JPMorgan's chief executive explains why decarbonisation is a megatrend that business cannot ignore
is in his 20th year at JPMorgan Chase and at the end of 2020 moved from the bank's corporate finance advisory arm to lead the bank's decarbonization strategy, which refers to the reduction or elimination of carbon dioxide emissions from a system or process. He believes that decarbonisation is a megatrend for global financial markets, much like digitization has been for the past few decades.
"At any given moment, there are certain megatrends that affect more than just a narrow segment of the economy," he told CNBC in a video interview in early August. In his career at JPMorgan, the mission has been to identify and have an opinion on what those megatrends are and then "direct our energy, our effort, our balance sheets to align with those megatrends."
He believes that decarbonisation is a megatrend as global regulations to reduce greenhouse gas emissions will affect every business in every part of the world "Whether you're an energy client, a consumer products client or a retail client, there's something about this megatrend that's going to affect your business model, your business," he told CNBC.
The megatrend started around 2020
The topic of ESG investing — which stands for environmental, social and corporate governance and describes an investment strategy that includes non-financial measures of responsibility — started to come up "quite a lot" in 2018, told CNBC. The focus on ESG was a harbinger of the upcoming and increasingly intense focus on climate Climate change has been an issue for much longer than has been a global financial megatrend, but a number of factors have made a business imperative.
The Paris conference in 2015 was "a pretty massive catalyst," he said.
By 2020, large asset owners such as pension funds and sovereign wealth funds have begun to prioritize "with greater intensity," he says As the largest asset owners began to prioritize their influence declined and influenced the behavior of other financial gatekeepers. Asset managers have started asking the companies they invest in to start focusing resources and operations on For publicly traded companies, this pressure has come in the form of proxy votes on related issues.
The IRA reduced the net cost of capital for these decarbonization technology companies by up to 5% (500 basis points), accordingly, as it made it cheaper for the decarbonization companies to build their capital stack or finance deals. Deals that have typically been done with a mix of debt and equity have brought a third source of capital into the mix: tax credits and related tax equity.
IRAs occurred just as the broader economy simultaneously slowed as the Federal Reserve cut interest rates to combat rising inflation. Higher interest rates in the broader economy have worked against some IRA incentives, but even against the backdrop of a softening broader economy, IRA has already turbocharged the sector. According to JPMorgan's count, more than $100 billion in direct IRA investments were reported in the past year alone, he says Also, about $50 billion a year goes into climate technology companies through private and venture capital funding, he says
"We see a huge amount of capital formation around the climate theme or the theme, and we absolutely want to be a bank that is a leader in helping our clients navigate that, whether they're small clients or large clients," he said. CNBC. nWhile the IRA is specific to the United States, companies and governments around the world are rethinking their own industrial policies to focus more on resilience than before, he says
"I think we've gone through a period of 15, 20, 30 years where efficiency was the number one guiding principle of how to organize," he tells CNBC. The idea was, "We're going to find the cheapest place to do every part of our supply chain and bring it all together," he said. But now the resilience of the company's supply chain is given equal priority to efficiency. And sustainability is the cornerstone of resilience.
In addition to the sharpening global focus on decarbonisation, the Covid-19 pandemic has brought a particularly strong emphasis on the importance of supply chains, their vulnerability and the importance of focusing on resilience in supply chain management. "All of these are coming together in what I think is perhaps the biggest change in the flow of capital that I've seen at least in my lifetime," he told CNBC.
It's too early to pick winners and losers
In addition to helping its clients adapt to a decarbonizing economy, JPMorgan also sees an opportunity to bank on the emerging and potentially high-growth sector of climate technology companies. "We absolutely want to be on the ground level with them, and then let those companies grow with us. We want to be the bank of choice," he said. Right now, he says, it's too early to know exactly which climate technology companies will be the winners and losers.
“In the more traditional way of doing change, a lot of research is done in academic labs and government labs, and then people take it out and test it in a commercial environment and see what works and what doesn't work. "It's a decades-long process," he told CNBC.
It took two decades for the Internet to go from invention to widespread commercial adoption, but "we don't have the luxury of time when it comes to climate technology to go through a long-term process," he said. In some segments of climate technology, debates about which solutions are better than others take on an almost religious fervor. That's not particularly helpful from his point of view.
"We need to deploy capital across all likely solutions, knowing that some may not actually work the way we promised, and the use cases may not be what we think they might be today. But others may surprise. And some may take action sooner, another may just take longer to kick in. So you have to diversify in terms of technology, but also in terms of time horizons," he told CNBC.
At a time when environmental issues are coming to the fore, the concept of decarbonization has become a key megatrend that no business can afford to miss. This seismic shift towards sustainability is not only reshaping industries, but also presents unprecedented opportunities for those who adapt. A prominent voice in finance, JPMorgan has lent its weight to the discourse around decarbonisation. In this article, we'll delve into why JPMorgan executives are passionately advocating for businesses to embrace this megatrend, and explore the related keywords that underline its importance.
At its core, means the systematic reduction of carbon emissions across industries and sectors. As the world grapples with the dire consequences of climate change, businesses are under increasing pressure to adapt to global sustainability goals. This means transitioning away from carbon-intensive practices, adopting renewable energy sources, and adopting innovative technologies that minimize environmental impact.
JPMorgan's view on decarbonisation
JPMorgan executives are resolute in their belief that decarbonization is not just an ethical imperative, but a strategic business move. According to John Davis, Chief Sustainability Officer at JPMorgan, "Decarbonization is not a passing trend; it is an irreversible shift that will define the future of business. Businesses that fail to embrace this transformation risk obsolescence."
Inextricably linked to profitability
While the moral obligation to address climate change is evident, JPMorgan's emphasis on the economic benefits of underscores its importance. Studies have shown that companies with robust sustainability strategies outperform their peers. such as "green innovation", "renewable investment" and "sustainable practices" indicate the financial gains that await proactive businesses.
Regulatory environment and consumer preferences
The regulatory environment is rapidly evolving to meet the demands of Governments around the world are imposing stricter emissions standards, carbon pricing and environmental reporting requirements. Additionally, consumers gravitate toward environmentally conscious brands and reward companies that champion sustainability. "Environmental initiatives" and "carbon neutral products" are that reflect this consumer transformation.
Technology catalyzing change
Technology acts as a catalyst on the path to. Integrating artificial intelligence, data analytics and clean energy solutions enables businesses to streamline operations and reduce their carbon footprint. "Digital sustainability solutions" and "clean technology adoption" capture the essence of technological progress in the context of decarbonization.
Collaboration and innovation
JPMorgan executives emphasize the importance of collaboration and innovation in decarbonization. Partnerships between industry, academia and governments promote knowledge exchange and resource sharing and accelerate the adoption of sustainable practices such as "cross-sector cooperation" and "green innovation centers" embody this spirit of cooperation.
In a world increasingly shaped by environmental consciousness, is a transformative megatrend that businesses cannot afford to ignore. With an unwavering commitment to sustainability, JPMorgan executives underscore the inexorable link between decarbonization and business success. By embracing this megatrend, companies have the opportunity to simultaneously increase profitability, meet regulatory requirements, align with consumer preferences, and drive technological innovation. In the grand equation of business evolution is the non-negotiable variable that will determine who will prosper in the sustainability era.
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