INSIGHTS

 

 

What’s at stake for climate and nature in the current political environment? Listen to Jason Mitchell discuss with Paul Bodnar, Bezos Earth Fund, about the vital role of philanthropic capital; the mission of the Bezos Earth Fund; and how its thinks about funding efforts across mitigation and adaptation as well as the Global North and Global South.

Recording date: 10 October 2024

Paul Bodnar

Paul Bodnar is the Director of Sustainable Finance, Industry, and Diplomacy at the Bezos Earth Fund. He most recently served as Global Head of Sustainable Investing at BlackRock, where he helped build the firm’s $500 billion sustainable funds business. Prior to Blackrock, Paul was Chief Strategy Officer and Executive Council member at RMI (formerly Rocky Mountain Institute), where he founded the Center for Climate-Aligned Finance. Paul served in the Obama White House as Special Assistant to the President and Senior Director for Energy and Climate Change at the National Security Council. Prior to that, Paul served at the State Department as US lead negotiator for climate finance.

 

Episode Transcript

Note: This transcription was generated using a combination of speech recognition software and human transcribers and may contain errors. As a part of this process, this transcript has also been edited for clarity.

 

Jason Mitchell:

Hi everyone, welcome back to the podcast and I hope everyone is staying well. So when I first started planning this episode, I imagined something a little different. I originally saw this as kind of an exploration into the role of foundations and philanthropy, which was driven on account of me being on the investment committee of a UK based foundation. So I’ve seen firsthand how grant making can have a powerful impact, particularly in the social investment space.

But the reality is that this episode, specifically Paul Bodnar’s experience and perspective across public policy, sustainable finance, think tanks, and philanthropic work, was always going to make this a much more ambitious, far-ranging critique about the levers behind climate and nature of finance. So I see this episode in a couple of different parts. First, it’s about catalytic capital. Capital that isn’t really about scoring points in a game, but about changing the nature of the game itself. Second, it’s an exploration into the ambitions and, frankly, limitations of sustainable finance. Third, it’s the recognition that we need to focus much more on climate adaptation, not just mitigation. And last, it’s a sobering look at the state of the U.S. landscape in light of the recent election. Although it’s worth noting that this conversation was recorded before last week’s U.S. presidential results. Which is why it’s great to have Paul Bodnar from the Bezos Earth Fund on the podcast. We talk about the vital role that philanthropic capital plays, the mission of the Bezos Earth Fund, how it thinks about funding efforts across mitigation and adaptation in the global north and global south, and of course, what’s at stake in the current political environment. Paul is the director of sustainable finance, industry, and diplomacy at the Bezos Earth Fund. He most recently served as global head of sustainable investing at BlackRock and also served as head of sustainability policy and engagement. Before BlackRock, Paul was chief strategy officer and executive council member at RMI, where he founded the Center for Climate Aligned Finance. Paul served in the Obama White House as special assistant to the president and senior director for energy and climate change at the National Security Council. He also served at the State Department as US lead negotiator for climate finance.

Welcome to the podcast, Paul Bodnar. It’s great to have you here, and thank you for taking the time today.

Paul Bodnar:

Thanks so much for having me.

Jason Mitchell:

Great, great. Let’s jump in. So Paul, I’d like to start out with a little bit of scene setting. First, what’s the mission of the Bezos Earth Fund? What’s its global, I guess, theory of change and how do you prioritise your efforts given frankly, so much needs to happen?

Paul Bodnar:

That’s a great question. So when you listen to Jeff Bezos talk about why he created the Earth Fund, he likes to reference something that Jim Lovell said. Jim Lovell was one of the astronauts… Actually, he was the Commander, I think, of the Apollo 13 mission. And he said that he used to think that we go to heaven when we die. But when he first got to space, he realised that we go to heaven when we’re born and looking down at the earth. And so Jeff likes to say, “The earth is paradise and we have to protect it,” I think. So that’s the animating feeling behind the creation of the Bezos Earth Fund, and it’s got a very strong focus on nature, not just climate change. So our mission includes protecting what we have, restoring what we’ve lost, and then also working on food systems transformation because we’ve effectively terraformed the earth to grow cows. And so in order to realise that vision of earth as a natural paradise, we have to tackle the question of food production and protein. So that’s on the nature side.

And then of course, climate change is an issue that affects ecosystems and of course, societies and economies on a global level. So that’s why we’re also tackling decarbonization. And I would say that relative to other philanthropies, we’re a pretty future-oriented organisation. I would say that the next few decades are probably the moment of maximum pressure on natural systems when you think about human population growth and the intensity of economic activity, industrial activity, but there are reasons to be optimistic about the second half of the century. Demographic changes, innovations that we’re making on technology. We are building a highway into space. I think that will become clearer in the next decade or so. And so our job in the next few decades is to get through this period of maximum pressure, to ride these rapids, but there are probably smoother waters on the other side of those rapids.

So when we think about what the Bezos Earth Fund can do, we have that vision of the long-term and how we can ride out the next few decades and make sure that we have sufficient biodiversity, to think about what happens after that, that we’ve not caused irreparable harm to our ecosystems or our climate in the meantime.

Jason Mitchell:

What role does philanthropy play in solving the climate finance gap? And I’m also curious, how has that evolved over particularly the last four to five years? I’m wondering to what degree are philanthropic efforts like the Bezos Earth Fund in a way stepping in for government inaction?

