Jane: Hello, and a very warm welcome to the LSEG Sustainable Growth Podcast, where we talk to leading experts about sustainability, finance and pretty much everything in between. I'm your host, Jane Goodland, and this week I'm talking to Franck Gbaguidi from Eurasia Group, which helps its customers and clients to understand political risk and opportunity. Frank is the practice head for sustainability at Eurasia Group, helping its customers to navigate geopolitical sustainability risks and opportunities. And he previously held a number of senior roles at the World Bank and also the International Finance Corporation. So we are in good hands. Frank is busier than ever, he tells me, helping its customers around sustainability. So I'm really interested to hear what he has to say. So, Franck, welcome to the show. Thanks so much for coming because I understand that you are normally based in Nairobi, so it's great to have you here in London.
Franck: No, thank you so much for having me. I'm a big fan of the podcast, so I'm really excited about today's conversation.
Jane: Great. Good to hear it. So today we're going to talk about geopolitics and what that means for sustainability. So perhaps the best place to start might be around just helping us understand who Eurasia Group is. What sort of things do you get involved in?
Franck: Yes. So it's a busy time for us. As you mentioned in your intro, we are a political and geopolitical risk firm, both on the research side and on the advisory side. We've been around for like 27, 28 years, but it's really in the past 4 or 5 years that we've seen a shift in the amount of interest for geopolitical risk when it comes to businesses, when it comes to the private sector, when it comes to financial institutions we have two types of clients. If I am to oversimplify things. So on the one hand, you have the big multinational corporations. Those are the ones that need geopolitical advice and support to better understand how different jurisdictions are moving and how you can impact their business. And on the other hand, we also work with financial institutions. So across the spectrum. So whether it is commercial banks, multilateral development banks, insurance companies, asset managers and the list goes on and on. So I really like that setup, because it gives us a 360 view as to how the private sector as a whole is looking at all of the issues related to policy and geopolitical risk across the world. And I am lucky enough, as you mentioned, to lead the sustainability department. And we cover all of the big topics. So it's not just about climate. It's also about biodiversity, plastics, water, environmental litigation. And we get to go deeper now with our clients than ever before, because the reality and the physical impact of climate change and sustainability risk is becoming a lot more acute.
Jane: And I'm sure that you've gotten busier and busier as things get more and more complex on the geopolitical spectrum. And actually, that's one of the reasons why you're here today, because LSEG and Eurasia are partnering really to start to unpack some of this geopolitical dynamics. And of course, we're most recently focussed on the sustainability angle, but there's other elements of that partnership too.
Franck: That's right and I'm very proud of this partnership because especially the sustainability piece of it while we are trying to do here is help the world better understand where we are and quiet the noise and chart a pathway as to what the future will look like, how to better approach the risk, and how to turn it into opportunities. I'm very proud of the report that we put out during London Climate Action Week, focusing on how to recalibrate energy transition and climate finance in this time of geopolitical chaos in this time of geopolitical fracture. Hopefully will help all of the readers around the world to better understand where we're headed. And I guess the main point of that report, and I encourage everyone to go check it out, is that climate finance is not dying. ESG is not dead. Sustainability is not over. It's just a phase of transition, evolution and better adapting to this era of reckoning and actual action versus aspirational work.
Jane: So we will come back to some of the themes in that report, which is looking at the role of multilateralism, for example, versus economics. So we will come back to that because it is fascinating. But let's start with a better understanding about what your clients are asking for. Like what sort of support do they need from you guys at the moment?
Franck: On the sustainability side, it has changed so much just over the past year. I remember just a couple of years ago we would get simple questions around, what do you think about our targets or what is your take on this new climate policy from Indonesia or this new climate aspiration from Chile? And now it has definitely matured. It's a lot more sophisticated. It gets more granular. I get questions around low water levels in Spain for agricultural clients. I get questions around what's happening around the Colorado River and how the different states are fighting for their main basic resources. I get questions around how Asia and particularly China, is going to position itself when it comes to the energy transition now that the US is leaving the Paris Agreement. So you get sector specific questions as well as country specific questions. But every single time the common thread is what makes sense for us. And how do we not just focus on what seems to be good for the planet, but what makes business sense? And I think that's the biggest shift. It's kind of like looking at sustainability from a mainstreaming perspective and how it actually helps you increase your commercial viability or at least limit the risks there. And that connection and that direct link was not the case before. We had sustainability questions that were seen as cost centre just about annual reports just about, thought leadership pieces and external PR activities, whereas now it's about actual risk. The operational team's working with legal and environmental risks. So it's a lot more concrete than it was in the past.
