2022 Outlook Series: Investing Through Climate Risk

Greg Campion: Hi everyone. It's Greg Campion here. Thank you for joining us for the third and final installment of our three part series on the 2022 Outlook. This year, we are calling our outlook The New Normal Comes Into View as our investment teams believe we are starting to see signs of what a post pandemic new normal could look like. The discussion which follows here was moderated by my colleague, Pell George, Head of ESG Investment Integration here at Barings and focuses on the topic of climate risk. The goal of the conversation you're about to hear is to bring you real time views on how climate change is impacting the investment landscape today across public and private markets and where the Barings team is seeing both risks and opportunities in the years ahead. You can find the full webinar version of this conversation as well as written versions of all of our outlook content on Barings. com. And finally, this is the last episode of season five of Streaming Income. We've appreciated your continued support and we'll be back in January with new episodes. So please remember to follow us on Apple podcast, Spotify, or wherever you get your podcast, if you'd like to be the first to hear about our latest episodes. And if you'd like to leave us a review on any of these platforms, we would appreciate it greatly as it really helps us to spread the word. So with that, please enjoy the following conversation moderated by my colleague Pell George.

Pell George: Welcome. Thank you for joining us today to discuss a topic that is increasingly front of mind for investors, and that is climate change. I'm excited to be here and to be joined by a range of experts from across Barings asset classes, both public and private investment teams, to discuss the potential investment implications of climate change. How climate change is impacting different sectors and asset classes, where we're seeing impacts today, and where we're likely to see risks and opportunities emerging in the future. I'll briefly introduce our panelists before jumping into the discussion. From the public side, I'll start with Ashwinder Bakhshi. Who's a managing director on our Emerging Markets Corporate Debt team. We also have Clive Burstow, who's the Head of Global Resource for our Global Equities Platform, and Kawtar Ed- Dahmani, who's a Managing Director on our Emerging Markets Sovereign Debt. From a private and alternative asset perspective, we have Maureen Joyce, who's the Head of US Real Estate Equity Asset Management. And we also have Nick Schupbach who's the Head of Natural Resources for our Private Equity and Real Assets team. I'm Pell George, Head of ESG Investment Integration for Barings. And with that, let's jump in. Maureen, maybe going to you first. Are you seeing impacts to demand or pricing for assets based on climate change considerations, particular markets being affected?

Maureen Joyce: We really have seen limited impacts to demand and pricing today, but that's in part because there has been other immediate concerns related to real estate investment, like COVID. I was in Miami a couple weeks ago when someone told me that, in 2019 investors had started asking questions about climate change and sea level rise in Miami. But over the past year, those questions weren't on anyone's mind. Instead, it was all about how to deal with the growth of people moving from the Northeast into Miami. So they weren't thinking of climate change, they were thinking of real estate values. However, at some point, those concerns and those questions about climate impacts and susceptible locations will be asked again and it's starting already. The first impact will be on the demand side. There will be investors who will red line certain areas. I think the impact of pricing will come when investors start to price in additional capital costs to renovate buildings so that they're more resilient to physical hazards or pricing cost related to increased regulation and transition risks. Just briefly, for example, New York city enacted Local Law 97, a few years ago. It requires building owners of properties greater than 25,000 square feet to meet energy and greenhouse gas emissions reduction requirements by 2024 first, and then more stringent reduction requirements by 2030. If buildings don't meet the targets, then they'll be fined. So in terms of pricing, either the capital cost to meet those energy requirements or fines associated with not meeting them will have to be included in underwriting and the pricing of assets. On the flip side of this, though, I think soon we'll see a premium to pricing for the most energy efficient assets or the most water efficient assets that have been built or been renovated to be more resilient to climate change. In our investment process, we take all those matters into consideration. At acquisition, we complete an ESG assessment and those findings are included in our final underwriting and the strategic plan for the asset. And during our whole period, we have specific ESG summary with specific goals in each asset business plan.

Pell George: And building on the regulatory component that Maureen mentioned in New York, Ashwinder, are you seeing anything similar with financial institutions that you cover, from a regulatory perspective? Or I know climate scenario analysis is a more frequent topic these days and are certain assets essentially becoming uninvestible?

