Jon Powers: Stacy. Thanks so much for joining me at Experts Only. Stacy Swann: Oh, well thanks Jon for having me. It’s great to be here. Jon Powers: Yeah. Really excited to talk about I think some of the most cutting edge issues that are facing our industry today, but before we do that, I want to dive into your personal background. You grew up in Washington, you’ve worked in a really amazing variety of places, including the IFC and the World Bank. You’re teaching at Hopkins. You’ve worked at treasury. Let’s just step back for a second. What got you interested in, was it finance first? Was it the environment first? What sort of led you down this path that’s taken you where you are today? Stacy Swann: What a good question. So I got the climate bug really when I started at IFC in 2003 and I had been, I don’t know if this is on your bio sheet for me, but I had just come out of a year of not working in 2002, because I had been working for a small little company that people might not have heard of called Enron in India. So I was with Enron in India and Singapore and I was in Singapore when they went bankrupt. Jon Powers: How’d you get home? Stacy Swann: Oh, that’s a great story. And in fact, in Singapore, when a company files for bankruptcy, the employees who have work permits have 48 hours to get out of the country, so it’s quite the scramble to- Jon Powers: Did you have kids over there with you at all? Stacy Swann: Not at the time. We were solo without kids, but had to scramble, get our stuff out very quickly. The landlord had the right to seal our apartment and take our stuff. And it was very much a kind of moment. And we got out and everything was fine, but not because Enron was there because they were obviously falling apart at the time. This was in December of 2001, but really the kind of driver for me to go to Enron and then IFC was really the international development side of things. I never worked for Enron in Houston. Enron had these opportunities overseas. We were really going overseas and it was an exciting time to be there. Both good and bad, obviously. But when I landed at IFC… So we came back to Washington, Enron went bankrupt, we came back to Washington, we got ourselves together. And then my husband and I put our backpacks on and traveled for most of 2002, which is why I had been out of a job for 2002. And then I would come and we pull ourselves together and I get a job and I… Jon Powers: We’ll do another interview on that travel because that’s a wonderful… Stacy Swann: Yeah, it was great and perfect timing too in our lives because then not soon after that we did have children. Can’t really put the backpack on very easily with a little… So anyway, I ended up at an IFC and I inherited a portfolio of projects from somebody whom you may know, Vikram Wedge. Jon Powers: Oh yeah. Stacy Swann: And Vikram started IFCs carbon finance work. So I came in the door and Vikram was getting promoted to do the carbon finance work to establish that at IFC. And what I inherited from him was a portfolio of projects that IFC and Vikram had started that were really pushing the boundaries of investment in clean energy and climate related things at the time. The unit, the department that I was in was called the environmental finance unit. Jon Powers: Was this around 2003, 2004? Stacy Swann: 2003. January, 2003. And I inherited some program for off-grid solar fuel cell programs. So early… on fuel cells, some program that where IFC was facilitating private equity investments in small and medium-sized energy-related companies. So I inherited this portfolio and really that’s where I kind of really started to get the climate bug and particularly the clean energy bug. In Enron, I was working for broadband services. Late nineties, before Enron, I was working in the telecom sector. That was also kind of exciting time to work in telecom with the deregulation and the like, so this was kind of the next interesting wave for me, innovation and experimentation and then also the climate agenda. So I’d like to say- Jon Powers: For folks that don’t know, could you just explain what the IFC does just quickly? Stacy Swann: Sure. IFC is the private sector arm of the World Bank group, and invest in emerging markets. And it’s meant to capitalize private sector investments in those markets. The theory is that you create a robust and dynamic and deep private sector, and that helps economic growth. And so the World Bank has it’s public sector lending to governments and private sector lending through the IFC. This unit within IFC, that the portfolio that I got and then the blended finance department that I built and then ran was really like its own little incubator, its own little innovation fund within the organization. And we were meant to take more risks, lean in a bit more, even beyond IFCs own risk appetite and do things that the market wasn’t otherwise doing, but would have the potential to be scalable from a private investment perspective and also have development impact. So for me, this kind of brought together a lot of the things that were my own drivers, development, finance, building things, catalyzing things. And that was really how I kind of got the climate bug. That was 2003 and I have never looked back. The other thing I think is that climate for me personally, is the issue that we all need to focus on if we’re going to save the planet. So, I never once since I started