Jane: Yeah. And I think that definitely resonates with me, because I feel as if the conversation has shifted in actually a relatively short space of time and got really focussed on the commercial realities of sustainability, risk and also opportunity. And, as a result of that, it feels like sustainability is quickly becoming part and parcel of one component of corporate strategy, which is really where it should be sitting. In terms of thinking about, how companies are going to navigate these big sustainability macro themes to ensure that they can continue to create value over the long term. Which takes me to, I guess, my next question around time frames. I think often when we talk about topics under the sustainability banner, like climate change. It's very tempting for people to say, oh, don't worry, this is something that is in the future. Therefore, this is not something that we need to think about now. Talk to me about time frames. What sort of conversations are you having with your clients, which might indicate that this notion of putting things off, actually is, perhaps a bit outdated and maybe now is the time to start factoring this stuff in.
Franck: That's a good one, Jane. This is where a lot of my clients struggle the most. You have the political time frame, which tend to be very short. Whether a political term would be four years or five years, sometimes two years, when you include mid-term in the US context. And then you have the reality of businesses, and most of them are looking at a 5, 10 year outlook, or my pension fund clients are looking at 25, 30 years.
Jane: Of course.
Franck: So, how do you make those longer-term decisions based on what you see today? So that's the status quo. But the reality of where we are is that short timeframe, those 4 or 5 years, then sometimes 2 to 3 years has become even shorter, because now we have policy decisions that are being made on Monday, and then on Tuesday they are being reversed, not just on the US side, but also at the EU level. We saw it with the EU conversation, deforestation regulation, CBAM, all that suite of policies as part of the EU Green Deal, where we see the back and forth from different European governments literally on a daily basis. And so that increases that gap between the reality of businesses and the political realities of appointees and governments across jurisdictions. So I think what's difficult for our clients when they look at that gap between how short space policy discussions have become versus long-term, their strategy remains. For them, they're trying to make sense of what matters and what doesn't matter? And this is what I framed in my work. And as part of the notes and the reports that we send to clients on a regular basis. Sustainability policy volatility. I think for a lot of us now, particularly with the new US administration, we've got used to the fact that things may change at a very fast pace. And so you don't need to hold your breath every single time there's an announcement, you can pause, you can reflect and be like, okay, let me kind of like, see where this goes in 2 or 3 months and see if that is still a thing or if a Supreme Court reverted the decision, or if the administration itself has decided to change its mind.
Franck: From a European perspective, we're not used to that at all. We know that when Brussels says something. Typically, once you have the green light from government, for companies, it's very clear. I can go ahead and so I have so many clients who have deployed millions of dollars literally to get ready for those EU Green Deal policies. And now those are starting to be reversed or simplified or changed or edited once they have already been adopted. And so that sustainability policy volatility is one of the biggest challenges for bigger challenges for our clients, because they are trying to very much so make sense out of oftentimes political nonsense, not just from a US perspective, but also from an EU perspective. And crossing that bridge is going to be a fixture and a big problem for at least the next four years. And it's something that I think will require the private sector at large to be a lot more creative, to be a bit more patient and to look into resilience, not just from a climate perspective, but also from a pure business perspective and from a monitoring perspective. So we try to help them with that. Of course, it keeps us very busy, but it's something that is completely new in terms of how to approach sustainability policy, which tend to be very long-term. And it's like you see something happen and then you can go ahead and get ready now. You have to monitor it on a daily basis because it might change as we speak.
Jane: And that's the picture we're seeing globally, right. I mean, and this is an issue that international companies have to grapple with because it does feel like no longer are we in a place where we can have a sustainability approach and strategy and then execute, regardless, actually, it's really thinking about at a quite a granular level, what that approach might mean in a US context or a European context or an asiapac context, because actually the policy environment is pretty different in those areas, right? And even within those regions, we're seeing a lot of, I wouldn't say fracturing because actually, I think that's probably a bit too strong, but we are seeing some nuance and differences, and particularly if you look at, say Asia certain countries, taking quite a progressive stance while others a bit less so. So this whole area of policy and geopolitics is definitely rising up the agenda for sustainability professionals and business leaders to really wrap their head around, isn't it? Which is probably why you are busier than ever because we need people like you to help us navigate this. So let's just think about the policy response to, picking obviously a big sustainability issue of climate, for example. And this is where we touch on some of the report findings. And it's really about looking at historically and now I suppose that the main response to climate change, which is of course, a global issue, has been through a multilateral response. And by that I mean the Paris Agreement, where we have 198 countries who are participants of that agreement. And thus far since that was enacted, what, ten years ago, that has been the response that we all sign up to a common view and a common consensus. And then we at the country level, play our part. What do you think we're seeing now? Is that still effective? Should we be asking ourselves whether or not the Cop process is still fit for purpose?
