Milken Institute Global Conference 2023
A View from the Top: Leaders on Energy and the Environment

Announcer: Please welcome the panel on a view from the top leaders on energy and the environment moderated by global chair of Boston Consulting Group, Rich Lesser.

Rich Lesser: So good afternoon everyone. It's wonderful to be here with you. This is such an important topic and a topic gets an enormous amount of attention and I'm just thrilled to have such a great group of panelists and leaders in the world with me to engage in this dialogue. We will be taking questions as well.

What I'd like to do is introduce them share a few opening remarks to frame the discussion and then really get into it with our panelists. So let me let me start. Okay, we'll go in this order Giulia Chierchia. Did I pronounce it correctly? Close enough? She is the Executive Vice President at BP where she drives BP strategy sustainability and Ventures agenda. She's been a leading voice in the energy industry on sustainability and a just transition, which are topics we’ll get into. Hiro Mizuno is, well actually, he's got a lot of different hats but he's the founder and CEO of Good Stewards Partners. He's the special Envoy of the UN Secretary General on Innovative Finances and Sustainable Investment and he's a member of the board of directors at Tesla. Great to have you here, Hiro.

Ron O’Hanley is the president and CEO of State Street Corporation. In addition to his leadership on climate and sustainability on State Street, he's involved in a variety of industry efforts around climate including the chair of the Sustainable Markets Initiative Task Force for Asset Managers and Asset Owners. And, finally, Dan Yergin. He's the vice chairman of S&P Global and chairman of S&P CERAweek conference.

Dan is a highly respected authority on energy, international politics and economics. A Pulitzer Prize winner. Time Magazine said if there's one man whose opinion matters more than any other on global energy markets, it's Dan Yergin’s. So I'm thrilled to have all four of you together and I'm very aware that we have tremendous opportunity to hear a range of perspectives. You know, I'm spending… since I a switch from being CEO to Global chair of BCG, I'm spending the majority of my time on climate and sustainability topics. I thought I'd just frame a few things that we're seeing around the world before we dig into it with the panel if we could put up the slides, please just quickly we'll do four.

Can you?

Hello.

Ah great. They're not on screen. Can you put them on the big screen too, please? Thank you.

Is it working or not? If not, it's fine.

Great. Thank you. Just quickly.

I would say when we talk to CEOs and companies about where they are on this journey to move to decarbonization to drive climate and sustainability. There's really three words that stand out: commit, act, engage. Commitment speaks to Commitment for transparency to actually put real data out there about where companies actually stand and in terms of the targets and ambitions that they put forward not just for themselves, but in the value chains that they're a part of. Acting is what we do inside our own organizations to build skills to be able to get our organizations align with what we're intending to do with the right incentives the right organization structures. There's an enormous amount of operational transformation inside many companies to drive this they need to leverage Capital differently and they need to innovate and engaging is what we do beyond our own four walls how we engage in our value chains how we shape coalition, how we educate end users who are often not understanding what they should do or even ready to act in the ways that we would like them to and then finally the cooperation between the private sector and the public sector is important on many issues, but probably none more so than what we need to do on climate and sustainability.

There was an original dialogue that this is just about doing the right thing for society. And there is an element of course to the responsibilities we all have around protecting our planet and providing the energy needs and securities for billions of people who don't have enough energy today along with those who do. But there's an important narrative that is also come to the four which is partly it is about what we do to be responsible corporate citizens in the world, but a big part is how we build business advantage and the best way for any Corporation to really Embrace this is for them to see that it is in their interest to be doing this in terms of value creation not just out of a sense of responsibility and we did this very detailed review of a lot of different dimensions for the World Economic Forum. But the bottom line was whether it was in terms of talent attraction, aligning with faster growing product Market spaces the ability to often save cash and be more productive financially at the same time one saves carbon, around regulatory risk issues particularly in Europe, but not just in Europe around access to better financing in some cases and around how that translates into valuation. There is a value creation logic from a business perspective that goes alongside a value creation logic from a societal perspective.

I think one of the more interesting observations we were just talking about it in our group before we came on stage is that when you look at the downstream…When you look at the Upstream commitments of the end product customers in Auto and food and beverage and household and personal cleaning care you see a lot of commitments about their Upstream scope three working with their suppliers. When you go to the other end of the spectrum and you look at the Upstream players, you see a lower share of the volume being committed to decarbonize. So we're living with a gap right now between the Upstream producers who have not yet made as bold commitments to decarbonize particularly in places, like steel and aluminum and plastic and chemicals and the downstream customers of theirs who have said they want to buy those products. It’d be easy to point. Our fingers Upstream actually think in many cases the downstream players have not yet done a good job of translating their big bold public statements into how they really we train their procurement departments how they engage with their Upstream business partners how they're ready to make commitments to them and part of our progress to accelerate value chains is our critical need to get a better dialogue between the downstream customers and their willingness to purchase and the Upstream producers who are essential to take on these massive decarbonization investments in many cases.