Paul Bodnar:

Philanthropy can be nimble and catalytic, but I think our philosophy is that it can’t substitute for the role of governments, nor for the role of markets. So philanthropy sits between markets and governments. And our job is, if you like, not to score points but to change the game. So there is a bottomless need for capital expenditure, for clean energy and other climate projects around the world. Philanthropy cannot fill that need, even if it’s taking a blended finance approach of providing first loss capital. There’s a bottomless need for capital to restore landscapes or to conserve landscapes. So the job of philanthropy, as large as it’s gotten, is still modest in size relative to obviously capital markets and government budgets. It can’t try to play a systemic role at the level of capital expenditure or budgets, but what it can do is to try to serve an independent mission-driven role in bringing stakeholders together and piloting new business models and getting technologies to market faster. Right?

Because I think when you look at different segments of the global economy on decarbonization, we’re moving in the right direction. In some areas, we’re pretty far along when you think about power generation or the automotive sector. In other areas, we’re not very far along yet in heavy industry or heavy transport, but we are moving in the right direction. And the question is how fast change will occur? If we leave it to governments or to markets, the direction of travel is right, and eventually the economy will move much closer towards net-zero, but it may not do so on a timeframe that matters. So the role of philanthropy is to find those acupressure points where a catalytic intervention, whether it’s convening power or grants, can help governments and the private sector find those solutions faster. But I think our emphasis is in part, on the power of market forces. For the first 25 years or so of the climate story, climate change was understood as a problem for governments to solve. Right?

After all, the bigger the problem, the more we look to governments to solve it, and governments in turn looked to each other and focused on negotiating what became the Paris Agreement. But actually, policy and policy diffusion across borders is not the most rapid or powerful force for change in the economy. You’ve got to be able to harness market forces that really do have a track record of driving deep, broad and rapid change across borders. And of course, market forces won’t necessarily do the, “Right thing,” by themselves, which is another reason why smart policy that’s really designed to shape markets in service of climate and nature objectives is so important. And again, here, philanthropy can play a catalytic role.

Jason Mitchell:

Maybe stepping back for a second, there’s this really active debate that I’m sure you must be aware of about the exact role and efficacy of the finance industry to address climate change, I guess relative to government legislative and regulatory action. In fact, in a podcast episode with Dr. Sarah Kapnick, who’s the Chief Scientist at the National Oceanic and Atmospheric Administration, she gave the finance industry a C or below in terms of its ability to understand and price climate risk. She’s a bit of a unicorn in the sense of her blend of experience in finance and obviously climate science, but given you have a particularly powerful perspective through the lens of policy, finance think tanks, and now philanthropic work, how do you make sense of the system roles and levers for change around this?

Paul Bodnar:

This is a really central question, and as you say, it’s been a topic of big debate in the last few years. I think if you take the perspective of activists, climate activists, they, as I said, were focused on policy for a long time, but they felt like they pulled that lever to the stop and it wasn’t moving fast enough. And the other lever that they felt was big enough and systemic enough was finance. And so the expectations on the financial sector began to increase dramatically in the years after the Paris Agreement and resulted in the creation of these net-zero alliances for banking and asset managers and asset owners and insurance, which in turn were brought together under the banner of the Glasgow Financial Alliance for Net Zero or GFANZ.

But I think, and I was part of this, I saw this happen in real time when I was at BlackRock, I think the financial sector as it learned more about these challenges and tried to do a lot of good faith stuff related to alignment and coming up with sectoral alignment policies that the banks did, banks also collaborated in particular sectors like shipping with the Poseidon Principles that would govern their asset finance of ships and how carbon intensive those ships were to reduce that over time. So there was a lot of innovation in the financial sector, but I think financial institutions, and fiduciaries in particular, realised that the financial sector cannot get out too far ahead of the real economy.

So if you think about the pace at which the financial sector is trying to decarbonize portfolios versus the real economy decarbonizing, there’s a natural relationship between the pace of those. And if the financial sector is trying to front run the real economy, a couple of things happen. One is that the actual leverage of the financial sector goes down, and I think some asset owners realise this. Some of the most progressive asset owners like pension funds who had made the most rapid progress in scrubbing emissions out of their portfolios, their financed emissions, found that they had on paper low carbon portfolios, but they had lost leverage over the companies in the real economy that needed to decarbonize because they were no longer shareholders of those companies or they were no longer lenders to those companies. And so you started to see this phenomenon of asset owners creating transition finance windows in some cases that were designed to be exempt from their own carbon accounting policies because they saw the need to reengage with high emission sectors and try to be more active stewards of the transition story in those sectors.

The other thing that happens if you try to have the financial sector move faster, much faster than the real economy is of course, you start to see a misalignment between climate performance and financial performance. So if you’re a fiduciary and you’re a shareholder of an oil and gas company and you represent as a shareholder, millions of end clients who own a little slice of an ETF that has a shareholding in that oil company, your job is to represent those shareholders, those end shareholders, and help that company maximise shareholder value. So I think over time, fiduciaries realised that the question they should be asking in an Annual General Meeting of the management of a company is, “Do you have a strategy that is designed to help the company thrive and generate shareholder value in the most likely future, in the most likely strategic environment in which you’re likely to find yourself?” And not to be the climate police substituting for government to try to enforce the achievement of a 1.5 degree outcome if that outcome diverges significantly from what’s likely to happen. Right?

