Discover more from MCJ Collective Newsletter
Episode 193: Exploring Corporate ESG with Blackstone's Elizabeth Lewis
Today's guest is Elizabeth Lewis, Managing Director and Deputy Head of ESG at Blackstone. Blackstone is an investment firm that invests for the long term because building successful, resilient businesses can lead to better returns, stronger communities, and economic growth that works for everyone. We dive into a discussion on time-horizon impact climate commitments, Blackstone’s ESG work, and if capitalism will get us to a clean future.
As always, please consider giving us a rating or leaving a review. We heard that helps spread the word about our little show and engages more folks in the climate fight!
Can you tell us a bit about Blackstone, what the company does, and what you do within the organization?
I'm a Managing Director and Deputy Head of ESG for Blackstone. Blackstone is the largest alternative asset manager in the world. We invest across all sectors and all asset classes. So, the climate is really important to us from a number of different perspectives and it's an exciting place to be and to really make a difference on climate change. I think an important part about Blackstone is that we are longer term investors, right? So, we... From many of our investments, we hold them for many years at a time. We have some perpetual capital vehicles. So I think from a climate perspective, this is a great opportunity because it allows us to do a lot more than some other types of investors that just hold public equities and don't have a lot of control or a lot of partnership with their companies.
Since you've been working in and around climate for a long time, maybe talk a bit about what your theory of change was when you first started learning about climate. And then how that theory has evolved over the years and where it sits today.
So when I started out, I managed my consulting and then at Global Environment Fund, the small private equity firm that I was at. There was a lot of focus on trying to develop solutions to the climate crisis. And then around that time, sort of, 2008 time frame, when I started at Global Environment Fund, there was a lot of capital that poured into these solutions, these technology solutions for climate. And I think there was this idea that we just needed more capital and sort of high technology, I guess, approach to coming up with these solutions that then would be adopted by the world and solved. And then we all saw that the business models that we're about to scale software companies and high tech companies didn't really work for the energy transition. And we learned a lot from that experience. And we learned that we needed other types of financing, other types of capital structures, other types of investors.
But I think the other thing that came out of that is that there were some really good solutions that came out and that were scaled like Tesla. You know, the solar industry really started to take off after that. And now certainly when you think about solar and wind, I mean, they're cheaper than coal. And they are better technologies than coal. And so much good, sort of, came out of that, but it wasn't, sort of, the end all be all solution. I think the other thing that we've realized is that it's important to have global markets and coordination among governments, not just, you know, to create cost competitiveness. So, not necessarily a price on carbon, but also just the basic research and the financing mechanisms from the government.
So when you think about Tesla and, you know, Tesla, one of the most valuable companies in the world now, certainly the most valuable auto company, really benefited from the loan guarantee program by the US government and the support there. And I think that's often forgotten, right? When we think about, sort of, what has worked and what hasn't. But at the same token, you know, when you look at it from the United States perspective, we really lost a lot of capability around renewables to China and to other countries, right? So there are areas now where we're sort of way behind and we'll have to make up ground to become a-a leader in this industry. And so when you think about, I think, my sort of theory for change has come to involve just the importance of global cooperation and governments coming together. And I think the appreciate that the private sector really does have for this.
I think another example of this is when you think about the dislocation in the energy markets that we've had, starting last fall and leading up to now. I think it's sort of breaks ground for having better coordination for all of the investors now, who, you know, in contrast to the 2008/9 timeframe. You know, investors want to go into these sectors at huge scale. And I think just a little bit of sort of guidance and coordination signals from the government will really help that process, make sure that we're investing at scale into the solutions that are needed for us to hit our net-zero goals.
If you think back to when you first started working in climate and how you felt about the problem in terms of how dire it is, our ability to address it effectively, and how bad things will get in the interim. Maybe contrast for a moment, how you thought about it then, if you remember, versus how you're feeling about it at this moment in time, with the understanding that it will continue to evolve over time as more cards get dealt.
It's a great question, something I think a lot about. I think when I learned about it in college, it seemed like a big problem, but also a somewhat straightforward problem to solve. I remember we spent a couple of classes learning about the Kyoto Protocol and sort of the failure of it and thinking about what the solutions would be to that. And it seemed pretty straightforward. I think there was also a lot more consensus than there has been in some of the years between then and now about the science. Actually, there was even though the science was much thinner then, there was sort of more I think maybe trust in science across the board in this country. And so then I think there was a time where, for many years, I think climate seemed like not the most important issue on people's minds and certainly companies' minds, investors' minds.
