 Okay folks, let's get started. So firstly, welcome everybody to this. It's the third in the series of Inspire seminars that E3G, CSEN and SOAS have been leading on responses to the crisis. Today we're taking a slightly different perspective to the previous sessions. We're thinking a little bit about the past, but only a little bit about the past in the sense that we're going to think about what we've learned and both from the previous financial crisis, but really about how we're going to take this forward and the lessons learned forwards. We're going to have three speakers in order. Dimitri Zengeleis from University of Cambridge, Bob Litterman from Kipos Capital and Zoe Knight from HSBC Centre of Sustainable Finance. There is going to be plenty of time at the end for Q&A discussions. The webinar will be recorded and goes up on the Inspire website hosted by SOAS, so you will be able to check back over it. And also if you have missed previous seminars in this series or want to be kept up to date on future seminars, you'll be able to find those all there. So without any further ado, I'm delighted to hand over to Dimitri Zengeleis from Cambridge. He's going to be our first speaker. Dimitri, thank you not only for speaking, but for being such a major driving force in putting this together. Over to you, Dimitri. Ronan, thank you very much. I hope everybody can hear me and I'm now going to attempt to share my slides. Let's see how that goes. So far, so bad. Maybe you're seeing it. Are you seeing my slides now? It's looking good so far. You got slideshow mode and we're sorted. I'm trying to do it, unfortunately. Okay. You got it. Well done. Very good. We're away. Good. Well, good afternoon, everybody. Good morning if you're in the US. So we're going to talk today a little bit about learning some of the lessons and insights from the past, but I'm going to set a slightly macro context to the post-COVID recovery plan. I think of this in two ways. There's COVID rescue and COVID recovery and they're very different. Rescue is very different to recovery because you don't want to stimulate the economy at a time when you're actually actively trying to limit social and economic interactions in order to contain a pandemic. But once you are on top of the pandemic and we hope that that time will come, the emphasis will shift very much towards recovery. And that's a little bit of what I'm going to talk about and I'm going to put this in the context of the interface between fiscal and monetary policy. And let me just try and get a picture of me out of the way. I don't need to see myself. There we go. And I think the context here really matters a lot because even before the present downturn, indeed even before the great financial crash of 2008 and certainly afterwards, most of the major economies were really struggling with unsatisfactory and slow growth, slow productivity growth, and what is really considered to be a rather inequitable distribution of income and indeed wealth when we factor in some of the gains in asset prices and property prices that have accrued mostly to wealthier individuals. Another key feature of this was that inflation remains subdued and interest rates were historically depressed. And most importantly here, so too was the real rate of interest. It's been pretty much languishing close to zero, certainly in terms more recently even in nominal terms as well with policy rates being turned negative in some cases and forward yield curve suggesting that the markets expect that kind of low real interest rate environment to endure. And what this is clearly telling us, because the interest rate is the price that allows X post savings to equal X post investment, is that desired savings have been very weak relative to desired investment. So the world is really crying out for investment opportunities, markedly higher investment opportunities. And this is really important because it has implications both for fiscal and for monetary policy. For fiscal policy, it suggests that government should focus on leveraging in investment, both directly through investing itself but also through providing a policy environment that generates investment in the private sector. And for monetary policy, this low interest rate environment, the very low neutral real interest rate has meant that as soon as the economy goes below trend, monetary policy has very little room for maneuver because neutral real interest rates are low. The scope to go below the zero bound in nominal terms is very limited, which is why we've been having to experiment with these somewhat extraordinary forms of monetary policy in order to stimulate the economy. Again, this suggests that some of the emphasis has to shift back towards fiscal policy and that fiscal policy and monetary policy need to coordinate. In the short run, we need to boost demand to get the economy out of the classic paradox of thrift, where fear of a downturn leads businesses to cut investment and to shed labor, banks to retrench credit, consumers to cut back on spending. And of course, when everybody behaves in that way, expectations become so fulfilling in generating that downturn. That's the risk we're going to have in the recovery phase. And this is very important. Our objective is to stimulate investment in productive assets in capacity. We want to crowd in capacity. Well, we've undertook a study in the opposite review of economic policy with Joe Stiglitz, Nick Stern, Brian Kanrahan and Cameron Hepburn, where we argued that in the short run, a lot of the kind of clean energy infrastructure investments, but also things like retrofitting buildings, restoring wetlands and forests tend to be quite labor intensive. They're not susceptible to offshoring. They're not prone to import, so they impart quite high short run multiplied. But we also argued, and I'll say a little bit about this in a minute, that actually the operation and maintenance of some of these more productive renewable technologies, also the gains from increased efficiency, actually pass on energy cost savings to consumers and generate innovation that can actually have very high long run multipliers, and especially in terms of locking into the right things. And how big are these multipliers? Well, we argue that they're in the range of two to three, which means every $1 of public borrowing can raise output by something like $2 to $3. That's based on a number of studies that have been produced over the last decade, and most recently in the latest fiscal report, the IMF also came out with a multiply of around 2.7, which is at the upper end of that range, so there's plenty government can do through fiscal policy to stimulate investment and to stimulate growth. I won't dwell on this rather busy chart, but just to say that obviously if you're wanting to expand capacity, that means investing in those assets, which offer the greatest potential return and the kind of carbon constrained markets of the future. Now of course, some of these clean investments aren't the only way to stimulate the economy. You could build roads, you could build pipelines for oil and gas, and in the past, those may have been very sensible things to do to stimulate the economy, but that's not necessarily a guide to a future which is going to become increasingly carbon constrained and resource constrained, hence the concern about asset stranding and asset devaluation. We argued that this is about more than just not locking into the wrong kind of infrastructure and spending private and public money propping up fossil fuel intensive assets. It's also about investment in human capital to cure the skills and jobs necessary for the 21st century to retool and reskill workers, to enable them to participate in the kind of change we're seeing, and that's not just low carbon, it's not just resource efficiency. It's also the sort of plethora of new technologies that are beginning to hit the supply side of the economy, things like AI, the internet of things, pay to digitization, nanotechnologies, you know, the whole gamut of this stuff is going to change the way we work, the way we interact, the way we consume, the way we produce. Linked to that, of course, is investment in the right