So unfortunately, because we haven’t moved fast enough towards net-zero, the future that we want, the world as it should be, is still in the process of diverging from the world as it’s likely to be. If you just look at future projected curves for missions, business as usual is still bumping along or declining gently. And every year that we go forward, if we really want it to be on track to 1.5 degrees, emissions would have to drop more and more precipitously. And so there’s this huge divergence between what financial institutions or real economy firms ought to be doing if they were on track to 1.5 and what’s actually likely to happen. And as long as those two futures, the probabilistic and the normative are diverging, that is a very uncomfortable situation for fiduciaries to find themselves in.

So all of this to say, I think a lot of financial firms stepped in with great enthusiasm and good faith into the climate project, and then realised that they had to continue to be tethered to the real economy, and the pace of the real economy is really what matters. And so you can’t necessarily expect the financial sector to run way ahead of the real economy, if that makes sense.

Jason Mitchell:

Can you say more about the role of innovation in sustainable finance? I basically hear two arguments here. One centres around anxiety about the, I guess potential financialization of the space, first climate, but increasingly nature, from an initial push to grow voluntary carbon markets, which has now expanded into nature credits and even debt for nature swaps. And so I guess the counter argument, the other side recognises the fact that there’s a huge gap between science and finance, and this is where Dr. Kapnick from NOAA grades a C or below in terms of financial markets not yet linking integrated assessment models with asset allocation models, for instance.

Paul Bodnar:

So I think the answer is a little different for climate and nature, and let’s acknowledge that we’re a lot further along in our development of tools to manage climate change than we are in managing nature loss and risk and the integrity of ecosystems. On the climate side, at least we’ve recognised over the last 20 years that you have to put a price on carbon if you want to manage this problem. Whether you do so explicitly through a carbon tax or another market mechanism like an emissions trading system or through a social cost of carbon, we understand that carbon emissions cannot be priced at zero in economic and financial decision-making and still try to drive those emissions down. So we have to internalise that externality. And the problem is that we’ve been very spotty in doing that, and it’s very difficult to figure out how to privatise or socialise the cost of those emissions.

There’s a relatively new proposal out there called the Carbon Takeback Obligation, for example, which is it’s so simple that you have trouble believing that it’s new, which is basically the idea that for producers of oil and gas or fossil fuels, they should simply be required to take care of the removal of the emissions associated with the production of their fuels, treating oil and gas a little bit like we do with plastics or refrigerators. In a lot of jurisdictions, if you make appliances, you, the company that makes the appliance have some obligation to deal with the end of life of that appliance. So thinking of it as a waste management problem. And so it’s very simple to say, if you manufacture a product or create a commodity that causes a harm, then your job is to mitigate that harm and that perspective, which takes the government out of the equation, right? The difference between this and a carbon tax is that in the case of a carbon tax, you acknowledge that you’re socialising the cost of emissions and in the Carbon Takeback Obligation, you’re keeping it private, if you like, to the emitter.

But it’s too late because we’ve already accepted the premise that we’ve socialised the cost of emissions, and now we’re grappling whether it’s with cap and trade systems or the social cost of carbon with how you collectivise and who pays for and whose job is it to do what related to emissions? And that’s why you end up with this disconnect that Sarah is talking about. In the case of nature, we’re a lot less far along. We value nature. We value nature at zero. Natural capital is not today an accepted valued input into economic and financial decision-making. There are now a lot of folks working on nature-based solutions, so-called nature-based solutions, but usually, nature-based solutions means nature-based solutions to climate change. And those folks are interested in carbon. Literally, if you think of a forest, they’re literally interested in the trees and not the forest because they’re interested in how much carbon is stored in a tree or the soil, and they’re viewing landscapes as carbon sequestration opportunities, which is nothing wrong with that, that’s fantastic.

But more broadly, when we think about biodiversity or water or other ecosystem services that we rely on, because after all, the economy is a wholly owned subsidiary of nature, we value nature at zero. So what is it going to take to change that? What is it going to take to actually properly value ecosystem services and connect the beneficiaries of those services to pay the costs of preserving those services? I’ll give you one example. “Bees should send invoices,” as a former colleague of mine pointed out, but they don’t. And the food system, half a trillion dollars worth of food production depends on the pollination services of bees. And so if insects die out, we’re going to be in a whole lot of trouble. But how do you value those pollination services in such a way that actually leads to action? That is a completely new terrain in the nature space, and we don’t have some of the very basic management tools that we have for climate.

In the case of climate, we have CO₂ equivalent as a reserve currency. We know where the emissions come from. We’re able to monitor them. If you go to Climate TRACE, for example, publicly available, very granular, close to real-time data on emissions that’s available on the internet now. We don’t have that for nature. We don’t have the ability to look at every pixel of the planet and effectively open a natural capital account for that pixel and say, “Here’s the slice of 20 ecosystem services that we’re able to measure and track and plug into jurisdictional or corporate accounting, or indeed to value.”

Now, you raised the question of financialization, and there is a risk here for sure, which I worry a lot about, which is that you’re going to end up commodifying nature and doing biodiversity trading, and that would be a disaster because you can’t trade an orangutan for a lemur. Right? You don’t want to be in a situation where you’re asking, “What’s the exchange rate between orangutans and jaguars?” Because every species, of course, has its own inherent value, and there’s no way to equalise across jurisdictions or across places the way that we do for climate where a tonne is a tonne is a tonne no matter where it’s.