And then the final point I just wanted to highlight before we dig in we'll get into this as a panel but we've been struck by the dramatic financial implications of IRA if we're able to make it work. I think it's easy to lose sight of its implications across value chains and
there are two examples here on the left that I just want to highlight. If you could just using IRA well, I'm sure we'll be talking about other countries as well, if you could Source out of the US and you didn't have to pay scarcity premiums you would actually reduce from $60 a ton to 14 dollars a ton in the biopharma value chain and from $36 a time to zero essentially a zero incremental cost for Auto Value chain production. And so it's dramatically impactful. Now, of course, there are issues to work through in terms of sourcing there's issues to work through in terms of capital there's scarcity issues because of suppliers don't have enough available. Then those will get bit up. So this is by no means trying to present nirvana scenario, but the economic implications of IRA on value chains not just on Upstream producers is substantial. It also has the potential to lower costs in general for society by accelerating our move down the demand curve. So with those four framing remarks, I really wanted to get into our panel and Dan I wanted to start with you as the true Guru on this topic that's not overstatement and how you would see our progress on the energy transition and where we are right now and particularly in the last year where we've had a war, we've had policy, changes. I mean all that's been going on.

Daniel Yergin: Well, thank you Rich and hello to everybody and I was thinking as you were speaking I was going to say it's a mixed picture, but it's really a complicated picture some very positive things that have happened.

Obviously the IRA and we're still finding out what it's huge impact it would be will it be generational? It's impact as we've certainly heard from Senator Manchin here at this conference. There's a big issue about permitting to get it done. But huge. We keep in mind that it's not only a climate Bill an infrastructure bill.

It's a compete with China bill and it's a compete with Europe bill in different regards. So I think that's one big positive but and then another is the amount of money. We've been seeing flowing into energy transition funds since the IRA. It's 160 billion dollars. We calculate into funds there's some people including somewhere here today who're very experienced in spending that kind of money and there are others who are going to be very new to it and are going to be looking for opportunities. But those are the positives. I think the two things I would say are negatives or concerning one this split in globalization that we're seeing the world today that's affecting relations with us and China and changing the world economy is certainly at work in the energy world today. We have a partitioned Global oil Market. We don't have a don't have a global oil Market anymore. We have a divided oil market and certainly we've seen on natural gas transformation. One of the extraordinary things is that US LNG is now become one of the foundations of European energy security something that would not have been imagined two years ago. It's such a big change. I think the other thing is that We're seeing that energy transition. It's easy to talk about it, but I went back and looked at it for my last book my new book with the most recent book the new map.

This energy transition is very different from any other one that has ever been done in the world trying in 25 years to transform a hundred trillion dollar economy and certain big issues have come up one is that particularly since the events of the last year and a half and it recognition that energy security reliability for putting in terms of electricity really matter and cannot be swept away. And you see the change in what Germany is doing. A second thing is that there's clearly a north-south divide on energy transition even if people don't want to recognize it but one encounters it and I certainly encounter in my work and the third thing which I know Giulia will also talk about is this issue of minerals are the supply chains for the energy transition study we did on copper some of you know said that if you to achieve these 2050 goals, by the way, you have to double copper production in about 10 or 12 years.

That's going to be really difficult copper is more concentrated than oil only two countries produce 40% of copper Peru and Chile. Peru doesn't have a government really right now and Chile is kind of just nationalized part of its lithium business. So another, I think complicated is the right word not simple.

Rich Lesser: So can I build on that? I I think often times there's a discussion and I observe there's meaningful reasons to be positive about the progress that's being made and then you often come back to Pace. We're just not going at the speed that the scientists would say, we need to from a decarbonization perspective and all those complexities that you just highlighted make it harder. Do you see any chance of the pace picking up? How do you look at the pace of change that we're in right now? And what are the prospects looking ahead?

Dan Yergin: Of course this energy transition unlike all others has been driven by policy and the policy is getting tougher on that and I think the IRA is a really big deal and one of the great virtues it has it's agnostic. It's not prescriptive and it opens the door to and it's not only about electrons. It's also about molecules.

Rich Lesser: So does that make you more optimistic?

Dan Yergin: Well, I think, it's a really, I think the IRAs are really big deal to and you know that it's created as the Secretary of Energy said at our CERAweek conference: not carrots, but a lot of really huge carrots. Incentives

Rich Lesser: Totally agree.

Giulia just to build on sort of Dan's opening remarks you have done so much at BP to decarbonize your own operations and to create a more decarbonized product portfolio for your customers. Could you just share where you feel you are in that Journey, what's going well? What's turned out to be hard?

Giulia Chierchia: Yeah. Thank you.

I think you laid it out pretty well Dan.

What we're trying to solve is what we call the energy trilemma, right which is basically providing the world with reliable affordable and lower carbon energy. And that is a fundamental transformation of the entire Energy System and that entails actually continuing to supply the energy that world needs today with lower emissions while at the same time and I say at the same time developing the energy solutions of a future and it needs to be rapid but it needs to be orderly. We need to sink demand and Supply if we don't want to find ourselves into situations such as the post-Ukraine war situations in terms of price volatility.

