Modern Money SmartPod
Modern Money SmartPod
Private Capital in Asia's Push for Net-Zero
The term "energy transition" means different things to different people. In this episode, we focus on how "energy transition" means different things to people from different places. Michael Syn, senior managing director and head of equities at the Singapore Exchange (SGX), joins the show to talk about how markets in Asia are tackling decarbonization and the push to net-zero.
Often mistaken as just one big market, individual countries and companies across Asia have a very different history with fossil fuels than their counterparts in the US and Europe. Michael breaks down some of the innovative solutions that are in play across Asia and how global initiatives like the Glasgow Financial Alliance for Net Zero (GFANZ) can broaden their perspectives to bring more private capital to the sustainable investing market.
Michael also delves into how SGX helps Singpore lead the way in the push to net-zero by serving as a cutting-edge market for new technologies, financial products, regulatory efforts and education initiatives related to sustainability.
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(Note: This transcript was created using artificial intelligence. It has not been edited verbatim)
Colin Hogan 00:14
Hello, everyone, and welcome to the Modern Money SmartPod. I'm Colin Hogan.
Sean McMahon 00:18
And I'm Sean McMahon.
Colin Hogan 00:19
Today we're going to be taking a look at the role of private capital and other elements of sustainable investing can play in the global energy transition. And we know that term energy transition means different things to different people. And our guest today, Michael Syn from the Singapore Exchange, will give us some insights on what the energy transition means for Singapore and Asia in general.
Sean McMahon 00:41
Now, I've known Michael for a long time, and I think listeners from everywhere around the world will enjoy hearing from him because he's one of those people who sees the whole board. He knows the ins and outs of the finance sector, and is an expert on commodities trading, which will play a key role in any energy transition. But he also understands the underlying technologies that are reshaping energy markets. And while Michael is going to help us unpack this topic from the perspective of market participants in Asia, every time I've ever talked to them, he's always had his finger on the pulse of geopolitics.
Colin Hogan 01:09
Yeah, geopolitics is just a little bit important these days, right?
Sean McMahon
Yeah, indeed.
Colin Hogan
Well, let's get to it.
Sean McMahon 01:15
Yep. Let's go.
Hello, everyone. And thank you for joining us for this episode of The Modern Money SmartPod. My name is Sean McMahon. I'm joined by my co-host Colin Hogan. And today we have a very special guest. Michael Syn is the senior managing director and head of equities at the Singapore Exchange. Michael, how're you doing today?
Michael Syn 01:39
Very good. It's morning for me. I guess it's evening for you. It's great to see you guys. I mean, I just caught you guys couple of weeks ago in Boca so. So that was good fun. And it's just good to see you guys again.
Sean McMahon 01:50
Yeah, exactly. We're doing a lot of hopscotching around the timezone to the world for this recording here. And you mentioned Yeah, we saw you at FIA Boca, you know, we had a wonderful conversation there during lunch. And that's what kind of spawned this episode, we were talking a lot about kind of sustainable finance, and you know, private capital being deployed to the energy transition. So we wanted to kind of bring you on the show to talk a little bit about that. So let's just get right into it. Right now, tremendous amounts of capital have been committed to net zero initiatives around the world. And so what trends are you seeing in terms of how that capital is being deployed to tackle the energy transition?
Michael Syn 02:22
So if I think about the landmarks in the recent past years, so there was, there's a couple of things right leading up to Glasgow, this big boondoggle where people around the world actually didn't come together to make sure that they, they retreated on this topic of climate transition, and agreed upon forward. But heading into that what was very evident, at least for us out here in Asia, where the topic of climate change, environmental degradation and adaptation, we're always there. Asia is a big place, the conversation happens on different levels in different parts of Asia. But COVID, very interestingly, alerted people's minds, I think there's a couple of factors. One is you're actually in the room, you feel under assault by something unknown. And that sort of opens people's minds and sensibilities to, Hey, maybe I should pay attention to this topic. And secondly, it was in some way deeply rooted in an environmental challenge, right? Not necessarily to climate. But it did open political minds to saying, maybe we ought to take Glasgow very seriously. That's why the attendance of cop 26 was incredibly important for the Asian commitment to saying was this problem doesn't matter, it's going to be a problem in the future. And I
Sean McMahon 03:33
think trends, you know, I know Asia is often mistaken as being kind of one marketplace. And you and I've talked in the past about how it's really just just so diverse. And you know, there's so many different countries and markets and play and technologies and things like that. So can you share some of the examples you've seen about capital being deployed for specific projects, be it in Singapore or in other places in Asia?