Now, there are some biodiversity markets in effect that do exist, including in the United States, the mitigation banking market for wetlands and streams is I think about an $8 billion market. And the way that that works is that if you’re a real estate developer and you want to develop something which will impact a wetland or stream and you can’t avoid it, under certain circumstances, you can get a permit to do it if you restore or create an equivalent ecosystem within the same watershed at some multiplier of size, and that creates a market for these mitigation credits. But in this case, mitigation refers to the creation of habitats, wetland stream habitats.

So it’s not like we haven’t done this, and I think that’s been a relatively uncontroversial part of the Clean Water Act for a long time in the United States, and is far larger, let’s just point out, than the voluntary carbon market. But it is an area we have to be very, very careful about because there’s no fungibility across space with biodiversity the way there is for carbon.

Jason Mitchell:

I want to revisit one point you make, which is around the notion of the Carbon Takeback Obligation. I’m thinking specifically extended producer responsibility because you hear this policy idea bounce around, particularly in academic circles. Myles Allen at Oxford has done a lot of work here promoting the idea that oil and gas firms under EPR can basically extract as much as they want, so long as they’re responsible for sequestering the associated missions. Just as, for example, the electronics industry is responsible for dealing with e-waste, but I guess what I’m interested in here is whether you think it’s just too late for this kind of policy and all the complexities and politics around implementing it?

Paul Bodnar:

Yeah. So Myles has been a proponent of this Carbon Takeback Obligation, and it is a good question. Is it too late to put the genie back in the bottle and do what we should have done initially, which is to keep from socialising the cost of carbon emissions across all of society, and instead to just make it the responsibility of producers to deal with? I think that’s a great question. If you look at the Carbon Takeback Obligation proposal, which is that producers of fossil fuels should have an initially small but growing obligation to cause the permanent removal of emissions associated with the combustion of their products rising to 100% by say 2050. Over time, obviously that creates a form of internal taxation on the fossil fuel, but that’s what you want if you’re internalising the cost, and you’re also internalising it within the economic entity that’s producing it, which is far simpler and far more efficient, but I do worry that it’s too late to have this conversation.

Now, maybe once we’ve tried every other method of properly regulating Scope 3 greenhouse gas emissions from fossil fuel production, we’ll loop back to that one, but I think it should be talked about at least more than it is today.

Jason Mitchell:

I wanted to come back to the foundation space and ask you, when you look at the sustainable finance ecosystem, I imagine, at least from my view, it can probably feel a little crowded sometimes, not to mention the fact that many NGOs’ initiatives and non-profits are often driven by sometimes very strong egos staking out or claims and territory. How do you see foundations like the Bezos Earth Fund working to, in a way coordinate and cohere this sort of ecosystem, this space, to produce greater impact? Can you say something about if there’s work you’ve done with other foundations focusing on climate action, I’m thinking about the Children’s Investment Fund Foundation, Quadrature Climate Foundation, maybe even replanters like Sunrise, et cetera?

Paul Bodnar:

Well, the Bezos Earth Fund is a very young foundation. So we are lucky to stand on the shoulders of others that you’ve mentioned, and including Bloomberg, which you didn’t mention Bloomberg Philanthropies, but thank goodness there’s a growing interest in climate philanthropy. In fact, there’s an organisation called Climate Lead that was established to help new entrants into climate philanthropy, maybe families that have made some money and want to do some good with it in this space, but don’t have a staff, don’t understand the strategies. Right? So there’s a whole ecosystem that’s emerged to help increase the size of climate philanthropy, and thank goodness that’s the case.

Now, of course, that means that you end up with more and more and more actors, as you say, and there are effective mechanisms in the philanthropic space for the coordination of different philanthropies. Climate Works Foundation is a great example. They do a great job of bringing different philanthropies that have different interests, whether it’s climate finance or adaptation or environmental justice or industrial decarbonization, together in different groups to help coordinate. Sometimes philanthropies create pooled funds to work together. So you have to balance the interests of the philanthropists themselves, which vary across different domains with what needs to get done in the world, but thank goodness there’s more and more coordination.

I’ll give you one very effective example. We are proud to be an anchor partner of an initiative called Allied Climate Partners, which was set up by Mark Gallogly and Lee Strickler and their family office, the Three Cairns Group, to really try to do a much more effective job in jump-starting private investment in clean energy and climate in developing countries. And they have created in their first round of work a series of four regional project development funds in Africa, Southeast Asia, India and the Caribbean, some of these are still in the process of being stood up, to show that if you’re an entrepreneur in one of these regions, you should have access to project development equity and be treated like a normal commercial entity, just as you would if you were in an OECD market. And it’s a very, very clever structure and one that has attracted a number of philanthropic funders to it, including the Sea Change Foundation, the Balmer Group, Bezos Earth Fund, and a number of others.

And I think when you find somebody and a management team that has a lot of energy and a great strategy, you want to back them together to scale, instead of every philanthropy doing its own thing. And I think Allied Climate Partners is a great example.