And that's what we're doing. So back in 2020 We announced the strategy to shift from being an international oil company to what we call an integrated Energy company which Builds on the foundation of continuing to supply the energy that the world needs today, which today is primarily hydrocarbons with lower emissions and at the same time investing to build the low carbon Solutions of a future, and those for us are what we call our transition growth engines. So buy your energy EV convenience Renewables and hydrogen. And as we do so, we overlay a sustainable ability framework with carbon names which years get to Net Zero by 2050 or sooner across operations production and sales right across the entire value chain. February this year we announced an acceleration of our strategy and we're accelerating on both sides on the back of the energy security crisis that we've been facing. So we're accelerating our investment into hydrocarbons, and we're accelerating our investment into our transition growth engines. And that basically allows us to do two things. The first thing is deliver hydrocarbons with low emissions. To give you an example if I take the Permian as one example. We've managed from 2019 to 20 22 to actually reduce our methane intensity from what was 4% to less than 1% If I if I if I take routine flaring intensity, we've reduced it from 16% to 0.5% and that's been through electrifying the assets and recovering the gas. And at the same time we're building the solutions that the customer needs. So as an example, we just acquire in the US Archaea. Archaea is one of the largest biogas suppliers with 50 landfills in the US. That gives us the ability to provide biogas to our customers. We announced Our intention to acquire Travel Centers of America. That's 280 fuel stations across 44 sites. And if that were to go through that gives us the ability to basically offer to truck fleets, biogas, biofuels, EV and in the longer term hydrogen. So we're in action to your point on Pace. Then I think one of the interesting things that we do is we track each of the levers to the transition and we track each of those levers towards our well below two degrees scenarios and our 1.5 degrees scenarios, and we're seeing as an example electric vehicles tracking with a net zero trajectory. We're seeing renewable penetration tracking with a net zero true directory and we're seeing hydrogen announce projects not delivered but announced projects through tracking actually with a NetZero trajectory. Now, they need to be then translated into feasibility. And then the IRA plays a critical role in terms of accelerating it.

Rich Lesser: That's a very encouraging.

Giulia Chierchia: I'm sure it is but complicated Still Remains.

Rich Lesser: Well, I imagine I think about the complexity in the pressures you get from different parts of the world and from different parts, different communities navigating the complexity you described about both providing energy security and accelerating the decarbonization must be one of the hardest constant balancing issues you face. Is that is that how it feels when you're in when you're in it?

Giulia Chierchia: Yeah. I think that I would have felt that way back in 2020 overlay on that covid a Ukraine war and it feels much worse than that. But yeah, it is the constant it is a constant Balancing Act. I mean if you look at what happened post you crane, we basically lost one million barrels a day of oil in the market out of a total of 100 million barrels a day and prices skyrocketed that gives you an indication of a sensitivity of a system and we typically talk about access and affordability issues thinking about out the global South. But if you look at where Europe and Germany was when the war actually unfolded we were talking about axes and affordability issues for Germany, right? So so yes, it is very much the prerogative of how do we actually Create the future while still delivering the energy that the world needs today, and it doesn't happen from one day to the other.

Rich Lesser: No, it is changing the tires while the car is moving in the truest sense. Hiro since we're on tires. So you're on the board of Tesla and you're also an investor maybe from both of those percentages. How does this electrical, I mean Giulia just give a very encouraging observation about the trend line that we seem to be on the electrical vehicle side. Is that how it perceives from the vantage point you have at Tesla and then talk about as an investor trying to figure out how to play in this ESG environment particularly with all the new policies that are there.

Hiro Mizuno: Sure, thank you. I'm, you know, I’ve been probably one of the biggest advocates for the ESG over the years and then I used to run the world’s largest pension fund trying to shift the Capital Market to accelerate a change to sustainable future. I think seven years ago I was fighting to get the support from the other Asset Management like the State Street and all others to agree that the all these climate issues it’s a financially material information to be integrated in the investment decision. And I think that once I felt I won that battle and then now getting challenged by US politics, Etc. So it's getting always very complicated. But one of the things I wanted to share with you is that there's a lot of challenges we are facing to really shift the economy towards the other sustainable Direction. One is you know, the when I for example trying to promote some sustainable investment tools like a green bond the more money going into the green bond create the green premium that in other words reduce a return for the investors. As soon as investor see the reduction in the yield they feel like oh it's more probably against my fiduciary Duty to continue to invest in a green bond. So they need to back up. So that kind of mismatch continuously happening. The mismatch between, you know a long time value creation and the showtime return is really hindering like, you know, for us really push the Capital Market into the that kind of sustainable Direction. Then talking about the electric because that's another thing like, you know, the seems like we agreed about the electric vehicle is cleaner. But all those like the new issue like, you know, the new challenges or new opportunity IRA and also like, you know, energy crisis and Europe. Every time like we have to battle with the short term like a fluctuation like a reaction of the stock market. So this is all about…it's a really miss alignment of like a long time value creation and their short term return. Then, you know, I really don't have any more doubt about the EV is going to be a mainstream and I think that the fight is over. But they are now they are getting into the more fight with how they can secure the battery and how they can keep the profit margin. It's more like a traditional business restriction, you know, they're playing their role in the decision making and the strategy. One of the things I always feel sorry for the people, you know, operating in Upstream of the supply chain, even at the other extreme like, you know, the downstream is a consumer and as a Financial investor like a big asset owner, like us and manager we can urge the supplier to change the behavior or their strategy but we have no lever to change the consumers the, you know, decision about their purchasing they are like, you know even a lifestyle. So there's like a Misbalance, you know, we can, you know, the financial industry keep pushing the supplier but we really don't have any leverage without the support from the policy. So that's another area of misalignment. So I think that we are shifting into the right direction, but there are a lot of misalignment which really actually pushes back and then it seems like two step forward, you know, two step four and one step back and sometimes three steps back. So but we have to keep pushing.