Michael Syn 03:55
So historically, Asia has been quite there is this idea that the way you solve problems, you apply market solutions, but you tend to want to have agreement on what is the necessary sacrifice? That's a collectivist culture, if you like, it's like, listen, we have this problem to solve. We'll all agree on the solution. But we understand that it comes with sacrifice, that isn't necessarily the way you approach a problem or have a problem statement or an action plan in perhaps the USA, Europe. So the way Asia approach this, heading into Glasgow, was good because the preconditions that said, Listen, we understand we might have to sacrifice something, maybe there'll be interruptible loads on the grid, if we ain't going to have cheap cars anymore. But at the same time, there was also this idea that you know, what, we have to agree to an action oriented plan, which which is global in nature, so the public good is more diffuse. The reason I think this is really important to understand is there has historically been some anxiety about we understand the problem, but who bears more cost? Is it really fair to say everyone bears equal costs? Because the historical emissions of carbon as you know, the data on that is pretty stark, right? The industrial revolution started 100 150 years way before Asia had its chance to exploit the earth and build its cities. So if you if you log up for historical contributions to carbon in the atmosphere of the US and Europe, I mean, if I was a demagogue in Asia, I'd say, Listen, you guys have to remove one or two entire ages, and you'd still be bigger than Asia. That conversation is now off the table. Nobody's talking about historical grievances anymore. They're talking about Listen, it's a near term thing. The clock is ticking, what I think is worth watching, which is drowned out maybe in the recent noise over what's going on in conflict. Where does China stand in all of this? Are we supposed to isolate China, because of the hostility is China's burden meaning the impact of climate change on China is huge. China's impact on global climate change is also huge. So they are motivated and committed, I believe, to actually having to undertake significant investment in renewables, significant changes in the Gen stack significant measures to deal with climate change. And that does move the needle.
Colin Hogan 06:18
So Michael, are there any types of renewable energy products or climate technologies that you see getting more attention from financiers than others right now?
Michael Syn 06:27
The amount of money that has been stated as being necessary in Asia? Is it mind boggling? It's trillions. So I'd say a handful of things have happened recently, which are worth noting. Right, which is what are the follow ups from Glasgow, in Asia, about the commitments that were made a lot of commitments were made. But we have to see those turn into action. Right. So the we might talk about that later. What is GE fans? What do financial services people? What does the industry have to do through its private sector actions rather than through government actions, but out here in Asia, I think that it's not often realized that the Evie revolution revolution, the renewable revolution, really the center of gravity is China because they are the largest investor and the largest producer in renewable tech, in many ways, because the size of the market, they got there early with batteries, they got there pretty early with EVs, they still have a very significant coal footprint, but where China leads a manufacturing of things which are affordable solutions, which are implementable, it actually makes it very doable for the rest of Asia. I would say that Asia is idiosyncratic, especially when security issues have turned up in the last two, three months. Because the thing that's interfering with this street trend of let's go solar, let's perhaps even go nuclear. The thing that's interfered with this is Oh, we are de globalizing energy security is now a thing. So how do I prioritize my energy security? Say you're in Japan, Netherlands, Singapore, where all your molecules are imported? How do I prioritize energy security, over my move towards decarbonizing my economy. So these things can be compatible, but very often, in the early stages that conflicting, because what you're trying to do is secure yourself. And there is a reason why things like coal and gas are favored. Because we haven't yet changed or put in the trillions of dollars of investments that are needed to decarbonize industry, decarbonize the consumer, decarbonize the economy. And until you've done that, you can't afford to interrupt your economy through energy insecurity. So in fact, demand for coal is on balance, demand for gas is on balance. And you're even seeing this in the EU where that the strongest commitments came. But once you interrupt gas supplies, your immediate imperative, what's my gas security? Right? The US has made commitments about phasing out fossil fuels. First thing that happens when oil prices go out is let's release more molecules from the SPR. So the reality of this the political reality of this is important to deal with.
Sean McMahon 09:16
So how do you see that taking shape across Asia? Right? So I mean, what we're kind of talking about, and what we've heard a lot about lately is this, you know, this notion of strategic autonomy, right? So country's got to be able to provide for themselves in a crisis. But what does that look like across Asia? So many different countries? And many of them rely on kind of different primary sources of energy? What does that what does that look like?
