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Lindsey Hall: Hi. I'm Lindsey Hall, Head of Thought Leadership at S&P Global Sustainable1.

Esther Whieldon: And I'm Esther Whieldon, a Senior Writer on the Sustainable1 Thought Leadership team.

Lindsey Hall: Welcome to ESG Insider, an S&P Global podcast, where Esther and I take you inside the environmental, social and governance issues that are shaping the rapidly evolving sustainability landscape.

Esther Whieldon: In this episode of the ESG Insider podcast, we're on the ground in New York at the GreenFin Conference, which this week convenes stakeholders from across the green finance ecosystem. GreenBiz Group hosts the event and S&P Global Sustainable1 was a sponsor.

Today, we'll talk with Paul Bodnar, Director of Sustainable Finance, Industry, and Diplomacy at the Bezos Earth Fund. The fund was created in 2020 with a $10 billion commitment from Jeff Bezos, founder of the e-commerce giant, Amazon.

The fund aims to disburse that $10 billion in grants by 2030 to fight climate change and protect nature. Paul was a speaker at the GreenFin Conference, and he sat down with me on the sidelines to explore the role that philanthropy can play in solving the climate finance gap. He also talks to me about some of the ways the fund is looking to conserve and restore nature.

Lindsey Hall: Now the world has a long way to go to finance the low carbon transition. According to one estimate, the world needs about $9 trillion each year in climate finance from now to 2030. We heard that number in a recent episode of this podcast when we interviewed Sagarika Chatterjee. She is the Climate Finance Director and Finance Lead for the UN Climate Change High-level Champions. We'll include a link to that episode in our show notes. 

Another topic we've been covering a lot is nature and biodiversity. Many companies depend on the services nature provides. In fact, 85% of the world's largest companies have a significant dependency on nature across their direct operations. That's according to S&P Global Sustainable1 research and we'll include a link to that research in our show notes if you'd like to learn more. But at the same time, we know global biodiversity is already in rapid decline due to human activity and climate change.

Esther Whieldon: And as we've discussed in past episodes, addressing climate change and reversing biodiversity loss will require action from all parts of society, including business and government. Let's turn now to the interview with Paul.

Paul Bodnar: I'm Paul Bodnar. I'm the Director of Sustainable Finance, Industry, and Diplomacy at the Bezos Earth Fund. I've been here for about a year. And before that, I spent kind of an eclectic career on climate and finance. I spent some time in the U.S. government, working in the White House and the State Department for President Obama. Spent time at BlackRock as the Global Head of Sustainable Investing, at RMI, Rocky Mountain Institute, creating programs in finance and industry there. Spent time in China doing project finance for industrial decarbonization, about eight years in the carbon market in the heyday of the carbon market, did a start-up and was part of a private equity platform. So have had the pleasure to see this story evolve from many different perspectives over the last quarter century.

Esther Whieldon: And I think this leads nicely to the big picture question, which is you're now at a philanthropic organization. What role does philanthropy play in like filling the gaps here on climate finance and nature as well?

Paul Bodnar: So philanthropy can be very powerful in driving the agenda in an unbiased way, right? So I've worked for governments. I worked for financial institutions. And most actors in the system have a perspective and an agenda. I think a good and effective philanthropy can take a purely mission-oriented view, see over the horizon at what needs to happen and really just focus on driving that change. So that's what I think the special role of philanthropy can be. Even an NGO, a particular NGO has an agenda and a kind of groove that it's in over time and things that it does or doesn't do in a way that it does or doesn't do them.

I think a philanthropy can be very effective in seeding work, pivoting where necessary, making the pieces fit together because even NGOs squabble and compete with each other. So I think that's the most powerful role. So it's not just writing checks, it's ideations, thought leadership, it's convening. It's using a brand like ours to bring people together in that in a really big way.

Esther Whieldon: So you've got this big picture investment of $10 billion by 2030, so about six years now. How far along are you? And what are some examples of some investments you've made?

Paul Bodnar: Sure. So we've disbursed about $2 billion of the $10 billion. We've done a lot on nature. I'm especially proud of the work we've done there. We have a $1 billion commitment to conserve and protect what we have, a $1 billion commitment to restore some of what we've lost, and $1 billion commitment to food systems transformation. So those are the three thematic areas.

