Season 4, Episode 2: Making carbon count

Elena Lambros:
Hello, and welcome to ESG Matters at Ashurst Perkins Coie. I'm Elena Lambros, an Ashurst Perkins Coie partner specializing in ESG risk advisory. You are listening to Season 4 of Game Changers. From innovators of the cutting edge of technology, to impact investors funding a cleaner energy future, each and every one of our guests is changing the game in their field. In today's episode, you'll hear our conversation with Amy Brachio, CEO of Carbon Measures, a global coalition that is focused on driving innovation to unlock the underlying conditions required to drive market success for the products and services required to reduce carbon emissions at scale. Along with an impressive roll call of member companies, Carbon Measures is establishing an investment grade product level accounting framework and driving market-based solutions to reduce emissions. Let's jump in and hear the conversation.
So thanks for joining us, Amy. It's great to have you here on the podcast.

Amy Brachio:
Great. Thanks for having me. I'm thrilled to be here.

Elena Lambros:
Before we talk about the conversation today, can we just hear a little bit more about your career? Tell us about your role in risk advisory and sustainability, and how has this informed your role at Carbon Measures?

Amy Brachio:
Yes, absolutely. So prior to joining Carbon Measures, I spent 30 years at EY, and I even started as an intern. So my background is that I am a certified public accountant, but I always found myself using those skills for different purposes. And so, one of the things that was a thread through my whole career at EY and that I've continued is I've always loved where market opportunity and purpose come together. And so for many years, I worked on consumer protection and banking issues. For many years, I worked on things like resilience and had responsibility for cybersecurity, and then had the opportunity to take what I knew from the business and the risk side of things and apply that to sustainability. And it was just really a dream come true when you've got an opportunity to do something that matters so much to the world at the same time that it drives business benefit.

Elena Lambros:
Yeah, no, I love hearing about that. I think the importance of being able to commercialize something that is really going to have an impact on the world is always kind of motivating and helps inform some pretty incredible businesses. To give more background around what Carbon Measures is, when you talk about investing in lower carbon products and technologies, many people would still say that the market isn't recognizing these investments. Just take us through why is that and what role might markets have to play in that?

Amy Brachio:
Yeah. And so if you go back even about five years, a lot of what we were focused on was companies have to make bold and ambitious commitments with respect to the actions that they would take in order to drive down emissions. And companies around the world and CEOs around the world stood up to the challenge and did just that. And I think that a lot of great work went into how do you reduce the emissions associated with your business? And also a lot of great work went into innovating the products that we need. So lower carbon cement, lower carbon steel, alternative fuels, carbon capture, all of that. But those things can only be successful if there is a customer on the other side that is buying it at the right price point. And if there's not, with the exception of maybe a small number of private companies, most companies that are beholden to their shareholders have got to deliver an appropriate return.

And so that's how I look at the role that markets play. If you can't sell a product at a level that's going to give you a return, you can't keep investing in it. And at Carbon Measures, that's what we're trying to unlock.

Elena Lambros:
Yeah, that's really interesting, particularly that point around what's happened in the last five years. There has been a lot of commitments made, and there's actually been a lot of progress made around some of those kind of topics that you talk on, green steel, green cement, all these things that everyone was like, "That's really challenging. That's really hard. It's going to be expensive." But until you get that price point right, it's kind of interesting to see how far it has developed.

Amy Brachio:
Yeah. And I know that you and many of your listeners are investors or others that are focused on the finance side. I think of this at end of the day, how do we enable executives, particularly in these hard-to-abate sectors where CapEx decisions that they make have to pay off for decades, not just days or months. And how do we help them to make the decisions that they need to make in order to drive down emissions over that period of time? And so if you own a shipping fleet, how are you able to make the decision on your next ships where you can justify the cost without policy certainty? And I think that's part of the challenge that those companies in those industries face.

Elena Lambros:
Yeah, they've got those long-term CapEx decisions. So they have to make within policy decisions that might be changing, which is quite impacted, to your bottom line, I am sure. So therefore there's a bit of a disconnect then between what the investment companies are making and what the market then is perhaps able to recognize. What do you think's really driving that demand then for more product level carbon emissions data? And why is that more increasingly important for those sort of commercial transactions you were just talking through?