Ashwinder Bakhshi: That's definitely on the radar. And that's started with coal as a start where clearly banks and asset managers no longer want to finance coal mines, as well as thermal powered power plants. This has made the market and the regulators focus increasingly on what are the other legacy exposures that sit on bank balance sheets. ECB, for example, did a stress test this year and they articulated that something like half of European bank balance sheets are exposed to physical or transition risk. They also did these climate change scenarios, and under extreme scenarios, losses from these exposures could go up by 20%. And the impact is not just in loan book. Banks also have exposure to legacy assets through large investment portfolios. Large investment banks are big underwriters of fossil fuel and therefore there are those exposures as well. What's happening now on the regulation front is Basel and FSB are trying to convince the national regulators that climate change is a financial stability issue. And they want to encourage banks to improve their disclosures and incorporate climate stress testing scenarios in their risk management. We have over 90 banks, which have now signed up for this 2050 Net Zero initiative, which is close to 45% banking sector assets globally. These are the large Northern American and European banks. Part of that is also having short term goals. So in 2030, how much would they be able to reduce the carbon emission? So clearly that is also going to have an impact on valuations and greater scrutiny of these assets.

Pell George: Clive, I'm curious to get your perspective on some of these divestment pressures, coal, like Ashwinder mentioned. Are there certain industries that you see feeling pain from these investors growing exclusionless?

Clive Burstow: No great surprise that thermal coal and oil are the two that we'll talk about in equity when people say divestment. If you're going to decarbonize the global economy, it's a negative for thermal coal. And let's set the scene. Thermal coal is responsible for 40% of greenhouse gas emissions, despite being only 27% of the world's energy supply. Something's got to change. But as we saw at COP26, eliminating thermal coal from a global power matrix is a difficult issue for many companies, many countries to face. Globally, many countries, principally out in Asia, are using thermal coal to power their way up the development curve. And they're hesitant to step away from it at this time, despite an understanding that they need to do something. We recently saw the South African energy minister say that whilst the country wants to move away from thermal coal towards renewables and funding was made available at COP26, it has to be done in a way that doesn't disadvantage the development of the country and of the indigenous population. And that's quite an important point that we need to think about because it illustrates the challenges that many countries face in reducing their reliance on what is a cheap energy supply, thermal coal. Innovative solutions in infrastructure and financing are going to be needed. And we're going to have maybe a more pragmatic approach to the speed of divestment than we have at the moment. Now oil faces even more of its own particular challenges. And let's be clear, we still drive to work, we still need oil in the automotive industry and power generation. And even areas such as pharmaceuticals, for example, making PPE during the COVID pandemic. Alternates are out there, but they're going to take time and money to scale up. There is, though, increased pressure from shareholders on oil companies and the companies are being told face up to the challenges of decarbonization. How are you going to approach this? And are you doing enough quickly enough? The great example of this is the recent court ruling in the Netherlands against Royal Dutch Shell and the pace at which they are tackling Scope 1, 2, 3 emissions reductions. Now the company argues that it's doing as much as it can as quickly as it can to reduce emissions from its operations. However, I think in what is almost a first, activists and the court disagreed, and they've ordered Shell to reduce emissions by 45% by 2030. And that sent shockwaves across the oil industry because it's the first time that in Europe one of the big majors who is widely seen as an innovator as a good transition energy company, has been told," You are not doing enough." And globally, the oil industry is now scratching its head, it's going," Right, how do we do this so we don't end up with stranded assets?" Now I think what we have to go right back to the beginning, is that all stakeholders need to understand that decarbonizing is a really complex, costly process and it is going to take time to achieve the desired results of a zero carbon world one and a half degrees, sort of a process. And again, as with coal, maybe we going to have to take a slightly more pragmatic approach to achieving that end goal. And it might just take a little bit of time and cost a little bit more.

Pell George: Thanks, Clive. And shifting, Nick, to private markets. Are you seeing any impacts there, particularly given the increased attention on carbon emissions that's been talked about today?