Franck: That's the million dollar question, isn't it? I mean, obviously we have so much backlash these days when it comes to the multilateral process, but the one thing I would say is that it's not a new thing, that criticism existed even during the Paris climate agreement negotiations. I remember being in Paris at the time. That was ten years ago. You're right, time flies. And people were already questioning the effectiveness of the process, I think here and now, it's different. Because I think part of the problem is the misunderstanding of what the UN tries to do in that space. They always set a North Star and a very aspirational goal, a direction of travel. That doesn't necessarily mean we need to meet that target. It's the idea is let's all move towards that goal. It's very hard for private sector actors to understand that because for them, if they have a target, they genuinely try to meet it, they try to match it, they're trying to get there, and they roll out a plan so that they can reach the target. From a UN perspective, they already knew that the SDGs would never be met by 2030. They already knew that the 1.5°C outlook by the end of the century was a bit of a stretch.
Franck: The idea was, let's do everything that we can. Let's do every single thing that we possibly can so that we can reduce the risk for all of us. For companies, for communities, for countries. And so I think that's the most important distinction because once you recalibrate, I guess, your expectations when it comes to the multilateral process, then I think you appreciate it for what it is. The second thing I think with the Cop process is perhaps we put too much weight onto that one single event, right? So this idea that every year it will be those two weeks of climate COP discussions that will solve all problems that we have in that space. And what we're seeing now is that it's no longer the one stop shop for climate finance decision or for climate decisions, period. You have more actions that is being made in New York Climate Week. There was a DC Climate Week this year for the first time in London, recently, the London Climate Action Week was bigger than ever. I mean, I've been and I know you've been also like, busier than ever in London as, that we like unfolded. That tells you that the conversation has gone beyond the scope of just the cop, which I think is where we need to go.
Franck: So the process is no longer effective, but I don't know that it has ever been that effective because we had unrealistic expectations. And now to me, it is doing what it was supposed to do. Give us a starting point and making sure that people are continuing those conversations outside of the COP process. The whole question is around reforming COP and merging the COPs, the climate COP, biodiversity COP, the certification COP thinking about who can join or not join, thinking about the consensus process, all that UN nitty gritty. It might change, but I don't know that it will be that consequential. What will really matter at this point, now that we have those 198 nations that have set up their targets, is what's happening at the national level and how those different nations are coordinating efforts to make sure that it makes sense from a regional perspective and from a global perspective. What we're saying in the report is that you basically now in that space, have China and the EU that are pushing and driving that effort. But they're not necessarily doing it because they think it's the right thing for the planet. They're doing it for economic purposes. They're doing it because of competitiveness. They want to maintain their edge.
Franck: They do it because they want to win those new markets. I cover the plastics treaty negotiations, and every time I talk to big delegations there, they always tell me what we're trying to do Here is what we didn't do with the Paris climate agreement that unleashed a whole new world of opportunity for renewables. So if we get a treaty that will help end plastics pollution, that will create a whole host of incentives for different kinds of recycled plastics and for alternatives. We want to be first in line. So it is about making business sense and finding those business opportunities that will get us there. And so that in and of itself doesn't really lend or doesn't sit well or is not the purpose of a UN process. I think we have almost graduated from the COP, and they will still serve a purpose in terms of like a gathering process and convening power and making sure that folks like you and I get to catch up and figure out where we are in the world and exchange notes and reset and reflect. But I don't know that it will be the moment that will be a catalyst for actual action. And I think it's okay. And we should all kind of like, be okay with it.
Jane: Yeah. I don't think it's an either or is it? It's an and. I think it certainly feels like perhaps the relative importance of the levers of, say, the multilateral policy lever has been really important in the past and will continue to play a role. But actually, what I think we're seeing and what we're saying in the report is around the economics. And I think the timing is quite interesting because actually, now we're getting to this point where the economics of clean energy. Are such that actually that we've reached a tipping point with that, right? We're starting to see effectively annually more investments going into clean energy than traditional energies. And I think that's a really interesting moment in time, because we've effectively tipped over and we see these really big dominant players in the market on that side of things. Of course, much more to go on that. But nevertheless, it's a really important moment in time. I wanted to touch on another part of the climate landscape. And that's something that we've been hearing more and more about and that's really about adaptation and resilience. And certainly that's come up a lot in London Climate Action Week. And I think probably because obviously alongside the focus on mitigation, which of course is where people started with all of this is of course, the aim is to try and mitigate the impacts of climate change. But there's a recognition now that at the same time as doing that, that we need to get ready as well, because we're already starting to feel the impacts of increased severe and frequent weather events. So talk to me about what some of your clients are saying about resilience or adaptation, whatever you call it. I'm not really sure what the prevailing word is this week, but it's basically the, what do we do to get ready?
Franck: It's so funny, right? Because I remember during the Paris Climate Agreement negotiations, adaptation was almost taboo. Like it was not a good thing to talk about it because that almost meant that you gave up.
Jane: Yes. It sort of admitted that there was going to be a bad outcome.