Michael Syn 09:34
So the glass half empty view is that no one has done the recalculation as to what my pre Glasgow commitments were, right, in different security environment or different security projection, versus what might be the case in the coming weeks and months. What I would say is if we just put up our hands and say this thing is insoluble, right? We need tunnels to come and solve the problem for Earth. I mean, we'd by hands like this, which is the the approach we've taken through time, then we won't get anywhere I, you know, sort of in the affirmative, I would say that being in Singapore, where categorically the country is too small to move the needle, we are 0.1% of emissions around the world, although our intensity is quite strong. But we have focus on because we're very planning oriented is we said we were going to do this thing, we will continue doing this thing. So we are still committed to this plan that we've written down, that says, Is there a way we can lead starting in Singapore and then into regional Asia, Southeast Asia, which is a billion people? What can we do that contributes to light at the end of the tunnel in terms of decarbonisation, as well as preserving the environment? You can decarbonize while destroying the environment, I think our approach because in the tropics, a significant amount of nature based assets are based here that our approach to decarbonisation must incorporate the management of the environment to move against environmental degradation. Now, land use, land degradation is a considerable contributor to greenhouse gas emission and the greenhouse effect. So our approach is to say, we don't have access to some of the removed renewable tech in Southeast Asia that the rest of the world might write, we just aren't naturally a geographical area where you might easily use wind, we're not naturally an area where you can put lots of solar panels because by definition, both of these sorts of technologies involve degrading huge amounts of forest and jungle and, and sea mangrove. Right. So the things that we are exploring, and this is public information is in 30 years time, we'll say nuclear tech, small scale nuclear reactors, can they be part of the solution? Is there anything on the consumption side in the design of our energy grids? Because we're a small country, we can pioneer? Right? Is there anything we can do to change the way we consume electrons? So this is a conversation that's not been had sufficiently globally? What can I do to reduce my consumption intelligently, through connected devices that may be more closely match the supply of electrons and the demand for electrons, right in an unplanned way, we call them blackouts. But in a planned way, in a planned way, there is potentially a significant capacity to be built. If your gen stack says, Hey, listen, there's a storm coming, there's fewer solar induced electrons, is there any way you can slow down too much right, switch off your TV turned on your fridge, something like that. So that is something that we are committed to doing. More than that, we're also trying to bring about market based solutions, because I think we understand that the ability to get to net zero, just by a baiting carbon generation, we're not gonna get there realistically, anytime soon to fully net zero. And therefore there needs to be a place for a carbon price that's relevant to the global South, meaning, not the us not to Europe, and accessible carbon market for the global south that says, if there's $1, price for carbon 10 years out in the future, that gives me 10 years worth of planning that says, How do I transition from A to B? What's the cost of abatement? How do I price this in? So it is not to be underestimated how important markets are directly in the cost of carbon, and also for how to invest capital into companies into productive means that help in abatement and don't have excessive carbon generation. So a lot of words there, but all I'm really saying is that the global south has to find its solution. And we feel that in Singapore and ASEAN, we can contribute to that conversation, because Asia as an economy is it is the largest economy categorically. But it's also the largest contributor. That's
Colin Hogan 14:10
key. And I want to ask you a little bit about the investment product side of that, too, in terms of sustainable investment products and indices. What kind of trends are you seeing there right now?
Michael Syn 14:20
Two big trends that we're going to, I think try to address almost immediately. One is that it is a fairly settled thing that the current generation of battery technology, there will be new generations, but the current generation of battery technology has a supply chain that doesn't have clean transfer prices, right. So there are a handful of battery metals like fundamental elements that are required in the manufacture of, of batteries, and we need to make sure that there's a good price for that in order to induce the right amount of supply to cope with demand. Today, it's a fairly verticalized supply hygiene for cobalt for lithium. And so as the market needs to come into play that so we'll be listing a series of products on battery metals. A much bigger conversation has been happening very successfully around the huge amount of money that's stuck in pension funds, insurance funds and sovereign sovereign wealth funds. So asset owners in general, not asset managers, but as opponents, the end beneficiary is generally an institution, they are all very attuned to this conversation. They understand that with the trillions and assets under management they have at their disposal, they need to find ways to nudge the needle is a 1% change on the 100 trillion in assets under ownership makes a big difference. So we work directly with the top asset owners in the world to say, what is a methodology for paying more for green companies and punishing a little brown companies? What's a methodology that you think is sustainable? And doesn't detract from your fundamental objective and making money for your pensions? Right, so there are lots of indices out there. But we'd like to think that we're very close to defining something that amounts to a benchmark. A benchmark is something in markets where it's not the perfect hedge. In fact, it's almost always a slightly sloppy hedge, but it has the benefit of being globally accepted as good enough in correlation terms, and importantly, liquid enough that I can actually get in enough, right, so So the idea is that what is good