Nick Schupbach: We are, Pell. Addressing climate change is going to be a four phase process. It starts with recognizing we have a problem, designing a global plan to correct the problem, implementing a plan, and managing to the plan. The majority of nations and industries have gone from phase one to the beginning of phase two. That is to say, we're very early in addressing a problem, likely to take 30 years or more. Now, what we know now is that to minimize the impact of climate change, we need to minimize the expected global average temperature increases to one and a half to no more than two degrees Celsius. Most climate plans agree that to do this we need to get the net zero carbon emissions globally by 2050. There are five factors that drive a nation's carbon footprint. There's population, there's GDP per capita, there's energy use per GDP, there's carbon produced for energy used, and there's carbon sequester. Now, no nation, I'm aware of, is trying to reduce their carbon footprint by reducing their population or their GDP. So that means the market is focused predominantly on two strategies. It's decarbonizing, which is taking the carbon footprint out of energy use, and energy efficiency, which is reducing total energy use. Now the majority of capital addressing climate change will flow to decarbonization and energy efficiency investments as these are the largest opportunities we have to reduce carbon foot prints. However, 8 to 15% of current carbon emissions can't be eliminated through these strategies by 2050. But to honor net zero pledges, we need to get... We need to offset this percentage of our footprint by sequestering carbon and assets like forests and using technologies like direct air carbon capture. So the market for voluntary carbon offsets was set to address these unavoidable emissions. It's currently valued at$ 1 billion. We just hit that market this year. We expect this to be a$ 30 billion to$ 40 billion market by 2030, and we're underwriting investments designed to capture value as that market grows by an estimated 42% per year until 2030.

Pell George: Thanks, Nick. And Kawtar, anything to add from a sovereign perspective?

Kawtar Ed-Dahmani: Oh, it's great because all of what my colleagues are observing in their asset classes, but inaudible perspective I see from an aggregate level at the sovereign level. Everything that they said is very relevant. The fact that there is this ethical question of how do you deal with the countries that are now currently industrializing using coal or using less energy efficient techniques, while during the industrial revolution, a lot of the advanced economies today have polluted a lot in order to get where they are today. The question of the responsibility to decrease the carbon emissions. We have seen again in the latest COP, the debates around who should decarbonize, when, first, based on what metric... Actually, we put out a paper recently on what metrics can be used to assess the carbon intensity of sovereigns and which one we believe might make more sense than others. So these are all questions that are on the mind of investors and on our mind for sure. I think the one thing that I will say is you have, in terms of the us as market participants, you have to take into account your assessment the country from a climate change perspective from three perspectives. The first one is how to assess if a country is doing enough efforts in reducing carbon intensity and how to measure this carbon intensity. The second one is if a country is participating positively to the global decarbonization process, for instance, by investing significantly in its rainforest conservation efforts, then it should be recognized. This is basically internalizing the positive externalities of these countries from a global perspective. And the third one is not to penalize countries that are building their resilience to major climate change disasters. For instance, if you consider that a country can be rated badly on the ESG perspective, both because they are exposed to hurricanes, like a few Caribbean countries, and because they pollute a lot, your attitude as an investor will have completely different impact on these countries, resources and access to financing. You see, so for instance, if a country is exposed to climate change, then it shouldn't be discriminated against, or it shouldn't be penalized for this exposure on the country. We have the responsibility as investors to support building infrastructure or making sure that this country has a policy and a strategy and financing means to build more resilience. So I think these are the three areas that are now being debated in the sovereign space.

Pell George: And pivoting a little bit. I think we've obviously had a great discussion so far and a lot of attention being paid to climate change, not just at Barings, but within the market more broadly. I think it's important to acknowledge that we're still very early in our understanding of how climate change may impact investments. And there's a lot of gaps that remain. Maureen, curious on the real estate side as an operator, do you have the data that you need to be able to make decisions and potentially mitigate some of the risks that you highlighted earlier?

