Key Takeaways from Climate Week NYC 2023

Siddharth Samarth: Welcome to the Sustainability Agenda, a podcast series focusing on the evolving complexities of the sustainability landscape. I’m your host, Siddharth Samarth. Please join me as we explore today’s most pressing issues with special guests that will give you some new perspective and help you make sense of what really matters.

David Janashvili: There is impetus from everyone to be proactive and try and approach and attack these problems. I think likely what will happen is it will be iterative. We’ll probably still go through a couple of years of pain in terms of helping truly commercialize innovative ideas in the climate tech universe, but it seems like we’ll get there.

Siddharth Samarth: We’d like to devote today’s episode to the key takeaways from this year’s Climate Week 2023. One of the largest annual climate events of its kind is held in New York City from September 17th to September 24th. Climate Week brings together business leaders, political changemakers, the financial community and civil society, representatives from all over the world to gather and to drive the speed of transition and to champion what’s already happening. The event takes place every year in partnership with the United Nations General Assembly and is run in coordination with the United Nations and the city of New York. This year’s event, which is taking place against a backdrop of historic global warming, provides a platform to showcase leading climate action and how to do more faster in participating at an event like this. We, at CIBC, recognize the important role that banks can play in the transition to a low carbon economy. Joining me to provide further insights are my CIBC Capital Market colleagues and fellow Climate Week participants David Janashvili, who is a Managing Director in the Energy Infrastructure and Transition team with Global Investment Banking, and Tom Heintzman, who is a Vice Chair and Managing Director in our Energy, Transition and Sustainability Group. Good afternoon, David, Tom, welcome to the show.

Tom Heintzman: It’s great to be here, Sid and look forward to chatting.

David Janashvili: Hey Sid, thanks for having me.

Siddharth Samarth: We are recording live from Climate Week and there’s still a couple of more days to go. These events cover various themes, including energy transition, carbon markets, climate technology and I’d like us to double click on some of these key topics. So with that, Tom, perhaps you can start off with you. How’s the week been and what have been some of your key insights and takeaways?

Tom Heintzman: Well, Sid, it was a overwhelming week, I would say. There were more than 400 events and running from downtown to Midtown to Uptown. And throughout the course of the week, my first observation was just the volume of ideas, the volume of people and the volume of interest, all of which is much more than I’ve seen in years past. That just in and of itself was heartening. I was in a number of sessions that dealt largely with carbon, and that’s the voluntary carbon markets. So these are a host of players who are assisting in generating offsets and then providing all the infrastructure to ultimately market and sell them to corporations and individuals. So that’s where I spent a lot of my time, a little bit in climate tech, but I know will touch more on that and then a few sessions which would have called sort of traditional and what we would have seen kind of ten years ago relating to companies who have picked targets for 2030 or 2050 and are thinking about how to get there. So those were the three big categories that I saw, but we can double click on those as we go through here in a dialogue and explore them.

Siddharth Samarth: The scale of the event is quite significant and certainly brings together a huge number of participants in the ecosystem. David, if I can turn it over to you. Key observations from this week so far.

David Janashvili: In terms of key topics, I think that looming dread associated with the 2030, 2035, in some cases 2050 commitments. Closer and closer on the horizon against an ever worsening climate backdrop and situation globally, on the one hand and on the other, the more traditional showcasing of high quality ideas and companies and bridging the investor conversations, policy conversations. One of the big overwhelming topics or one of the common topics I’ve seen probably on every other, if not two thirds of the events that I’ve personally attended have been trying to bridge the gap between financing ideas and companies and the climate tech universe in their technology development kind of cycles and taking those ideas to more of a scale up growth equity project financing, not necessarily project financing in terms of bank project financing, but more of a financing of projects type terms. Many questions remain unresolved, and I think there’s focus and looks like a lot of goodwill from part of the United States government, global governments, but also importantly, dedicated funds within larger fund managers to try and address these concerns and hopefully see more climate technologies and ideas come to the fore and come to the market in a real sort of industrialized at scale sense.

Siddharth Samarth: We certainly saw an acknowledgement of the mountain that we need to climb ahead of us, but at the same time also recognizing that it has been just a few years since we started and embarked on this journey and the progress certainly in terms of bringing a number of these conversations into boardrooms and at strategic level, decision making is good to see. But, you know, the progress is certainly something we need to focus on. So David perhaps can pick up the theme that you brought up, like Climate Tech, I know CIBC was also hosting an event this week. Could you talk to us about things that you observed out that event? 