kind of knowledge capital. It's knowledge capital that will shape the economy of the 21st century. Without it, we will not be able to get more out of the resources we have in a way that allows us to square both our resource and carbon constraints and our growth demands. So really innovation driving total productivity, using limited resources ever more cleverly through the weightless economy, through intangibles and so on, is going to be what allows us to expand the envelope without committing to excess use of resources. And that means, of course, monitoring natural assets. Natural assets, you know, are, if anything, the only form of capital that is in general in decline. Most the other forms of capital have been increasing recently. And because these assets are complementary, some of the constraints associated with depleting natural assets are clearly becoming apparent, not just in climate change, but also deforestation, biodiversity loss, overfishing. The focus in particular, on renewable assets, rather than non-renewable assets, I'm less concerned about minerals disappearing when we can substitute out of them than I am about some of these renewable assets which have prone to irreversible thresholds, many of which we are reaching. And then finally, there's social capital and the focus on inclusivity and equality, which has been a major constraint and potentially a political constraint to sustainable growth in the future. In the interest of time, I won't dwell on that, but you can always look at these things later. One of the surveys that we undertook as part of this Oxford review of economic policy study was we looked at something like 230 key practitioners in finance, ministry, central, back, senior economists, that kind of thing. Not your usual sort of suspects when it comes to the environment. These are not tree huggers by nature. And we asked them to rank some of the key policy initiatives in terms of their ability to generate growth multipliers and also their ability to produce climate positive impacts. In other words, move us towards a net zero economy. What was of interest, and I think very different to the great financial crash, was this positive correlation and also that the number of policies ranked in the top right hand corner. That's the corner that we want to be in because it's both growth positive and it's also climate positive as well. And policies like clean R&D, clean energy infrastructure, connectivity infrastructure, but also green fake spaces and buildings upgrades were found to be both environmentally positive and growth positive. And it tends to suggest that there's an increasing understanding that growth and sustainability are not conflicted. They're not traded off. They're not at odds with each other. And in fact, they can be put to very complimentary use as we have argued in our paper. So this isn't just us talking about it. It's others believing it. And of course, expectations matter because if enough players believe that this is going to happen, there are what we call strategic complementarities whereby the act of investing, I'll take this slide off actually because I'll stick to this, the act of believing that everybody else is going to invest in, for example, green technologies changes the payoff to you investing in green technologies. If you're the only person the costs are high, the real high you won't invest. If everybody else is investing, you'd expect the costs of technologies to come down, finance to become less niche and new market opportunities to open. So you'll invest. The very act of investing in the new economy generates the cost reductions that makes it sustainable. My final slide is just to focus a little bit on policy. We've seen this unprecedented government response to the pandemic and that's pushed debt in many developed economies to historic highs relative to GDP. We're also now, as the economy moves from rescue to recovery, there are calls for further spending of the kind that I've made in order to stimulate investments. And of course, that threatens to even higher public debt to GDP as we try and boost productive capacity. Now, clearly, there are risks associated with excessive debt. They increase a government's vulnerability to debt crises in the future. But there's no magic ceiling to where debt to GDP should be. And history suggests that the best way to reduce debt to GDP in pretty much all the major economies is to focus not so much on the numerator by fixating on a rapid deficit reduction, which can often become productive, but to actually focus on the denominator, in other words, to use fiscal policy strategically to generate growth, sustained growth in a way that allows debt to GDP to come down. And that indeed is the only sustainable and durable way history has shown, but also theory tells us to reduce debt to GDP. The failure of austerity in a number of countries post the great financial crash I think is testimony to the idea that the wrong way to bring about debt sustainability is in the short run at least through reducing deficits. In the long run, of course, you will want to balance your current budget over the cycle and stabilize debt to GDP ratios. But if you can boost GDP, that's the best way to secure sustainability. I will stop there, because I think I've exceeded my 10 minutes already, but hopefully plenty of material to think about. Richard, thank you so much. Your timing was perfect. Your timing was perfect. Sorry, I'm delighted to see somebody has put something in the Q&A. Can I just remind everybody, we will be opening this discussion with everybody. At the end of this, please log any questions you have as they come along. Now, my pleasure to hand over to Bob, Bob Letterman from Capital Capital. Bob, over to you. Thank you, Ronan. It's a pleasure to be here. I am acting as the chairman of the Commodity Futures Trading Commission subcommittee on climate-related market risk, and I'm going to talk about our report. So let me try and bring that up here. Let's see. Do I have that? It's coming up. That's looking good. Okay. Do you see the slideshow? The slideshow hasn't come up. I can see the slides, not the slideshow yet. There we go. Okay, good. There you go. Thank you. So before I dive into this report, let me talk about the lessons learned. In this report, there is a foreword that I wrote talking about lessons from risk management that apply to climate. They also apply, by the way, to COVID. There's three lessons that I mentioned. The first one is that you have to worry about extremely bad but plausible scenarios. That's a lesson from financial risk management. It applies to COVID. It applies to climate, and unfortunately, at least in the U.S., we didn't apply it very well to COVID, and we haven't applied it very well to climate. We'll talk about that in the report. Second lesson from risk management that I'd like to mention is that time is the scarce resource. There was a study out of Columbia University that suggested that in the U.S., if we had responded to COVID a week earlier, we would have reduced the death rate by half in the first two months. Similarly, with respect to climate, we don't know how much time we have. We haven't yet priced the risk. That's a fundamental mistake, and not doing it in time. We can come back to that, but it increases the risk dramatically. Then the third lesson from risk management that maybe is not quite as obvious is that the purpose of risk management is to identify risks and to quantify risks, and to make sure that they're being priced appropriately. That is to say that the purpose of risk management is not to minimize risk, but to price it. The big mistake we made in the great financial crisis was that we weren't pricing the risk embedded in mortgages, the systematic risk. Similarly, with respect to climate, we're not pricing the systematic risk embedded in emissions. That's the fundamental mistake that we're making, and it's also the most important and urgent thing that we have to change. Now to this report. The first thing I want to say about the report is it was amazing that it was even commissioned in the U.S. right now under this administration. I have to give a lot of credit to Commissioner Russ Benham, who