working in the climate space, I never once thought, oh, I’d rather go do more telecom or, oh, I’d rather go do private equity. It’s a really important thing. And for people who have finance experience, it’s a good thing to kind of… Jon Powers: Not many people in this space can say you’re closing in on 20 years working on climate finance and most people didn’t know the term climate change 20 years ago. Matter of fact, I would tell you that, as you know, it’s ebb and flowed, there was periods like 2008, 2009 post the we couldn’t pass the… bill in the Senate. People couldn’t even use the term climate change in DC. You’ve now lived through an amazing sort of two decades of growth in climate investment. Is there any really interesting key lessons you’d go back and tell yourself 20 years ago, even accelerate where we are today? Stacy Swann: Yeah, I think that we had a number of challenges 20 years ago that we don’t have today, sadly. The first was I think the cost structure of a lot of renewables and clean energy was out of balance given kind of the levelized cost of power of other sources of fossil fuel. The reduction in costs on the solar side and on the clean energy side have solved that problem for us. So that’s great. The other thing is, I think, 20 years ago, and maybe even five, six years ago, we all saw this as a very far off thing. And we saw kind of reducing emissions and the changing climate and the impacts that might come from that is very much a far off thing of the future, 2050, maybe 100 and for better, for worse and potentially quite sadly, we’re now living and seeing and observing the impacts of the already baked in warming that we have. So even if we stopped emitting today, a hundred percent across the board, we’d still have warming that’s baked in. It will get a little warmer. And the impacts that will be things that we have to deal with. That I think has focused people’s attention on this and that plus some other things that have happened in the financial sector have focused people’s attention on this in the last five, six years in a way that the prior 15, those of us who worked on climate and climate investment felt like we were rolling the rock up hill a little bit. We were trying to convince people of things because it was a good thing to do, not because it made economic sense in dollars and cents, even though we all knew it did, it just felt like it was a conversation that was much harder before some of those other things changed. Jon Powers: I could have an entire conversation on this. Maybe we’ll come back and have this conversation because I really would love to pick your brain on that historical growth. And I have a theory a little bit of the last couple of years. I call it from Greta to the boardroom. You have Greta sort of the cultural acceleration of acceptance of these issues and recognition. We got to do something with boardroom action that is so critical. For you what’s interesting to me about the work you’re doing is you’re now living sort of at that apex. You’ve created an amazing organization focused on driving forward this industry that we all care about, really making sure that we’re not going to be living in a decade of greenwashing, but we’ll actually see real action towards what we’re doing. So can you talk a little bit about your firm, Climate Finance Advisors and so what led you to start it and what do you guys do? Stacy Swann: Yeah. So we are a consulting firm based here in Washington, DC that sit at the intersection of climate and finance. And what makes us somewhat unique in Washington is that we are all finance practitioners. So the people that we have and that we hire have worked in banks and worked in private equity, have structured deals, have done different types of investing in the climate space. And this is maybe not unique in places like New York or London, but here in Washington, you find a lot of consulting firms with policy people. Jon Powers: Super unique in Washington. Stacy Swann: Yeah. Sector based people. The other thing that we have, and this is something that personally I kind of get very excited about is we also have people who’ve done the public private finance side of things. So in a lot of ways, when I was doing an IFC and blended finance was taking public and patient capital and catalyzing private investment as a result. I sit on the board of a green bank. That’s the same type of approach, where to capitalize with some public dollars, it has a mandate to accelerate investment in areas faster than the market might otherwise do it. And it can use and bring to the table a toolkit of different types of investment levers, incentives, programs that can do that catalytic function. Very similar to kind of what the federal government has at its disposal in terms of incentivizing investments. So we also have expertise in that and we do a lot of work around that kind of space. I would say the other thing that’s changed in the last 15 years and again, kind of this is off the back of some of the awareness that’s been raised in the financial sector. It used to be the climate was an opportunity set and an incremental portfolio of projects, banks were investors had their renewable portfolio or their clean energy portfolio. But now today I think the awareness around climate related risks across all assets, because all of us have climate risk and we just don’t know how big or small or when it might