David Janashvili: Yeah. So think the backdrop is we hosted ARPA-E, which is an agency under the Department of Energy that reports into Undersecretary of science. We hosted ARPA-E’s team, including Dr. Evelyn Wang, the Director of ARPA-E and her colleagues, and we had them meet over breakfast with about a dozen of the largest, most notable, important, I guess climate, tech and project investors that attended Climate Week. It was a lively discussion where we presented its vision both for its core program in early stage innovation support, but also importantly, the scale up program, which is only 3 to 4 years old, which is a smaller, first of its kind pilot project development support program, where the ARPA-E’s US government is cutting up to $20 million checks to support first of its kind project deployment. And we had an interesting discussion around the level of due diligence around some of the things that ARPA-E does and how they can help support the investor community. But importantly, the challenges that private equity and project investors have are still there, and it’s going to take likely some time to address them. Importantly, coming from the VC universe where losses are almost an acceptable and a reality, some percentage of your investments as a VC will inevitably not never see the light of day. That’s not really a mindset that’s available or realistic in the private equity universe. Everyone’s focussed on capital preservation and even zero return type events are very bad, very poor outcomes. And so trying to figure out ways in which governments can help insulate some of these first losses and then help build first of its kind type projects, commercialize them, get them to the market in a way that they can then de-risk execution of subsequent projects is kind of the key conversation that is increasingly taking place. That was kind of the key conversation that we had around the table, and very interestingly, the request from both our friends at the United States Department of Energy. But also from the investor community, was let’s have these conversations more frequently. So we will likely start hosting these types of roundtable events either twice a year or potentially even on a quarterly basis, either here in New York City or in Washington, DC.

Siddharth Samarth: It’s certainly great to hear, you know, the concept of scaling up technologies and the concept of getting the right capital or funding is important and glad to hear the concepts of first loss tranches and the like being thought of as well as part of the solution. Over here. Tom, perhaps we can bring you into the conversation. You know, in addition to technology, voluntary carbon offsets and credits are certainly being viewed as part of the solution. Any teams coming out on your end as it relates to this topic?

Tom Heintzman: Yeah, and interestingly, I think for me, one of the major themes is is sort of echoing DJ’s observations from the climate tech side. Just to give you a bit of a backdrop, 5 or 10 years ago in the voluntary carbon markets, it would have been relatively undeveloped, ecosystem, and one thing I really noticed was a proliferation of players through the whole length of the value chain from developers to people trying to tokenize the offsets in blockchain. MRV, so that’s the measurement and the verification of offsets is increasingly sophisticated and digital, and then there are insurers now playing in the space, ratings agencies, number of entities that are developing methodologies for offsets. I would describe it as a much, much more robust environment for the voluntary carbon market than you would have seen a decade ago. However, when you scratch beneath the surface, first of all, most of these entities have been around for, you know, only a couple of years and the balance sheets would be very thin. And when you scratch beneath the surface, despite this proliferation of entities, that really does start to resemble traditional project finance. You don’t see that much traditional project finance being done. And even with these many entities, the projects still struggle to be bankable, which is I think we’re DJ was going and I mean that in a few different respects. The technology obviously, there’s technology risk and you know, it took a long time for even solar to cross that and become bankable by project financiers. The often they’re, you know, relatively inexperienced developers and construction entities. And so they wouldn’t be EPCs that are traditionally bankable, even the asset itself, you don’t have a 20 year power purchase agreement in the way you would with solar or wind. Often it’s, you know, a legislated price that could be changed at the stroke of a pen. And, and so I think there’s still a sense of uncertainty hanging around the market that I think prevents it from really taking off. On one hand, I see real growth in the sector, but on the other hand, it’s still struggling to overcome some of the core issues that it needs to overcome in order to really take off. That being said, solar did it and wind did it before that. So it’s not out of the question, but it’s a process that’s unfolding and we’re definitely not at the point at which offset projects are traditionally bankable.

David Janashvili: I’ll add one more thing. I think there is a group of risks that is new to the climate tech as we speak today vis-à-vis the renewables, solar, wind, etc. One part has to do with the fact that climate tech as a whole is a very broad set of disciplines and developing specialist understanding and ability to do effective, high quality due diligence in such a broad spectrum of things or technologies is difficult. You have folks like Energy Impact Partners that are associated and aligned with utilities. You have folks like Fifth Wall that championed the built environment, others that have specialist angles. But for the vast majority of folks, the larger folks that KKR’s, Apollo’s, Blackstone’s, Anton’s, etc. of the world. This is a challenge. That’s one way a government can be actually helpful because of the resources they deploy and evaluating technologies routinely. The second thing is the extent to which these technologies can be productized. The vast majority of climate technologies end up producing not widgets, not products, not items, nothing that necessarily is homogeneous in nature, but they end up producing projects. And those projects are different in nature. The extent to which they can be copy and paste in terms of development and execution varies quite dramatically and that is an issue for many, many investors. Add to that the fact that everything is new and the risk tolerance is high, and quite a few people have lost quite a lot of money on climate tech over the last 20 or so years. So that is the challenge. So it’s I’m not saying that there’s necessarily answers to all these questions, but the good news, and that’s the first time I’m seeing this, is that these questions, the hard questions are really being asked and people are actively seeking solutions.

