 And you're all very welcome to the Institute. And today, to today's topic, managing climate-related financial risks, we have two speakers or two contributors. Benoit Ligouet, who is Chief Executive Officer, and Ian Cochran, who is Director of the Program in Finance, Investment, and Climate at the Institute for Climate Economics in Paris. Benoit has been explaining to me over lunch the background to the Institute. I'm keen that he gives you a flavor, but perhaps not going back as far as Napoleon. It's the topic, the theme today, the whole issue of the financing of the necessary changes and transitioning of our societies to a carbon-free world, a very challenging one. And Benoit is going to set a context for us, and then hopefully, we'll have time for a decent period of time for discussion. Well, good afternoon, everyone, and thanks for the invitation to speak. OK, I guess I will say a couple of words about the institution which I manage, which is, I foresee, the Institute for Climate Economics were created two years ago, but we had longer history. And we stem from Kesdeepu, which is a French public long-term investor. There is no equivalent in Ireland, as far as we know, and not in the Anglo-Saxon world, as far as we know. But basically, we come from a French public financial institution. Today, for the past two years, we've been a non-for-profit institution sponsored by Kesdeepu on one hand, a French development agency. The French environment agency. And the Kesdeepu is just your, which is the equivalent in Morocco of the French Kesdeepu. So in a nutshell, what we do and what work on, what we do, we provide analysis and research on the economics of climate change, or should I say, the economics of the transition to a low carbon and climate resilient economy. So we're economists. I'm an economist myself. I'm not from the financial sector at all. So if you start talking about finance, I won't pass it on to Ian. I'm also an engineer by training some. I was first trained as an engineer of ocean science, et cetera. And then I became a very bad economist because I was a very bad engineer at Starwood. So what we do, analysis and research, we're not academics. So what we do is basically gray literature, think tank kind of thing. Everything we do is public. So please have a look on our website and download our publications and read them and criticize them if you want to, et cetera. So open for public debate. Public debate is basically our DNA. We're here to feed into the public debate, provide IDs, provide analysis. We don't do any advocacy, lobbying, et cetera. We're not here for that, but we're here basically to assist other people to do their own lobbying, et cetera. And in between the analysis and the public debate, what we do is we provide capacity building services, so to speak. In other words, we try to motivate people into understanding what the stakes are for the energy transition. So anything from education to building tools to help people moving from the what shall I do to how shall I do it? It will hopefully become a little bit clearer if you have questions during the Q&A session, but if not, just keep this in mind. We provide tools, capacity building and broadsets. We work on four different areas, three or four. In this meeting, the climate's investment in climate, there is also a branch dedicated to industry, energy and climate, which focuses quite heavily on carbon pricing and interaction between carbon pricing and other policies. And we have a branch called, let's say, Territories and Climate Subnational Action, just to make a long story short, that's basically agriculture, of course, free city's infrastructure. So basically that- So kind of land use planning. Land use in the broad sense, that is, including the built environment, not only rural environment, which is possibly very dear to Ireland, but also some other areas that we're looking to. So everything we do is public. We have a Twitter account, a website, et cetera, have it in if you want to. So just to focus, maybe, on what we're gonna focus on today on the finance investment in Canada Park. So we'll have a number of works of streams that we'll work on. You know, we'll possibly share some more insight into what we do if you have questions after we do want to do it right now. No, just for the time of finance. Work four different areas that could be of interest to you. The landscape of domestic climate finance we'll try to do is we'll try to track domestic climate finance in France and provide a landscape of benefit possibly to the French government and to other people. We work on mainstreaming within financial institutions within mostly development finance institutions, but also, I would say, national development banks, for example. We look into risks for financial institutions as well, climate-related risks, obviously, and we also look into climate financial instruments, such as green bonds, credit lines, et cetera. And if it doesn't ring a bell to you, no worries, and if it does, Ian will be happy to answer any questions. Okay, so to be honest, we don't know how much you know about Paris Agreement, kind of change, et cetera. So we decided to start with low and we'll try to crank up, I mean, to speed up, join the presentation. What is in the Paris Agreement? How many of you have read Paris Agreement? Come on, don't be shy. Okay, how many of you haven't read the Paris Agreement? Not to be ashamed of, okay, okay. So in case you haven't read the 