happen, but we all have it. That’s also changing and it has the potential to change the way investors and financial institutions bake into their system climate considerations, which means that not just the energy side or the incremental opportunity side, but everything has some measure that’s able to kind of track and monitor those risks. We do a lot of work around that also because we understand how the plumbing is made inside some of these institutions, how they appraise projects, how they structure financing, the different types of risk mitigation they bring to bear and then portfolio management. So we’re doing a bit on that as well. Jon Powers: And are you mostly working with… Who are some of your clients, if you can name or at least give color on who you’re talking? Stacy Swann: Yeah, so we have a good portion of climate clients come from the development world, the development finance institutions, also emerging market banks and of the emerging market banks that we work with, some of them are quasi public. So an infrastructure bank in a major Latin American country that has some government function to it from a national infrastructure bank, but it is commercially oriented and is there to kind of invest in the countries kind of big infrastructure, transport, roads, energy, water. And we’ve done their climate risk. We have essentially gone in and helped them understand how to bake in climate risk into their system in a mainstream it so that everything they do has a whole of the institution approach for climate change, not just their energy book. And that’s really important because in this particular country, they have huge water issues. They’ve got some really interesting kind of drought problems. They’ve had issues in the last five years with increasing rain intensity events with floods and road washouts and things like that. And we’ve helped them figure out how a process perspective, how to integrate the climate considerations into how they look at those new investments. Jon Powers: Interesting. So one of the things really it’s coming out of the new administration moving forward, which I think is very exciting is I think you better than anybody it’s challenging for some of the bigger institutions to even measure their impact. They will often measure their GHG impact, but that just does not go far enough in terms of understanding the risks of climate. There have been efforts for instance, the task force for climate related financial disclosures that are really sort of developing those key metrics. For folks that first of all, aren’t familiar with sort of the concept around those metrics, can you talk a little bit about how that’s being developed and then what to expect out of maybe the SEC or treasury in the near future, that’ll be a framework that we all will be really honestly living under? Stacy Swann: Yeah, well, the TCFD is in my view kind of one of the more groundbreaking things that have happened in the financial sector as it relates to climate in the last six years, because it’s done a couple of things. First, the task force on climate related financial disclosures is a framework that corporates and financial institutions can use to understand how they identify, assess, quantify, and manage climate related risks and opportunities across their organization or their portfolio. And it’s not just about the risk management. It’s also about once you have that risk management function, how does it inform your strategy? How’s it informed the development of metrics and targets so that your organization can evolve or increase its sustainability or kind of greening of itself, and also the governance around that. Who at the board and who at the management kind of looks at that? So that’s really important. And what’s been very interesting about it is that it’s given the financial sector a common language to talk about climate related financial risks. The challenges that we have today with it is that we need the tools and we need the translators for different types of use cases to take that climate related financial risks and make it into something that’s decision useful, both in terms of the way organizations invest, but also if you want it to disclose what that disclosure means for different… stakeholders and investors. That’s where- Jon Powers: Paint a picture for a second of if we get to a perfect world, say three years from now, this is implemented and adopted across the financial industry, which that may be an aggressive timeline to have it sort of fully adopted, but if you were an investor looking at opportunities and what would that disclosure tell you about the way that a major institution, for instance investing in their portfolio? Stacy Swann: Yeah. So kind of going down one level in terms of what we have today and what it could tell you kind of in the future. So we have the industry around identify assessing and quantifying physical risks is still growing and is much more complicated than the metrics and tools that you would use for emissions or carbon. Jon Powers: You say this is risks associated to climate. Stacy Swann: Yes. I mean kind of how the climate impacts the returns, revenues, assets, and costs of a corporate or an investor. Jon Powers: Can I ask you a question on that? Is that because the GHG accounting and metric system is just more advanced, they spend more time looking at those emissions versus if you’re going to have