Amy Brachio:
Yeah, so we think that there are really two things that are required in order to unlock this demand. And the first is we do believe that regulation is required. And we look at it at the product level because we've seen that work. And so when you look at what the world did to tackle the ozone layer issue, that was product level regulation.

Elena Lambros:
It works so well, doesn't it? That's-

Amy Brachio:
Right?

Elena Lambros:
... a great example, really, of the world coming together getting that product level data and fixing a pretty big problem.

Amy Brachio:
Same thing with getting sulfur out of fuel for acid rain. And so we've got these examples. So what we'd like to do is look at how do you learn from those examples and put into place regulation that would limit carbon intensity with a ramp down over time for those. But you can only do that if you have the data that allows you to differentiate between two products, and you really can get confidence in the data that you're provided. Because if I'm selling to you and you need to hit a regulatory requirement, you want to make sure that you know exactly the carbon emitted in my product, embedded in my product so that you can take it and use it how you need to.

Elena Lambros:
Yeah. And there is a lot of conversations around data, getting access to data, reliable, verifiable data as well. So then if you're thinking about carbon emissions data and how difficult this is, what would you say is deal ready? What sort of characteristics do you think companies need to have and how can investors really be confident that they can use it in their commercial decisions?

Amy Brachio:
The challenge, similar to the fact that it's not that we lack the products that we need to reduce carbon emissions, there is all sorts of data out there today. And companies have spent a lot of time and effort looking at how to do the calculations. And then industries have spent a lot of time and effort looking at those. But I think part of the biggest challenge is comparability. And so if you think about what we now do, I like to think about how I buy a granola bar. So what do I look at? I look at the flavor, I look at the calories, and I look at the protein and the price. It can't be wildly different pricing. And that's how I make a choice. And we've got to get to the place where it's like we've got a nutrition label on the product and starting at this early part of the value chain so that when you're looking at that ton of steel, you can compare from one to the next.

Now, it's not to say that there aren't ways to do that today, but you'll have some regimes that give a color scheme related to the carbon intensity of the steel, other schemes that would have a letter grade. But when you're operating on a global scale and you're trying to make decisions like this, you need to be able to compare just like you do in financial data. And so I think to some extent, it's looking at how can we learn from what's really good that's out there? We've cracked financial accounting. Are there lessons that we can learn from that? And we've done really good work around carbon accounting, but can we agree on the same rules of the road that we're all going to use such that you get to that same level of IFRS, but for carbon accounting?

Elena Lambros:
Yeah. And it does seem that there is a little bit of a global effort focused on this, and that comparability point is really well made because without that, investors just can't be confident with their decisions.

Amy Brachio:
Exactly.

Elena Lambros:
And it's not standardized and all these companies are global and that's a global challenge.

Amy Brachio:
Exactly. These are markets and you see the regulations popping up around the world, whether it's ATS systems or it's CBAM or its other mechanisms for regulation. And then you're a global company and either you need to have different calculations for all the different regulations, which at the end of the day doesn't make sense if it's the same product. Or there are lookup tables that everyone in your industry uses the same lookup table, and then you're not really differentiating the benefit of your investment.

Elena Lambros:
Yeah. And how do you find that companies manage some of those different regulations? I know you're just talking about different calculations, but do you find that that kind of hampers their decision-making? I was just thinking about CBAM and the different ones that are being rolled out globally. I mean that can fundamentally impact what you want to invest in or where you want to sell, doesn't it?

Amy Brachio:
Yeah, absolutely. And I think what most companies, particularly in these hard-to-abate sectors recognize is that they're going to be greater and greater expectations around them related to the impact that their products have on emissions and climate change. But what they're looking for is the certainty that they need in order to justify the investment. So they know they're making these long-term CapEx decisions and that 10, 20, 30 years from now, what the world expects from them is going to be different than maybe what the world expects from them today. But they're asking for some consistency and some policy that will help drive them in a way that they can shift their portfolio and remain profitable at the same time.

