in some ways. But I think, you know, ESG and sustainability goes beyond just, you know, thinking about green power, it goes to, and I think you're about to talk about that, at least in some ways, but it goes to also thinking about people, right? For example, like there's a lot of people in the Midwest, and many of those former Rust Belt towns, they're in a tough spot. And, you know, if you were to build a data center there, those are high paying, those are good jobs, right? And that is also making a difference. And obviously, if you can back it up from the power aspect, that's also great. But I think those kinds of things were just overlooked 12 to 24 months ago. We do see those studies from Google and Microsoft, they met when they built something and they say the GDP impacts that they have within the local community, it's in the hundreds of billions over the next two decades. But Michael, let's talk about nuclear. Yeah, excellent. So I think just to round up here is what I hear a lot about is reliability, right? Reliability of the grid, reliability of the individual companies. We set some really ambitious goals, especially from a government down stand point. And it's really important that as we're trying to get there, that we don't create unreliability in the grid, right? We want five nines in our data centers. And so that's super, super, super important. And cumulus, what we've thought about is a lot of these individual companies have set ambitious goals that they've actually been able to hit. But they've been able to hit a lot of these goals by averaging their offsets across the year. And what we think and what we've heard in a lot of throughout the industry is that everybody wants to take it now the next step forward if you're able to individually meet those goals and now hit it 24 seven, like minute by minute or hour by hour, clean electrons. So what we're providing at our site, right, is we're going to take a nuclear power, which is zero carbon and send it directly to your data center. And so you're being able to track one for one clean data. And I think that that's going to be really the next, you know, the next evolution of where we're trying to move in 2023. Throughout 2020, 2021, 2022, and what you did, we had so many ambitious goals that that some people were able to hit. And from a government standpoint, maybe we got a little bit out of our skis. And but there are people who now want to get that next push. And to what Raymond was saying is that I think that nuclear is a really interesting way to do it. But there's also other ways to do it. And that we start now maybe building the next phase of data centers closer to where the renewables are being built in these old, old, you know, coal mining areas, right, in this rust belt areas. So you have wind and tons of solar facilities being built. And what if we start moving the, you know, non latency specific data center load, maybe into that region. And now you get closer, you know, you're offsetting your goals more, you're building new jobs. I think that that's where the world's going to start moving in 2023. I got follow up questions for everyone. I'm ditching this now. And I'll start that way so you're not the first one again. Just on your kid, did the conversation around nuclear change because of everything that happened last year, because of power constraints and the sovereignty issues around power? I think that that actually has built that has just helped the argument. I think really you go back at least a full year. And people are starting to get smarter and smarter about how do we get to our goals of 2050 goals? And you can't get there. So if you want to do tons of wind and solar, add batteries in at some point, and we're going to retire all this coal, all this gas. Well, you need to need a bridge fuel, you need that baselo generation to make sure the grid stays reliable, right? And we're seeing that in Europe and not to throw stones, but it would be really nice if they kept all their nuclear plants around. Probably economically, but also from a reliability standpoint, I think that's really important that when the lights go off, economics really don't matter anymore. And so I think it was how do we how do we get to our long term goals? It was nuclear has to be part of the equation. There's so many benefits to it for maybe another day. But on top of that, then everything that's happened over the past year has now even just added really to a really positive story. You helped with the argument as you said. There's a startup, I can't remember the name, which created this nuclear box where you can have it in your data center. It's not commercially available, but you can supposedly have it in your data center and then actually generate one gigawatts of power. Yeah, like SMRs. I don't know the start. Yeah, so I can explain that really quickly is that so SMRs will be the next phase, small module reactors, probably be the next phase of nuclear. It's probably about, say, 10 years away, five to 10 years away. But you have lots of different sites throughout the US where you have old interconnections to where old facilities were, either factories or power generation stations, and they're really good locations. You have land, you have the interconnects, a lot of what actually Tal and the parent company of Cumulus has. And you can now put small module reactors on those sites. And if you're going to be building these small module reactors, you're going to have to take your, you have to have a long term power contract to finance them. And if you look around the world, there's not that many industries that are willing to sign up for long term power