‍[00:02] Jennifer Wu: Hi everyone, thanks for listening to The Founder Spirit podcast. I'm your host, Jennifer Wu. In this podcast series, I interview exceptional individuals from all over the world with the founder spirit, ranging from social entrepreneurs, tech founders, to philanthropists, elite athletes, and more. Together, we'll uncover not only how they managed to succeed in facing multiple challenges, but also who they are as people and their human story.

The following episode was recorded during the 2024 conference by the Building Bridges Foundation, a Swiss nonprofit committed to driving sustainable finance solutions and promoting investments that create a positive environmental and social impact. 

“We've got to squeeze this massive disruption into a very short period of time. We're not going to get it right every time and immediately.”

“In our financial industry, we could learn a lot from that improvisation and that creativity and embrace it, use it in a way to have empathy and understanding and trust that we're trying to do things that bring us to a better place in terms of the planet.”

Joining us today is Lucy Thomas, Global Head of Sustainable Investing and Impact at UBS Asset Management. And we're recording from Building Bridges 2024. Welcome to The Founder Spirit podcast. Lucy, thank you for taking the time to join us!

[01:27] Lucy Thomas: Thank you, Jen. It's such a pleasure to be here. I'm feeling very lucky to be on your Founder Spirit Podcast.

[01:33] Jennifer: Thank you so much, really excited to have you.

Growing up in Ireland, Lucy, what were some of the formative experiences that shaped your life trajectory?

[01:44] Lucy: Well, I felt very lucky growing up in Ireland. I had a very close family, I was very close to my grandparents. I'm the eldest of four children, I think that makes me a little bit bossy sometimes. 

And we lived in country Ireland and felt very connected to nature. I had a grandfather who taught me all the different birds. I had a mother who knew every single plant and all the trees. And I didn't really realize how lucky that was until I moved to other countries and realized I didn't know the names of the trees, I didn't know the names of the birds. 

So that was very formative for me and very grounding. And I suppose I find it interesting now when I go back and spend time in Ireland, how things have changed. When I was a little girl (at) my grandparents house by the lake in the summer, we would get into the car and we would need to turn on the windscreen wipers to get rid of the insects just to get going. And you don't have to do that anymore. 

So I felt like I had a very lucky childhood living in nature, it was very grounding for me and it inspired a lot of curiosity to see other places in the world which I've been very lucky to live and do.

[02:28] Jennifer: You know, it's interesting, I had a very similar story growing up in Beijing in the 70s. And I remember we played with mud, sticks and broken glass and stones, whatever we could find. In the summertime, we used to catch dragonflies by hand and cicadas. 

And then we moved back to China about 12 years ago, we brought the kids there, and there were no dragonflies and there were no cicadas. And those are the things that I remembered from my childhood. So it's really interesting to compare (that) to your experience.

[03:33] Lucy: Yeah, I remember catching daddy-long legs in the corners of the windows of the bedrooms of my parents’ house.

[03:41] Jennifer: That's right. Lucy, you've had an illustrious career in finance over the last two decades. And with your connection to nature, I also wanted to know why you decided to get into sustainable finance.

[03:58] Lucy: Well, I would love to have a really well-formed story for you about how my path was set and I had to make sure that I pursued nature in my financial career. But it was really a lot more by accident than it was planned. 

I did a graduate program in London coming from university in Dublin, probably because it felt like one of the hardest things to get into and I was competitive. I remember phoning my dad from the airport because I bought one of those Financial Times, those orange magazines, and I thought I better read this before the interviews. 

And they were referring to indexes and I had no idea what an index was. So I phoned my dad, who's an accountant, dad, what's an index? And he said, I'm really sorry, I don't know what it is either. So I felt very unprepared, but absolutely loved the momentum, how smart people were and the creativity of the financial industry. 

It wasn't for quite a few years that I had the opportunity to get into sustainability. But again by accident, because I was asked, would you like to be the ESG, the Environmental, Social and Governance champion of this location?

And within a few months we had built a business. We had client interest, it was a hugely growing part. We were really servicing a client need. And so from there I just, that was definitely the place I wanted to spend time.

So it was an opportunity to connect growing up in nature with what my career in finance had been, but certainly not necessarily well-planned.

