Climate change

This investor is fighting climate change by pushing portfolios towards a net zero carbon footprint

Nili Gilbert has always enjoyed solving difficult problems. As a young girl, she spent hours poring over the mind-bending book The Lady or the Tiger? And other logic puzzles. Years later, while working as a quantitative investor, he was modeling human behavior which turned out to be a particularly difficult puzzle. Today, as Vice President of Carbon Direct, a company that invests in climate technologies and helps companies meet their decarbonization commitments, she tackles one of the toughest problems of all: the climate change.

Gilbert’s journey from portfolio manager to decarbonization champion took root in college when she had the opportunity to design her own curriculum. She focused on the interaction between social and cultural progress over time, and the economy and markets. After beginning his career in international development at Synergos, Gilbert discovered the world of quantitative investing. She then co-founded Matarin Capital Management, a hedge fund and equity asset manager for institutional investors, where she spent the next decade.

These days, Gilbert spends much of his time thinking about the intersection of climate and capital, and how to reduce greenhouse gas emissions and remove carbon dioxide from the environment. atmosphere. Barrons recently spoke with her about why eliminating carbon is part of the solution to bringing the planet to net zero emissions by 2050. An edited version of our conversation follows.

Barons: We are in the midst of a global energy crisis where the focus is once again on carbon-intensive fossil fuels. How should investors think about carbon removal in today’s climate?

Nili Gilbert: The energy crisis has caused countries around the world to focus more intensely on near-term fossil energy needs, as well as long-term clean energy transitions. Our energy transition will remain difficult and complicated. The further we outrun the pathways we have ahead of us for decarbonization, the more CO2 will have to be removed. And the need for withdrawal already far exceeds what we are doing today.

For investors, carbon management opportunities have multiplied in recent weeks. We must increase our investments, both in managing the carbon emitted by traditional energies and, more importantly, in accelerating the investments we are making in clean fuels, such as hydrogen.

What inspired you to focus on carbon removal?

As I learned more about the climate challenge, as a quant, the numbers really spoke to me. We emit about 50 gigatonnes of carbon per year. When you think about removals, we have to start by reducing the emissions that we still put into the atmosphere. We must reduce our emissions to net zero. The shows we produce annually are the stream. If we look at the stock, the amount of CO2 already in the atmosphere is 1.6 trillion tons, so that’s 40 times the flow.

We have to do a huge job both to reduce the flow and to get our hands on the stock. When we talk about getting to net zero, we will never be able to reduce those 50 gigatonnes of emissions that we put into the atmosphere to zero. When we talk about net zero, it’s about reducing emissions as much as possible and then focusing on the need to remove them.

Why is the goal net zero?

It’s not so much that the net zero is the driving logic. This is what limits global warming to 1.5 degrees Celsius [2.7 Fahrenheit] is the driving logic. And to do that, we need to get global emissions to zero by 2050. We can’t get them to zero just by reducing; we’re also going to have to delete, and that’s why we say “net”.

How do carbon credits fit in?

We know that we are going to have to eliminate a significant amount of emissions to reach the 1.5 degree goal. So for me, it all starts with the shows themselves. But to get capital into these moves, especially on the scale we need, we need to create a capital market for greater efficiency. So that’s what carbon credits represent. For carbon credits to play their role, we need to focus on high-quality removals that finance high-quality credits. And that’s what we focus on in our work at Carbon Direct.

How to remove carbon from the atmosphere?

We have nature-based solutions. Nature itself acts as a carbon sink: healthy forests, sustainable agriculture, the blue carbon economy – our seas and oceans.

This still does not allow us to reach the 10 gigatons that we must remove. So another big part of what we need to focus on is advancing the practice around sustainable technical removal, which is also permanent removal.

Some say there is a moral hazard in focusing on eliminating carbon rather than reducing emissions.

The conversation about moral hazard cannot stop us from doing all we need to do to fight climate change. In order to alleviate concerns about moral hazard, it will be helpful to clarify high quality standards and how we count deletions. We need to ensure that removals are additional and that we apply high quality accounting standards in how we measure carbon impact.

How does Carbon Direct invest?

We invest and work on both sides of the equation, focusing on reductions and cuts. When we think about investing in removals, the equation can be difficult for investors because we don’t have a price on carbon. For carbon management to truly scale, we need to ensure that the revenue generated from the work is commensurate with the cost. This is what makes certain carbon captures – in which we invest via the cement industry – more economically ready to evolve at this time than pure removals.

What is the opportunity in cement?

As carbon-focused impact investors, we want to go where the emissions are. This brings us to the cement space. Cement production represents approximately three billion tonnes of CO2 per year. But there are more than 30 cement producers around the world that have made net zero commitments. We see the opportunity to invest in technologies that will help advance the solutions they need to be able to achieve these ambitions.

Several parts of the production process emit carbon. The oven is a key location, representing more than half of total emissions. One of the investments we have made is in the Leilac group, which is focused on eliminating emissions in furnace design. Leilac belongs to


[ticker: CXL.Australia], which has been developing this technology and approach for more than a decade. It has now reached a commercial proof point with


(HEI.Germany) which goes into the commercial pilot. There are about 2,000 cement factories in the world.

How can investors participate?

I mentioned Calix and HeidelbergCement, by far one of the largest cement producers in the world. It has committed to net zero by 2050 and is investing in technology to be able to decarbonize its product. It has also pledged to develop the world’s first net zero cement plant by 2030.

Were you encouraged by what you heard at the United Nations Climate Change Conference, or COP26?

I sit on the Steering Group of the Glasgow Financial Alliance for Net Zero, or GFANZ, and chair the Technical Expert Advisory Group that advises GFANZ and its standards. It was so exciting to be at COP26 when GFANZ announced that over 450 financial companies including asset owners, asset managers, banks and insurance companies had made net commitments zero. These institutions represent $130 trillion in assets.

Securing commitments is one thing. Deploying capital is another.

Exactly. I am excited about the hard work of determining the strategies and how best to deploy this capital to achieve our net zero ambition. We have no choice because of the systemic risk that climate change presents to all of our investments across all asset classes.

The Swiss Re Institute estimates 18% global gross domestic product if we stay on our current trajectory, and so this is fundamentally tied to fiduciary duty. We also have no choice because of planetary risks.

There is a lot of talk about decarbonizing investment portfolios. But does this have an effect on the ground, in the real world?

This is where we need to be active owners and true stewards of our portfolios, and understand what the decarbonization pathways are for companies in the real economy. Then we have to support these companies on this path as owners.

What is the role of the asset management industry in reshaping the economy?

Asset management has a design opportunity ahead of it, thinking creatively about how to design new products across all asset classes to help clients get their portfolios back to net zero. As the CEO of an asset management institution, one cannot simply flip a switch to achieve a net zero goal. You will need to advocate with customers to help them change the way they invest in the products they choose. You need your clients to bring their portfolios to net zero to bring the business to net zero. It is innovation in offerings, communication and education so that the market is able to support net zero selection.

Thanks Nile.

Write to Lauren Foster at [email protected]