Episode 193: Elizabeth Lewis, Blackstone
Today's guest is Elizabeth Lewis, Managing Director and Deputy Head of ESG at Blackstone.
Blackstone is an investment firm that invests for the long term because building successful, resilient businesses can lead to better returns, stronger communities, and economic growth that works for everyone.
As Managing Director and Deputy Head of ESG, Elizabeth supports Blackstone's corporate Environmental, Social, and Governance (ESG) efforts. Before joining Blackstone, Elizabeth led engagement with investors, NGOs, governments, and other stakeholders on climate change and diversity for the International Finance Corporation (IFC), the private sector part of the World Bank Group. Elizabeth was also a Partner and Director of Strategy and Business Development for Terra Alpha Investments. In addition, she established World Resources Institute's Sustainable Investing Program and served as Head of Sustainable Investing. Earlier in her career, Elizabeth was a Principal at Global Environment Fund, a private equity fund focused on clean energy and sustainable forestry, and an advisor at Booz Allen Hamilton.
I was excited to sit down with Elizabeth. She explained her role at Blackstone, the mission and approach Blackstone has regarding ESG, and Elizabeth's theory of change around climate. We also dive into a discussion on time-horizon impact climate commitments, if ESG and climate are synonymous, and if capitalism will get us to a clean future. Elizabeth is a well-versed guest, and this episode is a must-listen for those focused on investing and ESG.
Enjoy the show!
You can find me on twitter @jjacobs22 or @mcjpod and email at info@myclimatejourney.co, where I encourage you to share your feedback on episodes and suggestions for future topics or guests.
Episode recorded January 11th, 2022
In Today's episode we cover:
An overview of Blackstone, what the company does, and Elizabeth's role
Elizabeth's career path and how she has married profit and impact through it
Elizabeth's theory of change related to climate and how it's evolved since she started her career
Comparing how Elizabeth thought about the climate crisis when she first started v after decades of working in the field
Elizabeth's thought on the timeline we have to act on climate change & how Blackstone thinks about it
Whether capitalism can get us to a clean future or if we need to consider a large change
What motivates Blackstone to invest in ESG and focus on impact
Time horizons on climate investing and the disparity between addressing climate change and increasing profit
How ESG and Climate are related at Blackstone and whether they are synonymous
Blackstone's approach to carbon accounting & how to measure impact
How to judge the myriad of net-zero commitments coming from the corporate world
How disruptive ESG and impact is to companies' short-term operation performance and the reception from portcos and LPs
Levers for change that would accelerate climate solutions
How we make change in the US with the current political climate
Links to topics discussed in this episode:
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Jason Jacobs: Hey everyone, Jason here. I am the My Climate Journey show host. Before we get going, I wanted to take a minute and tell you about the My Climate Journey, or MCJ, as we call it, membership option. Membership came to be because there were a bunch of people that were listening to the show that weren't just looking for education, but they were longing for a peer group as well. So we set up a Slack community for those people. That's now mushroomed into more than 1,300 members. There is an application to become a member. It's not an exclusive thing. There's four criteria we screen for. Determination to tackle the problem of climate change. Ambition to work on the most impactful solution areas. Optimism that we can make a dent and we're not wasting our time for trying. And a collaborative spirit. Beyond that, the more diversity, the better.
There's a bunch of great things that have come out of that community, a number of founding teams that have met in there. A number of nonprofits that have been established. A bunch of hiring that's been done. A bunch of companies that have raised capital in there. A bunch of funds that have gotten limited partners or investors for their funds in there. As well as a bunch of events and programming by members and for members. And some open source projects that are getting actively worked on, that hatched in there as well. At any rate, if you wanna learn more, you can go to myclimatejourney.co, the website and click the Become a Member tab at the top. Enjoy the show.
Hello everyone. This is Jason Jacobs and welcome to My Climate Journey. This show follows my journey to interview a wide range of guests, to better understand and make sense of the formidable problem of climate change, and try to figure out how people like you and I can help. Today's guest is Elizabeth Lewis, Managing Director and Deputy Head of ESG at Blackstone. Blackstone invests across alternative asset classes on behalf of pension funds and other leading institutions. And I was excited for this discussion because as Deputy Head of ESG, for such a large portfolio of assets, Elizabeth's got a really interesting perspective.