[05:28] Jennifer: I want to zoom out a little bit. You mentioned ESG, which stands for Environmental, Social and Governance. And I wanted to also give the opportunity for the audience out there who don't have a finance background and maybe you can briefly touch upon what is sustainable investing and how is it different from ESG?

Because I feel like those are the two terms that are used quite often together. But even for somebody like me that has been a finance professional long time ago, it gets a little bit confusing. So if you could just unpack that and lay it out for us, that would be…

[06:05] Lucy: Let me give that a go.

So sustainable investing is a style of investing. It's an approach and a way of allocating capital or putting your money to work. And let's come back to what that is in a minute. It also looks very different for different people. 

So a little bit like you go into a cafe, the type of coffee that you're going to order might be the difference of the type of coffee I'm going to order. Each of us will have our own style to suit our own needs in sustainable investing, there's no one form of sustainable investing. 

ESG - Environmental, Social and Governance - as an acronym, refers to different pieces of information. Be that environmental, what's the carbon emissions of a company? Be that social, what's the health and safety standards of a company? Or be that governance, how independent is the board? What level of gender diversity do they have on the board, for example? That's just an acronym for different pieces of information that can be used as an investor to better understand the risk profile and/or the opportunity of an underlying investment. 

Sustainable investing has many different ways. As I said, it's a style of investing, it has many different ways of being articulated. For me, I find the easiest way to think about it is understanding what is your belief around the risk-return potential from those ESG factors that I mentioned. 

So do you believe that climate change poses a risk to economies and to certain sectors? And if you do, you're likely to position yourself in a way that protects (against) that risk. Or is there an opportunity from a transition to a low-carbon economy and you're likely to position yourself that way. So that's your level of belief, I suppose, in the financial materiality of those ESG topics. 

There's also other motivations for sustainable investing. For some people it's a very values-based approach and that can mean different things. So that could mean generally, I do not want to be associated with certain industries or poor standards or activities. 

So for example, I do not want a portfolio that breaches human rights issues, I want a portfolio that is not invested in tobacco companies. That's a very common type of activity that some investors like to exclude. So these tend to be a little bit more values-based about what's important to me and then how can I make sure that shows up in my portfolio. 

And then the third driver is around regulation. So if you are in a certain region or location, there may be certain requirements to assess climate risk. For example, we know that shows up in Hong Kong, in Singapore and we know in Europe, there is different regulation around reporting on the proportion of a portfolio that is in sustainable investing assets. And so regulation might be a driver too. 

But typically across the three areas I mentioned, so that's your belief in the risk-return, the values that you might bring and/or regulation, there's some mix of those going on for each individual investor. Like your cup of coffee, it's slightly different for everyone and it's about understanding what they are and then applying that to the portfolio.

[09:28] Jennifer: So just following up on that same thought of risk and return and you've obviously been in this industry for a long time, since perhaps the beginning. How do you balance delivering financial returns with measurable impact?

[09:50] Lucy: This is a great question. And this again comes back to the underlying preferences of the individual investors. 

So we continue to use the same age-old dimensions that are important for allocating capital. What's your time horizon, what's your risk tolerance, what's your liquidity preferences? When are you going to need that money and what are you going to need it for? And that builds up a set of objectives and a risk profile - this all then matters for how you allocate sustainably.

So if you are a very long-term investor, if you have the ability to go into illiquid assets, if you have the ability to withstand drawdowns over time, the types of sustainability risk that you may want to take on may be different, like funding infrastructure in frontier markets.

Or for someone who has less liquidity tolerance, it might be in listed equity markets and just making sure that you're tilted towards companies that are doing better in their industry than others from a sustainability perspective. 

What we tried to do is, as a starting point, very much look at what the risk is. So avoid the left tail, avoid the falling knives. And there's many stories of where governance has gone wrong and destroyed value in companies or environmental issues. So that's one of the first things we try to do in portfolios. 

We then also try to find what are the opportunities, what companies are positioning themselves for the future and anticipating either a client base that wants sustainable products or regulation that's going to change and require them to have traceability of their products, for example.