Tom Heintzman: Just to build on one of the points that DJ’s is making importance of government support in order to help make these markets financeable, and that was another theme that I picked up underneath the surface. Here’s what I mean by that. There was a lot of talk about the voluntary markets, and those are where companies are voluntarily purchasing offsets. But as I referenced previously, the market really hasn’t taken off and the regulated or the compliance markets are still about 100 times, if not more larger than the voluntary markets and definitely was a subtheme, I think, about whether or not it will take real government involvement in procuring offsets or at least supporting the market, whether it’s through first loss or whether it’s through carbon contracts for differences or some other vehicle to sort of preserve the- or crystallize the value of offsets in a way that’s can live for 20 years in order to make these projects financeable and to use the wind and solar analogy. There were voluntary markets and in fact, one of my companies was heavily engaged with that in the early 2000. But it wasn’t really until the feed in tariffs in Germany or in Canada or the renewable energy standards in the United States when the government stepped in that the markets took off. And so there is a big part of me, and I think a subtext to the dialogue about whether or not the voluntary markets are sufficient on their own and whether they need some forms of government support.

Siddharth Samarth: It’s a theme also said in a few sessions related to the banking and the asset manager sector. Just in terms of some of the commitments that they’ve made towards net zero and some of those interim target commitments as well, which both David and Tom, you had referred to at the beginning of this conversation, there is a sense of pragmatism which is also needing to creep into the thinking of a like I know a number of people in the financial community had committed to net zero targets as well as interim 2030 goals as part of the architecture to decarbonize the financial system, and so the next step is really coming out with transition plans. And what’s becoming quite clear is the effectiveness of those plans is going to be in part driven by involvement of governments and how they’re supporting the overall sector. So it’s going to be a collective effort across the private sector as well as the public sector in order to make these goals be achieved. So overall, the sense I’m taking mixed bag recognition that there has been progress and great to see the dialogue happening between the various parties, and it’s great to see a forum such as this bringing together vast community across business, across finance to talk about this along with government. But there’s also a lot of work that needs to be done. There’s certainly at least this feeling I got was a healthy dose of optimism. Throughout the conversations that we had. Tom, any last thoughts as we wrap up over here?

Tom Heintzman: I think my only thoughts are the issues to overcome, I think are becoming more clearly in focus as the years go by, and so there are a key handful in terms of project financing that I think have to be addressed, whether it’s, you know, from a technology side or whether it’s on the carbon side. And I expect that as 2030 approaches, the precision with which we’re targeting solutions will increase, and so I would expect this to continue to ratchet up for everyone over the next few years. So I’m certainly excited to see what happens next year and the year after.

Siddharth Samarth: DJ, anything from your end?

David Janashvili: Likewise, I think optimism should be and will continue part of this equation. Having said that, I think the willingness finally to ask the hard questions, including simple questions around taxonomy, around definitions, around what it means to have a first of its kind project versus a pilot project versus a demonstration project. Having clarity, people being on the same page from an investor community perspective, from companies perspective, from the regulators perspective, all those things. It is almost shocking the extent to which there is a disconnect today and that people are talking almost past one another. Luckily, it almost feels like we’re at that inflection point where these conversations are finally taking place, where there is impetus from everyone to be proactive and try and approach and attack these problems. I think likely what will happen is it will be iterative. We’ll probably still go through a couple of years of pain in terms of helping truly commercialize innovative ideas in the climate tech universe, but it seems like we’ll get there.

Siddharth Samarth: I would echo that optimism. Got a lot of work ahead of us and I think we’re all privileged to be a part of the ecosystem helping make change with that, David, Tom, thank you for taking the time to join us on the show today, and thank you to our listeners for tuning in. Bye for now. Please join us next time as we tackle some of sustainability’s biggest questions providing different perspectives to help you move forward. I’m your host, Siddharth Samarth, and this is The Sustainability Agenda.

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