29 Articles of the Paris Agreement, just read Article 2. That's possibly the most important article. It sets out the target, and if you're at a dinner in Dublin, for example, and you need to talk about the Paris Agreement, just say, oh yeah, it's about aligning climate development and finance. That's all you need to know, and people will say, oh. Good, okay. All you need to know about the Paris Agreement and in Article 2, there's three targets. The first target is to limit global warming well below two degrees, blah, blah, blah. And in Article 4, there's a small mention of what it means concretely. It means bringing the world down to zero net emissions. Has it written before at the end of the century? In the second half. In the second half, thanks. That's not minimal, I mean, in the second half of the century, depending on how you interpret this second half of the century. So bring zero net emissions, keep this in mind. Zero net emissions, what does it mean for the world, for Ireland, for whatever, blah, blah, blah. Second target, increase the ability to promote low carbon and climate resilient development. Every word counts, in other words, development counts as much as low carbon and climate resilient development first, possibly. And the third target is making financial flows consistent with previous targets. Financial flows consistent with. Today, in case you don't know, we live in a world where financial flows are highly inconsistent with those two targets. So how to move from this to that, making consistent aligning in flows. All you need to know, that's a 10 line article, maybe a bit more, 20 line article. Read it tonight, if you haven't done so. So you will see that it's in effect agreed on by a number of countries. So in practice, what does that mean? Towards a zero net emissions, basically means this. Today we are over there, in case you can't see it, roughly 50 gigatons of CO2 per year. And we need to break the world down to just about zero in, say, 60, 70, 80 years. Okay, from 50 gigatons of CO2 equivalent to zero net. Not gross, net. Okay, for those of you who like figures, the area below the curve, represents roughly 1,000 gigatons of CO2 equivalent. Today we're at 50 gigatons, so 1,000 divided by 50 is 20. So if we keep our emissions at the same level, in 20 years, we'll close the tap, and we're below two degrees. If not, we'll have a shoot and we'll go above two degrees. If we decide to reduce our emissions, then we'll have a little bit more time, but before the end of the century, in the second half of the century, just to use the word with the Paris Roman, we need to break the world down to zero net emissions. And how to do that? Well, possibly have a number of ideas as how to do that, promote energy efficiency, renewable energy, carbonized energy vectors, in other words. That's possibly on the less inside and possibly more outside, you can possibly think about carbon capture and storage. You can like technology, carbon capture and usage. You can also think about forestry and agriculture, which is quite inefficient, but highly, let's say it's inefficient because it wasn't used for sequestering carbon to start with, but it works quite well. It's been working for a number of billion years. So possibly it could also be one avenue to look at. So what does that mean? 1,000 gigatons of skew to equivalent. This is, just to provide to me the international sector, from the international sector perspective, this is the carbon budget that we have if we want to stay below two degrees, right? Roughly 1,000 gigatons of skew to equivalent. That is the CO2 emissions that would be attributable to burning all the reserves, no reserves of gas or coal. Conclusion, when you look at this graph. Well, if we want to respect this carbon budget and that's political choice, we might decide to go over two degrees or three or four, et cetera. If we want to stay within two degrees, then obviously we can burn all the gas that is available for it or for the oil or the combination of the two, we'll have to keep some coal underground unless we come up with a magic warm solution that sucks out the CO2 from the atmosphere. Question for you guys, if I invest in a coal oil and gas company, what would be the value, the long-term value of such a company? First question to you guys, if I were an investor, the possible sector is far at risk of losing their value. Then again, that is, if we don't come up with a large-scale magic warm solution. Question for you guys, what's the proportion of energy that we use today in our economy that is of fossil origin? Roughly. Nineteen, Nineteen, Nineteen, Nineteen, Nineteen, Nineteen, Nineteen, Nineteen, Nineteen, Nineteen, Nineteen, Nineteen, Nineteen, Nineteen, So if we only look at the fossil fuel part, the bulk of our economy is sustainable because we use fossil fuel today. So if we're going to have this in more, what happens to the value of the economy as a whole? Question for you guys, it's no big question, it's not, I don't have any answer. Just trying to figure out questions and possibly analysis and answers. So part where, well, if we decide to go for this two degree, possibly seven sectors won't be at risk. I've mentioned the gas oil and coal sector because it's the most visible sector. Then again, we're talking about the whole economy. That we possibly need to change. Second thing, how many of you have read this term record in 2006? Yes. Yes, we have. With a conclusion of scurrying, possibly, though, it's in case of extremely rapid climate change, we are at risk of losing, let's say 20% of well-being, assuming the GDP is a measure of well-being, et cetera. 