And then we would layer on the impact or the outcomes, where perhaps a client particularly wants to make sure that they are achieving those outcomes in their portfolio, and so that we can measure that real world contribution. And that's what people will sometimes refer to as impact investing. 

But being very clear with the intention that I want to have that impact, I want to be contributing to the reduction of carbon emissions in the world, I want to be contributing to the education of females in APAC for example. And that intentionality is something that gets measured through those outcomes and that impact.

So again, those are different strategies that you can bring into a portfolio to make sure that you're meeting that risk-return that is an underlying investor needs, but maybe also bringing in some of the additional objectives that might be part of a portfolio aside from liquidity, but also that impact lens.

[12:33] Jennifer: So it's interesting to hear you because just a couple of days ago, somebody on stage was talking about in the 70s, Milton Friedman came up with the concept of (the) business of business is business. 

And that model (is) largely broken today given how much nature has been destroyed and the growing inequity of income. So it seems like that we've come a long way, right? So in your opinion, how has this market of sustainable investment evolved over the last 20 years?

[13:11] Lucy: And I think we have come a long way. It's very easy to look to all the negative headlines, but when you look under some of the underlying data, you will see that living standards have improved, that the number of people living above the poverty line has improved.

But we also have some huge challenges. I mean, what we're facing from a climate perspective, from a nature degradation perspective, these are really big challenges. 

How sustainable investing has evolved, I see that it has become much more mainstream than niche, particularly in the last 10 years. How wonderful this is what people in my industry have been aiming and looking to achieve for quite a few years. I think it's because it makes financial sense.

As an investor, you want to look after the sustainability profile of those assets, you want to steward them well, because those assets will then be returning over time. And so I think that's why we've seen the scale and the level of interest.

The other trend that has happened is much more intervention by regulators. So historically in sustainable investing, there were industry associations, voluntary standards, etc. if you roll back 10 years. 

That's changed now. And we have regulation in Europe, we have regulation in the UK, we have it in different parts of the chain in the US, we have it in Asia, Australia has introduced regulation. And each of these are different, which makes it very challenging as a fund manager. 

But what is common is that all of the regulation has two ultimate aims, it would appear. One is to make sure that the consumer is protected and make sure that the consumer is better informed. So in the same way that the food industry went through labeling regulation to make sure we knew what's inside the packet, we're going through that experience in the financial industry. 

So the regulators want very clear transparency with standardized methodologies and disclosure requirements that they've put in place to be able to protect the consumer so the consumer knows what they're getting. Do you get from the tin what it says on the label effectively?

The second thing that I think regulators are trying to do is move capital to be more sustainable, and they'd be using regulation to do that. Now, coming back to your comment on Milton Friedman, why are regulators having to do that? It's because the cost, I believe, of some of these challenges cannot be borne by governments alone. 

Historically, society has at different times considered that things like pollution need to be looked after by (the) government, things like healthy society need to be looked after by (the) government. But it's very clear that those challenges actually are quite large and private capital is also required to meet those challenges. 

And I believe that's why regulators are using the regulation in a way to steer the capital towards a more sustainable economy. It can be a little bit blunt in the way it's done, but that's the intention and that's the commonality across the different regulatory regimes.

The tricky part, as I said, is they are all very different and they all have different acronyms and they all have different rules and trying to find the interoperability… and they're all a little bit competitive in some ways to be the sustainable finance center globally. And so trying to, as an investor, navigate and make sure we can find the commonality becomes important.

[16:25] Jennifer: One of the outcomes from COP29 recently in Baku is the $1 trillion dollar funding gap, where I think $1.3 trillion is needed to be delivered to the developing countries, and the developed countries have only committed to taking the lead on raising $300 billion a year by 2035. So now we have this funding gap. 

And I think a lot of people, including myself, are hoping that the private capital would come in and fill this gap. (We) talked about disclosure and some of the standards, what hurdles are in place preventing the substantial volume of funding from flowing towards nature capital?

[17:39] Lucy: These are huge numbers, aren't they? Really quite astounding in what's required and in some ways in a relative sense, almost hard to get your head around how much funding is needed. 

And it's interesting how we have a global collective challenge and problem. And I think it's great that we've recognized that much of this capital is required to build up the resilience of emerging markets, where the impacts of climate change are often disproportionately felt. And so this is an urgent issue, there are real challenges. 