Jason Mitchell:

That’s interesting. So $10 billion of grant funding disbursed by 2030 is a pretty ambitious target for the Bezos Earth Fund. Can you talk about that? What do you expect the shape of this commitment to look like, if you can? With I think roughly around $2 billion of disbursements to date, does that make the funding designed to be backend loaded? Does it skew towards technological innovation versus scientific research? What about activism and how do you think about dispersing it across all these silos and opportunities?

Paul Bodnar:

You’re right that $10 billion is a large and very generous commitment from Jeff Bezos and Lauren Sanchez to this space, and it’s a huge task to allocate it to the right things. The need is vast, as we’ve discussed. And I’ve only been in climate philanthropy for less than two years, and when I joined, someone told me wisely that the chief skill in philanthropy is discernment. You have to discern which interventions are most likely to have that catalytic impact and to change the game, as we were talking about earlier. And our landscape or tableau is very broad, right? We are the largest philanthropic funder of nature activities. We’re also very active in climate. It’s a big world out there. You can choose to focus on the United States or emerging markets or technologies or environmental justice. We’ve done some of all of those things.

And I think what we try to do is to ask very sharp questions about whether an intervention is something that is helping markets do their thing and helping governments do their thing and not substituting for either, but catalysing more work or filling a gap that would just not happen to be filled otherwise? In the nature space, we’ve made a billion-dollar commitment to conservation. In other words, protecting what we have, a billion-dollar commitment to landscape restoration and a billion-dollar commitment to food systems. Those are the most clearly defined that we’ve done. We’ve also done a $100 million grand challenge for AI, for particular applications of AI that we think will advance climate and nature action, and we’re very focused on carbon removals and a number of another areas.

But as I said earlier, I think we are less focused on the tactical trench warfare of the next thing that needs to be done on political front X and more focused on the long-term. And we do tend to have a technology… It’s not technology-centric, but certainly a technology-aware approach. So I’ll give you one example from the protein space and the cow space. We’ve terraformed the planet to grow cows, as I’ve said. Some astonishing figure like a third of all the terrestrial landmass of the world is now spent either growing or feeding cows, and in particular, areas like the Amazon that obviously bumps up against really, really critical habitat and land use pressures.

So one of the things that we’ve done in this space is to fund research into a type of collar that buzzes, that you can put on the lead steer of a herd of cattle and almost remote control the movement of that herd to graze in a smaller area to reduce pressure on deforestation because in a lot of cases, the number of cows per acre or cows per hectare is larger is smaller than it needs to be, sorry, meaning that there’s more land, there’s more grazing land than there needs to be to actually feed the cows to produce the beef. That’s the point of that particular economic activity. So if you can direct the cattle to graze in the smallest possible area without compromising what you’re trying to do with them, that helps. Obviously, that’s just a piece of a much bigger puzzle related to sustainable protein, but it illustrates our interest in technology-led solutions in a lot of cases.

Jason Mitchell:

Really interesting. I’d be curious to hear two responses to this. One, your own view, given your experience, but also, I guess the view of foundations in terms of what they’re doing and what we can or what they can do to counter the anti-ESG political backlash, particularly out of the US and prevent it from spreading. And I guess I’m speaking with my hat as Chair of the UK Sustainable Investment and Finance Association where we’ve been around for about 32, 33 years, where we took our first grant about two years ago in an effort to build out a public affairs apparatus to embed climate policy across all the political Party manifestos in the UK into the last elections. And I think that was somewhat successful, but what more can be done in this area, again, particularly in the US, to reach some kind of common ground?

Paul Bodnar:

You’re absolutely right. Climate action cannot be regarded as a left-wing issue, and it is, to a large extent in the US. It’s been successfully painted as such. It’s been bundled together with a range of other issues under the banner of social activism or liberal causes, and it’s a little bit puzzling if you think about it. It didn’t have to happen that way. If you think about the fact that George H.W Bush, President Bush went to Rio to sign the Framework Convention on Climate Change and the other conventions that were agreed in Rio in 1992 himself, and I think Mitch McConnell spoke in favour of its ratification on the Senate floor. Conservation should be a bipartisan issue in the United States, and it’s a little bit of a… I wouldn’t say historical accident, but you could regard it as somewhat idiosyncratic that it ended up as a left-wing issue.

Now, given that we are where we are on that, my view is that the way to correct for that is to support conservatives. And there are a growing number of conservative organisations, whether they’re political or grassroots, that are trying to define their own authentically centre-right approach to climate policy. And whether that’s the philosophical underpinnings in their own language and with their own worldview or the policies that they think need to happen in order to advance those priorities. What you want by 2030 is a competition for ideas, where both sides of the political spectrum in the US have their own view about how to advance a goal like protection of the environment or climate, just as they have their own ideas about other policy issues. And they’ll continue to disagree with each other about the method, but we’ve got to bridge this period and get back to a point where we agree on the fact that these are serious problems and the hurricanes that we’re seeing in Florida as we speak wreaking devastation, have to be addressed and that humans are accounting for a lot of the cause of the intensity of those.

So I think it’s very important to support, whether it’s in the UK or in the US or in other jurisdictions to, where there isn’t perhaps total political consensus on the underlying science and the need to address the problem, authentically centre right solutions, because I think it’s not going to work to have the left try to bludgeon the right harder with its own reasonings and arguments. That’s not necessarily the route to success here, and foundations can definitely play a role in supporting those organisations. A very small percentage, a very tiny percentage of all climate philanthropy goes to support centre right organisations.