20%. Well, that's massive. Scurrying was criticized by a number of economists, including Nordhaus, which is equally respected for not taking your property to scale rates into account in his computations. And by basically making the case that climate change was serious, he used a very low scale rate and was criticized by Nordhaus. 20%. That's massive, right? A loss of 20% GDP. That's the equivalent of a financial crisis, right? Okay, questions for you guys. I mentioned I'm an economist by time and age. For that, I was an engineer. That's the economist part of my brain speaking right now. And the engineering part of my brain won't kick in right now. This is doubling 20,000 years ago. 20,000 years ago. That's a number of individuals. There was a number of individuals on this picture who do not exist any longer. Question for you guys. How lower was the temperature at the global level compared to today? Two degrees? Four or four? Yeah, five degrees. Five degrees. The global temperature was lower, five degrees lower than what it is today, and that was 20,000 years ago. So we gained five degrees in 20,000 years, isn't it? Okay, and Scurrying and Likes are saying, if extremely rapid kind of change, that means basically plus five degrees in 200 years. 100 times faster, then we're only gonna lose 20% of the GDP. Do you believe it? I don't know, but you know, the engineering part of my brain has a hard time believing this is when I see that. Okay, question is the economic science, so say on that we know that we're only gonna lose 20% of the GDP or it is more at risk. What interesting to you guys. Then again, I'm not here to scare you, you know, just trying to, you know, to provide, to get on so that you can think for yourself. So my message here is the costs of the action are very likely to be overestimated. I think the details of Stern's review and his computations, et cetera, but it's very likely that it's very overestimated. Okay, so we've talked about some risks that some sectors are facing if we go to the two degree pathway and also some risks, some risks due to climate change, the kind of change that is foreseeable if we don't change our ways. So the main message here is that we will have to deal with kind of risks will become inevitable in the coming years. Either we decide to keep emitting very nasty assets and we'll possibly have to deal with physical risks or we decide to bring our world down to net zero in terms of emissions and we'll possibly have to deal with transition risks. In other words, some sectors will be at risk of seeing abrupt changes in their environment. If we don't do any of those, we'll possibly have to deal with physical and transition risks alike. So it's not me saying this, it's the UK Provincial Regulation Authority. So some, well, the body that you might have heard of is basically the era of National Provincial Regulators saying, okay, we have a problem with climate change we have some risks that we have to deal with. Okay, now looking into the detail, what do we mean exactly by physical risks from a financial perspective? There is acute physical risks. Maria, for example, is one example and in the hurricanes in the Caribbean is one example that there is more chronic, think about mammoths that I presented on the previous slide. There's possibly longer-term trend in terms of climate change, which induces some changes in temperature, rainfall patterns, soil moisture, et cetera, which could have an impact on many sectors in the country. Talking about transition risks, there's also many risks that need to be addressed. Policy and legal, if countries start acting and follow the route that is envisaged in the Paris Agreement, there will be possibly some decrease in greenhouse gas pricing, for example, in policy and climate change-related policy. Market risk, because we can also see some changing market behaviors. Technology, who wants to be the next Kodak? Kodak didn't see a learning technology. They said, okay, people will keep shooting pictures with their cameras. Yeah, we still shoot pictures with our camera. Cameras with the technology is totally different. Same could go for low-carbon technologies. If I have a new technology, think about, I'll try to, that's a good example. Think about lids, for example. How many people knew lids 10 years ago? Okay. Computer scientists, or what? Engineer, electron, okay. Well, apart from a few IT specialists, new one thought that lids could be used for lighting. Same thing, if I told you 10 years ago, you would send all your emails from a smartphone, you would say, what's a smartphone is for? What's a smartphone to start with? The phone is for making phone calls. 