contracts that need more additional incremental power, except for the data center industry. So there's a perfect marriage right there. There's not a lot of interest that are growing at double digits as well. Yes, 10, 20 years, which that is about 11% of KPMG. But you mentioned it's important to have a seat at the table. So my question is very basic. Are the right people getting that seat at the table, you know, a second? Oh, I don't know if I can really answer that concretely. What I will say is, I think there needs to be more proactive engagement in getting a seat at the table. And to pick up on a couple of your comments, you know, if we do need to take a long term view, and I think particularly in some of the swings that we've seen here in the US, that that has gotten a little bit lost in the political shuffle, in my opinion, which is we're taking the long term view. If you're taking a long term view, you do need to have all of the different stakeholders providing that input and trying to have a constructive solution to get to the long term objective of real, and that we have power or reliability along the journey. And so I'm not sure we have all of the right voices at the table. So just to use it as an example, part of the challenge in the United States is the anti ESG movement, right? So that's, that's the backlash in my opinion. Again, these are all my opinions. It's, in my view, a backlash to a very fast out-of-the-gate movement toward kind of comprehensive climate disclosure, layering, if you looked at the climate disclosure rulemaking proceeding, you know, 550 pages long, it's a huge, would impose a huge obligation all in my personal view, the right objective, right, which is to get to that end point. But I think the reaction to that was, hold on a minute. We, companies, we're not there yet. And so you are going to impose a regulatory obligation to us that we're not going to be able to meet. How do we build the internal infrastructure? What about data? All the data that you need to back up the disclosure and the reporting, what about legal liability? What about liability to the SEC for material misrepresentation, right? For instance, what about litigation risk? We're seeing an uptick in litigation coming out of ESG buckets, right? So climate disclosure, like saying that you had a green fund, but you didn't actually, you couldn't, not that you, but you couldn't back it up, right? Well, I mean, it's a reality. This difference is coming up now when financing is dying in a way. But that, to me, again, this is part of the pushback and now we're easing back. And I think part of the ESG anti ESG movement is a risk. That's the response we're seeing. A bunch of it is also political because, you know, you know, it's politics. So, but, but kind of stepping back a little and trying to take, I think, an objective view of kind of where the landscape is and where it's going. Everybody needs to have a seat at the table and they need to be engaged instead of saying, I'm not talking, I'm not going to have a seat at the table because I don't agree with this. It's making sure we have all of these constituents and the stakeholders who can help to get to the objective that I think everybody has, which is, you know, climate change. We do want to have a solution to that. Energy efficiency, we want to have a solution to that. And you need to, and that's part of the backlash too is, yeah, it's really great. But if we, if we can't get through tomorrow, we can't get through the next week. So how are we going to get there? That's interesting. And he brings in also the view of the wider public being aware of data sensors. I mean, I was flying out of Vegas a couple of weeks ago and we saw the switch data sensor and I was with someone who doesn't understand data sensors. And the question that they asked me was, what is this? What's all those cooling things? How much is that consuming? Well, in the water, water reclamation, water reuse, right, for cooling. But there's no education outside this issue. And that, and I'm glad you brought that up because I do think that feeds into this tension and this backlash is a lack of under true understanding. And then of course, the politics that get in the way. But if you're looking at like the black rocks and the vanguards, you know, Vanguard with Drew from the net zero alliance, right? Well, my Sam, well, part of that was, I think personally was a response to the political situation. Part of it also may be, I would say, making sure that, that everybody understands kind of the balanced outlook and perspective. And it's not just all one thing on this side or all one thing on that side that, that we need to be working together to find the solutions. Okay. And then Raymond, and this is also open to the panel. Let's talk about sustainability financing. So you mentioned your deligency, for instance, is also changing. Everything is becoming a bit more complex in a good way, because the market is maturing, and the way these things are done are also improving. How have you seen financing change and how do you expect it to change over the next few months, especially green financing? And when it comes to, can you deliver it or not? What are investors looking at? Yeah, no, I think it's, it's evolving. It's going to evolve beyond the classic, you know, green bond or green, whatever. And I think going back to what you said, I think a lot of the issue that we had in the past is that it was oversimplified. And just to put this into very simple terms, you know, I'm sure we've all seen, you know, a post article that says, you know, solar power plant or a solar power plant, you know, the size of, I