is the sponsor of this report, one of five commissioners on the Commodity Futures Trading Commission. The entire commission, which is three Republicans and two Democrats, all appointed by President Trump, unanimously agreed with Commissioner Benham that the CFTC should commission this report on managing climate risk in the U.S. financial system. I would also give Commissioner Benham a lot of credit for making it a very broad mandate. He told us not just to focus on what the CFTC should do, but what all financial regulators and frankly all of the U.S. government should focus on, and he created a very good committee. There were 35 members originally one dropped off, so we ended up with 34 members, and they represented banks, insurance companies, basically a very broad group of stakeholders in the financial system. Also data providers, commodities exchange, oil and agricultural companies, academics, think tanks, and environmental organizations, a lot of expertise. Commissioner and his chief of staff also worked very hard to make sure that we have the right people. So for instance, from an oil company, we had the head of risk management. We didn't have a government relations or someone from the legal office. And Commissioner Benham asked for a consensus report. He wanted to know what could we all agree on. He wanted a high level report. He asked us to focus on trying to get under 50 pages and try and come up with as many specific recommendations as we could. Now, I think we met every goal. I was very pleased with this report, except that it took us 165 pages. We agreed on much more than I, where I think the commissioner expected, including 53 specific recommendations with supporting material. So let's talk about what we agreed on. Well, before that, this slide, we were given a broad mandate. And so what did we talk about? Well, we broke into these different work streams that ended up writing different chapters. They focused on climate risks, data and analysis, the role of financial regulators, scenarios and stress tests, climate risk disclosure, and the last chapter financing the net zero transition. So you can see we took a very broad view of the issues. And I hope you can all get a copy of this and read it. So what did we agree on? Well, the main thing we agreed on, which I mentioned before, is the fact that we're not pricing the externality of emissions. And we need appropriate incentives to reduce emissions. The first meeting of this subcommittee, which started over a year ago, and the report was just published last month, the first meeting we sat around the table, and I talked about the lessons of risk management, I talked about the need to price the risk, the fact that we weren't pricing it. And this is a fundamental mistake. And as we went around the table, there was no one who disagreed. We all agreed we've got to price emissions. And not only that, but this is the most urgent thing we've got to do. We will be dealing with climate risk for decades and decades, we will probably have to pull carbon dioxide out of the atmosphere at extremely large scale. But all of that is in the future. What we need to do right now, immediately, is I call it slam on the brakes. And the only brake we have are the incentives that we create to reduce emissions. And everyone in the financial markets understands that I'm a quant. I spent a career on Wall Street trying to pick up the dimes and nickels and pennies that were there when you hedge out other risks and there were opportunities to take advantage of. The financial markets are incredibly efficient, but they take advantage of opportunities given the incentives that we have. So right now, we're not pricing climate risk. The incentives go the wrong way. And the financial markets are creating capital flows that move in the wrong direction. So until this fundamental flaw is fixed, capital flows in the wrong direction. That's the context for our report, but not the focus of a report. We didn't focus on, for example, where should emissions be priced, although that's something I focused a lot of my attention on. And the answer is we need very significant incentives to reduce emissions. This is not an ease on the brakes scenario, maybe 20 years ago, but not today. Today we need to slam on the brakes. So recommendation number one of this report is that the United States should establish a price on carbon. It must be fair, economy wide, and effective in reducing emissions consistent with Paris Agreement. This is a quote right from the report. This is the single most important step to manage climate risk and drive the appropriate allocation of capital. Okay, but we focused on a lot of other things as well. So this report reflects agreement around a fundamental set of principles, the need for collaboration with international efforts to address climate related financial market risk, the need for leadership by the financial regulators to guide an iterative process forward while leaving room for American financial innovation, a consensus about the need to quickly improve the quality of data, analytics, and understanding of the many dimensions of climate risk, and the need for approaches to scenario analysis, stress testing, and what will no doubt be a complex iterative path toward the development of meaningful disclosure on material climate risk information. All of these are quotes from the report. Now, what about central banks? And I have to tell you, we tried to be polite in this report. So we didn't say the Fed should. We said something like all relevant federal financial regulatory agencies should incorporate climate related risks into their existing monitoring and oversight functions. And we were talking not just about the Fed, obviously, but about the SEC, the CFTC, insurance regulators, credit ratings, and so on. Regulators should further develop internal capacity on climate related risk measurement and management. Research arms of federal financial regulators should undertake research on the financial implications of climate related risk. Research should also include the impact of climate risk on financial system assets and liabilities. Financial supervisors should require bank and nonbank financial firms to address climate related financial risks through their existing risk management frameworks in a way that is appropriately governed by corporate management. And finally, financial rights authorities should consider integrating climate risk into their balance sheet management and asset purchases, particularly relating to corporate and municipal debt. International coordination is essential. We clearly focused on Europe, which is ahead of the US. Again, we tried to be polite, but we referenced the NGFS 53 times. We said federal financial regulators should actively engage with their international counterparts to exchange information and draw lessons on emerging with practice regarding the monitoring and management of climate related risk. Working closely with financial institutions, regulators should undertake, as well as assist financial institutions to undertake on their own. Pilot climate risk stress testing, as is being undertaken in other jurisdictions and as recommended by the NGFS. And US regulators should engage in international forums, such as the NGFS, to ensure that climate risk stress testing conducted in the United States is comparable to similar exercises in other jurisdictions and avoid duplicative exercises for institutions with a multi-jurisdictional footprint. We talked about fiscal policy as well. The transition to a resilient net zero emissions future is a linchpin for managing long-term climate risks to the US economy and households. The US government's fiscal authority, its capacity to spend, borrow and structure the tax code can significantly increase the scale of investment and sustainable projects. Fiscal policy can support the many co-benefits of transition, including job creation and the promotion of equity for historic and marginalized communities. Additionally, it can drive continued innovation by funding basic scientific research and the deployment of mature technologies. Fiscal policy includes economic stimulus, disaster relief and infrastructure, all