FII: Public-private partnerships and clearly defined policies a must for net-zero goals

Private sector is carrying a 'disproportionate burden' in driving change towards carbon neutrality, panellists say in Riyadh

Ray Dalio, Stephen Schwarzman, Ana Botin, Larry Fink, Patrice Motsepe, Khaldoon Al Mubarak and David Solomon during a discussion at the Future Investment Initiative in Riyadh. Bloomberg

Public-private partnerships and clearly defined government policies for the switch to a greener economy are essential to mitigate the effects of climate change and meet net-zero emission targets, according to senior executives at the annual investment forum in Saudi Arabia.

“Let me give you a blueprint of something incredible that has happened over the last two years,” Khaldoon Al Mubarak, chief executive and managing director of Mubadala Investment Company, told the fifth Future Investment Initiative on Tuesday.

“We had a pandemic that started in January of 2020 and within 12 months, public-private partnerships and through small companies – BioNTech, Moderna, Novovax – [came] a global solution from science to the actual production and delivery of vaccine.”

“That is remarkable and that is a blueprint”, which shows greater goals can be achieved through global collaboration, Mr Al Mubarak said.

The private sector has taken the lead on climate action but it is carrying a “disproportionate burden” in driving about the change that could bring the world closer to its climate goals, the panellists said.

Those taking part in the discussion included Larry Fink, chief executive of the world's largest asset manager BlackRock, Blackstone group chairman Stephen Schwarzman, Goldman Sachs chief executive David Solomon, Banco Santander's group executive chairwoman Ana Botin, Bridgewater Associates founder Ray Dalio and South African mining magnate Patrice Motsepe, founder and chairman African Rainbow Minerals.

“The climate challenge is going to require everybody to contribute in their [own] way. Nobody is going to solve it on their own,” Mr Al Mubarak said. “We have to solve it working together globally as institutions, as governments, as civil society and it is a responsibility that we all have to take upon us.”

Environment, social and corporate governance standards have come into sharp focus as the world emerges from Covid-19 pandemic that pushed the global economy last year into its worst recession since the 1930s.

Companies, especially those in the public sector, energy businesses, governments and regulators are facing increased pressure to help build-back a greener economy in a bid to reach net-zero carbon emission goals by 2050.

Multilateral banks such as the International Monetary Fund are calling for greater investment to finance the transition. About $20 trillion in funding is needed over the next two decades for companies and countries to become carbon neutral by the middle of the century, the IMF said this month.

Global public and private sector companies are moving in the right direction. However, the corporate sector alone will not be able to make a difference as society at large is not moving fast enough towards the carbon-neutrality goal in the absence of “effective government policies”, Mr Fink said.

“The problem is not public companies; the problem is how we are moving society forward. If we are only going to be asking public companies to move forward and not the rest of the society … we are not going to achieve climate change,” he said.

Society's inability to move in lock-step with the corporate sector and growing pressure on companies is only going to create more “polarisation”.

“We are living right now with rising energy prices [and] as we sit here, right now, [there is] a high probability of $100 [per barrel] oil because of inefficient short-term policies. We are not focusing on long-term issues,” he said.

Policymakers need to address the issue of how to help emerging countries – excluding China – that are responsible for 34 per cent of global emissions.

The role of the World Bank and the IMF should also be reimagined in how they can help emerging world move forward in terms of their climate risk goals, Mr Fink said.

BlackRock is one of the most vocal advocates for factoring in climate as an investment risk. The company joined fellow asset manager Vanguard Group and 43 others in committing to cut net greenhouse gas emissions from their portfolios to zero.

Mr Solomon said it is easier for companies to be held accountable for the decision they make in terms of their climate actions. However, politicians are harder to hold accountable.

“In most democracies politics is a short-term game. And somehow, we have to find a way for our governments to work with the private sector and find incentives for those partnerships to be longer-dated and more thoughtful,” he said.

However, it is “complicated", he said.

Global leaders are gathering in Glasgow at the end of this month for the UN Cop26 climate summit to discuss and agree on steeper emissions cuts that address global warming.

Saudi Arabia, the world’s biggest oil exporter, is aiming for carbon neutrality by 2060, said Crown Prince Mohammed bin Salman at the Saudi Green Initiative (SGI) in Riyadh on Saturday.

The kingdom became the second Gulf country, after the UAE, to unveil a net-zero emissions target. Bahrain, one of the smallest producers in the Gulf, also pledged to reach emissions neutrality by 2060 on Sunday.

Mr Al Mubarak said that as an investor, Mubadala, Abu Dhabi's sovereign investment arm, had recognised the climate challenge about 15 years ago and had been prioritising it as an investment theme for more than a decade.

“It is an investment theme based on a reality that we anticipated … our renewable energy platform started in 2006 and we have invested almost $20bn in the last 20 years in renewable energy in over 30 countries,” he said.

“That has proven to be a healthy investment theme and we have achieved [a] positive rate of return. More importantly it is a contribution from us to this solution.”

Investors and public companies do not have to choose between profits and climate priorities, Mr Al Mubarak said.

good rate of return on investments can be achieved through long-term investment approach, he said.

“I have two words: sense and sensibility. I am lucky to be representing an investment institution that has a shareholder that is able to allow … Mubadala to take a long-term view, take a patient investment view, without compromising returns,” Mr Al Mubarak said.

The decision-making in terms of investment, use of capital and divestment, which is driven by pressure, "is not necessarily in the long-term interest of the shareholders”.