And I think now, on the bright side, we're at a place where it is a top priority for almost any investor, any major investment firm, climate is a top priority. Certainly for pension funds, asset owners, the long-term owners of capital, I mean climate has to be a top priority and a top concern. And then when you sort of survey younger generations of students coming out of school and how they are thinking about which organizations to go work for, climate policy certainly pops up as an important factor. And important to them as individuals. So I think those things are all very positive. Climate has become mainstream. It's a mainstream concern for people.
You know, unfortunately, part of the reason for that is we're starting to see the impact in our daily lives, right? These 100-year floods are now happening regularly. And not just in places where there is not good infrastructure in place, right? Developing economies. We're seeing them in Germany and in our major cities in the United States, right? So this is really, I think, hitting home for people. The physical impacts of climate change, I think, have become much more sudden and I think frightening. Certainly even than I anticipated they would be. So I think that's sort of the alarming part of it, but also, I think, the constant reminder that allows many people, not just me, right? Part of my job is to think about climate every day. But I think those things keep it front and center for a wide range of people.
Executives, citizens, right? Students, professors, all these important people in our society, climate change is now a top priority for them, even if it's not their official job to think about it every day. And I think that will galvanize us into a solution and a set of solutions over these next several years. I tend to be very optimistic on that front.
There are some that would say that capitalism is such a powerful machine and it's not about abandoning capitalism, it's about channeling it as a force for good. And there are others that say that inequality is already huge and it's only continuing to get worse as the capitalist machine plays out. And as the climate change problem becomes more pronounced, it also will inevitably lead to more of a scarcity mindset, where people with means will take steps to make themselves and their families or their organizations, etc. resilient. But the people without means are the people who least contributed to the problem, but will most bear the brunt of the initial impacts of it. How do you think about that in terms of our existing construct, as a society, do you think that the engine we have is the engine we should use, or do you think that we are maybe leading up to a point where we might need to consider a more material change?
I think the private sector and capitalism is a critical part of this engine, right? It's not the only engine, but it's a critical part of-of this engine, right? So the economists predict that we need over four trillion dollars of investment a year in order to build out the infrastructure to hit net zero by 2050. So four trillion dollars a year is-is a huge amount of money. The governments alone don't have this money, right? So the private sector is gonna be critical. The private sector also offers innovation and speed and sort of all of the actual practical solutions that are needed to confront this climate crisis head-on.
That said, the governments play a really important role in ensuring that the capital is directed to the right parts. That the world needs it, really, in particular, making sure that these countries and people who were not responsible for the climate crisis, receive, you know, the necessary investment capital in order to make sure that they, in the case of emerging markets, that they develop in a clean way. In contrast to the way, right, that the developed countries all developed. We all developed using lots of fossil fuels. And then only when we had a certain amount of wealth, did we shift to cleaner energy sources. And we're still not all the way there. And so we have to, you know, we as a globe, it's in everyone's interest to make sure that that doesn't happen with the emerging market economies.
I will say on the point of who is most at risk and suffers the most, if we don't solve the climate crisis, those who are the poorest and those in emerging market countries are going to suffer tremendously, right? So we-we need to do everything and disproportionately to those of us who have more comfortable lives. But if we don't solve the climate crisis, this all gets worse for everybody. So I think this idea that we should sort of forget solving the climate crisis because it's going to lead to greater convergence. And so that everybody will have a hard life. That doesn't really make-make a lot of sense, right? We need to solve the climate crisis for the good of everybody, especially those who are most poor and most vulnerable. And we need the private sector in order to do that because of everything that the private sector offers.
You mentioned earlier in the discussion, that one of the advantages Blackstone has is the long time horizons and the more hands-on approach that you take with the companies that you work with. And I'm just curious from a time horizon standpoint. I've heard that before with some longer-term capital allocators, that if you look out far enough, the collective good and the self interest intersect, right? But is there a threshold below which, from a time horizon standpoint, that they don't intersect and therefore other than voluntary because you're a bleeding heart. if you're just optimizing for your own wallet and those of your shareholders, you would not care about addressing a problem like climate change?
I think that's why truly Blackstone's model and the opportunity that we have with private equity is, I think, much more powerful than other types of investors. I mean just, you know, as one example. We recently won the bid with our portfolio company TDI, to build this transmission line from hydropower in Quebec to New York City. It's going to be the equivalent recently of removing 44% of the cars from New York City. This project took over a decade to develop, right? So I think, you know, when Blackstone started this, it was, you know, a nascent idea, many teams at Blackstone worked at this over many years. Worked with the communities, labor organizations, environmental groups with the power company. And there were many times over the course of this decade that there were questions asked, right, internally. Is this a good thing to be putting more money into? It's unclear, right, what the outcome will be. And if there will be a positive outcome for Blackstone and when that outcome will be.