don't know, like a 20th of the state of Nevada could power the whole U.S. or the whole world or something like that. You know, that's oversimplifying with the problem. If the government were to wake up tomorrow morning and say, we're going to fund that great, but that doesn't work, right? Yeah, how does it get to the load? Even then, it's going to be offline for half the day because solar has this nasty little habit of being offline during the night. But I think the challenge is that in the past, people were just thinking about, why can't you just do that? Or why don't you just do that on half, you know, one side of the world and the other side of the world to solve the night problem? It's as simple as, you know, that doesn't work because you need to get the load to where it actually needs to go. So now that we're actually facing a lot of these problems and thinking about how to solve them in a realistic way, where I think we can actually get to a solution. And in the past, it used to be that we want to build a data center here. How do we get power here? It's changing to, and this comes back to the capital allocation decision, it's, we don't just want to fund a data center here because we feel like that'll get sold. It's, we want to actually fund a data center that can grow beyond, you know, the first 50 megawatts can grow to a 500 megawatt campus over time. And the only way to do that is to go where the power is and then educate the customers that this is where we need to go. This is a lot of what you're doing, which I think, you know, it's a hard thing to do. It's not easy, but ultimately, it's not about doing what's right because it's, you know, the right thing to do. It's because it's the only way to really move forward and the only way to deliver that kind of capacity. So I think investors, and this goes for equity and debt are starting to realize that, you know, it's not as simple as just buying something that has a little bit of a green snap on it. It's about thinking about what's actually sustainable on long term. And actually being able to deliver on those agreements. It's very, it's not sustainable, you can't actually deliver it, right? It seems to have become the last six months of very important topic. It's like, who is actually delivering what that's right. And I think there's some, some folks out there who might have gone out with sort of less aggressive targets initially, but it turns out those targets are actually cheap, whereas for others, you know, it's really hard to get to those targets and maybe they're delaying them, et cetera, et cetera. But, you know, maybe the hard thing to do initially was to put out targets that are more conservative than others, but they're actually realistic. Right. And to that, just to build on that, I absolutely agree. And part of the challenge that we're also starting to see is the risk of green hushing, right? It's companies who don't want to say too much because then the backlash or the litigation or regulatory risk of can I back it up with sufficient data to be, right? And so there's a real tension there. And if you look at, for instance, the like SASB standards, they talk in terms of financial materiality, right? What is financially material to companies in these industries? This is how they see it slicing out across the ESG buckets, right? And so that is how companies, in my view, companies and organizations need to be thinking about risk, right? It is what is for my business, both unique to my, not only industry, but to my business itself, what is material taking the long view and charting a path that, by the way, will evolve and change over time, because that's the way it works, right? But a path to getting to an objective and using carbon credits, perhaps for instance, in the interim to help bridge the gap, but always working toward the long-term objective. It's about being realistic about that. It's saying that we're using carbon credits not as a long-term solution, but to bridge the gap. Here's the goal. We're going to do more than just hit the goal by bridging it, but it's just... Right, exactly. And you can use carbon credits to contribute to projects that are helping others to actually get efficient energy solutions that they may need and they don't have available to them. Agreed. And another trend, I think, is hopefully you stop buying carbon credits that are on a different power grid that aren't even connected to the same grid where you're serving your load. We see that a lot. Yeah. I think what we're all saying is quite interesting, because it is a bit of a holding back, as I say, that's quite interesting, because you can see it now. There used to be a lot of noise around green. I'm going to say stuff, that's the wrong word, but there's a lot of noise around green. But you did see over the last six months, things starting to quiet down, even the green loans have been financing, everything starts to quiet down. So maybe they could be realizing from operators that things are not working the way they thought they're going to be. I think there's another level of this too, though, that I hear is that people are looking at the scope three emissions of the bigger pieces of the data center. It's not only the energy side, but what is the construction cost? What is the equipment that's going into the data center? And that is also something that we really need to consider. I'm Mason's and the climate accord is really pushing this bare metal idea of when we go into build a new data center, or you start replacing what's the equipment inside the data center. What is the carbon, embedded carbon in that type of equipment? Because the power is super