a warehouse in a high flood zone area, what the impacts are going to be on your physical location over time, is that the concept? Stacy Swann: Basically, it’s just far more complicated on the physical side, because location matters and distribution and diversity of your portfolio matters. And then you have different types of risks, multiplying different types of other risks on the physical side. The transition side and the carbon side, it’s a bit more elegant in that it has one metric or one type of metric around carbon and carbon emissions. And it’s really important because if we are going to meet the international goals of staying within two degrees warming, you need to cascade those metrics on the carbon side up so that we can have a better understanding of where we’re going, where we are and where we’re going and what we need to do to get there. So I think the carbon stuff in three years, you’re probably going to see far more consistency and compatibility because people are going to start adopting very similar ways of doing this. And then you have an issue of trying to figure out if people are greenwashing or not. Couple of weeks ago, CDP put up this report about the financial sector and they kind of said look the big banks are kind of doing a great job on their own footprint, but they’re not talking about their finance emissions. I just saw yesterday, JP Morgan has a tool that they’ve just announced that’s hopefully going to get there, but that’s important. You can’t just- Jon Powers: But they’re all figuring out their own tools because there’s not a common taxonomy for them to use, right? Stacy Swann: Well, on the transition side, I think that the harmonization around the tools will be quicker because the metrics are simpler and easy to adopt. On the physical risk side, there’s a real practical issue of use case. How your infrastructure bank or your corporate invests is very different from your pension fund. And so you need to understand how to quantify the physical risks over time. And over time, meaning not just 2050, and maybe not even just 2030, but institutions monitor risk every day. So you need to have something that’s going to give you your risk today, tomorrow, this month, this quarter, next year, on the physical side. And you need to monitor that. It might be very small now, but you need to know what the rate of changes, how that slope looks, how it changes, what the variability is. Just put it in very practical terms, if you think about a real estate portfolio in the southern part of the United States, you want to know kind of how much flood risk you’re going to have from different types of climate related events over different periods of time. And then you’d want to know what the damages are and the asset value impairment is. And then you need to use that information to make better investment decisions and have a better strategy around… Jon Powers: But if you’re a private equity firm with a four-year, five-year horizon, that’s a way different view than if you’re a pension fund who wants wants this investment to last 25 years. Stacy Swann: 100%. And so the issue really is and over the last couple of years, you’ve started to hear people say, well, if my horizon’s short, I don’t need to look at this because I’m going to be out of this asset kind of sooner than the impacts come about. Fair enough. But who’s going to buy that asset? I guarantee you they’re starting to ask those questions. There’s a lot going on in the space that’s I think going to be cascading very quickly when it comes to cost of capital. Jon Powers: If you were an entrepreneur looking to maybe help develop a tool that could address these questions, what would you be watching, coming out of Washington? Would you be paying attention to what’s happening at SEC on this, out of treasury, what should folks be sort of paying attention to here over the next sort of 18 months, if they’re going to help… There’s a lot of entrepreneurs and folks in the technology space of listening to this who may have ideas of software that’s working in other verticals they could bring into the climate space. Stacy Swann: Yeah, so we definitely need to be watching the kind of regulatory space. That’s 100%, but taking a bit of a step back, we’re already starting to see climate risk from the physical side show up in certain types of credit ratings. So there’s been some work that’s been done in the last couple of years out of the IMF and a couple of universities in the UK. And we’ve done some analysis around it that’s starting to show that for certain emerging markets, sovereign bond spreads are being impacted by their heightened vulnerability to climate related risks. There’s also very recent research out of IMF that’s brilliant and I hope they do more of it that says that for those countries that have integrated resilience or have resilience plans into their national strategies that hit on the cost of capital at the sovereign bond level will be decreased. So if you’re highly vulnerable to climate change, your hit to sovereign borrowing is 100 to 117 basis points. And that, again, as a footnote, that’s all the rear view mirror. That’s analysis that is been done on sovereign bond spreads up to 2018, 2019. So, it’s there. The ability to start seeing the signals of climate risk on cost of capital are there. It’s also partly because all the rating agencies have incorporated this kind of