Rich Lesser: I do think, just to your point about consumer Behavior, we've seen the same thing when we look at how consumers behave they say. They want climate-friendly products. But the number of consumers ready to pay a premium is still a very small fraction of the total. So a big challenge for the downstream players is how to bundle climate and decarbonization as part of a broader offer and when you bundle, you know, that with Tide detergent you can use colder water and you save energy costs or Tesla obviously make great driving cars that it’s about that bundling that's really important because consumer behavior is not as far along and it creates some of the tension that you…

Hiro Mizuno: It's just still like, I don't know about the majority of Tesla owner probably bought it for the other reason than the climate or like environmental consideration. But at the end of the day, we just need to make sure that as a Society we are moving into that direction, but there's not only about the climate like, you know, as a consideration which can really achieve the consumer Behavior. We need the product attractiveness.

Rich Lesser: So, Ron when Hiro started speaking he talked about some of the challenges of the political environment. And so I guess I'd like to test both ends of that Spectrum with you because you're really living it. The first is this choice between divestment and engagement which you get pressured out from one end of the spectrum and you live that and I wondered if you could show your perspectives on that and then we'll shift to the pressures on the other end of the spectrum that you also get in today's world.

Ron O’ Hanley: We are the subject of pressure, so I'll talk about them on both sides. So from an investment perspective ESG is not new to most investors. If you think about the investment World many of the people here, we're long-term investors are the people that ultimately invest in Us in the institution have long-term liabilities. So if we think about investing for the long term and if you're thinking about investing for the long term, you have to think about risk and risk is nothing more than the proposition that more things can happen than will happen and over time that number expands. So at it's very simplest the way investors like State Street have got to think about ESG over the years is that we're very long-term investors. And over a longer period of time things like climate things like Workforce things like the health of communities actually become very very important the problem and what's happened really around the world is that financial institutions are often used as enforcement mechanisms for desired policy, or in some cases in actual criminal enforcement if you think about kind of anti-money laundering and all that. So there's been enormous pressure put on the financial institutions to actually divest and to me there is not a dumber thing in the world than to put pressure on an investment manager or for that matter an asset owner to divest because if you think about what we're talking about here, we're talking about remediating carbon emissions. Well, where are you going to have to invest if where does the world have to invest if you want to remediate carbon emissions you have to invest And the high emitting Industries, but at its simplest form the divestment of pressure actually says we don't want you investing in these Upstream companies. We don't want you investing in these cement manufacturers. And so what gets accomplished out of it. Well, the portfolio gets decarbonized. Does the air we breathe change not at all? And this is the problem with having this kind of divestment debate and it's why it's really not been constructive. And if you think about how much investment is actually going on and some of the accomplishments that Giulia has been talking about that didn't come from portfolio divestment that in fact came from the high emitting industry saying we are going to reinvest in our business and we're going to change the way we're producing these kinds of products. So it's become very important for us the investment world to try and send this message to say that ‘If you want to accomplish if we're really about atmospheric decarbonization, then we have to invest in those things that are going to do it.’ You know, on the other side if you want me to get to that…..

Rich Lesser: Actually before we do that actually because I would be very interested. Giulia you live in the part of that world as well. Do you have any comments on that? And then I'll come back to you.

Giulia Chierchia: Yeah, no.

Fundamentally agree with Ron. I think If we want to have any chance to deliver in terms of decarbonization and energy transition, we need to work together. And Investors with organizations such as ours working together is a prerequisite of actually making it happen. I think there's an additional element that you were mentioning which is if you look at companies such as us to give you a sense from 2023 to 2030 we will be investing 55 to 65 billion US Dollars into what we call our transition growth engines. Those numbers actually drive scale. If you look at some of the levers to actually decarbonize (unintelligible) sectors such as hydrogen, you actually need the ability to deploy Renewables. You need the ability to actually produce hydrogen, you need the ability to actually transform it into ammonia to then transport it to re-crack it into hydrogen and there aren't many organization with global scale production and operations capability and trading capabilities that can actually achieve that, plus the relationship with customers. So I think there's in addition to what you are saying there's a whole point about investment balance sheet and capability as well as skill sets to actually make it happen.

Rich Lesser: Ron now let's flip to the other side. So now you're also getting pressure from people who would prefer you not to be Factoring in ESG considerations the woke investor, the woke capitalists. So that's the newer form of the pressure from the edges. How are you and I think you've actually personally had to deal with some of that. How do you respond to that side of things? How are you dealing with those sorts of pressures?

Ron O’Hanley: Well, the way we've tried to respond to it is go back to the principles that I just described, right. That it is about long-term risk. It's not a value judgment. It's not about value. It's actually about value over the long term. Where is value going to be created and where will it be derive from? I think part of the whole so called anti-woke reaction to has been this since I think in some ways it's a reaction to the divestment pressure. And those asset owners asset managers that have appeared to respond to that in this sense that that shouldn't be part of it. I mean if you ask me what I'm more concerned about I'm actually much more concerned about the divestment pressure because this transition is going to be a long one and as Dan said it's long but an absolute terms and certainly relative to other energy transitions that Society has gone through we're trying to pack a lot in into a very short period of time there will be twists and turns right.