I’ll give you one example of a great organisation, the American Conservation Coalition, ACC, which was founded by a college student on college campuses, trying to create a grassroots conservative youth movement for climate action, but within, again, framed and with a logic and a set of solutions that comes from the centre right. That’s the kind of movement that I think we should be supporting.

Jason Mitchell:

Interesting, really interesting. How also, within two perspectives, the Bezos Earth Fund as well as your own perspective, but how do you think about policy intervention, particularly given that the title of your role directly addresses diplomacy? I guess there’s a view that the stakes are now so high that the progress behind corporate decarbonization simply isn’t happening fast enough, that there needs to be much greater emphasis on policy intervention with governments. We’ve seen investors sign letters to governments, a global investor statement in front of every COP is one example, but the effects are questionable. So what are other solutions?

Paul Bodnar:

Well, I agree with you there. Those signals from the private sector or from the financial sector directly to policymakers in public are important, but as a former policymaker, I could confirm that having a generic letter assigned by 100 companies urging policymakers to pay attention to issue X doesn’t necessarily have a big impact. It’s not like you’re going to rush into the Oval Office with that full-page ad in the New York Times and say, “We’ve got to do something.” Again, it’s very important as a signal, but it has to be much more targeted and pointed.

The way I think of this, Jason, is that we’ve got to think and act like the global economy that we’re trying to decarbonize, and that is wired across borders. It’s not just about nationally determined contributions under the Paris Agreement. A stack of national targets under the Paris Agreement is not going to add up to a plan to decarbonize the steel industry or to create a global hydrogen economy, or to decarbonize the automotive industry. So you’ve got to think across borders and think about global supply chains, global markets, shared technology pathways and so on, and policy is one piece of that puzzle. But what we need to do is to create and set in motion flywheels within different sectors that enable the emitters, the corporates in those sectors to make it easier for them to see how they’re going to get from point A to point B, which is really hard.

If you’re operating a fleet of cement plants and you’re being told that you have to reduce your emissions by 50% or that one ought to reduce sector emissions by 50% within a decade, that is to begin with already a doubling of the rate of normal capital stock turnover in the cement industry. And when you replace an old cement plant with a new one, you’re not generally doing it with a brand new technology given that the cement industry has been using the same technology to make cement for 100 years. So these are really daunting challenges for the companies involved, and they need to be on board because otherwise they’re going to resist. And we spend a lot of time dreaming about the green economy and measuring how we’re doing in green investment and new gigawatts installed in solar wind. We don’t spend enough time thinking about the high carbon economy of today and how it’s going to be phased down in a way that feels fair and doable to the investors, the workers, the communities that depend on the continued operation of those assets.

And so that’s why you have to, in my view, think of it as a flywheel where you’re thinking about sectors, steel, cement, chemicals, aviation, trucking, power generation, automotive, and put the emitters in the middle of those flywheels and ask the question, “How can we bring together their suppliers, their customers, their capital providers, their shareholders, and yes, their governments and their policymakers together to each do their part to make those flywheels spin? There’s an initiative called the Mission Possible Partnership, which we’ve been happy to support, which has tried to do that and been very effective in starting to create these sector-by-sector platforms where they bring together the leading corporates in each one and with their customers and suppliers and policymakers and try to create a pathway, a technology-based roadmap towards net-zero that people can agree on might be feasible even if it’s very hard.

But then if you know how you’re going to get from point A to point B in something like the aviation sector, then you can start to allocate responsibility across these stakeholder groups because each one of these stakeholder groups wants to know, not just whether it can do its part, whether you’re a bank or whether you’re a technology supplier or a sustainable aviation fuel supplier, whatever, but you want to know that the other stakeholders are going to do their part. Right?

And so that’s the kind of conversation that I think effective climate action needs, that it sees policy as a piece of the puzzle, but not as the be-all and end-all where I think a lot of people in the COP process, for example, view policy as the only thing that matters and everything that’s outside policy is a voluntary private sector initiative. That’s reflected in the way that even if you go to one of these UN meetings, you have a badge that either says, “Party,” or, “Observer,” and the world is not made up of observers. The observers are the ones that actually own the assets and need to do the hard work. So we need a little bit of a mental model shift, I think, in the way we think about the role of policy in this economic transformation.

Jason Mitchell:

That’s helpful. That’s interesting. Can we talk about mitigation versus adaptation and how you think about the balance of that, and indeed how the fund thinks about its efforts between these two? In your keynote at the New York Climate Week a couple of weeks ago, you noted that climate resilience and adaptation are effectively a blind spot for institutional investors, and I guess I would imagine you mean beyond insurance, but in my mind, adaptation has generally been seen as the realm of government policy and investment, big flood and coastal schemes, projects like the LMCR, the Lower Manhattan Coastal Resiliency. But if the IRA and the DOE’s Loan Programmes Office, I’m choosing them because Jigar Shah was on, was a previous podcast guest. If both of those can accelerate investment in mitigation technologies, what do you see filling the space for adaptation solutions?

Paul Bodnar:

Absolutely. So at the Bezos Earth Fund, we’ve really focused on mitigation, but we’ve done a couple of things that cross over into resilience because we see that decarbonization and adaptation are the two fundamental economic adjustments of the 21st century. And they’re distinct, but they’re entwined and you can’t really solve one without addressing the other. And as you say, adaptation has had a very different framing and understanding from the financial sector compared to decarbonization. I think it’s fair to say that banks and asset managers, investors have learned to become excited about decarbonization because they see the scale of investment that’s necessary. They’re gaining confidence that it’s actually going to happen, that the policies are going to be there, that the technologies are going to develop to cost parity fast enough or have already reached cost parity.