of which have implications for climate risk. Future spending offers possibilities for using the structural barriers, holding back the transition to a net zero emissions future, while simultaneously supporting the economy. Policymaker's ambition should be to enhance the economy's long-term potential, including by managing climate risk, not to maintain the status quo. Now, before concluding, I just want to mention one other application. This is not part of the CFTC report, but at my firm, KEPOS, we have been looking at what is the global incentive to reduce emissions. And it turns out those incentives come in many forms, of which carbon taxes and cap and trade systems are actually the least important. And I know this slide is probably a little difficult to read, but what we're looking at here are the incentives created not only by carbon taxes and cap and trade systems, but also gasoline and other fossil fuel taxes. Gasoline taxes, by the way, are the largest incentive globally and including in the United States to reduce emissions. And subsidies of fossil fuels, both production and consumption, which are huge, especially in many other countries. Renewable portfolio standards, feed-in tariffs, and low carbon fuel standards, all of which are subsidies to reduce emissions. And what you can see, first of all, it is, I don't know if you can see my cursor here, but over here on this world map, the circles represent the amounts of emissions. So the largest circle is in China, has the largest emissions. The U.S. is second. We have about 15 percent of global emissions in the United States. And then you can see other circles in, oops, sorry about that. Oh geez, there we go. I don't know if we're still in slideshow, but we're in the current slide. Are we there? And then what you can see in the middle of the Atlantic Ocean is a scale that shows where the globally averaged incentive to reduce emissions is. It's $11.5 per ton of carbon today, meaning 2018 was the most recent data. We actually have just updated this for the 2019 data, which has become available. And the globally average price is now about $13 a ton. And what you can see down here is a little time series. I'm sure you can't read the scale, but it starts in 2008. This is 2018. So 2019 is basically a continuation of the linear increase in carbon incentives globally. The minimum here at $1.5 is in 2012. And then if we look over here on the left-hand side, you can see the average incentives by country. I'm sure you can't read these along the horizontal axis, but the highest price. And you can see on the graph here, the colors in blue are higher prices. The highest is in France at about $100 per ton. And the US is down here at about 17. And this is Venezuela. So you can see these countries in red are mostly in the Middle East. Those are the countries where there's a net incentive to increase emissions. The incentive, in other words, goes in the wrong direction for those. The worst case is Venezuela, although it has very small emissions. It has very large subsidies to fossil fuels. So what we've got to do, obviously, in the next couple of years, is get these incentives much, much higher. We need globally harmonized incentives to reduce emissions at an appropriate price. That's the most urgent step we can take. And hopefully, that'll start in the US after the election that's coming up here in less than a week. So I'm very optimistic that we will get a new administration, a new Senate, and a carbon tax next year at a significant level. And hopefully then, very quickly, we'll get harmonized global incentives around the world. So I'll stop there. Thank you. Thank you very much. And remind me to phone you next week to see how you're feeling after that. Excellent presentation. And I loved your barometer slide. That was so graphic. I'm going to hand over straight away to you, Zoe. And you're going to take us through the next few minutes. Thank you. Thanks. Thanks, Ronan. And thanks, Dmitri and Bob, for your opening presentations. Very insightful. And I'm going to refer to a couple of pieces from them as I walk through some slides about what HSBC is doing and what the market itself is looking at in relation to furthering the Sustainable Finance agenda. First off, though, just for those of you that don't know me, my name is Zoe Knight. I run our Centre of Sustainable Finance at HSBC. HSBC is a global organization with around 40 million clients and operating in just over 60 countries across all elements of the financial system. So I'm delighted to be joining you today to walk through the building forward thinking in relation to how policy drivers can incentivize a shift to a more sustainable pathway going forward. And if I can just flip through, there we go, flip through the next slide. What I'd like to start off with is thinking about the exam question around repurposing for sustainable growth. Essentially, what we're talking about here is looking at how institutions can really strategically steer themselves to support an economy which is fit for purpose for everyone, both in terms of addressing the challenges of climate change and other sustainability factors and providing a backdrop where livelihoods are supported by quality jobs and contribution to that overall social perspective. The good news is, going forward, the vast majority of investors and organizations want to build a better future. So at HSBC we did a survey throughout the months of July and August where we talked to investors and issuers about their appetite for addressing environmental, social and governance issues going forward. And we found that 94% of them think that environmental, social and governance, ESG issues are very important for the future. So the good news is there's an appetite across the board of how to think about these factors and how to work them in going forward. And in fact, 97% of issuers said that they would be redeploying capital to capture an integration of environmental, social and governance factors in the future. So that's really good news. There's a lot of appetite to work on how we restructure the economy. So the question is not why, it's more of a how to implement a way forward that is future, that is different from the past in the terms of capturing those environmental externalities that we haven't been able to capture historically and that has resulted in this problem that we have with climate change and rising emissions. So building on the point that Bob made about incentives, it is all about putting the right incentives in place to deliver those outcomes. And I think there are two that I really want to talk through before diving into what HSBC is doing more of. So first off, transparency and disclosure. Now I know that to many of you this isn't going to be new news, but it really is important in terms of driving change. So first off, for the financial system in particular, it's about transparency of financial flows and how they're being deployed to support a low carbon outcome rather than the traditionally fossil fuel driven economies of the past. Now of course that is easier said than done because we would ideally like to know exactly how the energy system can transition and there are very many nuances not least across heavy industry and high energy users in terms of how we get to that net zero outcome. But first off, we need to really be able to tell whether financial flows are being allocated in a way that supports that future outlook. So transparency about finance is driven by how companies are disclosing on what they're doing in terms of investment capital. And disclosure provides signals to all of the players in across the capital system, whether that's the regulators, asset owners and asset managers or banks themselves, in terms of how to better price risk in relation to those capital decisions. So as I mentioned, this isn't new news and we've heard from Bob that there's a lot of work in progress around addressing how risks should be factored into financial decision making and consequently how we can on the flip side understand more about where the opportunity set lies in relation to finance being able to drive a real economy outcome. So the transparency and disclosure side