I mean everybody felt good coming out of Glasgow coming out of COP 26 at Glasgow and what happened just a few months later, right? It was the invasion of Ukraine and we realized that this transition is going to have its obstacles. It's going to have it twists and turns. And that it's just unrealistic to not respond to those. Even the so called north south divide, I think that's less about is it are we pro-climate anti-climate it's more that it's a general way to say that the south actually come much further along in terms of Economic Development. Is it really appropriate to say ‘well, hang on wait 25 years we got a bunch of Renewables in place and then we'll get power to your country,’ right? That's just not practical. So I mean it is unfortunate the amount of politics that are in here. But if you ask me what I am worried about most it's this divestment portion because ultimately there's plenty of capital out there, but that Capital needs to be marshalled and needs to be put in place. There's a lot of things that need to be done to make it happen and divestment an divestment pressure will actually, I think, slow down this transition as opposed to accelerate it.

Rich Lesser: Do you want to add something Hiro?

Hiro Mizuno: Yeah. I think I totally I agree with Ron. I mean the divestment is another example of like creating a mismatch because the most of the company who are target of the potential divestment they have a lot of cash. So actually that resulted into the other much more cash generating investment opportunity for the people who don't care about these issues. So that actually works the totally different way, er, opposite way. And then the other thing is like, you know, coming back to the EV, you know, though, the investors are excited every time that they hear from the automakers saying like we are going to invest like a 30 billion, 40 billion like into EV and I always wonder who's gonna prepare to finance that such amount of the capital to those automakers. I'm not afraid to say this but Tesla and Toyota are probably the only two automakers who has the other very little debt on the balance sheet. Everybody is so heavily indebted and then they are saying like they're gonna invest 30 billion 40 billion. I don't know who's gonna Finance it. So I think the one hand the financial industry are trying to push the other, you know, the companies to make a commitment and also we make our commitment too, but it's all about commitment. But there's no really, you know, the concrete roadmap how to finance that commitment and that's where we have to work together to make sure, you know. Your presentation showing the weighted average cost of capital is lower for sustainable businesses, which actually I doubt. I think that probably haven't delivered yet. So if we and financial industry can make sure the cost of, you know, the capital for those businesses who don't commit to sustainable business transformation have to suffer higher costs of capital then move the needle. But at the moment I really still doubt that we haven't get there yet.

Rich Lesser: That analysis was specifically in Europe, but I agree with you the pressure of expanding, making Capital available to the people who are driving this whether they're existing players in industry or not is going to be incredibly important. I want to come to the policy side for a minute

Dan Yergin: You had a very good formulation, actually, that I think really stuck in my mind as you said it which is divesting a portfolio is of is not the same as the decarbonizing a portfolio is not the same as decarbonizing a the world and I think that's a really important distinction and it's kind of sticks in my mind. I think it is valuable to say well, you know one area that's gonna need investment are the supply chains for this and I think it'd be very interesting to hear, you know, the Tesla view on, you know, if everybody else does what you've done what does that mean in terms of minerals and what's needed in terms of the supply chains? And I know Giulia you have a perspective on it, too. I think it's a very important part of this discussion.

Rich Lesser: Do you worry about access to minerals that you'll need to do This, with the Tesla hat on?

Hiro Mizuno: I think recently on our investor day, you know, Elon show that the plan to carbon neutrality. We believe that with the existing minerals and etcetera we can achieve it. But also there's a lot of hiccups because the given the IRA that we can only sort from a certain part of the world. And then also we still haven't be able to really sophisticatedly process, you know, the way to process those minerals. So I think we have enough Reserve but the how to cleanly process those and how to make sure that that’s aligned with the oldest, you know, Economic Security issues is going to be a big discussion.

Dan Yergin: Before Giulia comes back, I just wanted to say if you think about it in terms of minerals that's another example of the breakdown of globalization. With so much of the IRA is this we compete with China. China has this very strong position in minerals in terms of processing and you know, we're seeing what's happening with chips and other things and you know, it's moving the same direction. Really that's what the IRA is partly about.

Rich Lesser: Giulia, you want to jump in?

Giulia Chierchia: Um, yes, we do worry about the implications on the supply chain of the energy transition. So if we take copper as one example. If you are to deliver in terms of energy transition, you need to actually double the supply of copper. And if you account for recycling as, you know, even with pretty ambitious assumptions in terms of recycling, you're still left with a 20 to 30% Gap in terms of copper Supply to deliver on the energy transition. That's one example. Platinum, which is critical towards our hydrogen objective is also clearly in the radar. Nickel Cobalt. But it's not only mining. It's also panel Supply. It's electrolyzer Supply. So I think there's been a lot of focus on what the Energy System should look like in terms of delivering on the energy transition. I don't think put as much focus on what are the implications in terms of supply chain to actually deliver on the energy transition. So yes, I think there is an area of concern.

Rich Lesser: So one thing, are the QR codes available for folks? Can we make sure that they're available? If someone has a question they want to submit we will leave a few minutes. We see them up here. Oh there they are. Perfect. Thank you for putting them on screen. If you have anything use the QR code and let me know.