enough to be a benchmark. And there are two qualities of a climate investment benchmark that we hear very strongly that acetone is one. One is simply Isay simplicity, they call it parsimony. Right? It's an engineering term, it means as few terms as few complications as possible to express the idea I want to express. But this is really important in next design, which is simplicity in the precise sense of parsimony. As few things as possible to say, this is a good way to measure green versus Brown. The second one is the bench Markedness of the thing, you have to find a vector a direction an Eigen vector of your life that says, this is actually a fundamental axis, that if I go in this direction, I invest in this direction. It over almost all scenarios does nudge towards green and away from Brown. So we have a series of a global series of of indices based on stock markets, using a methodology that gives book. So how does it do this? How is it different from today's general cap weighted indices? It's different in one fundamental way. Today, when I invest in the s&p 500, I invest in an MSCI or a footsie index, the composition of the index just depends on what the price was last night, or today, its market cap weighted, to have something which promotes green and punishes Brown, you need to have some information in there about what was the carbon trajectory of the company leading up to today, because their historical behavior has some bearing on what the momentum might be like they've been doing really good, they've been cutting a lot last three years, there is information in there that says they are very likely also to continue that trajectory. So so your index now needs to have some memory beyond yesterday. The second thing you need is some data driven, non subjective way of saying what is their likely trajectory in the future. And this comes from disclosure around science based targets, right? So we have a way of saying, Look, this company has expressed fairly decent credibility. And that in combination with their target setting gives me some information that they will in fact, be getting a little more green in the future. So two things are different from a standard market cap index, a bit of memory, and a bit of forecasting. And this is this has not been done before index design. So we have designed a methodology, we have a series of white papers published under our, our company scientific data, it's associated with a scientific institution, a research institution in France. And we intend to productize this through the publication of research and indices, as well as hopefully you'll see soon, a bunch of benchmark ETs and derivatives and this will cover the market cap of all countries worth.
Sean McMahon 19:46
Wow. I mean, I look forward to seeing those those papers published in those indices released. So you mentioned a few minutes ago about the role of carbon pricing and carbon markets. So it was What's your view on that? I mean, right now we have, you know, voluntary carbon markets compliance markets have have a role to play in this energy transition,
Michael Syn 20:02
it's really important to have that price. As I mentioned earlier, if you accept that it will be necessary to offset and not just to do absolute abatement, you must have a carbon price, not just a spot carbon price. But you need to have a term structure of carbon. And when you start looking at the term structure of carbon, there's there's two things in there as with all commodity markets, right, you might have the same spot price, but you might have a different forward price. And I absolutely believe that there will be not a single global forward price. Because there, there is a new category that we haven't historically haven't commodities, this idea of a high quality carbon credit. So pure carbon offset technologies don't really exist yet, not that scale, where you can say listen, extracting carbon from the atmosphere in Iceland, using a little Dyson machine. If I had that same machine applied here in Iceland, actually that price ought to be the same. But if the method of extracting carbon is for instance, nature based, we very carefully consider what the externalities are of that solution. So planting a monoculture of pine trees versus reforesting, a mangrove might extract X amount of carbon, but they have very different environmental externalities. So as a preview, how we normalize this, there is a part from the tcfd, which was a body set together to say, how do we standardize carbon accounting, there is a new body for the tea NFT. That says, actually, to really sort this out, we need to have an understanding of how you account for effectively biodiversity. So short of having some way to quantify Project A versus project B, it means that a lot of judgment is involved, from motivated buyers to say, if I see two projects, if I do enough due diligence, I will be able to say that this project has more positive externalities in nature than the other one. And therefore the nature based market is not going to be anytime soon, like the compliance market where there is standardization, there is almost in commodity terms, a CTD a cheapest to deliver, right there is not yet this concept of what's the cheapest to deliver in a nature based project because there's always many dimensions to what a project in nature can do. So what are projects in nature, some are actually quite simple, which is technologies to manage to manage burning, but some are quite complex, which is restoration of sea grasses, restoration of mangroves, replanting of roads and things like that. The one key difference also with projects is that projects aren't spot in that sense. It's like developing a property. I think I buy the project actually the house doesn't get to live with for two years. And it's project rich, right? So the quality of the people tendering for these projects needing funding up front to deliver carbon result later in the future, that's also going to be important. So we have a marketplace in Singapore called CI X, carbon impact X. Climate Impact x, we brought together a pretty interesting group of people, including tamasic, which is the sovereign fund of Singapore to say the best way to get this complex thing started is to commit X amount of demand. Because we have X number of companies in Singapore X number of multinationals based in Singapore, we've got the demand side sorted. A lot of the engineering we're doing now is how do we design the appropriate marketplaces for nature based climate solutions?