provides a signal intent of what corporates, governance, governments, regulators and investors are thinking in terms of climate decisions and it tells us about the direction of travel but nonetheless in order to derive that zero carbon outcome or zero carbon economic outcome we actually need to determine whether for one to develop a world entities are putting money where their mouth is and actually driving the change in the real economy that's necessary to move at pace. And so here's where the targets element comes in and this is slightly trickier because whereas transparency and disclosure is purely about reporting, targets require an understanding about exactly what needs to be achieved in terms of emission reduction to generate that end state transformation that we're driving towards. So for example within a power or utility sector it's straightforward to measure absolute emissions and get on a pathway that has a net zero outcome by 2050 and that would be aligned with the aims of the Paris goals. Within heavy industry for instance like steel, cement or or areas of transport shipping aviation it's much more difficult to set those emissions targets in order to be able to see whether or not companies and industries are moving at the pace required to be on track to limit temperature rises. So we know to a certain extent what to do we just have a certain degree of uncertainty around scenario setting of what the future can look like but nonetheless it's important to get started on that journey and so now I'm going to take you through a slide about how HSBC is viewing the problem. So two weeks ago we set out a climate ambition which is to build a net zero global economy. We're going to do that by becoming a net zero bank by 2050 we will have aligned our finance emissions to a net zero outcome hopefully we'll be able to do that sooner than 2050 but for now we've got the frame or we're getting the framework in place and we're addressing sectors and thinking about how this can be done and that's a quite an ambitious statement because we don't have all of the methodologies and thinking in place right now to know exactly what that 2050 is going to outcome is going to look like but nonetheless as I mentioned there is so much work in progress across the industry as a whole whether that's looking at science-based targets the Paris Agreement Capital Transition Assessment Tool which is what we're using to look at transition pathways other initiatives on emissions accounting like PCAF the portfolio carbon accounting framework sorry the Paris carbon accounting framework and the network for the greening the financial system and other regulatory drivers on climate stress testing which all together are helping us think about what that future scenario an emissions scenario looks like so that we can start to be able to benchmark our customers across their progress in terms of delivering that net zero outcome because of course the financial system as a whole is responsible for portions of emissions that it's financing but it's the real economy itself that is responsible for the transition so we have to be able to understand the future pathways of a range of sectors in order to assess how well we allocate capital in the future and how we manage the risks related to climate factors whether that's transition risk that is coming from higher carbon pricing or whether it's the physical aspects of warmer temperatures that will disrupt supply chains or real estate availability for example so we've got three pillars to the strategy one of them is the becoming a net zero bank the second one is supporting our customers and as I mentioned you know this real economic transformation is going to come from the move of high energy use and high climate impact sectors along a decarbonisation journey now we know that the vast majority of that is going to be helped by a shift at pace to renewable power but it's not happening quickly enough and we know that we also need to think about the use of hydrogen as a as a factor to help industry the use of carbon capture utilisation and storage and how that fits in in different geographies and for different industries and all of these things aren't necessarily exactly well known from a location perspective so we need to work quite closely with our customers and with governments and others to understand exactly what that pathway forward looks like but nonetheless we have to integrate it into the business as a whole and this picks up on another point that Bill made which is we need to make sure that we've got the right people in the room that are working on the business as usual activities within the bank and how we can apply the climate lens to all of those activities and to do that we're raising awareness and education about the topics themselves but also the consequences of changing policy to address limiting emissions in the future whether that's carbon pricing or whether that's thinking about the the resulting temperature rises and the physical impacts in relation to that so applying a climate lens to our financing decisions is an important and important way of thinking whether we're supporting the transition with our decisions or not and then lastly and this plays onto the point that Demetri made about crying out from investment opportunities you know this is also about unlocking new climate solutions we know that in the future we'll be innovating and thinking more about the value of ecosystem services how we use nature-based solutions to help companies that perhaps have a lower emissions base to start off with but want to do more that want to really address the historical emissions that they've been responsible for and actually overcompensate for their environmental impact today so unlocking those new solutions comes from collaboration across both our own industry and with scientists and academics it means creating new joint ventures and one of the things that we did this year was to work with pollination a strategic consultancy on nature-based solutions to form a joint venture in our asset management business and that going forward aims to create the world's largest natural capital fund similarly the sustainable infrastructure place is an important piece of work to look at how to attract those investment flows going forward we know that we don't want to build infrastructure today that locks us into a high carbon trajectory for the future but we also aren't necessarily very transparent about which infrastructure really will avoid emissions so for example we know that renewables are important but actually in the transport network making sure that we avoid where possible the use of sort of road and moving to red instead of other high carbon combustion engine based transport networks for instance needs work and it needs a collaborative framework to instill labeling systems to help provide transparency to it investors and also accounting systems to be able to measure avoided co2 and look at how we are delivering the impact that is required so that's a bit of a whistle-stop tour of what HSBC is doing and how we're trying to contribute to the solution and I've got one more slide to talk through to sum up which is there's a lot of work going on and we should really celebrate the progress the financial system has made in this space over the last 10 years it has been mainly focused on the long-term liabilities of asset owners and how they manage their environmental social and governance thinking with the asset managers that are that are managing their their capital but it's not really happening quickly enough so we do have some transparency we have worked on green bond markets we are thinking about transition finance and that is an important area of the future how to to shine a light on the companies that are high climate impact today but need to decarbonise to transform their strategy for the future but the green bond market is less than 1% of the global debt market so there's a lot of work to do the EU has led to a certain degree in this space by working on the taxonomy of activities that can be said as green or aligned with the Paris Agreement and Asia in fact in China through its climate neutrality goals has been