Since we've started down this path, one of the questions I wanted to get is: what are the challenges that keep you awake at night? Like right now, what are the things if we want to keep moving forward at speed and I think one of them clearly is the critical mineral Supply. So we talked about that a bit. What else is on your minds? Ron?

Ron O’Hanley: I agree with the statement. I think the IRA was a brilliant piece of legislation and I think actually was made better because a lot of compromises needed to occur to make it possible.

Rich Lesser: We didn't know we were doing this in a rain forest…

Ron O’Hanley: Every time I speak waterfalls. Yeah, but…And this is a challenge really in most of the developed world. It's how do you tie this all together? And how do you streamline permitting? Because if you go… and you had that chart in there that showed, you know, it showed the value chain and the problem with all the legislation and the incentives so far. It's incenting a particular Silo. So we're incenting the production in the consumption of electrical cars. But if we solve the electrical distribution problem - We haven't yet - and the big problem in the US is around permitting and it doesn't get any worse than in the blue states. I mean try to put anything in, try to put an electrical substation in any kind of blue state SMSA here in the United States, it's just not going to happen let alone to be putting lots of high tension lines across these states. So we've got to get….What I lay awake at night worrying about is if we don't get permitting and have the permitting streamline producing all the hydrogen in the world producing all the electrical cars in the world. We're not going to knit it all together and actually enable it to work as a system that it needs to.

Rich Lesser: Anything anyone else wants to add on the challenges side then?

Dan Yergin: Well, I think sort of following from that is the stability of electric power system the demands that are being put on the electric power system and maybe the mismatch between the supply system and what the demand will be in the ability to deliver it. So that's one thing. You know, California's electric power system has a lot of fragility built into it, actually, that maybe is not well recognized. But those who live in California may encounter it. I think the other thing that's kind of on my mind is Barbara Tuchman's book called The Guns of August about the origins of the first World War. That's on my mind a lot now with the rising tension between China and the United States.

Giulia Chierchia: Yes, so agreeing with everything that has been said I think I would call out. Policy meaning we love the IRA. I think it's a game changer. We'd love to have IRAs all over the place in terms of ability to accelerate. Now the EU is responding to the IRA. That's one and I think the second one I would say is - and we face it every day and we mentioned it- is this: It's going to take time and it's going to be bumpy and we need to sync the pace in terms of supply and demand. So I think to me one of the challenges is how do we actually understand that it's, we can't do it from one day to the other, but this is a continuous effort and with hiccups along the way so..

Rich Lesser: You made a comment and I just want to pick up on it and test with all of you because you see it from different angles. If you'd have asked me six months ago I would have been very positive about the IRA but I would have been very concerned that other countries seeing a number of Fairly strong anti-trade elements to it would be very angry about it, which I'm not sure has changed and would if anything, protest or do things that would delay. Instead what we seem to be seen is more people with their own forms trying to replicate it or not replicate it, that's too strong, but put in their own models to compete with IRA which is more of the race to the top that I think many of the bill’s proponents were hoping we would see. That's a fairly optimistic view of how the policy landscape’s shaping up on this and I just want to test with all of you. Does that feel consistent with what you're observing? Do you feel like we're in a race to the top to get policies that are accelerating this at a faster pace not just in the US but more broadly?

Ron O’Hanley: Rich, I think you're right on a couple of levels. There's been this almost instantaneous reaction in Europe. First it was around ‘this is anti-trade’ and then it's ‘well, what are we going to do about it both from a policy perspective’ and you're seeing extraordinary interests in from particularly coming out of Europe in how can we out of Europe take advantage of the IRA. In my mind that's only good. It's going to blunt the concern over protectionists regulation because nobody's prevented from investing. You just got to invest here and you got to be here and I think you'll see that kind of competition develop.

So I think that what's come out of the IRA is healthy. From a policy perspective it's not a Thou shalt. It's a here's different ways that you can potentially make money choose how you want to invest or choose not to invest at all.

Dan Yergin: I was gonna say, we say Europe's reaction. I think we have to divide between companies and governments. I mean the governments really don't like it. It's not the style of, the way the Europeans like to do things. They like to give really detailed prescriptions about what to do with what they call their taxonomy and other things. I think for the companies it's pretty interesting the opportunity too, and therefore people. I see companies that are definitely saying we're pivoting from Europe to the United States. They're also troubled by the disruption and energy supplies to Europe. You asked about concern. I think there's one other thing that people have been focused on much I would say is uranium something like 48% of the world's uranium for electric power for nuclear reactors is processed in Russia, and that so far hasn't been disrupted, but it looks like more restrictions are coming.

Hiro Mizuno: I think the IRAs like, you know definitely has a positive impact but the other it's really confusing and it takes a lot it's some time for the other nations that the company to really figure out how they react because the other some of those requirement actually result in a higher inflation more cost to the customers of products. So and then also it's actually taking some opportunity out from other countries, like, you know, the some of the additional already made not to build the factory in Europe, but in the in the US, so there's a lot of Shifting investment and then we really need to find a way to increase the total number of the other money invested into the this green shift rather than the spreading into the different part of the world. One of the things I want to raise. Like a five years ago we are only talking about which investment is green which is brown and now we are talking about what we need to invest in the transition. But we really need to make sure that all the transition Finance are the KPI to accelerate a transition because I saw the many transition finance and actually result in delaying the transition. So that's one thing we need to make sure because as the transition finance will become much more, you know, take the center stage of the other green things. A discussion for you know, probably for the next couple of years. So we just need to make sure that to have that KPI to accelerate a transition.