Sean McMahon 23:38
There's a lot of things that Singapore does, you know, as I was want to call like a test market, if you will, for some of the initiatives you put forth? How many inbound requests? Do you know about it you get from other jurisdictions or other countries saying like, Hey, can we kind of get access to that data or you know, things like that, we want to kind of borrow some of the knowledge of the things you've worked on.
Michael Syn 24:01
We get a lot. And this falls under the rubric of capacity building. Now we're a commercial exchange. We've never had to deal with this conversation around, hey, it's part of your role to do capacity building. But when it comes to a regional endeavor like this, actually, we need to do it because if you don't build the trust and alignment with your method, your market doesn't extend. So we are committing to this through dedicated resources. We are also working through G fans. I mean, the news isn't public, nor is it disposable at the stage. But we know that for GE fans to succeed GE fans, again, reminding everyone is the commitment of financial service providers across the world to help bring about climate solutions and climate financing. We know that Asia has to be part of that solution, but as of today only say 15% of the memberships from Asia, and we know that that needs to go up. So we are working very, very closely with G Vance to say you need to have a leg anchored out here. You It can't just be a Eurocentric or US centric conversation, because the capacity building the alignment that you need to build the financial institutions, you need to bring on board that needs to happen. A lot of that. So a lot of the inbounds are around helped me capacity built so that my people can talk this conversation, my policymakers, my rulemakings can say, I'm going to take on, for instance, the same accounting standards view, or the same tax offsets or the same market rules, it's going to be a heavy lift.
Colin Hogan 25:31
So regarding G fans, we're now about a year out from when that launched, how would you rate the work that has been done so far?
Michael Syn 25:39
Well, the the public reviews ain't great, right, which is people rocked up at 150 trillion, there was an ETF quite famously launched to great fanfare, it was seeded with 10 million, and then they pulled out 9 million. So the poor fund managers left at 1 million. So on the surface, it's been, it's been one of those greenwashing type it events, I mean, even heading into it, 40,000 people flew into Glasgow, there's something abjectly morally wrong about wanting to save the environment, and then flying into golf that's good for that. But but that's the world we deal with. That's the price of consensus. I would say that. I can't speak for the world. I mean, these are all observations, I would say that, when that question was asked, actually, of one of our senior politicians and ministers, he said, listen, the difference about the way we do things in Singapore, and the way we try and push things forward is when we say we're going to do something, we think carefully about our commitments. But when we commit to something, we will execute, right? That's just the modus operandi of a small city state. So we have committed to getting things done. And we will continue to execute. What are the other things that derive from GE fans that I think the big holes to be filled, I think it's actually making sure that asset owners, fundamentally the guys with the money, haven't had such a significant change in their strategic outlook on investments in the face of inflation, right in the face of the oil and gas picture, in the last two, three months, where a lot of the consensus was, well, we're going to strand fossil fuels, you know, oil is going down to 10 bucks again, or five bucks, or whatever it is. And then and then oil is just going to disappear off the face of the earth. You know, that's changed. Right? That's changed just a little bit. Just a little bit. And there's a bunch of extreme activists will say, but this is the carbon tax we always ask for. So this is glorious. high oil prices, destroys demand and promotes transition. And what we're supposed to do is welcome these high oil prices, and not react on the supply side. We're supposed to let the market take care of this problem. But that's not the way we're reacting. The politics, the reality of politics on the ground is while we made a commitment to decarbonizing the economy, actually, we need to motivate more production war molecules. And that's a political reality, because the truth is higher oil prices in the near term, they don't hurt the rich, they hurt everyone else. And we haven't yet sorted out the transition financing. In the most basic way, how do you move money from people who have who can afford high oil prices to people who can't afford world prices? That's a political problem. That's a domestic problem. If we solve that problem, actually, one of the preconditions is already in place. Right, high oil prices is an almost effective carbon tax. So coping with high oil prices. On the flip side, does motivate the investment case for certain kinds of maybe renewable tech, or alternative tech that maybe weren't as easily motivated. But in the absence of a carbon price, so what I'm saying is high oil prices have some of the positive benefits of a functioning carbon market, because it is defacto a carbon price.
Colin Hogan 29:12
Are there any areas where you think the alliances has been successful?