20 years ago, the same sentence would have, in practice, comments such as, what is an email? So we had some technology changes. We just had four seats, same thing for low-carbon technologies. Recitation, well, it's starting to move, to a certain extent, some sectors just don't want to be stigmatized and just pointed fingers at it. So what does that mean for financial actuaries? Well, all those focus on transition risks, for example, current policies, blah, blah, blah, et cetera. This has an impact on cash flows, on balance sheets, and possibly on the litigation and the responsibility side. You didn't deal with climate change, you managed the money pooling, we've already sued you. That's the kind of thing that could do with the litigation and the responsibility of risk. Now, all this is for the sustainable development people and now we're moving to the financial department people, possibly more serious people. They talk about credit risks, market risks and liquidity risks. This could have an impact on that and that's when serious people start to kick in. Okay, we had a waste, we need to deal with it. Again, this is an adaptive version of the graphic coming out of the French Treasury Ministry for just to kind of really demonstrate that it's something that's not staying at the environmental ministry right now, which though it is at least in France, a huge sea change in terms of attention. Just for your, so that you know, it's people at the Ministry of Finance who are not interested in the environment. They're interested about financial stability, full stop. Our own research finds the same. Yeah, well now they are convinced that there is some links to it too, but financial stability is all that matters. So here we need to talk about financial stability and nothing else. So, well, I mean, talking about systemic risks is maybe a little premature, but still some people are as far as to say, okay, we might have a major risk moving possibly know this person. Yes, okay, I see many people nodding for Mark Carney, the governor of the Bank of England. I love this sentence, what this kind of change becomes the final issue of financial stability, it may already be too late. He talks about financial stability. We don't know what Mark Carney believes if he believes or not in kind of change. He talks about financial stability. That's his job at full stop. The sentence is beautiful because it says at the same time we're going to hit the wall, but he says we might, I mean, there's still a glimmer of hope saying, okay, there's possibly still time for action. The number of publications that you might want to read, of course, will be billeted at the Bank of England and the digit has all been the phrase, Frazierie, which is used to rephrase the issue. There's an English pronunciation. Excellent. Those people are fantastic. There's assessment of the risks, the climate change related risks in the banking sector. Could be useful reading. So if we had a look at what's going on in the financial sphere today, some people are moving. I'm not going to say it's mainstream, but Ian just felt for it to copy me if I'm not right. It's not mainstream, but some people, like Mark Carney and Likes, are talking about climate change, not from a climate change perspective, but from their own perspective, financial stability, or others. Three initiatives you might want to know about. At the international level, there is an initiative led by the G20 and the Financial Stability Board. You possibly have heard about it, the task force of the TCME, the task force on the Fundative Financial Disclosure. At the European level, the European equivalent, let's say, is led by Digi Fissma, and it's HNA, so the High Nothing Works Group on Sustainable Finance. They published a report in July 2017, and the final report is due by the end of this year. What is it? Yeah, to say the conclusions are only equal to December, and then the final report report, I think, in January next year. Okay, so it could be a useful read as well. I mean, it's taken quite seriously at the European level, and then again, not by Digi Klima or Digi Environments. I have profound respect for those people, but Digi Fissma is possibly a little bit more listened to by financial actors. In France, we were talking in the lunch, I've been proud of what our own countries are doing in terms of climate change. Well, I believe this is a quite interesting innovation in the French level. Article 173 of the Energy and Transition Law, basically it's an article that requires listed companies, asset managers, and investors to disclose some climate-related financial information. So it's not saying what patient disclose, but at least it's just putting ideas on the table and saying, okay, you might want to have information on that, you might want to disclose information but at least you need to disclose something about climate change, how you deal with it, et cetera. If you don't disclose it, some people will ask you, why didn't you disclose anything? Not an issue. No, no, it's not an issue, it's too serious not to issue. Do you think they're going to lie? Do you think they're going to lie about this food? What is your take on that? It's, we're talking about financial regulation. In other words, if you lie, you're not going to be sued on, and on medical reasons, you're going to be sued on financial regulation reasons. Do you want to lie to the regulators? You might, I mean it's a risk, it's a risk. I think that's part of it, I think that's part of it. But they lie to a certain level, but it's kind of bad. I mean some people, it's all about disclosure, so you can decide to lie, but some people might check. And then again, you don't have to do or say anything. But for example, just to give a concrete example, the large oil company says, okay, climate change, not an issue for me. Okay, you can say, mm, are you sure? And as an investor, you might want to talk about it, to the large oil company and say, okay, what is your monitor plan in terms of climate change? You have a vision. If not, your decision as an investor might need to fall