So historically, only approximately 20% of green energy funding has gone to emerging markets. The cost of debt in emerging markets is often 7-8 times higher than developed markets, yet the cost of avoiding a ton of carbon is 50% lower in emerging markets. So going back to this being a collective global problem, there's a real efficiency actually in using the capital to avoid carbon emissions in those regions.

There are a few different other challenges associated, number one, historically institutional asset owners, so by that I mean pension funds, sovereign wealth funds, you know, the big elites of capital in the world have allocated to emerging markets, but that's been considered higher risk. And so the allocation they have to emerging markets is limited. 

And because of that higher risk spectrum, so that's one challenge, how do we find ways in our financial industry to de-risk, whether it's perception or real, and de-risk capital moving to those parts of the world. So that's one challenge that we know some of the development finance institutions are looking to play a role, and that's really important. 

I think some of the other opportunities, rather than just the challenges, are probably what need to be highlighted. So how do we bring forward, for example I mentioned, how much more efficient it is to avoid carbon?

And then thirdly, where we're moving to a low-carbon economy and the changes that are going to happen across industries, a lot of the value chain for supplying those industries sits in emerging markets. 

And so there's great opportunity to invest in grid technology, some of the commodities that are going to be either needed and processed, etc., in a way that supports an overall transition. But these are things that sit in emerging markets. So I think the more that we can bring to light the solutions for climate that allows us to overcome maybe some of these funding gaps. 

And then finally the big area that is required for investment is infrastructure - infrastructure for resilience and infrastructure that thinks about future physical climate risk and how to build that resilience into local cities, into people's livelihoods and into corporate setup.

[20:50] Jennifer: In an earlier panel on mobilizing private capital to tackle climate change, we talked a lot about blended financing as a solution. Is blended financing a solution for you? Are there other solutions out there?

[21:05] Lucy: One of the challenges is that the risk profile or the perception of the risk profile of emerging markets is sometimes too high for some investors, so this is where blended finance comes in. 

Let's unpack what is blended finance. So blended finance is using different types of capital in different ways with different conditions, all going towards the same project that suit the objectives and the risk profile of those different types of investors.

So for example, you could have a first-loss investor, so an investor who comes in and is willing to be the capital that de-risks a project by being the first-loss. That attracts other capital, which is the more commercial type capital expecting a decent return but otherwise wouldn't come into that investment unless someone was willing to come in and be the first-loss. 

So how it works in practice is if the project goes well, everyone gets the return back from that project. If the project doesn't go well, the first-loss investors are the ones that the capital is not returned, so it provides a little bit of protection. So that's what blended finance is. And there's wonderful different structures that can be used across blended finance, first-loss was just one that I mentioned.

I think blended finance has a huge role to play if we're going to truly address some of the challenges and the externalities that haven't been previously accounted for in how we've run our economies. 

Nature, for example, is something that over 40% of GDP, according to different studies, the economy relies on. That is not necessarily valued in how we do our traditional accounting or how we assess from an investor perspective historically. 

And so in order to access or attract the investment we need to make sure that those nature sources are preserved and looked after to be able to replenish and continue to provide for our economy, we need to be able to put that capital to work in a way that is scalable. 

To get that scale, that's where we think blended finance can play an important role.

[23:21] Jennifer: So you had mentioned investing in infrastructure. And where, do you see, are the critical sectors and industries for the next 5-10 years?

[23:33] Lucy: I think all industries will be very relevant and it's a little bit more of thinking about which players in those industries are positioning themselves for the future. So climate and moving to a low-carbon economy, it's this huge disruption across industries globally that we want to squeeze into a small number of years.

And those management and corporates that are being insightful, analytical and brave in taking steps to change their business models to be ready for that future, I think is where the opportunities are.

I think there will also be some regions that stand to benefit from some of the change as well. I believe we will see a shift in supply chains over time and how supply chains orientate themselves. 

So historically, we've had supply chains optimized for lowest cost. And typically that has benefited some emerging market countries in being able to supply low-cost labor. 