Maureen Joyce: Well, data's hard to get, as we all know. We have tenants in buildings that sometimes we can't access their data because they have direct control over their utility bills, for instance. But our engineering team has been focused on gathering data for a long, long time. And we track energy and water usage at all our properties. Every asset business plan includes an ESG performance dashboard. That includes information about energy and water consumption, waste and emissions performance, information about renewable energy, where we have solar panels, for instance, or wind, and then investment in capital projects to reduce our energy usage. We have to do that. And we also include the return on investment derived from those capital projects. We've also undertaken a review of specific exposure to sea level rise and flooding and that's looking at NOAA data and FEMA flood map data. Obviously, understanding the exposure is the first step towards advising that plan that Nick already mentioned to mitigate against potential future flooding risk. And just recently, the engineering team completed a review to assess net zero pathways for assets in one of our portfolios. It's an initial framework and will be improved as we gather more data and undertake more review of individual assets, but it's an incredibly important framework, if we're going to meet the 2050 goals. And we'll expand that review for all our assets. One question for the real estate market is the idea of understanding carbon offsets and carbon pricing. We won't achieve net zero just by becoming more energy efficient in operating buildings. We're going to have to rely on carbon offsets and understanding that market better. We in the real estate industry, Nick might understand it perfectly well, but we're gathering our data and our knowledge of that market as well, because that's going to be an important piece for us to get to net zero by 2050.

Pell George: Clive, shifting to you. Is the market misjudging anything from your perspective?

Clive Burstow: I genuinely believe the biggest misconception in the markets these days is that we can solve climate change overnight. You just... We can't do it that way. The scale of the challenge is enormous. Don't forget that to transition to a clean energy matrix by 2050, we are essentially tearing down and rebuilding a power network that's been built over the last 100 years to run on fossil fuels. And we're going to do all of that in 29 years and two months. It's huge. Wind and solar are 6% of global energy today. And by 2050, to hit net zero, they're going to have to be close to 70% percent. See an enormous building program going to go on and misjudging the cost and scale of the raw materials needed to aid the energy transition, I think, is probably the biggest misconception out there. An offshore wind farm, just to illustrate, needs at least five times more steel than an on shore fossil fuel power plant producing the same amounts power. Yet steel is viewed as a bad carbon emitter, a bad actor. So we've got this wonderful catch 22 of a sector perceived as a bad actor, which is critical to building the infrastructure for a low carbon renewable power future. And somehow we have to solve that equation. And the list goes on. Copper, aluminum, PGMs, nickel, all the critical to building renewable, clean power infrastructure yet people don't want us to go and dig great big holes in the ground to extract it. Despite the fact that as an industry, mining is getting even better at producing more from smaller holes in the ground. We also need to think about natural gas and nuclear. They're perceived as being bad actors. They're a fossil fuel or a fuel which has tainted history. Yet we need to classify them, we believe, as a transition fuel to bridge the gap between fossil fuels and clean energy. You can't go from a fossil fuel powered industry or powered world to electrification or to a clean energy world without having an intermediate step. And that's where natural gas and nuclear comes in. We've talked about oil and we're going to need oil for some time. And I think investors need to understand the challenges the companies face as well as the benefits that cash flows from companies like Shell are be it from their oil production are being used now to build out the future renewable energy infrastructure. So it's just to touch upon a very small number of the quandaries that we're going to need to work through over the next decade, as we look to balance the need to decarbonize the global economy against the practical realities of the scale and the cost of the challenge that we face in extracting raw materials and changing the global power matrix to a clean sustainable one. It's a huge question, but it's a really fascinating one.

Pell George: A big question indeed. I'm curious, Nick, do you have similar questions on your side? What are the known unknowns from your perspective? And frankly, what aren't investors talking about today?

Nick Schupbach: Yeah, Pell, so I think... Yeah, to me, the biggest unknown is will countries and companies that are now pledging themselves to net zero policies stick to these policies for the next 30 years through the ups and downs of economic cycles, or will they abandon their efforts as we start to realize the higher short term economic cost of net zero commitments? The cost of abandoning our efforts in the long term is much greater than the short term economic costs that we'll be forced to pay. And we've seen consumer class increasingly dedicated to addressing climate change with their votes and their purchases. We're seeing a number of climate related shareholder resolutions, and the percentage vote in favor continues to gain in momentum. We're also seeing a divergence of project IRRs between traditional hydrocarbon investments and renewable projects. One point of comfort that I take from those two things is that we, in the absence of a global compliance market for carbon, capital markets are pricing in higher costs of carbon, which bodes well for energy efficiency, decarbonization, and carbon offset investments.