out. Not because you like environmental climate change, but because you don't like risk. So, okay, this company has no vision. I'm gonna put that, just to manage my risk. Okay, so article 173 is possibly a nice invasion at the French level. So if at what time we get what it says, precisely then cut in pace and possibly improve it, that would be a nice addition to the Irish or the regulation of legislation possible. At the financial sector level, there is a number of initiatives. So we, in this slide, we focused on what investors are doing today. Then again, it is not the main thing. I'm not saying that everyone is on board. An increasing number of people are actually looking at the issue. So we've put a number of items right here. Talking about climate change when you're an investor is not only about having a great portfolio. In other words, investing in a bit of renewable windmills, hydro, et cetera. That's only, that's for the iceberg. You can also try to disclose information about climate change or ask the companies to invest into disclosing information. You can try to decarbonize your portfolio possibly to hedge a risk, to manage the risk against, to the very pathways, for example. You can also engage, and there is a number of initiatives right here. You can also engage, and that's basically what the IGCC is doing. Engage is going to this large oil company I was talking about and say, okay, you don't have a vision on climate change before I pull out. Do you have anything to say? And then see what the large oil or any other sector at risk company responds and say, okay, I will pull out or not. I will try to influence your strategic decision-making. You can also, if you want to go all the way to the most, the hardest form of engagement, you can decide to divest, in other words, pull out from any fossil fuel or any other at risk sector at risk that you might think of. The policy sector is also quite active. I mentioned the article, what's anti-trivial against law. Possibly looked at the inquiry to the design of a sustainable financial system report. So basically all those initiatives are existing today. I'm not talking about something which is looming up in the horizon. It's existing today. Some people are thinking about how to manage risk, how to reduce the risk posed by climate change. And then again, the main message right here, it's not only about grading your portfolio and saying, okay, I'll buy a little bit more, it's about revisiting the whole investment strategy. In our view, any strategy is in portfolio with two different targets. Two different pathways could be the best management strategy. Three reasons for that. First reason is that there is a Paris agreement. I talked about it. You might not believe it, but our take is that governments, not only the US, but also other governments will increasingly look at what they can do in the Paris agreement for a number of reasons. If you have questions about it, we'll be happy to answer them. The second question is also because of financial sphere and regulators are increasingly looking into climate change issues, not from a voluntary perspective, but from a whatever financial stability or whatever their realm of regulation is perspective. Third reason is as people in the financial sector say, don't put all your eggs in the same basket. You might want to manage risks and hence bet a little bit on the energy transition and not so much on the mainstream economy that we know today. What does that mean? What does aligning economic strategies in portfolios with two different pathways mean? Many things. There is many uncertainties basically. The most radical uncertainty is which development strategy are we going to follow at the global level? What are countries going to do? Are we going on a two degree pathway or possibly on a plus six degree pathway? Who knows? If you know, please let us know. That would be of great interest to us. So that's the main type of uncertainty. Which pathway are we heading on today? And there's the more usual uncertainty, which technologies, et cetera, how are we going to achieve a certain pathway? Which technologies shall we get on? I'm almost done. Don't worry, just for the sake of time. So in terms of uncertainty, dealing with uncertainty, there is a number of things you like while keeping in the back of your head. The main message here is beware of dead ends if there are emissions in the targets. There is a number of technologies which are totally incompatible with a two degree world. We know that. So this is basically the emission pathway. That's the start of the emission pathway for a two degree world. Question to you guys, are there any room for coal in a two degree world? What can question be? The answer is yes, no, maybe depending on which technology we come up with to suck out CO2 in the atmosphere. But if we don't come up with this technology, there's supposed to be very, very, very little room for coal. The car. Any room for a thorough engine car given to your world and for everybody. Maybe a thorough engine car for a happy few people. Maybe a zero emission vehicle for everybody, et cetera. But a thorough engine car for everybody just doesn't work. Not in the two degree world. Question, is this animal has any, what's the life expectancy of such an animal in the two degree world? I took this example before. Oh, and it's quite a high-mating vehicle one, so to speak. This little animal is roughly three times the CO2 equivalent