And the dimensions of our free movement of capital, the free movement of trade, the free movement of people, has really historically provided no incentive to actually diversify a supply chain, really you just optimized for cost.

There was an example back in 2011 in Thailand, where 76 out of the 79 provinces were declared flood disaster zones. There was a huge loss of lives and livelihood. But from a commercial impact perspective, it was really interesting. 

Thailand at the time supplied 25% of chips to the world and the price doubled immediately and it took two years for that pricing to recover. Now, interestingly, like was there a lesson learned from the corporates of we should diversify our supply chains and not all be in the one location? Actually, it didn't really happen when we look across industries.

But now the equilibrium has shifted and there are more reasons for companies to think about diversifying across their supply chains. So what are they? Increased geopolitical risk, increased trade barriers, lots more complexity, sustainability regulation, lots of things that tell us actually maybe you should have a more diversified supply chain. 

Maybe you need to build more resilience into your supply chain for these shocks that we anticipate are going to become more regular. And so understanding what companies are doing to achieve that, working out who will be positioned well for the future. 

I said there are some regions, for example, that may benefit. One of the things we anticipate happening in the future is a move from that very low-skilled, low-cost labor to actually a digitally-enabled labor force.

What countries are putting in the investment to educate their people to be ready for that digitally skilled labor force and then attract those companies. So regions like Mexico, like India, like Vietnam stand to potentially benefit because they have those digital skills. 

From an environmental perspective, we're looking to see, how are corporates assessing physical climate risk, thinking about catastrophes that could happen - floods, droughts, fires - these really awful things that can massively disrupt a supply chain. And how is a corporate thinking about how they locate and reconfigure that supply chain to build in that resilience.

So in answer to your question, it's those companies that are thinking about building that resilience and positioning themselves maybe ahead of others in their sector to be well-prepared.

[27:25] Jennifer: Yeah, I think it's very interesting you used the example about Thailand in 2011 because it goes to show what kind of world that we operate in today compared to what was happening over a decade ago. It’s just that we're operating in a multi-polarized world - that was one of the terms that I heard yesterday.

[27:46] Lucy: Yes. And one of the concepts, I think when we talk about climate, that doesn't get enough attention. I mean, insurers are great at these concepts, but how the regularity of these shock effects are. So something that was a 1 in 50 year event (is) becoming a 1 in 10 year event. 

There's a very different kind of risk management approach you take to those. And that's what physical climate risk is throwing up for us. And not just what does that mean to an individual asset. So for example, if you're an investor that has a factory that becomes flooded. 

But it's also then the links. Even if you've adapted your own factory, does the road get blocked? So, so you can't get your goods out across the world? 

So understanding all of this link through your supply chain, as I said, is a huge challenge right now. But we're seeing some of the great technology that's being used to understand supply chains is helping us understand the sourcing and the impact on nature.

[28:47] Jennifer: So actually, what's also interesting is that people have been talking about coming up with the price for nature and how to account for nature on your balance sheet. 

And so that takes us back to the discussion of biodiversity and nature. And why, in your opinion, why do biodiversity and nature in general matter for financial institutions? And what is the business case for safeguarding nature?

[29:30] Lucy: So we know, and there's been some incredible research done on this - the extent that our industries and our economy relies on nature to live the way we live as a society. We also know that we're living beyond our Planetary Boundaries.

And we've been really fortunate at UBS to work with Sir Partha Dasgupta. He sits on our Sustainable and Impact Institute. And Sir Partha Dasgupta wrote a report for the UK government called the Dasgupta Report. But it's played an incredibly important role in making the financial industry aware of the economic value of nature.

And so let's use examples. Food companies, it's really obvious they need clean water for some of their production. That clean water comes from a river source that needs to be used for multiple different purposes, but that has a value in order to produce those goods.

We know that electric vehicles rely on critical minerals, green minerals that need to be mined. I mean, the scale of what we need to take out of the ground to actually fund a green transition is quite phenomenal. Mining can be very disruptive to biodiversity. How can we do this in a way?

So we're privileged to work with Planet Tracker earlier this year and produced some research looking at what are the impacts of some of the green technologies - so solar, wind, biofuels, likely the most successful technologies we believe, going forward from an energy perspective, what's the impact of those? 