Pell George: And Kawtar, what's missing from the conversation on the sovereign side?

Kawtar Ed-Dahmani: So Pell, many things are missing, and actually, it's again the same thing. What my colleagues have underlined in the micro setting of their own asset class or sectors, it's even more true at the sovereign level. So for instance, there's a question of the data. We might have the feeling that we know how much China pollutes and how much the US pollutes and how much Nigeria would pollute and et cetera. But in reality, these numbers are just as reliable as the numbers that they're aggregated from. And typically, if we can't get a good handle of how much the real estate sector pollutes or how much the banks carbon footprint is in the country, how can we 100% sure of the reliability of overall economy's carbon footprints? It's a big question. And two illustrations, for instance. First one is the concept of carbon leakage. Which is to say that what happens for instance, when a big multinational corporation ships the most polluting parts of its value chain to a developing country, but then the consumers of those products and services are still located in the developed economies. Who should account for these carbon emissions? Is it the producing country, or is it the consuming country? We don't have great data that enables us to compare the two for all the countries that we cover. Another question is the question of the carbon offsets data at the sovereign level today on a net carbon emissions is not excellent. And for instance, you would want to see how we can deduct from a country's carbon emissions, all the carbon capture technologies, whether they are industrial or manmade, or whether they are investment in forestry or policy to become greener countries. So this, we don't have adequate data. So this is one thing that is missing, I think, from the assessment. The second thing is, as Clive was describing, is all these transitional dynamics. We don't know how the countries are going to deal with the necessity for developing countries to leapfrog from previously polluting development path to greener development path. Because as Nick was mentioning, it's just not possible. It's not an option not to grow, for many of these countries. They have high population growth rates. They have high poverty, they have high inequalities and get affected by shocks. COVID shocks, commodities shocks, natural disaster, and et cetera. So you can't afford not to grow. And therefore we have to think, how do these countries transition to a more energy efficient and greener economy? And it's not easy. And maybe in the meantime, in fact, the advanced economies who can afford to grow less fast for now, just because they have the stock of financial resources more than the developing economies, should in fact, just do more of the efforts to decarbonize than the developing economies because this is what will be required for the transitional dynamics. This makes or puts cloud over the certainty of execution of targets because we saw in the international conventions that the countries or the governments commit to a certain reduction in the national, in the NDCs that they are presenting in these conferences. But then the executions or the plans each country have their own. Some of them are more advanced than others. There is very little coordination to make sure that it works. And so that's another big question mark. So hopefully, it's not painting a too pessimistic picture, but I think these are big question marks that we'll need to be figuring out pretty soon.

Pell George: Thanks, Kawtar. I want to pivot the conversation a little bit. We've talked fairly extensively today about some of the risks and climate change from a risk perspective. I'm curious about the opportunity side. Are we seeing particular opportunities emerge as climate change becomes an increasing topic of discussion? Nick, you mentioned specifically on the private equity team, climate change is a macro theme. How are you thinking about translating that into private investment opportunities, either today or in the future?