Michael Syn 29:15
So the conversations that are happening, continue. And we know that motivating change at this scale requires dedication to a mission that's been stated. And it takes years and decades of continuous application. So I would say that behind the scenes in the deep plumbing of the conversations we're having, for instance, in the climate indices, there continues to be significant work, we should be able to demonstrate progress on more asset owner portfolios, which are taking on these climate consistent indices. So I would say that's going to be the biggest public statement of progress and success, because the message we're trying to send, at least in the investment world, not in the commodities world is impact investing used to be thought of as I'm investing in something where I can see very high impact. And because of that, I'm going to give up some returns right? Now, but we think that in our world, the markets will the benchmarks world impact investing is choosing and agreeing on a benchmark, investing and trading and making it liquid, because your impact is making that benchmark liquid, so that people say, Okay, it's not just talk, there's a thing, or an index that I can invest in, that's reasonably well engineered, that helps put my investment dollars to work, more green, Les Brown. So that angle of impact investing is our specific focus when it comes to the commitments we've made on the defense.
Sean McMahon 30:54
You mentioned, the greenwashing and stuff like that, critics say financial sector is full of, you know, all talk and not so much action. Right? So what are some ways that firms can start to convert all that talk to action? Is it just mean? Is there enough deal flow out there to stand up a bunch of renewables projects, or to get some of these indices, you know, really, really vibrant? And, you know, what does that look like? Well confronts do.
Michael Syn 31:17
So project by project by project, I think it's fair to say that a lot of financial services firms are saying, what more can I do? Without deteriorating returns too much? What more can I do in the face of coming regulation? What more can I do demonstrate I'm a good citizen. So we've had certainly the banks here all scrambled to be able to at least demonstrate early steps, because it's really difficult. If you're a traditional insurance manager, you're a traditional bank manager, your risk management instincts are all about credit. And markets, it's not about the environment. So project by project, or ETF by ETF mandate by mandate, product by product, green bond by green bond, they're doing more. But we also know that in markets, it's not the number of things you do. It's what's the cumulative impact. So I would say that as an exchange, which is a part of at least an ecosystem, and as an engineer, we need to do two things, and then start sandwiching them on one side, we need to make sure that the basic data available is better. So as a stock exchange, we've done a lot of work that, again, we're trying to share with the region, on disclosure. Right. And it's meaningful disclosure, easy disclosure, comparable disclosure. So effectively, we're rolling out standards, regulations, as well as technologies to let companies easily disclose. And we have to prove to them that investors gave them some credit for not just disclosing but improving, right, so the basic data set has to be there. On the other side, as as an engineer, the thing that's missing is a true understanding of the whole of systems impact. We all know the law of unintended consequences. So you're one project, your $1 may, in fact, not be leading to any systematic change, even though you felt good about it. A really good example, if I could just take an example outside of markets, and someone I worked very closely with, you know, my personal time is in global air travel, right. So it's a big conversation about let's start using fossil fuels that start using sustainable aviation fuels, because that's going to lower carbon footprint. Now, aircraft people and air travel, people being engineers have modeled this, there's a very specific project that's backed by the Prince of Wales, at the whistle laboratory, young charismatic, Professor, Professor Rob Miller. And he's put this up there. In fact, he had a video in Glasgow saying, Be careful what you do, because when you plot this end to end, and he's built this model, and rolled this out in the cloud, you find that there are times when using sustainable aviation fuel leads to more climate damage than not, because a lot of the impact of air travel isn't just in the fuel you burn, it's in the contrails that you generate. And depending on when you fly, what fuel you're flying, you might actually give up more cloud effect in effect in a contrail and cause more global warming. So the mechanical understanding of a whole of systems impact of certain measures, it's necessary if you want to decarbonize an entire sector, let alone an entire ecosystem. So that second part is where we're also going to have to work through GE fans to help people understand let's say, we want to pick EVs as an example. For each economy that rolls the visa, you need to understand some something about the grid. You need to understand something about the disposal of batteries. You need to understand the cost of importing parts, you need to understand the source of energy that goes into the Eevee. EVS aren't categorically good in and of themselves. Right? So that's an example of whole of systems thinking, which I think is the lagging part of the conversation. But if we can get the systems modeling and the data disclosure, right, then absolutely all these financial institutions will then very easily be able to say, Listen, I've got the trillion I want to apply to this problem. This is how I'll apply. And this is how it interacts with your trillion.
Sean McMahon 35:33
Alright, I, you mentioned disclosure a couple of different times. I know you said that Singapore is working on, you know, their own kind of disclosure principles. Here in the US, the SEC just released its, you know, proposal, and you concerned that there's just just right for arbitrage there, or are you hopeful that there might be global standards? How does that shake out?