looking at how to classify activities now of course countries are moving at different paces and we all want to see more and faster but nonetheless the celebration of the existing work that has happened and building from that can help us move forward much more quickly to that goal of delivering a net zero economic outcome I'll stop there because I think I'm over my 10 minutes as well and hand back to Ronan for any questions that have come in from the audience thank you so much sorry that was very interesting as a particularly interesting slide to to close on because if if you think across the range of of presentations we've had we've taken a look at that kind of big picture kind of a total set of the economy through through the financial institutions and regulators world and then down into so who is actually spending money out there and and and what can be done in the future or what you know what extra is there needed and I think the second thing that I would point out is is and again so you said something about transparency for instance not being news but actually I don't think I'd have had this conversation in 2008 because all the transparency might not have been news I think the the whole sense of a need to look at the architecture and rethink how this is all working would not have been anywhere nearly so present and that is on top of everything else that that may have happened since then including falling the price of renewables and and everything else so so I'm really keen for questions from the floor I notice Tracy you've already come in with a question others please raise your hands or if there is a metaphorical way of doing this or write questions in the in the Q&A but that will speak as you will have noticed that that that Tracy has talked about the money supply and allocation and I think it you're actually touching on something that comes right to the the very start of of what Dimitri was talking about when reflecting on the situation even before the even before the the the present crisis emerge the observations and that my supply seems a good high-level place to begin well I mean I I engaged a little bit with Tracy on that I mean then donated the money supplies clearly crucial I always refer to kind of Nick Caldwell who decades ago pointed out that there's a surge in the money supply every year just before Christmas that does not mean the money supply causes Christmas and there's a lot here to do with the institutional architecture and the nature of regulation and supervision of financial institutions that will impinge on the money supply to us in a broad sense to as much of an extent as you know pricing money through policy rates and associated money policy activities the whole gamut has to be considered and indeed the interaction with fiscal policy as well especially when the fiscal authorities are actually now increasingly buying up you know issues from central banks so that the central bank's balance sheet is increasingly filling up with public sector debt from primary markets so this just testifies to the point at the beginning that fiscal and monetary coordination are going to have to be ever more closely greater than they have in the past and you know I think the institutions are only catching up with the macroeconomics on this one and and there's a lot further that needs to needs to be done to go and just to add to that it's not just any more the monetary and fiscal side that need to be coordinated it's actually energy policy and business industrial strategy that hasn't been perhaps so tied up as it's needed to be in the past to address these issues and I know you know for those of us that have been working on this for a long time we've talked a lot about energy subsidies in the past and the fact that they're perverse incentives to fossil fuel production for instance and how that might be amended in an environment to think about shifting behavior towards the as Bob pointed out the right allocation of risk reward and capturing the risk framework from the from the energy thinking as well as the monetary and fiscal thinking. Just take that on a bit there because because when I was listening to Bob's presentation I was thinking much more about how you then got central banks into that game and and Bob you had a whole slide where you talk that one through so many trees refer to to what's on the central banks balance sheet but I know in other discussions we're probably all involved in in parts of them we're thinking a lot about that that you know fiscal space is massively constrained by debt overhang and and and so central banks are probably important so what are the multilateral development banks Bob any reflections on how we can bring those into play here. Well again and I just pound on this we have to have the right incentives and we don't have those so that's the fundamental problem now in the US clearly that's Congress and and that's the Senate right now the house is ready to move and so I would say even globally you might say the US is the fundamental blocking point right now so I'm very focused on getting that done now is there a role for central banks I think yes we need as I mentioned globally coordinated incentives and I'm not sure how we're going to get that global coordination you would think that that would be part of the UN process but frankly the UN has not focused on incentives sadly and maybe it's not set up to focus on incentives it's certainly not focused on globally harmonized pricing of emissions now it's very possible that the NGFS would be an appropriate body to focus on global coordination and global incentives I would tell you many of the policies that are introduced in in the US anyway on pricing emissions start with a given price and then have some sort of escalation going out into the future four percent five percent typically real appreciation the reality is we don't know what the future is going to bring this is an optimal control problem in a very uncertain system with new information that's going to be revealed every day and we have to react to that new information it's just it's not even credible to say here's the price path for emissions for the next 20 years that's just and so what you really want to do is you want to take it out of the political process and so we learned that decades ago we talked about lessons that we learned we learned decades ago that you want to take the setting of interest rates out of the political process and give it to an independent body like a central bank and the case of the US the open market committee and and that's what we need to do with pricing of emissions we need to bring it into the realm of science and economics and global coordination and maybe that's a role for the njfs I don't know but more more than just pricing of course we need oversight of financial institutions and you know and that has to do with this the standard regulatory oversight we need appropriate disclosure we need both those financial institutions and the corporations that they're making loans to to appropriately manage their climate related risks and report on it so all of that is under the purview of central banks I would say depends on different countries different different folks have responsibility for that oversight but ultimately central banks are really the leaders in this area and just to build from that point so the work of the Bank of England in giving us all a climate stress test to work on for next year is game changing in in getting more people in the room to talk about the right issues in a way that is operational operationalizable if that's a word in terms of of managing risk right because what I've learned over the past three years we're having moved from the asset management community to being in the heart of HSBC and working across lending commercial lending and retail lending and and all of the other parts of the financial system is actually there's a massive capacity gap between a knowledge gap between those who have been working on climate change for quite a long time and are very sophisticated in understanding how carbon pricing might work for a company and how their incentives might be able to be implemented to those that are at the very beginning