important that we worry about all that scope two emissions. But I think to move the conversation forward, also have to include that, or you're doing a lot of greenwashing by just ignoring a major piece of your total business. So I hope that that's something that we really start focusing on as we move forward. It is a circle economy. I mean, it reminds me that during Covid, there was one operator who built a massive data center very far away from where they're based. I'm not going to name anyone. And they just hired out huge planes, airbags planes, to ship into the whole data center. So those three or four planes, like 360s, they went in with the equipment. That's not very great. But that kind of gets quite down. I was going to ask, because we need, I think we need to finish soon, what should be the priorities for the next 12 months around this topic? And we've got three different views of the market. Well, I'll just start from kind of legal regulatory. I mean, as I said in my opening remarks, I mean, I advise boards and executive management teams on how to understand ESG risks and opportunities as they present to that company in that industry. And I think, and where we should have been all along, but where companies should really focus is on, and we've all been saying it, I think, is on a realistic assessment of how that presents for that company, including the supply chain, value chains, scope one, two, three, as best they are able to do to set priorities accordingly that are really tailored and targeted to that company and that are achievable, a plan that says, look, this is what we can do in the next three years, five years. And to be able to acknowledge the limitations of what you can do now, part of what I think the challenge and the and the demand for disclosure is because of a lack of true awareness and understanding of the market as to what that ESG risk means for that company and what that company is actually doing. And including in the green loan screen bond space too, how realistic is it and to just instead of calling it one thing and hoping for the best, to really do the hard work of understanding it, understanding it, developing an actionable plan and then delivering. It's really a year of what to talk. Absolutely. And people are going to be held accountable and that's the trade offering. I think you're exactly right. It's tracking, it's traceability, and then it's reporting. Those three things that we need to start getting a lot better at. Getting better at your minute by minute, tracking of our electrons, tracking of our scope through emissions, tracking of our employees, use of carbon. There's just, you can dig into it deeper and deeper and deeper, but it doesn't get better until we actually track it and report it. And then there's some accountability from the community. I think there needs to be more partnership also between the different companies. People who build the data centers, people who fit out the data centers. I Masons is really working hard to figure out a way that every data center can have a carbon label on every piece of equipment that's in the data center so that you can really have full accountability on the industry. And I think if we start doing that, you're not going to get everybody to sign up for that. But as from an investment standpoint, it's easier to invest in those companies that are actually starting to do it. And you'll move slowly by slowly. You'll get more and more people sign up, big co-location companies, the big hyperscalers. Hopefully, they'll be the first ones to sign up. They're all members of the Climate Accord. And then move on from there. I think the other issue that we got with that is not an issue, but what we're seeing is there's a lot of competition starting to happen within the space of trying to bring people together. There's a lot of associations and organizations trying to come up with standards and things instead of working together. Yeah, partnership. I really like that. It's really partnership across stakeholders, right? Yeah, but we do see some people going to the silented mode again. So the issue repeats itself, I guess. It's about education because the space is so complex. The point you made earlier, like buying those offsets or the carbon credits from the same grid, it's about understanding things and then going the path that's the right thing to do, not the easy thing to do. In some ways, that might be more financially challenging. But ultimately, I think it's about the long term. And maybe it's about being realistic that near term, it may be a financial challenge. But let's think about what we can do in the long term that might actually be sustainable from a financial perspective as well. And maybe not embarking on new projects that are just financially or from the ESG perspective unsustainable. So I think it's about that. It's about taking a step back, thinking about the impact holistically and thinking about, you know, let's set targets that are really cheap. And I really feel, would you, yes or no? Would you agree that the next six months is time for you to do your homework? When I see you, I'm in the industry and get your house together because the second half of the year is going to start to hurt if you don't. Oh, I fully agree, yeah. All right, so six months. You've got six months left. Yeah. All right. Raymond, Tyra, Michael, thanks so much for joining me. As for your home, thank you for watching this special live broadcast from JSA TV at PTC 2023 in Hawaii. This is only the first one out of more than 30 broadcasts that JSA is going to be bringing to you from PTC Live. Until next time, my hello and happy networking.