We want to keep doing them, but what's the impact on nature? What's the impact on biodiversity? And how can we slightly adapt the way we're doing things - employ best practice to continue to scale up those technologies, but in a way that reduces the impact on nature.

Like making sure that mining, for example, that there is best practice principles used on locating sites, etc. Like building life cycle management into the design of wind turbines so that they can be reused. We have all these wind turbines that will come to the end of their useful life. And there's a circularity that in itself can significantly reduce the impact on nature. 

So you ask about how do we think about the value of nature, but you also asked about what is the business case. So trying to connect the dots there, if I can. If you're a corporate that relies on nature to produce your goods, you are going to want to make sure that source is well looked after. If you're an investor in those corporates, you're going to want to make sure that they are taking into account these issues. 

So that might be something as simple as looking after water sources, as I mentioned, but it also could be using different materials, using more efficient operations in a way that increases the efficiency of the materials, looking to alternative sources that are less impactful on the economy. 

And there are many sectors that are looking at doing that well. Some of the key areas of focus have been around deforestation, so minimizing deforestation. Forests are some of the most amazing carbon sinks. And Mother Nature does what it does best and sucks carbon out of the air through these forests. We need forests for the climate challenge. We need forests for the nature and biodiversity challenge we have. So reducing deforestation is very significant. 

Another area that is getting a lot of attention is water use. So how can we be more efficient in our water use? Water, interestingly, in some places we have very a lot of shortages of water. In some places we have an abundance of water. So it's not evenly distributed around the world. And working out how we do that in better management is really important. 

So we've got deforestation, water use. And another area is looking at the abundance of species - biodiversity. And there are metrics that the financial industry is finally starting to embrace like meme species abundance. 

Back to the insects you were catching in Beijing and I was catching in Ireland when we were little girls and actually having measurement around those and understanding what is the diversity across those species and what is the abundance of those species.

[34:02] Jennifer: So going back to your comment about water, I think it's one of the things from nature that we really take for granted, especially living in a developed economy - it's something that comes out of a tap. 

And I remember 10 years ago when I came back from China where there is a water scarcity, especially in Beijing, because it's in a desert environment. So growing up I was always very conscious about the water. 

And then coming here in Switzerland, I remember someone in the family says, oh no, we have plenty of water here. But that's not the case anymore. And it's something that we should all be treasuring. And those are things that I think that we take for granted because we never had a price on nature.

Because the whole way that we've developed our industrialized economy is based on extracting from nature, but without giving back. I feel like that to adopt this more sustainable and embracing sustainable investment, we really need to have long-term thinking, long-term vision, long-term goals, but also the mindset that we're part of a whole, humans are part of the whole.

[35:14] Lucy: This is so key. This idea that we are part of nature and how we interact with nature impacts us and impacts nature. 

It's funny, you talk about people taking water for granted or not, depending on the regions you grew up in. I grew up in Ireland - it rains. It's a tiny island on the edge of the Atlantic - it rains all the time. 

And then I moved to Australia. My Australian mother in-law says to me, how did you live in Ireland? With Easter it rained all the time. My memories of summers were… they were great. But in Australia, I clearly experienced (what) droughts and water shortage look like, and people being conscious of using water and probably even needing to be more conscious of how water was used. 

And so I think there is starting to be a movement, but it's very embryonic around this idea that even the words like harnessing water, harnessing nature, I think they will phase out. I hope they will phase out because it's not about human control over nature. It's about how do we live more in sync with nature and how do we respect what nature gives us and leave space and time for nature to replenish and use it only in a way that it has that time. 

Because nature does a really good job, just like our bodies do a really good job of regenerating. Like, we are so amazingly designed, and nature is so amazingly designed, we need to give it that space to allow the planet to do what it does well.

[36:44] Jennifer: Well, great. I just have a few more questions left, if you would allow me. I want to give you the opportunity, Lucy, to talk about some of the signals that you're seeing and to give some hope and deliver a more optimistic message. 

I know we talked about there's a lot of noise or there's a lot of negative news, but also I think  being here at Building Bridges, we know that the direction of travel is clear. We are in a transition phase now. 

So what are some of the positive green shoots that you're seeing in your position? 