Franck: And people didn't want to go there. Their people didn't want to jump from mitigation to adaptation. And so the focus has been, I would say like 90% mitigation, 10% adaptation. that's the first part. The second part is that a lot of developing countries were looking at adaptation from a perspective of okay, if we focus on this, that means that there's some sort of admission of guilt specifically visa vis economic developing economies. And that was something that they were also struggling with. And now, because the conversation is unavoidable, I mean, you take the case of Spain, just last year, they had like two back to back massive restrictions in terms of what they use for the agricultural sector because of the low water levels, because the conversation is here, they have to tackle it. There's no going around it or waiting a bit more. Historically, adaptation has been the reality for emerging markets in developing economies. If you look at sub-Saharan Africa, South Asia, parts of Latin America, they have had to deal with adaptation. Same thing for small islands and developing nations. That's what they do from a more developed nation's perspective. It took some time to have that conversation. And now we are here and for a lot of my clients and for the private sector as a whole. Adaptation has basically become the very thing that they discuss at the board level that they used to devise those business resilience plan, and that they also used to now reframe a lot of their climate efforts because it's, I guess, more palatable at a time where a lot of the climate related words can be contentious.
Franck: I think the key is being okay with the fact that we were going to have to continue the work on mitigation while pushing the work on adaptation, and that will be our new normal moving forward. The difficulty, though, with adaptation is the metrics. How do you measure it? How do you look for impact? How do you actually have sound policies that are enabling adaptation? And how do you make it something that every single sector can actually chime in and where investors can put their money in? The two sectors that are historically I guess, super involved in the adaptation space, obviously our utilities and real estate, because there's just no other way they have to. But I fully believe that others will play catch up. Mining, transport, obviously energy. Just because it will permit every single part of their business. To the core, adaptation means getting ready for what's to come and having contingency plans. And what we see is that most companies don't have it. Right now, you just have, like, 1 in 3 companies that have some sort of adaptation plan, but that's already better than what we saw a couple of years ago. It was 1 in 5 companies. So, it's getting better.
Jane: I think it's going to be really interesting, actually, around the kind of climate transition plan thing. So there's been lots of focus on that this week with ISSB guidance coming out and in the UK launching a consultation around those sustainability disclosures. So climate transition planning has been very much a topic of conversation this week. It will be really interesting to see, along with that double down focus, whether or not adaptation and resilience finds its place in there. And I'm hopeful it will, because actually, when you think about an organisation, surely adaptation is very personal for it, right? It's very clear that an organisation can see that investment may be required in order to ensure that it can continue operating in the way it has in the context of a change in climate mitigation. Sometimes I think a bit more distant and a bit.
Franck: Abstract.
Jane: A bit abstract for organisations to really understand what the payback is. So I'm hopeful that actually we will see a lot of progress from the private sector on adaptation plans in the coming years.
Franck: I think you're making such a great point. The thing with adaptation is that it also linked to the s right to social and to communities. And that is something where I feel like we can see conversions between policymakers and the private sector. And I agree, I think we can be cautiously optimistic.
Jane: Cautiously optimistic, I like it. So I'm going to ask one more question. I'm hoping we've got time to sneak it in. I'm curious about your outlook for climate finance, because all of this, all of what we've been talking about, of course, the geopolitical side of things is super important, but we can't really do anything without the money. So talk to me about climate finance. What's your outlook? Do you think we're going to see more allocations to adaptation, to resilience, to mitigation going forward?
Franck: Yes. I think the first point is adaptation. You're right. So definitely more allocation towards adaptation, a bigger focus towards emerging markets particularly Brazil, Vietnam, Indonesia. We saw that even with defence and how they're transitioning their work towards those countries and the transition piece. I think also a broadening of the climate finance space. So before it was pure climate, and now you see a lot more like biodiversity finance, wider finance. So being a bit more creative and adding different layers from the sustainability puzzle. And then perhaps the last point when it comes to climate finance is becoming a bit more sector-specific but also integrating supply chains. I see that a lot when it comes to regenerative agriculture, for instance. So I think the outlook is not that grim. But perhaps we'll move towards an era of less grand announcements where people are saying, look at everything that we're doing and just instead just going to do it.
Jane: Just becoming a bit more mainstream. Right?
Franck: Yeah, exactly. So not a thing to necessarily celebrate, but the right and normal thing to do.
Jane: Great. Well, I think that's probably the place where you should leave it. Thanks so much for coming on the show. Franck has been an absolute delight talking to you.
Franck: Thanks for having me. A pleasure.
Jane: Well, I hope you enjoyed that episode with Franck from the Eurasia Group. If you've got comments, questions, or you'd like to see someone on the show, please do get in touch at
[email protected]. That's all for me. Thanks very much. See you again soon.