Rich Lesser: Great. I've gotten a terrific set of questions for our final 12-13 minutes that have just come in. So let me try to do the first one. It’s long and Ron it's for you. I will try to get the gist of it but basically: as the finance industry's gone from moving from reduced Finance emissions to financing emissions reductions that adds a lot of complexity and particularly what does it mean for things like G fans and the ability for the industry to make decarbonization commitments, you know, given the sort of shift in mindset that you and others on this panel have been talking about?

Ron O’Hanley: I think what's happened over the last couple of years particularly once the war in Ukraine started is there was a recognition that this is complicated and that it's just not as easy to ask for insecure commitments particularly around portfolios because again, going back to what I fundamentally believe, that portfolio decarbonization doesn't necessarily translate into that and in some ways could starve the appropriate kind of investment that's needed and a transition. So I think what investors now are increasingly turning to is Transition Frameworks to be able to understand industry by industry what is this going to look like and recognizing that there are there's, one - like I said earlier you got to invest in these industries - that so-called Brown Investments may be appropriate if you're on your way from brown to green. So I think it's become more complicated for the financial services industry. But I mean, these are very smart people that populate it. Again, I would come back to that maybe the biggest obstacle to it will be these kinds of mandates that you can't make, you know, we're going to look at your loan portfolio and see what percentage of your loan portfolio is to the oil and gas industry. Well, if the oil and gas industry is doing things like BP is doing, like Occidental is doing, like Exxon is doing you're going to want to lend to them. You're going to want to actually make these kinds of commitments. It's just not as simple. You know, it's these kinds of commitments that were being asked for. Similarly, the so-called scope 1 scope 2 scope 3 kinds of counting again. It's useful to be able to understand what's going on. But if it's used for some kind of naming and shaming and that somehow you're not doing what you were supposed to do without actually rigorously analyzing. Where are they on the path to transition? So it's made it more complicated. Rightfully, policymakers and the public are interested in where is the progress occurring? So we do need ways of counting where we are and trying to figure out where our progress is. I mean, none of us should be satisfied with ‘we're gonna get there in 2050. Don't worry. We'll revisit you in 2049.’ I mean we can't live with that. We do have to have interim measures but they're just not as easy as what we thought they would be.

Rich Lesser: You said the industry smart and I have no doubt about the intellect of the Industry, I do think there's a challenge to the credibility. There was a lot of skepticism around G fans and how to interpret the seriousness of this. Can you make the pivots you need to make to be smart about how you deploy capital in the ways you just described and still maintain the credibility that the finance industry is on a path that has legitimacy for that portion of the population that cares deeply about this?

Ron O’Hanley: I think you can but it's going to require a lot more sophisticated measures than so far that we've been willing to look at. Again, it's just not as simple as my portfolio at this amount of carbon last year and it's now about this this year and we should feel good or bad about that. It really is about what is the nature of the Investments that the underlying companies are making and are they working their way towards the transition.

Hiro Mizuno: I think we can and then the finance can. But I think that what they have to work out is the Financial ecosystem so interdependent and then they actually have to hold each other accountable. Without the S&P change in the index like, you know, State of Street cannot really change their portfolio and then without the customer demanding them to change the other Benchmark. Nobody can change the portfolio. So the everybody have to agree on the other the common goal and without that, competing within the other Silo of the each industry is not going to move the move the Capital Market in that direction.

Rich Lesser: Dan, one of the questions here is about the rapprochement between Iran and Saudi Arabia. It's a topic you've written extensively about and how you view. Is it what it's purported to be how you see its implications for the global?

Dan Yergin: I think they've done it both for practical reasons. Iran was highly isolated and Saudi Arabia wanted to reduce conflict in the region particularly focused on the war in Yemen. I think those discussions clearly have been going on for a time. This was definitely seen as a unique first time that China has taken the lead in a big diplomatic thing and I think it caught Washington by surprise to see that. It's a sign of the changing balance. The US is becoming less engaged in the region and is perceived as less engaged in the region and the countries. I did a panel with the Saudi petroleum Minister last October in Riyadh and there was a lot of controversy then between the US and Saudi Arabia over oil prices and you know, he said, you know, ‘we're the mature ones. We're pursuing Saudi interest’ and the room was thunderous in applause. So I think it's a change in orientation. China is the big big market for both those countries for their oil. And so I think it was in a way that particularly Saudi Arabia is this Regional and Global role. So it does reflect a change. But do note that just around the same time Saudi Arabia bought 35 billion dollars’ worth of Boeing Jets. So there's still a very important relationship there.