[37:19] Lucy: Yeah, it's a super interesting dynamic right now, and it's almost like sustainable investing has a bit of an identity crisis. 

Many of your listeners will probably have observed that there are multiple headlines these days which talk about a pullback from sustainability. And we have just come out of a period of maybe the last 5-10 years where there's been terrific momentum on sustainability. You know, this train left the station and was picking up speed and amazing things happening.

And now it feels like we're in a little bit more of an environment where people have dropped the loudspeakers. There's a lot more caution around talking on sustainability. There are concerns around greenwashing. I talked about what was happening in the regulatory environment, and as those rules are still being set, I think it's become difficult for corporates to talk about what they're doing on sustainability for fear of just slightly not fitting the rules or not getting it right or over claiming in their head. And, you know, there have been cases.

But also in this environment of heightened geopolitical uncertainty and a lot of changes across the world happening from a political perspective. I think it's important for us to separate the noise from the signal and actually look to what's happening on the underlying movements. 

We know the headlines will grab some of the negative stories, but when you peel back and you look, there are incredible initiatives and innovation happening. We still see clients allocating to sustainable investing and intending to increase their allocations. We see incredible innovation coming out of some of the companies we invest in and some of the real assets that we're invested in. At this conference, Building Bridges, we're hearing about some of those wonderful innovations, actions that are happening. 

And so I would encourage everyone to maybe look past the noise if this continues to be a slightly noisy era, and really look for the evidence of what's happening underneath in terms of where investment is flowing, what corporates are actually doing, what policies governments are putting in place and follow those pieces of evidence to understand this space.

[39:39] Jennifer: And hopefully that one day every investment will be sustainable. So you won't have to call it sustainable investment, we'll just call it investment in general.

[39:47] Lucy: The goal is (to) put myself and my team out of jobs - yes.

[39:51] Jennifer: No, you won't be out of a job, actually. You'll just be managing a much bigger pool of assets.

[39:57] Lucy: That is the dream, that this is not a speedboat on the side, that the whole tanker is moved in terms of the investment industry to allocating in a way that's very aware of the outcomes of what it's doing. 

And you know what? It's a better place for the industry to be, because it's an opportunity for the financial industry to really demonstrate the role it plays in society. And that's a very important role of understanding how to facilitate those flows of capitals to the parts of our people and planet that need it.

[40:28] Jennifer: So I did a podcast with Elisabeth Stern, who is a board member of the Swiss Senior Women for Climate Protection Association. She's not a banker, she's a cultural anthropologist. She said, banks hold and wield a lot of power and leverage in terms of unlocking the capital flows. 

So I think it's also just embracing that power and harnessing it and making sure that we can steward that money to go towards more sustainable development.

[40:59] Lucy: And interestingly, what we see across our client base is a desire to do that, and I see our role as being that facilitator. How do we work out some of these challenges and enable that capital to flow in a way that the clients want. 

So, for example, in the asset owner world, some of our pension fund clients are under pressure from their local communities or their local governments to allocate locally, to demonstrate what they are doing that supports the local economy, that supports the society. 

And so they're thinking, okay, I need to be thinking, how do I invest in a way that is sustainable because it's supportive of intergenerational wealth and success and health, etc. And I feel very lucky, this is an exciting and really incredible part of the jobs we play - finding ways to come up with those solutions, partner with those clients and help them allocate in a way that meets those needs. 

Still very much looking to return because you need to be able to pay that pension, but also in a way that is supportive of a local economy is really interesting.

[42:15] Jennifer: And are you seeing some of the money going towards developing countries that need it badly in the transition?

[42:21] Lucy: Yes. Many of our clients would have a large allocation to emerging markets.

We see it in different ways. We see it in listed equities, as you would expect. We see it in fixed income investing in the sovereigns and the corporates. We see it in infrastructure, we see it in real estate. So we see it show up in many different ways. 

And increasingly we're seeing it like you described, in areas like finance, little bit, maybe more creative ways of thinking about how to fund sustainable solutions.

[42:53] Jennifer: So I would like to end this podcast on a fun note. 