Nick Schupbach: Yeah, sure, Pell. Let me answer that one, but first let me talk about a couple other things that the markets aren't really talking about and I'd like to highlight. The first is a trillion dollars in liabilities. Most studies agree that we need to see average prices of$ 50 to$ 100 a ton for carbon offsets to minimize temperature increase to two degree Celsius. Average prices now range in the voluntary markets from$ 5 to$ 10 a ton. If we see an offsetting of 10% of current global emissions at a$ 75 future cost per ton, we are looking at about a$ 300 billion annual price tag just for offsetting annually by 2050. Now, when we look at the cost of emissions reductions, companies that are making that zero commitments are creating for themselves, it's not hard to arrive at a trillion dollar capitalized value of liabilities they're creating. And those future liabilities that are off... Those are future liabilities that are off the balance sheets of most corporates today who've committed themselves to these net zero goals. One can argue that the cost of an action would be greater, but from a financial perspective, we do not see these liabilities as appropriately valued by the market. And as such, for voluntary credits, we should be seeing them at five to 10 times higher. Now, the second thing that people aren't talking about but should be, is our failure versus plan so far. And I think humankind has seen a lot of tracking error in emissions reductions thus far versus its 2015 Paris Agreements targets. And recall that net zero results will be driven by decarbonization, energy efficiency, and carbon offsets. We see any shortfall versus plan as requiring a larger contribution from carbon offsets. Meaning that carbon offsets are going to have to play a larger role than that 8 to 15% initially envisioned. Now to go back to your first question, Pell, which was where do we see the opportunities going forward, squarely in those three camps of decarbonization, energy efficiency, and carbon offset investments. With respect to carbon offsets piece of this equation, we've developed carbon projects on our Timberland assets and we're looking to grow exposure across those assets. We see asymmetric return profiles there that are attractive. We're also looking to produce carbon offsets and make investments in service companies that finance carbon offsets and businesses that trade carbon offsets. We're also looking to increase our exposure to water rights in the US Southwest as climate change decreases sustainable water supplies available there. And we're looking at water utilities investments that we expect to benefit from increased storm water collection and treatment needs. On the energy side of things, we're invested in renewable energy assets and looking to increase our exposure to assets and services that enable transition to a low carbon world like battery storage.

Pell George: Very interesting and certainly no shortage of opportunities there on the private side. Sticking with private and alternatives, Maureen, do you see specific real estate opportunities emerging as a result of climate change, whether that's specific property types or geographies?

Maureen Joyce: Well, we're a value added minded investor. We invest in a fair amount of ground up development, as well as value add renovation and or redevelopment projects. Our opportunities there are to build the most efficient properties. That's from an energy standpoint, from a water standpoint. It's also an opportunity to build above building code to deal with sea level rise, at the time of development. For example, we recently had a ribbon cutting for 10 Fan Pier, an office building in Boston. It's a state of the art, LEED Platinum building. It will produce opportunities for the firm to garner premium pricing at some point in the future. I've also mentioned that our engineering team developed the framework for net zero pathways for assets. It's a really important step to consider investment in operational items in reaching that net zero goal by 2050. So I see it as an opportunity because it means we're investing wisely in assets that hold their value and will be more valuable to future buyers and investors because we have done the work now and our exit will garner premium pricing on those assets as well.

Pell George: Ashwinder, are there sort of emerging themes from your perspective on the liquid side? And in particular, I'm curious your thoughts on the appetite for green bonds and whether you think that will continue in its current trajectory.

Ashwinder Bakhshi: I mean, 2021 in many ways has been a watershed moment for supply. I mean, ESG label debt this year globally will touch close to a trillion dollars. And if you think about it, a total issuance ever is 3 trillion,'21 clearly will always stand out. What is also interesting there is that within the corporate segment of that supply two sectors, financials and utilities account for nearly 70% of ESG label debt. So clearly, for these two sectors, this is both an opportunity, but also they will also face the greater scrutiny. Obviously, there's been questions asked around greenwashing, so expect more investors scrutiny, expect more regulation. Europe has brought in EU green bond standards, for example, so that topic is not going away. But what's also very interesting is, is to look at on the other side, which is inflow into dedicated ESG funds. In 2021, one out of every$ 10 of inflow in bond funds has gone into a ESG label fund. It's even more interesting when you break it down by regions. In western Europe, close to 65% of new bond inflows have gone into ESG label fund. Even in emerging markets, close to 25% of bond inflows have gone into ESG team fund. The lagger was north America. Only 4% of inflows have gone into ESG labeled funds. So clearly there's huge potential and huge market for that to grow. So it's a very exciting times to come in this segment.

Pell George: Kawtar, is there a similar concept from the sovereign side? And for example, do you see potential in concepts like resilience bonds?