capacity. Moody’s, S&P, and Fitch are all able to start assessing climate-related risks on the physical side and on the transition side. And for me, if you’re starting to see it in sovereign bonds and the rating agencies have the capacity to do it, this is going to cascade through asset classes, regardless of the regulation. When it happens, how it happens, I think you’ll just start to see this come up over and over and over again. Jon Powers: …crystal ball when you do really start to view this starting to cascade. Stacy Swann: Well, this is where the regulation may kind of catalyze some things. So I think these things are kind of signals on the horizon. If you know that the infrastructure in the financial sector that’s supposed to signal risk has the capability to do this already and is starting to do it, you better pay attention, even if the regulation isn’t there. And then if you know that the regulation is coming, the regulation is really good for giving guardrails and for a direction of travel. And also for maybe eliminating some of the noise in the system. And there has been some noise in the system around investors and banks investing in, or having exclusion lists and things like that. At the end of last year, there were some things that were coming out of OCC that people were a little bit nervous about for fossil fuels, but if you have a direction of travel and you have some regulation on the horizon, plus you have the capability in the financial system, I think you’d be wise to really start paying attention to this, getting your hands around it, thinking about climate risk as a financial risk and a material one. It’s also a differentiator from a peer group perspective, if you’re in certain types of industries and you’re doing it and your peer isn’t, it’s going to start to show up in how you’re viewed by the market, potentially also how you’re rated by the market. We know, because we’ve heard this from some of our clients that the rating agencies are starting to ask the questions in their reviews. So this is coming, even if regulation is rolled out in a slower way because they want to kind of make sure the market is kind of able to address things and it’s not a shock to the system. It’s coming anyway. Jon Powers: Yeah. I know. I agree with you 100%. So, well, first of all, this is fascinating. I could spend all day talking to you about this. You’re 100% right that this is where the market’s coming. And whether it be regulation driving this out of Washington or demand from investors, whether it be pension funds or in individuals in the stock market, this is clearly being pushed. We’re seeing tremendous investments today in climate tech, in a space that really barely existed even two years ago from the VC space and there’s funds and SPACS and everything else sort of popping up in this new world. And you guys are really at the forefront of thinking about this. So if you could go back to yourself when you were coming out of school in Washington, DC, and sit down and just give yourself one piece of advice from a career perspective, what would you tell yourself? Stacy Swann: Gosh, what a good question. Every day is a new day. I really do think when I look back at what I was dealing with in the early days of IFC and setting up the blended finance unit, I recall I had these moments where I was like, oh, can’t people just understand the climate is an existential threat? But the numbers weren’t working out, and it was always a kind of convincing kind of exercise of people who were just looking at numbers. I think that time has been on our side in terms of proving this case, sadly, actually. Sadly all of us who have children it is quite an existential issue. But I don’t think I would have stopped working anyway. I kind of wouldn’t have let any of that get me down anyway, but I remember there were moments where I was like, oh, this is so hard to convince these people that this is the right thing to do, but then you wake up the next day and you keep kind of chugging away. And I think that’s something that you just have to keep reminding yourself. So much work to do. So much work to do. And we need so many people working on this issue across all levels of industry and finance and government. We need armies of people. Jon Powers: I think it’s a transformational time on these issues right now. And your leadership and experience are going to be really helpful drive this forward. And I’m super excited about all the new folks coming into this industry that are really making careers out of it that didn’t exist even five years ago. So, first of all, if you’re interested in learning more, you can go to climatefinanceadvisors.com and always find out about the work that Stacy and her team are doing. I love some of the writing you’re doing, please keep it up and we’ll make sure we share it as much as possible. And I want to thank the team, Anna and the team at Story and Reach Communications for helping to set this up. And thanks our producers Kaleen Young and Carly Baton for helping to put the show together every episode. And Stacy, thank you so much for joining us. Stacy Swann: Thanks, Jon. It’s been my pleasure. Jon Powers: Yeah, absolutely. We’ll come back and talk more about things as things begin to roll out of DC here and the regulations, start to pop up, which I’m excited about. You can always get more episodes at cleancapital.com. Thanks so much for listening.