In our nature work, we've worked all over the world from Africa restoration, to helping set up the world's largest marine protected area in the Western Pacific, to working in the Congo Basin on tropical forest conservation. Of course, in the Amazon, we've seeded a number of research labs on sustainable protein research. So we've been active all across the nature domain.

And then on climate, we have focused both on decarbonization and equity and environmental justice. Last year, we launched Greening America's Cities, which is a big commitment to help create more green spaces in urban areas, in America's cities, particularly for folks who don't normally have access to nature, bring the nature to them.

We've worked across industrial decarbonization from heavy industry. We worked in L.A. and Houston to support the kind of integrated creation of green industrial hubs in Houston and L.A. We've invested heavily in electric school buses all across the United States and we've supported a number of initiatives to accelerate clean development in the global south.

Esther Whieldon: So in your keynote, you talked about how a blind spot for financial institutions is climate resilience and adaptation. What is the fund doing there? And then what will it take to solve that blind spot?

Paul Bodnar: So I think this is a really fascinating subject because it's been amazing to watch how much fervor and excitement and expertise has been marshaled to drive climate action defined as decarbonization, right? But the other fundamental economic adjustment of the 21st century is actually climate resilience or adaptation to the effects of climate change. And that too requires massive investment by societies.

But because it's been sort of largely framed in the context of the UN climate negotiations, adaptation, finance, which is a line item on a government budget, we've missed a trick here in the financial sector by understanding it as a solutions industry.

So meaning the companies that are going to be and are creating the products, the services and the technologies to help households, companies and governments adapt to a warming world are in growing demand. And if you like decarbonization as an investment theme, you're going to love resilience because it comes with very little of the associated political risk, right? 

Decarbonization is a political football. We believe in climate change. Do we want to increase the transition speed or slow it down? Climate effects are coming at us. And very little that we do, frankly, on decarbonization in the next few years is going to affect how much we will need to invest to make ourselves more resilient. 

From a public good perspective, even though adaptation is going to cost an eye-watering amount for humanity, that amount is not fixed. And one of the things that drives that price tag down is faster innovation in the technologies that we need. And the ones that will benefit the most from that innovation are the poorest and most vulnerable populations that can't pay for these technologies. So framing it as an investment opportunity also helps us have impact.

Esther Whieldon: And you talked about some of the stuff you're doing around nature and food systems. Why are food systems such an important area?

Paul Bodnar: So let's talk about cows, okay? We have terraformed the planet to grow and feed cows. About 1/3 of the land surface of the earth is devoted to growing and feeding cows. Cows make up 35% of all of the mass of mammals in the world. If you put all the mammals in the world on a scale, 35% of that mass would be just cows and humans would be another 35%. And wild animals only make up 4% of the mass of all mammals in the world.

That gives you a sense of how much we have done to the planet to grow livestock, and poultry by the way. So when we think about the very shape of the planet today and its characteristics, we've transformed it to grow protein. 

Now of course, people need protein, and they should have choice in protein. But if we're going to make it through the next 50 years of continued population increase, and increased wealth, which gives access to protein, which people want, we've got to start doing things differently in our food system. So we need simple things like in the Amazon in areas where they're clear cutting forest to enable cattle to graze, the cattle actually graze on much larger areas of land than is necessary.

So we're working to fund to help develop a collar that can buzz that allows you basically to remote control the lead steer in a herd of cattle and move them more efficiently to help them in the landscape, so they have a smaller overall footprint. We're working on things like that. So that's a critical piece of protecting nature in the 21st century.

Esther Whieldon: What do you think is the biggest investment opportunities? So you talked about adaptation being one area. Are there any particular technologies that you're excited about?

Paul Bodnar: You mean broadly, not just in adaptation? Or you mean...

Esther Whieldon: Yeah, yeah like in climate in general. Yes, it can be mitigation or adaptation.

Paul Bodnar: Well, I think there are certain technologies that are reaching maturity like renewable energy or electric vehicles. And it's really interesting to see how those industries, once they get to a certain point in the energy transition, corporate boardrooms stop talking about climate goals because it's just the business, right? The business of auto making is the business of transitioning to an electric auto sector. The business of power generation is the business of transitioning from fossil to clean plus batteries. 

Some of the other sectors that are less far along, I think, are where the most interesting technologies are. And yes, they're individual technologies, alternative steel or cement or other specific, sector-specific technologies.