Rich Lesser: Giulia, one of the topics that I wanted to get into was the Just Energy transition and BP’s put an enormous amount of thought in that. I did stuff with Bernard a year ago on this topic for the council for inclusive capitalism. One of the questions that came in is related to this. So I'll let you take it however you want, which is: can we move from nimbyism to yimbyism. I hope that's correct. ‘Yes in my backyard’ as opposed to ‘not in my backyard’ as we try to sort of evolve to a more robust Energy System to doing this. So how maybe you could speak a little Just Energy transition, but also this sort of challenge of nimbyism that we've been wrestling with as we try to put the infrastructure in

Giulia Chierchia: Yes, so we see the just transition as critical to everything that we do and we look at it from two standpoints. The first one is a very strategic standpoint. You know, our purpose when we launched the new strategy was reimagine energy for people on the planet and that's what we're doing. The notion of continuing to supply to the world the energy that the world needs today at an affordable price is a manifestation of just transition. Dan was talking about it, right, the global south divide and we were talking about the implications of IRA in terms of policy for other geographies. And I think the IRA has had a very significant implication on the developed market. Now when you look at developing markets, the realities are very different, right, and some of those countries think about India, China are transitioning. But they are transitioning for different reasons, right. India is looking to achieve energy Independence right to reduce the cost of energy. So the first manifestation of just transition is just embedded within the nature of our strategy which is deliver energy today and the energy of a future the second dimension is more of a sustainability Dimension. We have ingrained the just transition through one of our sustainability aims - Aim 12 - and we look at it with two lenses. One lens is: How do we enable just transition within our Workforce as you can imagine there are implications when you're moving from an international oil company over time to an integrated Energy company in terms of talent capability, and how do we repurpose some of our capability towards low carbon and then just transition in terms of impact on the communities in which we operate. So as an example, we're partnering with the city of Aberdeen in terms of what a just transition could look like for the city of Aberdeen as they move over time from hydrocarbons to Offshore wind and other Technologies. We're doing similar initiatives in t-sites where we're creating 25,000 jobs. We're working with Oman to actually enable it. Beyond that, there's obviously a very big topic around the global south divide right and that's going to be very much one of the areas for COP. So we'll see what happens.

Dan Yergin: So can I add to that? I'm on the energy think tank for the Indian government. I think I'm the only non-Indian on it and I've been very struck that they don't talk about energy transition. They talk about energy transitions, in a plural sense. Meaning that, first of all, there are different paths for developing country. For, you know, hundreds of millions of people maybe it's a billion people around the world, energy transition is moving from burning wood to using liquefied petroleum gas. That's an energy transition and not having indoor air pollution and not having women spend hours gathering wood. That's an energy transition too. So, I think that just transition as Giulia is talking about it takes on, again, complexity when you're talking about the developing world where 80% of the world's people live.

Rich Lesser: So we're almost out of time. We have probably two or three minutes left and I just thought in closing maybe Dan I'll start at your end. We'll just work down this way. What are you most hopeful about or wanting to see in the next 12 months to address the challenges of the energy security side, but also the continued progress on decarbonization?

Dan Yergin: Well, I think we have to continue to keep energy not forget that energy security is really important because I think it's really hard really to see how you have an energy transition without energy security. But what I'd like to see is progress on permitting, as it's already been pointed out, and I think maybe 12 month time’s too short, but the answers ultimately are going to be technology.

Rich Lesser: And which Technologies?

Dan Yergin: Well, I think we're going to find out. That's the great thing about the IRA is it says go for it. And let's see who can do what.

Rich Lesser: Ron for you

Ron O’Hanley: What I most hopeful for is just more clear Market signals particularly on pricing. I mean that is one of the beauties of the IRA is that there are Market signals in there. There's incentives, but now we have a market signal on hydrogen. We're still were working really hard in the US to solve the problem. Yet we have not put a price in Market signal related to carbon. So if you want consumers to behave in a particular way, you need to have a market price signal in place.

Rich Lesser: And where would you look for the market pricing signs? What are you hoping to see in that?

Ron O’Hanley: Well, I mean what you really hope for is a price on carbon in the US. We're not going to get there. We're not going to get that. So you you've seen some progress towards it in the IRA right through incentives and there actually is a price signal in around hydrogen. And so I think we need to do everything we can that looks, Sounds, feels, smells like price on carbon but somehow lets body politics and say we didn't force a price on carbon.

Rich Lesser: An interesting needle to thread but IRA was a chance. Carrots are part of that Journey. Hiro?

Hiro Mizuno: I really want to see the progress in the disclosure standard in on sustainability because the lack of standard in a disclosure has been kind of hinder who genuinely believe in the need for action. To take an auction and also use that excuse not to take an action. But you know for by the people who don't believe in this agenda, so, you know, I think the other if we can progress like what we are working ISSV in Europe as in the US like SEC is working on it so that if we see the real progress on the disclosure standard this year, I think I will really affect the those two different group of people to take an action at the end of the day.

Giulia Chierchia: I'm hoping for many things externally, but I think I would just say Delivery. We are clear on what we need to do and that's what we're focused on and so that's what we'll be looking for in terms of progress for the next 12 months so that we can bring continuous proof points that we're just progressing and delivering.

Rich Lesser: So I just want to say an enormous Thanks to Dan, Ron, Hiro, Giulia. It was a really interesting panel and your perspectives I think educated us all on the real challenges, but also the opportunities on where we are Thank you all for joining us. Thanks everyone.