Elena Lambros:
Yeah, interesting point around those long-term benefits and decisions that need to be made in light of expectation shifting. So I think you've spoken quite a bit around what you think needs to be there in terms of what we quote called "deal ready." Are there anything else that you think would help drive progress around emissions reductions?

Amy Brachio:
We talk a lot about the need for collaboration and for system change, and I have such immense respect for all of the work that's been done to date to get us to on an improved path over where we would have otherwise been. And then I think we need to be focused on what other innovation is required in order to drive wild success. So what we're focused on is how do we drive innovation for how the market is regulated such that you allow these products to be successful? And so I think just helping to make sure that we understand it's a big complex problem, there is not one solution. And so how do we bring these multiple options together in a way that doesn't cause fragmentation or confusion, but allows for this transition to happen in a way that companies can really stand behind and accelerate?
And I think the other point that we haven't discussed is you've got to think about how you incent over performance. And so in today's world, if I'm investing in low carbon solutions and you are not investing in low carbon solutions, no one's buying my product like I need them to. Your financial results are better than my financial results then, right? Because you haven't spent the cost that I've spent. And if you go to more of this regime where you have the product level regulation with a target that companies have to hit, it levels the playing field so that you and I both have to hit that target. And if I outperform you, I can monetize my outperformance and sell it to you so that you can still come into the market. And I think those are the types of things that if we can figure out, we can really drive down the emissions trajectory faster than what we're seeing today.

Elena Lambros:
Yeah, I think that incentive will really shift the dial quite a lot. And then in terms of the role that you think the Carbon Measures framework could play in changing how these low carbon products are valued in the market, how do you see that?

Amy Brachio:
Yeah. So one thing that's really important is that we see ourselves as a business catalyst for change, but not an organization that will be around forever. And so I don't actually think you're ever going to see something called the Carbon Measures framework, because what we need is to get to the level of IFRS or a GAAP for accounting such that it's adopted by all. And so that's what we're really aiming to do is bring together the know-how of business to be able to say like, "This is what it can and should be done and we're on board to do it." And then work with others to be able to get it adopted at the global scale. Same with advocating for policy that's going to drive change. So our hope is that we've done such a good job that five to seven years from now we're celebrating and we're shutting down, but that everyone is using a cohesive approach to carbon accounting to underpin these transactions.

Elena Lambros:
Well, I like that. I like the dream in the five to seven years of having comprehensive accounting global standards. I think that would be a great outcome. I agree. If I've just finished finally with a bit of a look forward and it follows up from what we've just been talking about, what do you think makes Carbon Measure's approach a bit of a game changer? And what do you think our listeners can start doing today to prepare for where you think the market is heading?

Amy Brachio:
Yeah. So I hope what we're all talking about sooner than five to seven years from now is that those in the C-suite are more comfortable making these big capital expenditures that we need them to make because they see a path to policy certainty and how their products will be rewarded. So that's the dynamic change that we are aiming for. And so then in order to get there, that's where we need to encourage everyone to get on board. I think the biggest thing is think about what you've done in this carbon accounting space that has been really excellent, and then how we can put it together in a way that we can drive that cohesion.

And that may mean that some industries who've thought about it have to give a little, and some companies who've though about it have to give a little so that we can get to one that can be agreed upon, adopted, and used. And we want that carbon data to be on the invoice and thought about at the same level of seriousness as price and quality are thought about.

Elena Lambros:
Thank you. I think that's a really important point to finish on. So thank you again for coming on the podcast and we've enjoyed listening to you.

Amy Brachio:
Oh, thanks for having me. It was wonderful.

Elena Lambros:
Thank you for listening to this episode of ESG Matters at Ashurst Perkins Coie. I hope you found this episode insightful. Subscribe to future episodes of Game Changers and to hear previous episodes, click on the link in the show notes or search ESG Matters at Ashurst Perkins Coie on Apple Podcasts, Spotify, or wherever you get your podcasts. And while you are there, please feel free to leave a rating or a review. Thanks again for listening and goodbye for now.