I think the most interesting framing for those sectors is to think about markets for green fuels and green materials. So we need steel and cement and aluminum and chemicals, right? These are the basic building blocks of the global economy. And we moved them around on ships and planes and trucks, which run on fuel. So the engines of commerce in the global economy. So if you think about how are we going to do that and continue to do that, but with sustainable aviation fuel, green maritime shipping fuel, electric and hydrogen trucks. How are we going to make steel as green steel?

How are we going to make zero-carbon cement or certain classes of chemicals? So thinking of it not as like a nerdy technology A in some subsector of that, but the task of activating markets to drive change. 

In the climate story, for the first quarter century of climate action was a story about governments, right? And people look to governments to solve problems. And the bigger the problem, the more they do look to governments. And so governments in turn, look to each other and they spend 25 years negotiating what became the Paris agreement. Then what, right?

Then folks realized that, oh, actually, a UN committee is not going to decarbonize the global steel industry. And actually, a stack of national targets under the Paris agreement does not equal a strategy to deal with a globally interconnected sector. You have to think and act like the global economy, which is wired horizontally and where governments are not going to like tell each other what to do.

What really drives fast, deep and broad change in the global economy is markets. Finance, technology, business model innovation, those things spread like wildfire. And so we have to activate those vectors in service of climate action. That's kind of our philosophy at the Bezos Earth Fund.

Esther Whieldon: And early on in this interview, you mentioned equity. How does that fit into the thought process or your philosophy?

Paul Bodnar: Well, equity has to be integrated into everything that we do. So we do have some specific grant making that focuses on environmental justice. Some of our very first grants were made to local environmental justice groups in the United States.

I've mentioned Greening America's Cities as another, EJ, equity-focused program. But it's not really a stand-alone thing at heart. We have to think about it in terms of how we design our nature programs and our decarbonization programs. 

Like, for example, we can work all we want on technoeconomic solutions to drive industrial change in the Gulf Coast to create a clean hydrogen economy on the Gulf Coast. But unless we involve local communities, we're not going to get there, and we're not going to do the right thing either, right? Those communities live in heavily industrialized areas today. Building a new hydrogen economy does involve building new industrial infrastructure, even if it's replacing other infrastructure.

We may not be building oil pipelines, but we may need to build carbon pipelines, right? We've seen a recent opposition to carbon capture and storage related pipelines in the Midwest that have led to the cancellation of at least one major project. And that speaks to the importance of engaging with local communities instead of just assuming that because it's green, everyone's going to love it.

Esther Whieldon: At the beginning of our overview, right before we started, you mentioned you wanted to talk about ESG.

Paul Bodnar: Sure.

Esther Whieldon: What do you want to talk about it?

Paul Bodnar: So it's interesting that ESG started, at heart, as a performance framework, right? There was a time when investors just looked at financial information as a basis for making investment decisions and security selection decisions.

And then people realized that there was this extra financial information that could also be relevant that would be financially material and help you pick better companies or better predict the performance of companies, right? And that got mashed together as ESG. But it's just mostly common sense, right? If you want to invest in a company that uses a lot of water-intensive industry, you might want to know how much water that company uses relative to its peers. If you're investing in a services company, you might want to know how employee satisfaction is in that services company. And you want to know about governance quality in pretty much any company.

So to roll up all the things that we might care about that are extra financial that are financially material and call it ESG, that's one thing, right? That's about improving risk-adjusted performance and getting closer to the frontier of optimizing risk-adjusted returns. And that got kind of muddled up with a second objective that some investors have, which is they want to advance sustainability outcomes in the world. And they're using some of the same data sets to look at companies and assess companies.

So if you take an index like the Paris-aligned Benchmark, which is a method of tilting a broad-based index so that the components are tracking towards the Paris Agreement goals, you don't necessarily buy that fund to purely maximize risk-adjusted return, you're trying to advance a sustainability outcome in the world. And so that is a totally different objective than risk-adjusted return. The two often go hand in hand, they don't always go hand in hand.

But the fact that they got muddled together in a time when there was fairly little regulatory oversight on either side of the Atlantic and then started to be more oversight, more regulations in the EU, the sustainable disclosure directive, that kind of started, and that's an appropriate thing, right? It's appropriate for regulation to come in, in a market which is experiencing a problem and start to sort it out.