Michael Syn 35:50
There are concerns but probably won't be arbitrage because there's been pre work done, quite unusually with very active participation. So unlike the IFRS, versus GAAP conversation, the equivalent of IFRS for carbon accounting tcfd. I think that's relatively universally accepted. So at least for the core metrics around climate, I think there isn't much room for arbitrage. The A lot of the engineering will be what do you consider an auditable truth for scope three, as an example, but I think we'll get there because these are international countries. So in public markets, I think we're actually in good shape, although a bit late for disclosure. But if you look at the disclosures that most regulators like ourselves are rolling out, the core metrics are very similar. The challenge is, there's a lot of different standards out there that need to converge. And once you get beyond the same for 3040 50 metrics, especially when you head into S, social metrics, right? What does diversity actually mean in one society versus the other? Then there's room for interpretation room for judgment, but around carbon specifically, it's pretty normalizable. The challenge actually is so we look at oil as an example. Right? As we have more and more disclosure and pressure on listed oil companies, the IOCs, I think we can see at least a tendency to a different behavior. But people forget that the greatest arbitrage is no longer to be a listed IOC. Right, there's more oil generated out of national oil companies, which were never listed in the first place. So Saudi Aramco, Petro China. So these rules don't apply to those guys. That's the arbitrage regulated, versus private equity. So that part's beyond my paygrade. But how soon can a really powerful leading regulators like the SEC say, No, listen, man, all this stuff also applies to private companies, private equity, because we've seen that trend, there's a reason why people say, maybe the arbitrage makes more sense to go private.
Sean McMahon 38:02
Okay, now stepping back and just kind of taking a broad look at Asia. And I mentioned earlier how yet sometimes it's a misnomer, and kind of people just view it all as one entity. But with so many different countries or even firms within various countries. next five or 10 years, how do you see the energy transition being managed?
Michael Syn 38:20
That's a huge question.
Sean McMahon 38:23
That's why I saved it till the end, Michael. Yeah.
Michael Syn 38:28
So firstly, the number one follow on observation from from your lead in is to say that national boundaries matter more than ever, because the politics of energy is still national. I would say that I am somewhat optimistic about South in Southeast Asia as distinct from North and East Asian, right, the security situation is slightly different. In North and East Asia, there are major developed almost about to commence you think about China, Korea, India, Japan, Taiwan. And their energy security situation is a very stark one. We import our molecules, we protect our sea lanes. We tried to decarbonize Do we go nuclear, for South and Southeast Asia, because we're part of a continuous landmass. And that landmass has mountains in the north and jungles in the south, to sea to the south sea to the east, there is room for Win Win outcomes in terms of interconnecting our grids to find optimization in order to find the best green molecules that we can source. If Singapore as an example, only tried to source green molecules from within Singapore, sorry, green electrons from within Singapore. That wouldn't be a great optimization. One public project is there's a proposal from a bunch of guys in Australia to say hey, listen, you know, in Western Australia, we've got lots of desert. We're just going to pave this huge solar farm in Australia for All the huge cables of Singapore and send electrons your way. So we're willing to contemplate things like that. But that only happens when you have connectivity. So electrical connectivity is going to be a very important part of managing the abatement process. The other part of it, as I mentioned, is an orchestrated way of saying how do we develop while preserving the environment to the extent that we can, because while a lot of the conversation in developed economies in the US and Europe is about how do we pull back from maybe excessive activity, the instinct and the urge in the global south is, I'm still owed the chance to develop, I want to live like the average American does. Now, you've seen the statistics, if people in India live the way Americans do, we, you know, this wouldn't be sustainable. So, but people want this chance to say, I'd like to live in a city, I'd like to have air conditioning, I'd love to have a car, I'd love to have an apartment. So how do we manage those real world needs, those development needs, while limiting the impact. So I'm very positive about South and Southeast Asia's ability to do this. Why? Because we aren't that integrated in the first instinct in the first instance. Unlike Europe, we never went full harmonization. And then now maybe sort of trading trading back. Actually, since 50 years ago, since the Second World War, we've been fairly balkanized. We've spent 3040 50 years figuring how to work with each other Step by Step Open borders. And I think that trend has still got room to continue. Because of the development instinct, everyone knows we owe the people of South and Southeast Asia a chance to develop. And when you're building up, you have a chance to engineer it rather than feeding back.
Sean McMahon 41:50
Well, you're right, that was a big question. But I'm not surprised. You answered it quite succinctly, and very well. So thank you for that, hey, listen, before we get out here, I just want to kind of focus a little bit on some of the things STX is doing there at the exchange, you know, I looked around, and just did some research on what he was doing in terms of sustainable investing. And it seems like you've kind of taken a multi pronged approach to that. So kind of talk to us a little bit about some of the initiatives you have going on at the Singapore exchange.