Kawtar Ed-Dahmani: Yeah, absolutely. Everything that Ashwinder was just saying is very true and can find the similarities in the sovereign space. We have seen, with some delay, the sovereign issuers catching up with corporate issuers, including in the emerging market space in issuing green bonds and SDG related bonds. Of course, it's very important to pay attention to the greenwashing. Especially, since at the sovereign level, money is even more fungible because you need to finance the budget, because you need to refinance that, because you need to pay civil servants, because you need to invest in energy. All types of energy, clean, and less clean. So in that case, you have to be really aware of where the money's going, what is the governance behind how the money is going to be used, what projects have been selected. We have actually developed a green bonds scorecard in the sovereign team just to make sure that we are able to follow where the use of proceeds will be going. So this is definitely true in the sovereign space. And I believe they can be a very powerful tool in accompanying some of these countries in better facing the challenges raised by climate change. In addition to that, you start to have more innovative products. For instance, I am a member of a group that thinks about what we call resilience bonds. Starting with a very specific type of resilience bond, which would be a bond that, for instance, the terms of the bond would change depending on the occurrence of certain climate related events. So, as a matter of example, we have started to think about, let's say a hurricane in the Caribbean countries. What would be the triggers that would need to be there in order to change the terms of the bonds, for how long these terms should be changed, whether it's a decrease in coupon, whether it's a payment holiday. Somehow it's a bond that has an insurance option embedded in it. And hopefully, it can give liquidity relief to some of these countries to prevent them from defaulting. And to give them some breathing space while they are dealing with economic and social and political and humanitarian emergencies, and then resume payment after that. So all of these things are happening. And certainly, I think that there's a lot of room to improve and to continue to innovate in this space.

Pell George: Thanks, Kawtar. Clive, shifting to you and maybe building on Kawtar's example of sort of her active involvement in the markets and moving the conversation forward. Curious from an equities perspective, is it all macro here or do active managers have more tools in their toolbox when it comes to climate change related opportunities?

Clive Burstow: Engagement, in a word, is the key thing here. So one of the big advantages we have as an active fund manager in equities is engagement. We are able to engage with our companies, not exclude, engage. Education through engagement is another way of thinking about it. And anyone can go and read the climate impact report, sustainability report, the annual report. All the companies produce this data. But we find that by actively taking the time to engage with them, one- on- one, we can educate ourselves on the subtle challenges and opportunities that exist in the investments, exist in the companies. And it's a great two- way process. And we're seeing this through initiatives such as Climate Action 100 +, where we can engage with some of the big mining and energy companies and they're showcasing the challenges and the ways they're combating those challenges, facing up to those challenges. At the same time, I was drawing upon our experience from talking to hundreds of companies and hearing what other companies are doing. What are we thinking about as investors? What do we want to hear from them? This is a vast industry, this is a vast process that we're all going through and it's still in its infancy. We're still trying to understand what is it we actually want to hear, what do we want to know. And I think a great way of thinking about the whole engagement process and this education is there are real challenges they face. And then, we've all touched upon them over the course of the last hour, but if I think about port infrastructure in the inaudible in Australia for the big inaudible oil mines or copper mines in Atacama Desert, for example. They're all facing stresses, rising sea levels, lack of access to water, but they're all putting innovative solutions in place. Whether that's infrastructure that can be jacked up in the face of storms or rising sea level. Whether it's waterless processing technology, or even floating solar panel farms on tailings ponds in deepest Africa, for example. I mean, all of these are solutions that people just don't understand unless you phone the company up and engage with them. And I think that's a real advantage. Engage with the company, understand what's going on, analyze, assess, think about it, put it into the model, come up with a value, and then we can really start to build an understanding of challenges and opportunities investing in companies that are dealing with and trying to be part of the solution to climate change.

Pell George: Thanks, Clive. Unfortunately, we're out of time, but this has been a fascinating conversation today. We've covered a wide range of climate change topics from the impacts and risks we're seeing today, where there are gaps in the market, and potential investment opportunities going forward. We've covered those perspectives across public and private assets. I think clearly there are some big gaps that remain, but I'm personally optimistic given the pace of conversation going forward. And with that, I'd like to thank our panelists and our audience for joining us and look forward to continuing the conversation in the future.

Greg Campion: Thanks so much for listening to this conversation. And just a reminder that written versions of all of our Outlook content can be found on barings. com. Finally, if you'd like to stay up to date on the thoughts of all Barings experts across public and private markets, be sure to follow Streaming Income on Apple podcasts, Spotify, or wherever you get your podcasts. Thanks again for listening and see you in 2022.