of their journey and don't haven't really thought through how things can work in practical terms with the pricing that they have to think about day in day out to the loan that they're making and how that's being reported in a system somewhere and the fact that the definitions within the system aren't really very climate compliant and yeah that's in the weeds but nonetheless it's still things that have to be overcome to be able to get to a framework which allocates capital to address climate risk and the central bank point is making sure that that will gradually filter down and and the stress testing point is the start it's you know we know that we're not going to have the right approach tomorrow to be able to do this but it is getting a lot of people thinking and it is getting a lot of people in rooms of having to work out okay we've we've got to think about this in a way that we can implement it and that's that's great because it means that we can move up pace can I just a quick circle doesn't it really this is where you know I think where I started from at the beginning you know what matters in terms of you know all this surplus liquidity and this over leveraging through greater indebtedness that results from years and years of you know real interest rates being close to zero is whether the assets that are being built up are actually going to be productive or whether they're going to be stranded if the assets aren't going to match the balance sheet in a way through generating sustainable returns we've got a potential debt crisis and systemic risk and all the rest of it both at the private and at the sovereign level so this applies to you know fiscal overhang you know in fiscal space as well whereas if we put that investment into productive assets into those assets which are most likely to be compatible with the 21st century economy we can pretend generate the returns that justify the debt and allow growth to road the you know the fixed debt whilst maximizing the returns to those assets and absorbing that surplus liquidity and allowing real equilibrium interest rates to start rising back up to normal levels and I stress real equilibrium interest rates rather than policy rates which if they're going to have to kind of be raised in order to call a supply constrained economy down will cause huge problems in an overleveraged economy because well we you know a lot of that debt will simply not be repaid at what used to be normal interest rates so it's absolutely essential that we expand the supply side and I think everything should be focused on strategic investments that matter about and that should be the kind of the ultimate long-term scope of both monetary and fiscal policy in terms of how the two you know mechanisms coordinate with each other could I um I'd refer to um an anonymous attendees question which talks about the pricing of natural assets because so firstly it's quite clearly a compliment to what you said Bob about the pricing of carbon but actually if I look at through Demetri you're a very rich set of assets if what you might think of as 21st century assets I think I could have a good discussion with you about the pricing of some of those two and how we would how we would establish I mean one of the core problems of the current economy is we actually don't know how these assets are valued in fact we don't even know how some of them are used yet yeah yeah people you know about pricing in the uncertainty and I in one of the kind of limitations like of some of the strategic forward-looking stress tests at the bank and the NGFS and others have championed is that I think they really need to you know they need to be more ambitious in in in bringing into the realm of scenarios the possibility that some of these changes could happen a lot faster than we think not just on the climate impact side but on the climate transition by tipping points where suddenly a new technology set is just seen as being superior to the existing one and you get a very rapid network flip we're kind of seeing that with renewables we're kind of seeing that with electric vehicles we will start seeing that in more and more sectors you know 10 years ago if anybody even sort of you know dreamt of the kinds of cost declines we've seen in renewables that have been laughed out of court so if you'd had a scenario we've probably have been told that that's an unrealistic scenario don't bother go away and I think you know the NGFS really has to have these quite ambitious climate transition scenarios that you don't have to believe that they're going to come true but they should be sent to piece sent to stage in your risk management and hedging strategy because they could happen and if they do happen what's your strategy and if you don't have a strategy your shareholders will want to know about it. I want to come in on that because I was very strapped at the bottom of your kind of what should be done slide you picked out scenarios in particular so you had a you had an analysis row but you had a very definite separate scenario row so what do you people were thinking about. We had a whole chapter on scenarios and you know we say look of course whenever you're doing risk management scenarios is a very important part of it you've got to think about you know extremely bad but plausible scenarios and that helps your thinking and we also though talk about the limitations of scenarios you know so I think what the Bank of England has done has really been very thoughtful in terms of a rapid transition versus a delayed transition and thinking about you know what the both the transition risks and the physical impacts of that are going to be. We didn't go into this so much in the report but I'll tell you what scares me is the increase in the maximum temperature that comes from delay that is to say if we delay pricing of emissions and you know to me this world is kind of black and white we are not yet pricing emissions capital is still flowing in the wrong direction emissions are still rising we have to get these emissions sounded net zero by 2050 which means we need a phase change immediately we immediately need to have these incentives and my point would be even if we immediately slam on the brakes create those incentives we're going to have a maximum temperature around 2070 or 2080 that's going to be around you know 1.7 or 1.8 degrees C now you know that's risky we're only a one degree now who knows what kinds of impacts that's going to have but here's the scary thing if we wait 10 degree 10 years we're going to have an additional about two to three tenths of a degree so we're up into the two to 2.1 area so the risk is just exploding right now whereas 20 years ago if we waited 10 years it was bad but it wasn't crazy today waiting 10 years is just crazy and so that's the thing that we've got to do this immediately and we should have done it 20 years ago but it's too late for that it's not too late to do it but if we wait 10 years we could go off a cliff here we could hit one of those you know non-linearities and positive feedback and and just who knows what world we'll be in if that happened so yeah again taking that scenario is that sorry Zoe did you want to comment on that I was just gonna well it's quite hard that was a quite hard act to follow it is really now that we're all terrified yeah but I was just gonna pick up a little bit more on scenarios because because actually building on it we do the financial community some parts as I said some parts of the financial community are incredibly advanced on engagement about decarbonisation pathways and future scenarios but in the context of the overall economy and the global system it's important it's critical I'm not saying that it's not critical but it is only one part and there's so much more work to do in the rest of the system because of this 10-year problem that we have and that it's the fact that it's taken us so long to get to that polarisation of knowledge in one tiny bit so you know the scenarios thinking does is about yeah getting much better at doing it on the risk side but also getting much much much better at saying this is transition investment this is going to take this steel company from being