In a recent article that you wrote for UBS Asset Management, you authored an article that is called The Messy Route to Net Zero: Improv Lessons from a Jazz Master, where you argued that the route to net-zero emissions will be complex and fraught with tensions. But perhaps we could learn a thing or two from expert musical improvisers. 

So can you unpack that for us, Lucy?

[43:28] Lucy: Absolutely. Okay, so that was a fun article.

[43:32] Jennifer: Yes, it was.

[43:33] Lucy: And really it was trying to take another story and find its relevance for the challenge we have. 

And I mentioned that we've got to squeeze this massive disruption into a very short period of time. We're not going to get it right every time and immediately. We're going to have to work it out as we go. We don't actually have the luxury of time to plan and there are so many multiple feedback loops on that journey to understand whether we're doing it right and doing it well. And that needs space to get it wrong. Also, it needs space for improvisation. It needs space for innovation. It needs space for all of those things. 

Sometimes you see climate graphs that show this very beautiful smooth trajectory of climate emissions to just going down. That's the plan. It doesn't work like that for portfolios or for companies. 

It's bumpy along the way because there are initiatives that can help you take out and avoid lots of emissions over a certain time period. And then it gets really hard until you find the next new technology.

So it's lumpy, it's bumpy, it's messy, and it's definitely going to require the creativity and the, I suppose, imagination that pianist had when he stood up on that stage and part of the piano was broken and his train was late and all of the things that went wrong. And yet it was the most astounding performance. 

And so I think in our financial industry we could learn a lot from that improvisation and that creativity and embrace it, use it in a way to have empathy and understanding and trust that we're trying to do things that bring us to a better place in terms of the planet, but we won't always get it right first time.

[45:25] Jennifer: So that's a great challenge, which is how to make bankers more creative. That's your job. Luckily, that's not mine. To make them more creative?! 

[45:36] Lucy: I think sustainability investing just means that you could actually show up at the barbecue and say that you work in banking, which has been a difficult space to be for a while. But back to that, you know, role in society and making sure that we're doing things or representing what we do in a way that has a legitimate and authentic role for people and planet.

[45:58] Jennifer: So what really captured me in that story was something related to also what Andre Hoffmann said a couple days ago is having the humility to know what you don't know, to admit what you don't know, and. But having the courage to also act.

[46:16] Lucy: I love that you bring this up because this is something I feel so strongly about and we're talking about what role do different industries play. 

And so I think part of the creativity and the innovation that we can bring (to) anyone in any part of the economy that they're in. But I see it, I suppose through my lens in the financial industry, is partnering with those outside of our industry. 

So academic institutions, I mentioned we partnered with Planet Tracker on a report because I recognize we don't have all of the knowledge internally at UBS that they have in some of their team of scientists.

We've been working with the Nature Conservancy, and equally this incredible group of scientists who bring to bear that knowledge and that understanding of nature to our world of finance and how we bridge those gaps and how we understand the different languages. 

And I think the role that I and my team play is actually being the translator into taking those sciences, learning surrounding what we don't know and bringing it in. What we know is (that) it's important. We just don't always know immediately how to speak it. And so bringing it in and translating it into portfolios and translating it into the way capital gets allocated. 

And so the more that we can build those partnerships and as you say, have that humility but action to extend out and embrace that knowledge, I think that's how we address the collective challenge.

[47:49] Jennifer: It's very interesting speaking of collaboration, because there's one indigenous leader from the Ecuadorian Amazon and Earthshot Prize finalist. And Domingo said, unity is our only hope and that's where we will succeed. 

So I'm going to end on that note. Thank you so much, Lucy, for joining us today. Really had a pleasure talking to you and I wish every asset manager was like you - what can I say? Thank you for taking the time.

[48:19] Lucy: This has been really great. Thank you for the time.

[48:24] Jennifer: If this podcast has been beneficial or valuable to you, feel free to become a patron and support us on Patreon.com, that is P-A-T-R-E-O-N.com/TheFounderSpirit. 

As always, you can find us on Apple, Amazon and Spotify, as well as social media and our website at TheFounderSpirit.com. 

The Founder Spirit podcast is a partner of the Villars Institute, a nonprofit foundation focused on accelerating the transition to a net-zero economy and restoring planetary health. 

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