And so I think in a lot of investment firms, they would have pulled the plug much earlier. So I think this is something where having size, such that you can take some of these risks, but also having the patience allows you to actually A, understand the problem. And then apply resources and apply capital to sort of work through what are sometimes complex situations, right? There's no sort of clear road map for how you develop a power plant, or power line, working with all these different stakeholders.
I guess that's what I would say in terms of the private equity model and the ability just to really implement change. And I guess my other example is just when we partner with portfolio companies. So we've made a long-term commitment. So I think also this would be hard to do if you had a shorter time horizon. We've committed to a three-year emissions reduction target across portfolio companies, where we control energy usage. So that, I think, just allows us to all be focused on the same page at a time horizon that is several years out. I don't think it's, again, the end all be all. I mean I think there are sort of these problems that are global and complex can't be solved by the private sector. I think that is where governments really should come in and provide some guidance.
Another point to make on this is I think that the private sector has shown that they really would like some structure and framework from government entities. I mean, COP26, which we just had in Glasgow in November, had more private sector participants than ever, right? This has become a major private sector event. And so not only are these companies saying that this is a huge business opportunity and they want to go to COP and they want to meet with each other and they want to do deals and they want to develop projects together. It's a competitive advantage for countries to attract companies, to their countries. So the businesses go there to meet governments and to build relationships so they can expand into different markets. But I think they're also pretty loudly and clearly saying for us to act with even more sort of long-term purpose and strategy we really need global systems in place between the governments.
When you see the net-zero commitments that are increasingly coming out from some of the largest organizations in the world, what reaction do you have when you see that flood of commitments? Is it excitement? Is it skepticism? Does it depend? And if it depends, what's your own filter to judge which ones are for real?
It's exciting to see all of the net-zero commitments. I applaud, you know, those companies and those- those leaders who are making those commitments. For us, we've been really focused on immediate impact and tangible results over the short term. We feel like that's where we have a potentially, pretty unusual opportunity to really make an impact at scale because of our investment model. Because of our scale, where we can invest the resources to actually work with our portfolio companies to build out these capabilities. And to put them on this lower carbon pathway and in my view it, you know, it aligns very well with the climate science. Which is that we need to make immediate impact. We need to turn the ship within the next decade on climate emissions. We can't sort of wait until, you know, close to 2050 to do that. So I feel that we really have a leadership position by having this commitment that are short-term.
So in our portfolio, companies where we control energy usage, we've committed to 15% emissions reductions over the first three years of ownership and aggregate. And so that's very much informed by this pathway that the world needs to be on to hit net zero by 2050. So, potentially we will consider how we can go beyond that in the future. But for right now, we really like that we have this short-term immediate focus, having tangible results. It'll be interesting to see what happens with all these global commitments and how much scrutiny there is really on them.
Going forward, that's a really important question to just keep asking companies and investors. Whether they have a net-zero target or not, but just what are you doing over the short-term? Because that's really where we all need to go as a world, as much as I applaud these net-zero commitments.
I don't know why this question popped in my head now and I've never asked it before. But any zany, crazy ideas that you think would be really cool, that are way out of the box, that you've never put out there, that you want to plant a seed with this diverse, highly strategic, highly engaged audience today?
Well, one thing that I worked on. Early on in my career, which is not an original idea, butI think it's new for most people. Which is, we could have a clean energy bank of the United States, right? We've scaled up. We developed the internet. We've been leaders in space exploration. Our country has been such a leader in so many important technological things that have changed the world. And there's no reason that the climate crisis should not be an area where we lead and we change the whole world because of our leadership. So I think something like having a clean energy bank of the United States, where we invest at bigger scale into emerging technologies. But also really think about how to create financing mechanisms, such that we can scale up the technologies that right now seem a little bit risky, whether they are or not. But are perceived to be risky by investors.
And many of these technologies could be placed in these solutions. And these companies could be placed in maybe rural areas of the country, right? That have been, maybe not benefited as much from some of these companies and innovation as much as big cities have. And as much as places near big research universities. So, you could put a lot of these projects in rural areas. And then also use some risk capital to have transmission, right? To build, for example, clean energy and bring it to areas of the greater population. So I think there's just a lot of, if you think about the country as a whole and doing things that bring the country together, while also creating the industries of tomorrow. The government should have an important role in that and something like a clean energy bank of the United States would be my zany idea.
Interested in coming on our show? Have a guest you’d like to hear from? Don’t hesitate to reach out! Email us at firstname.lastname@example.org.