So why do we think of adaptation as some thing being negotiated in the UN on the one hand, or as you suggest, a line item on a government budget on the other hand? When in fact, one could make the argument that from an investment opportunity point of view, if you think that the companies that are in the business of decarbonization are worth investing in and you’re excited about decarbonization, you’re going to love climate resilience solutions. And I’m not talking about necessarily the seawall project as you noted, or the fact that governments are going to have to spend correctly eye-watering amounts of money to make their communities resilient or nations resilient to the impacts of climate change.

And it’s not just governments, by the way, who are going to do that. It’s businesses and households. Right? Businesses are going to have to spend money and are spending money to invest in the technologies and the services and the products to make themselves resilient too. Hurricanes in Florida and droughts and floods and so on, and households too. Just the simple act of buying an air conditioner when you didn’t used to need one, that’s money out of your pocket if your household, and you may or may not have that money. And so using the disposable income or discretionary income of a household to buy an air conditioner is an act of climate adaptation.

However, who is making those air conditioners? Who is providing those products and services and technologies that are in demand in a warming world? Is the question that investors ought to be asking, and they’ve only just started. It’s remarkable. So as you said, we’ve done some work with the Global Adaptation and Resilience Investment working group, GARI, and MSCI’s Sustainability Institute, to map out what we call the unavoidable opportunity. And it’s unavoidable because unfortunately, we have cooked the planet to an extent already where we’re going to be dealing with major climate impacts, frankly for the next decade or two that will happen regardless of how fast we decarbonize because of the time lag between how fast you put emissions into the atmosphere and how long it takes for the system to process those and sea level rise and climatic changes. So we are going to be dealing with a certain amount of climate impacts, which will drive a certain amount of demand for climate resilience solutions that arguably the certainty of which is higher than what we can guess about interest rates or other macro factors that drive investment decisions.

So I think it’s a very simple thing we’ve tried to shine a spotlight on is if you’re an investor, you might want to give your clients exposure or give yourself exposure to the climate resilience solutions thematic. Right? And think of it as an investment theme. Think of the fact that climate proofing life on earth is a growth industry in the 21st century. And again, at heart, it’s an unfortunate thing and it’s a result of collective failure to address climate change fast enough. But the healthcare industry also exists because we want to take care of sick people, which is an unfortunate phenomenon, but we want capital to flow into the healthcare industry. We want to drive faster innovation in drugs and treatments and care models. And so oo, we want to drive faster innovation in climate resilience solutions.

I’m thinking of simple things, again, air conditioning, water pumps, drought-resistant seeds, engineering services, wildfire analytics, the things that households and businesses and governments need. We want to drive innovation in those areas. We want talent to go into those areas because if we succeed in doing that faster, then the total price tag, all else equal, for climate adaptation will be lower and the speed at which we can deliver low-cost solutions to the poorest and most vulnerable communities will go up.

Jason Mitchell:

What’s your sense, though, at least in a US context, for how this conversation is changing, how the arguments are being reframed, the economics recalibrated or reconsidered? I guess my point is we came into this year, NOAA had certainly recognised that the hurricane season later this year in the Atlantic would be, “Hyperactive.” A few months ago, I recorded the podcast with Dr. Kapnick At NOAA, and over the last… What? Six to eight weeks we’ve seen Hurricane Helene, and most recently, Hurricane Milton. What’s the feedback effects from this? Are there any?

Paul Bodnar:

One would hope so, though the feedback effects seem to be moving through the political system with some slowdown effect. Right? I think you mentioned insurance, and it’s interesting that the insurance industry has started to really wake up, not just actuarially in terms of policies and stuff, because we’ve seen that some remarkable things happen in the insurance industry with insurers refusing… Pulling out of California, for example, because of wildfire risk, or not being willing to insure coastal property in some areas. That will increase over time and you’re seeing the knock on effects already of states like Florida and California having to set up their own effectively state-financed insurance companies to backstop the lack of private insurance in some of these areas, which are probably doomed to fail themselves because they will lose money. And it’s hard to see that those kinds of measures are not just a stepping stone to really hard conversations about where people live and where people should live and may to relocate to.

Someone told me yesterday that there are 50,000 kids in North Carolina in that area that was heavily impacted by Helene, whose schools are closed and they don’t have power and they don’t have water and they may need to move, and her family was moving to Tennessee as a result. So those are the kinds of shocks that really wake people up, and I do think the insurance industry, even though it’s responding in its own interest as a profit-making enterprise, finally, the insurance industry, which I think of as the dog that didn’t bark in the climate story because I wish the insurance industry had been more vocal and active globally and problem-solving, given that it sits on both sides of the ledger, right? It understands the risks better than anyone, but it also is an asset owner, huge asset owner. So it’s hopeful to see some insurance companies like Howden start to take on real leadership in this space. But Jason, one hopes that the politics of climate in the United States are not going to slow down that translation process as much as they have to date.