x tons per unit of steel to y and y is down here and then z is net zero and that pathway that scenario is what we need to really get faster at working on and try and actually be be more transparent about the journey and accepting that renewables are fantastic but they are binary right renewable powers clean and green and going for it the vast majority of our economy is built on systems whether it's going to be a journey and it's not going to be a switch off the light moment it's going to be investment today on a plant in a certain location investment tomorrow in a process in another location for and all of those are determined by national policies which is why the global global coordination point that Bob was making earlier will speed things up significantly if we had a global carbon pricing it would really drive change but I think that is also your point about the coordination of not just managing fiscal policy but that sequence of energy policies housing policies etc that will fit with that and then secondly I think you're you're making a distinction that we that we really should make more frequently which is between the scenario in terms of pictures of endpoint as opposed to the road maps or however we would describe the routes that we might take and of course there could be a number of different routes but some transparency over that would be helpful can I just pick up moving it slightly further on so Arthur in the in the chat has brought our dear friends in the European Central Bank into the question into the show and asking if they should already be implementing measures based on the existing data i.e. all that's not weighed for even further information what do we think I think that the ECB are working quite hard and that the European framework is working quite hard on this and yeah they should be like everybody should be moving faster it's kind of that's that's a given but within the parameters of governance which also is important it's it's work in progress which is not the greatest answer in the world but from my perspective it's it's not as if it's not in the room as it were okay lovely so so you've mentioned the the g word of governance because there was something that I know to be in the back of our minds when we were first setting this the whole series but I think particularly today's event in which is has to do with the architecture the institutional architecture by which this is done and and it's it's really interesting across this week of the three presentations that we have looked at really quite complex interactions and in order for those interactions to work there has to be some kind of architecture we already have central bank architecture I spend much my working life in in various different regulators so I'm you know I love governance and regulation and and that kind of architecture um but is there an architecture that we now need to the evolution for instance of the European central bank be part of an architect an architectural revolution evolution or revolution everything well you you have the carbon price controller yes well we don't have an appropriate you know global governance structure right that's one of the real uh frictions here and uh your company as well yeah so we do need that now is that a central bank infrastructure is it a un infrastructure or is it a new authority I I don't know but uh you know it would be nice I I've been a fan of uh IKO the international civil aviation organization taking a lead on this as well because they have a strong global governance structure aviation has a uh you know strong claim on the remaining capacity for co2 in the atmosphere they need that they have no cost effective way so uh you know either they're going to be paying for biofuels and that's going to be very expensive or they're going to lead on pricing emissions and save some of the current capacity so it doesn't you know doesn't all get wasted and any and if they set up a globally harmonized price for emissions in aviation that will that will be the lead and you know the rest of the you know world can follow but you know that remains to be seen who and how we do it but we absolutely need a a price setting mechanism to create that global harmonization Dimitri and you were thinking about the the kind of interaction with fiscal policy and you know the thinking that you're done about where the kind of the layering of investment over time likewise is is that to be left to kind of purely political process is there a type regulatory type intervention or you know how could we give greater certainty and I'm still thinking as always last slide here greater certainty to that growing graph there yeah so it's a very interesting point and linking that into you know Bob's focus on incentives and I think incentives on the margin are very important but as we're increasingly talking about things that are not about marginal changes in other words you want to set the you know appropriate environment to generate entirely new markets and potentially entirely new networks my colleagues if you have young and I don't know if you refer to it as you know kick starting the clean energy machine and then you know that the analogy is apt because you have a strong push at the beginning for technologies that are actually much more expensive than some of the sort of you know quick you know low hanging fruit that you can undertake so you apply a differential carbon price for those technologies a higher carbon price and more ambitious policy in order to generate innovation because these sectors have the potential to see the fastest reduction in cost of the greatest innovation until such point when the machine is running that you can just ease off the policy altogether because this technology in this network becomes clearly superior to the incumbent so everybody moves to any way and it pays for itself but you need to get over that sort of initial hump and the policy environment there has to be much more strategic because at the time when you're addressing that policy the advantages aren't readily available there may be co-benefits that you can point to in terms of the you know local pollution or improved energy security or whatever it is but for the most part there has to be an upfront investment and for the most part because of the network effects and the spillovers and the rest of it it's probably going to have to be public but that's a focus on dynamic market failures rather than your more conventional static market failures and static inefficiencies and that I think from an institutional architecture point of view because it's more strategic does require some sort of coordinating body at the public level to try and not only steer investment to provide the vision and the credibility to galvanize private sector investment and allow policymakers to take on policy risks for this whole process which is going to take years rather than you know expect the private sector to take on risk that it doesn't own so I think that's very important and then on top of that because you're going to have to have more intervention you're going to have to have greater safeguards to protect competition and to protect consumers as well because if this just becomes a sort of pork barrel lobby exercise for kind of the government's friends to take on new contracts that's not going to be an benefit either so a lot of thinking there about the you know institutional architecture to bring about the kinds of changes we need um you know it's it's not going to be easy but we start addressing it now Dimitri with that the the stopping music has sung in my background but I think that was a really good kind of sweep of of what would be needed to help that Dimitri, Zoe, Bob thank you so much for your presentations for the discussion and I hope for for how we can carry this on thank you everybody who asked questions and he tuned in for joining and thank you Delayme and in E3G for for helping set this up and make me go so well I think our next workshop in the series is actually tomorrow afternoon with Uli Valsit so us but speakers today thank you all so much I really appreciate it so the equivalent of hand clapping etc thank you my advocate rest of the day take care