The unfortunate thing is that at the same time, it became politicized. And an ESG became a kind of political artifact that was disconnected from all of this healthy market reckoning that was happening around labels and how you kind of clean up marketing, for example, around ESG funds and their objectives.

So I think that if we can separate the political from the practical, the practical part can be sorted out. And it probably, in my personal opinion, involves separating out E, S and G and learning from what we've done on climate to build a broader theory of sustainable investing for environmental issues that's rooted purely in science and economics as we do now for climate, right?

So large financial institutions are comfortable talking about climate risk even in Texas hearing rooms because they've become comfortable with why they're taking climate risk into account or opportunity into account for transition. We can do that for a broader range of "E" issues to cover plastics, pollution, natural capital. So that, I think, is the exciting frontier in these areas to build an integrated theory of sustainable investing for all environmental issues.

Esther Whieldon: So we talked a little bit about the food side.

Paul Bodnar: Yeah.

Esther Whieldon: What are the aspects to nature that really need to be addressed and some of the solutions there?

Paul Bodnar: I think when we look at how the financial sector relates to nature, we're in a really interesting moment where we need to build a kind of operating system for valuing nature. On the climate side, we have the benefit of -- we have a reserve currency for climate action, CO2 equivalent.

We have a whole system, the Greenhouse Gas Protocol for accounting for emissions from companies. We have accounting systems for nations. We have satellites. We know where the emissions are coming from. We know how to measure dollars per ton in terms of evaluating different interventions.

We don't have any of that for nature. And as a consequence, we value nature at zero. And because the economy is a wholly owned subsidiary of nature, we can't make correct economic or financial decisions if we value natural capital as nothing. 

So in order to catch up with climate, help the nature area catch up with climate, we're going to have to build all of these systems that we already have for climate. We're going to have to agree on what ecosystem services were even measuring, how to measure the state of them, how to track changes, right? We want to be able to take any pixel or polygon in the world and open a natural capital account for it.

But that requires a lot of science and data management and accounting practices and valuation systems, right? Because today, when you hear people talking about nature-based solutions, for example, in the carbon market, they're talking about nature-based solutions to climate change.

Esther Whieldon: Right, for mitigation purposes.

Paul Bodnar: So the old saying of missing the forest for the trees, they're just interested in the trees, okay? And I say this lovingly. How big is the tree, how much carbon is stored in the tree, what value is the whole ecosystem providing? That's valued at nothing today in most applications.

Putting nature on the balance sheet is if we manage to do that, then we're going to be able to unlock a whole lot of financial flows that we can do today because people look at nature and go, "Well, that's just a kind of big fuzzy and tangible thing." And it has to do with what intrinsic value it has for people. And so we've got to move beyond that.

Esther Whieldon: Do you think that things like The TNFD disclosure framework, The Taskforce on Nature-related Financial Disclosures, will that help advance that? Or is something bigger or different needed in addition to that?

Paul Bodnar: Absolutely. The TNFD is a really important building block but the companies that use it are going to need to figure out what is their impact on nature. What are they even trying to measure? How do they -- if they want to do something about that impact or manage their dependencies also on nature in terms of their business models, then we're going to have to get a lot more sophisticated in all of these parts of this operating system.

Esther Whieldon: Great. Well, thank you so much for the interview. Really, really glad to have you on.

Paul Bodnar: Thanks. It's a pleasure.

Esther Whieldon: So today, we heard Paul talk about the importance of increasing innovation and investments in climate adaptation and how the world will need to reshape its food systems. He also said the fund aims to include equity across all of its strategies and that markets, finance, technology, business model innovation, these things are all needed to drive fast, deep and broad changes.

He also mentioned a theme we'll explore in future episodes of this podcast, which is the challenge of getting nature and ecosystem services on companies and financial institutions' balance sheets. And that's needed to unlock financial flows for nature, he said.

Lindsey Hall: Please stay tuned next week for more interviews at GreenFin. We'll be covering topics like data and disclosure, sustainable finance, nature and diversity, equity and inclusion.

Thanks so much for listening to this episode of ESG Insider. If you like what you heard today, please subscribe, share and leave us a review wherever you get your podcast.

Esther Whieldon: And a special thanks to our agency partner, The 199. See you next time.

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