In this episode, we cover Elizabeth's journey to doing the work that she's doing now. And we also have a great discussion about how a firm like Blackstone is thinking about ESG. How they're thinking about decarbonization, both of their own footprint, but also as important or more importantly, the footprints of the companies or assets that they work with. We talk about the motivations of these companies. We talk about where they are on their journey. We talk about what it is about Blackstone and their model that makes them able to have such a big impact on these firms. Their longtime horizons, their ownership model. We talk about their progress to date, what's coming next, and we have a great discussion about where their efforts fit into the big picture and what else matters as we strive to decarbonize our global economy. Elizabeth, welcome to the show.
Elizabeth Lewis: Great to be here.
Jason Jacobs: Great to have you. And I've been meaning to connect with you anyways, outside of the show because you grew up in the town that I live in now and you've worked in climate for a long time. And I don't know how many people fit that category, but I like to know them if they do.
Elizabeth Lewis: [laughs] Go Red Sox [laughs].
Jason Jacobs: Exactly. And not only that, you really do have an interesting background because Blackstone obviously swings a big bat. And then in your prior lives, you've kind of hit this topic from a... From a diverse group of high impact areas, so... And also, full disclosure, there are areas that maybe I'm less familiar with as an early stage technology startup guy. So thank you for making the time and I'm really excited to learn from you.
Elizabeth Lewis: Thank you so much for having me. I'm a big fan of your podcast and so I'm excited to be here.
Jason Jacobs: Great, well, typically when guests come on, we just ask them to take it from the top with your current role and company. So can you tell us a bit about Blackstone, what the company does, and what you do within the organization?
Elizabeth Lewis: Sure, thank you. I'm a Managing Director and Deputy Head of ESG for Blackstone. Blackstone is the largest alternative asset manager in the world. We invest across all sectors and all asset classes. So, climate is really important to us from a number of different perspectives and it's an exciting place to be and to really make a difference on climate change. I think an important part about Blackstone is that we are longer term investors, right? So, we... From many of our investments, we hold them for many years at a time. We have some perpetual capital vehicles. So I think from a climate perspective, this is a great opportunity because it allows us to do a lot more, I think, than some other types of investors that just hold public equities and don't have a lot of control or a lot of partnership with their companies.
In my role, I sit at the corporate level and I get to work with all of our fund strategies across all of these sectors. I get to work with ESG leads in the investment teams and also directly with the investment teams. I also spend a lot of time talking to our investors in our funds and our shareholders. So Blackstone's a public company, so we also have shareholders. And many of them have high expectations on climate as well.
Jason Jacobs: It seems like you have really found a role that marries capitalism or profit and impact and that that's been a theme throughout your career. It'd be great to just delve a little bit into your personal journey. I know your earliest roots, but how did you find yourself working at this intersection and when and how did that quest for impact come about?
Elizabeth Lewis: So, early on, I think, I had a pretty strong interest in having a positive impact on the planet. I was really fortunate to learn about climate change in college. So I had my first course on climate change when I was a freshman at Harvard in 1997. And I'm, you know, just so grateful that there were professors there at Harvard who were studying this so early on and thought it was important to teach, like, freshman who really hadn't decided any particular interest or concentration. But they thought it was important knowledge even back then for all students to understand. And with that grounding in the science, I knew just a really complicated problem and a problem that was going to be important for, you know, certainly much of my lifetime. I didn't, frankly, know sadly that it was still gonna be such a crisis at this point in my lifetime.
And I thought about different ways that I might be able to work in climate change. I was lucky to end up in management consulting after college, which I think was great exposure, frankly, to the number of different sectors that climate change impacts. And I had a really strong grounding in that experience, working both with fossil fuel companies, the government agency that oversees fossil fuel exploration in the United States. But also sustainable energy companies, be it renewable energy companies, but also companies on the demand side of the equation, right? That wanted to be more sustainable. And I think I realized in that experience, just the power of the private sector to innovate and to invest in technology and to be creative in coming up with solutions to climate change. And so I was always drawn to that, I think, that ability of companies and investors to really make a big change in a big way and quickly.
But I've also, over the course of my career, really benefited from having a range of different experiences, all again focused on climate. But I spent several years, for example, at World Resources Institute, the sort of leading think tank that focuses on climate change. Started a program there to create research that was applicable and practical for asset owners to be able to invest in a more climate friendly way. I also spent several years at the private sector part of The World Bank Group, developing standards for how investors could invest in alignment with The Paris Agreement. Thinking about how to increase climate finance and what the role of intergovernmental organizations are in that. And then also spent several years at a small but pioneering equity firm that was focused on climate solutions, sort of very early on, founded in 1990.