Jason Mitchell:

Can you for a second maybe overlay this adaptation mitigation discussion across the funding gap discussion between the Global North and Global South, where clearly in the South, there is a much higher need? We’re already seeing it particularly from the LDCs, the least developed countries, a need for imminent resilience funding. How is the fund or how are you thinking about that?

Paul Bodnar:

Well, this is really the subject of bigger forces than us. Right? We’ve had the agreement to create a loss in damage fund at the UN, which frankly, seemed unthinkable when I was on the US negotiating delegation. And it reflects the reality that climate change is hitting the world much faster and more brutally, and with also more inevitably growing intensity in the next decade or two than people expected. And it will require changing the way that governments think about the way they do business, and I’m talking even about the US government. It’s clear that there isn’t enough fiscal space in the rich world to pay for all the public goods that need to be paid for globally just through voluntary appropriated contributions to things like the Green Climate Fund or the Global Environment Facility. Because in addition to creating the Green Climate Fund, to which the US has arrears, we’ve now created the Loss and Damage Fund. In the biodiversity space, there’s a big, big funding need that’s been agreed in the Kunming Montreal Framework, Global Biodiversity Framework.

So the needs are mounting, and I think governments are going to have to toss aside some orthodoxies and be willing to consider forms of revenue raising that they’ve not been too friendly to, like I’m thinking of the US government in particular, forms of international taxation on airline tickets, on perhaps financial transactions. I’m not advocating for any of these in particular, but that whole area which is called innovative finance, which means means of raising revenue other than government budgets, there’s no way to avoid that anymore. And we’re going to have to let go of the opposition that a lot of governments have to those measures in order to pay for it.

Jason Mitchell:

Got it. So last question, and I feel compelled to ask this given the timing of this interview. So in your mind, what’s at stake for climate and nature in the upcoming US elections, as well as something I worry about, the ability for the US to continue to lead on climate policy going forward? In 2016, we obviously saw an isolationist move away from the Paris Accord and rollbacks in climate legislation. How do you think about how the stakes are effectively rebased, particularly through the lens of something like the Project 2025?

Paul Bodnar:

There’s a lot at stake, obviously. In 2016, or in 2017 when President Trump pulled out of the Paris Accord, I was involved in a very broad effort to rally US states and cities and businesses and make sure that the rest of the world understood what a big chunk of the US economy was still committed to the aims of the Paris Agreement. And that in our system of government, it’s not like the president gets to pull a giant on-off switch, where if you pull out of the Paris Accord, all progress ceases in the United States. And I think that there was a remarkable amount of progress that ended up being made in the real economy during the Trump administration that had nothing to do with what the federal government wanted. And even there’s some cautionary tales about the Obama administration, which I was part of. The centrepiece of our domestic policy was the Clean Power Plan aiming to decarbonize the power sector. Now, that had an up and down history. It ended up not being really implemented as a regulation, but we’re on track to achieve its objectives anyway.

So there’s a lot of cause for optimism, and I don’t think we should be too over-indexing on the on-off switch that a presidency controls with regard to its posture towards something like the Paris Agreement compared to the many other forces at work, is I guess what I’m saying, in the US. And one of the forces that’s at work, which I think is very different today than it was eight years ago, is that this is now a story about competitiveness. And it’s just become very clear that if the United States wants to win the future of global economic competitiveness, it will have to play in this space regardless of the politics. So the disconnect of some of the politics in the US from the reality on the ground, obviously aided by the IRA, is a huge shot of investment into American manufacturing and competitiveness in some of these areas. It fundamentally reshapes the conversation about climate.

One interesting reflection of this is the US-China relationship. I had the privilege to be involved in the negotiation of the US-China deal of 2014, which presaged the Paris Agreement and reframed the US and China not as captains of opposing teams on the climate field, but as two superpowers that really wanted to lead the rest of the world in driving change. That was possible at the time because the topic was negotiating a global agreement. And today, the US and China are competing in the markets that resulted from that agreement, and they have less to cooperate on because they’re just competing on renewable energy or EVs or critical minerals or whatever the topic is. And so when you live in the world of implementation rather than the world of negotiation, I think the decisions that are made are rooted in harder economic and financial interests.

And so the world is a little bit less scary to me in that sense than it was in 2017 when people were really frightened about what would happen to the global climate regime if Trump pulled out of the Paris Agreement. I think it’s much more sticky now, and it’s a set of economic changes that are underway, which it’s so clear that the US would be shooting itself in the foot if it decided that it didn’t want to play in those markets.

Jason Mitchell:

Great. That’s a nice note of optimism and a good way to end it. So it’s been fascinating to talk about the mission of the Bezos Earth Fund, it’s funding efforts to address mitigation and adaptation, as well as Global North and South issues, and what’s at stake for climate and nature policy in the upcoming US elections. So I’d really like to thank you for your time and insights today. I’m Jason Mitchell, Head of Responsible Investment Research at Man Group, here today with Paul Bodnar, Director of Sustainable Finance, Industry and Diplomacy at the Bezos Earth Fund. Many thanks for joining us on a sustainable future, and I hope you’ll join us on our next podcast episode. Paul, thank you so much for this. Really, really enlightening.

Paul Bodnar:

Thanks. It’s been a lot of fun, Jason. Thanks for having me on.

Jason Mitchell:

I’m Jason Mitchell. Thanks for joining us. Special thanks to our guests and of course, everyone that helped produce this show. To check out more episodes of this podcast, please visit us at man.com/ri-podcast.