Michael Syn 42:13
Okay, so, so succinctly, there's, there's three parts of things that we have to do. One is in the stock market, ones in the futures market. And the other one is just as an operator, trying to build alignment and standards and outreach. So in the third category, we refer to this earlier capacity building, we are very committed to helping people understand the issue, and the possible solutions. So we're working very closely with all the relevant Institute's were represented on the tcfd. We are one of the founders and leaders in the tea NFT. And of course, we're one of the early founding members of the Financial Services subgroup of G fans. And we hope to bring more of that to this part of the world as part of our capacity building in sustainable finance, right thought leadership, market building market structure, alignment rules and regulations and disclosure. In the stock market, the main lift we have to do is get our entire pool of listed companies on board this compensation, and to bring investors to them, their shareholders to them, to help them understand, the more of this you do, the more capital will come your way. So that comes with a carrot and stick. The stick is disclosure, regulation, persuasion, board director training, the carrot is making sure that the investor side makes it amply clear to our listed $1 trillion worth of companies that this is the right direction, and they will be rewarded for it. So that's the stock market challenge which all stock market operators have to deal with. In the derivatives market, we're very precise in the way we feel that we can and can't contribute. Futures aren't an investment tool. Right? So I hear this a lot. Oh, yeah. You know, what guys in the markets like, you've got cold listed, that's a bad product. It's like, Look, man, it's not an investment. It's a future. Every long has a short, you need to have term structure, liquidity and pricing for even coal, in order to have a transition. There's no point having a carbon term structure out 10 years trying to transition out of coal, and I don't have a tenure price for coal, right. So in derivatives, it's incredibly important that we establish liquid benchmarks for term structure for all the building blocks of the Asian economy. And we continue to do that. And as I mentioned earlier, we're building a new category called battery metals, which we believe will be important. The biggest part of our lift will be in equity derivatives equity index route is where I mentioned that the most active participants in this will be acid bones. They are leading this conversation, what they're looking for, as a platform like ourselves to offer the right methodology and the right solution. Through futures and options. So these are the things that STX is doing. It's the body of what we are as a futures and stock exchange. I should also call out a handful of the doing things that we're doing in some of our key affiliate companies. And I maybe just call out three, one, we run the electricity market in Singapore. So we're deeply involved in this whole idea of well, today, we run half hourly options in Singapore for the price of electricity heading forward, when you want to have interruptible load like solar, when you want to have more interruptible demand that says, Listen, when when power prices are high, or electrons are low and supply, I should stop consuming, then we need to go to a higher frequency market. So five minute auctions, we need to integrate a bunch of Internet of Things type data into the marketplace. So that's just the electricity marketplace of Singapore. But we hope if we get that right, it'll regionalize because you can always federate this out very easily. The second thing we're doing a lot of that we don't talk maybe enough about is global shipping. Right. So we're the proud shareholders of the Baltic Exchange. The Baltic has been an early leader in managing global change and global consensus in ESG terms already in 2020, January, the Baltic Exchange did a very, very heavy lift to improve fuel standards, marine fuel standards from three and a half percent sulfur to 0.5 cents off. And this impacts the global fleet. The next part of the conversation is how do you decarbonize? What's the right way to decarbonize global shipping when this isn't subject to a single national authority. The final one, which we alluded to earlier, is climate impact x, which is the marketplace, the regional marketplace for nature based climate solutions. So in the stock market, in the futures market, there's a core mission. But in each of these three subsidiaries, we have very specific solutions for specific markets. And I
Sean McMahon 46:59
want to circle back to what you mentioned about the Baltic Exchange and the work they're doing. I'd be remiss if I didn't mention that I think one of the last times we talked was we you and I had a long conversation in I think it was December of 2019. And we were pontificating about this, this massive impact of Imo 2020 and how it was going to just weigh on the shipping industry in 2020. And then a couple months later, something else had a far greater impact on the shipping industry than Imo 2020.
Michael Syn 47:25
Absolutely. So you can see that shipowners, who went from doom and gloom about well, the environmental cost of being a good player in the world of shipping. Well, it paid to be a good player in the world of shipping, because they have since then, made back everything that they might not have made in the past 10 years. Right. So shipping is one of these critical elements in global supply chain, which it's going to be internal because it's still the cheapest way to float cargo from A to B.
Sean McMahon 47:53
Okay, well, Michael, hey, thank you so much for your time. As always, you're just a fountain of knowledge and information. Thank you very much for this conversation.
Michael Syn 47:59
Thanks for the opportunity. It's great to see you guys. Great to talk to you guys all the best and have a great summer ahead.
Colin Hogan 48:05
Thank you. Likewise.
Sean McMahon 48:08
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