per year. So question is it's sustainable in a two degree pathway? I don't know. It's a question of how much heat are we going to eat in 50 years? So that's open questions. I mean, we don't have answers to that, but basically all those technologies, quote unquote, might disappear in a two degree world which I don't know which technologies are going to succeed and which technologies are not going to succeed. And this, then again, is a technology. There's many ways you can get protein, but not necessarily cows. Well, if I were speaking from a public policy perspective, which is basically what I usually do, keep this in mind, those of you who know about economy in the room, and I hope there's a number of you. The main message here, if I speak to economists, is the cheapest commission reduction available today is certainly not the best policy option to pursue because reaching zero net emissions is the ultimate target. So if you start with the cheap options, there's a high possibility that you never, never, ever, ever get to the targets. Just to give a very concrete example, refurbishment of buildings, retrocuting buildings. If you start only by doing what is economically viable today under today's economic conditions, you will never, ever make it. So even if it's more expensive than what the market, quote unquote, says, we need to start today if we want to have a chance of achieving the target tomorrow. So that's counterintuitive. So that's the small key to the McKinsey marginal-maintenance cost curve. Don't believe it. Don't go with the marginal-maintenance cost curve. There is policy options that we need to pursue today and it will be more expensive. Which, by the way, brings another question. The market delivers short-term signals, marginal prices, and basically policies. The job will be to influence the market, quote unquote, to deliver longer-term average costs, which is what is of interest to us. We need to add to reduce costs over the next 60, 70, 80 years in average, not at a margin if we want to keep it cheap. Sorry, that was the economics bits of my presentation. So just to wrap up, how are we contributing to the debate and discussions around time and risk? We had a number of projects we are involved in today. Ian will be much more vocal than he does, because it's basically, do you want to present this? I mean, yeah, just in a couple of words today, and you've all seen a very kind of rough overview of a very complex topic today. So in terms of how I4C is attempting to move forward on these topics, it's really about ensuring as we move forward in developing the metrics needed to assess different types of economic actors, portfolios, strategies that are asking the right questions, and that given that there's a lot of actors that do also see now commercial consulting opportunities in terms of developing these tools and metrics and rolling them out for the financial sector, are we asking the questions that allow us to evaluate assets and evaluate different strategies to see whether or not they're on a two degree pathway or whatever type of management strategy we have in place. So on our end, beyond the risk, beyond the work that Benoit presented at the beginning, which is more related to the sectoral policy frameworks that make different investments profitable or feasible, we're also looking at a number of the risk-related areas. So we've published a small set of policy briefs on transition risks. So what can financial actors do today to start looking at these questions with the available data and metrics and where we see the most promising areas of development for these type of metrics are, those available on our website. We tried to be paperless today, so sorry, we have nothing for you to take home with you other than a website address and some ideas. But we're also involved in a EUH 2020 project looking at how you develop scenarios to assess different sectors in terms of their alignment with more or less the different scenarios of climate action, so these transition risks. On the physical risk side, we're going to be kicking off a project in the next month looking at how do you take information on the physical aspects of climate change and interpret that into a language that's useful for investors. Because there's a lot of uncertainty and often the meteorological community isn't quite in a position to talk to the financial community. So we're working together with the consortium of actors to look at that. And then we'll also be kicking off a project starting in a couple months as well with CDP at looking at how we need to think about disclosure, so reimagining disclosure for companies in terms of what information they need to be given to both their shareholders and the broader financial community of their exposure to both physical climate risks and trends policy-related risks within everybody's investment horizons, which of course vary quite significantly depending if you're a day trader or a public investor. And then overall, and actually we'll cry for that back to Benoit if there's any questions on that, I4C is also involved in an initiative to establish a benchmark, not an evaluation, but a benchmark to think about whether or not different financial centers are on a track, whether it's the right one is a question, but on track to integrating these issues into what they're doing and how the ecosystem, which is a term we like to see used as well, of actors are taking these climate-related issues on board.