So the... The CEO, the founder of that company was a huge pioneer in that space. Jeff Leonard was his name. And I think, you know, from that, I saw these sectors that were niche really emerge and got to see what... What worked and what didn't work. And so now that I'm at Blackstone, you know, we have just a tremendous opportunity to actually make companies across all of the sectors stronger. So for me it's just the sort of perfect example of I think sometimes in life you don't really know how valuable your prior experiences will be. But for me, having that sort of diversity of experiences has really helped me be more effective now, in a big global investment firm at Blackstone.
Jason Jacobs: And since you've been working in and around climate for a long time, maybe talk a bit about what your theory of change was when you first started learning about climate. And then how that theory has evolved over the years and where it sits today.
Elizabeth Lewis: So when I started out, I managed my consulting and then at Global Environment Fund, the small private equity firm that I was at. There was a lot of focus on trying to develop solutions to the climate crisis. And then around that time, sort of, 2008 time frame, when I started at Global Environment Fund, there was a lot of capital that poured into these solutions, these technology solutions for climate. And I think there was this idea that we just needed more capital and sort of a high technology, I guess, approach to coming up with these solutions that then would be adopted by the world and solved. And then we all saw that the business models that we're about to scale software companies and high tech companies didn't really work for the energy transition. And we learned a lot from that experience. And we learned that we needed other types of financing, other types of capital structures, other types of investors.
But I think the other thing that came out of that is that there were some really good solutions that came out and that were scaled like Tesla. You know, the solar industry really started to take off after that. And now, you know, certainly when you think about solar and wind, I mean, they're cheaper than coal. And they are better technologies than coal. And so much good, sort of, came out of that, but it wasn't, sort of, the end all be all solution. I think the other thing that we've... That we've realized is that it's important to have global markets and coordination among governments, not just, you know, to create cost competitiveness. So, no necessarily a price on carbon, but also just the basic research and the financing mechanisms from the government.
So when you think about Tesla and, you know, Tesla, one of the most valuable companies in the world now, certainly the most valuable auto company, really benefited from the loan guarantee program by the US government and the support there. And so that... I think that's often forgotten, right? When we think about, sort of, what has worked and what-what hasn't. But at the same token, you know, when you look at it from the United States perspective, we really lost a lot of capability around renewables to China and to other countries, right? So there are areas now where we're sort of way behind and we'll have to make up ground to become a-a leader in this industry. And so when you think about, I think, my sort of theory for change has come to involve just the importance of global cooperation and governments coming together. And I think the appreciate that the private sector really does have for this.
I think another example of this is when you think about the dislocation in the energy markets that we've had, starting last fall and leading up to now. I think it's sort of breaks ground for having better coordination for all of the investors now, who, you know, in contrast to the 2008/9 timeframe. You know, investors want to go into these sectors at huge scale. And I think just a little bit of sort of guidance and coordination signals from the government will really help that process, make sure that we're investing at scale into the solutions that are needed for us to hit our net zero goals.
Jason Jacobs: And if you think back to when you first started working in climate and how you felt about the problem in terms of how dire it is, our ability to address it effectively, and how bad thing will get in the interim. Maybe contrast for a moment, how you thought about it then, if you remember, versus how you're feeling about it at this moment in time, with the understanding that it will continue to evolve over time as more cards get dealt.
Elizabeth Lewis: Yeah, sure. It's a great question, something I think a lot about. I think when I learned about it in college, it seemed like a big problem, but also a somewhat straightforward problem to solve. I remember we spent a couple classes learning about the Kyoto Protocol and sort of the failure of it and thinking about what the solutions would be to that. And it seemed pretty straightforward. I think there was also a lot more consensus than there has been in some of the years between then and now about the science. Actually there was, you know, even though the science was much thinner then, there was sort of more I think maybe trust in science across the board in this country. And so then I think there was time where, for many years, I think climate seemed like not the most important issue on people's minds and certainly companies' minds, investors' minds.
And I think now, on the bright side, we're at a place where it is a top priority for almost any investor, any major investment firm, climate is a top priority, I think. Certainly for pension funds, asset owners, the long-term owners of capital, I mean climate has to be a top priority and a top concern. And then when you sort of survey younger generations of students coming out of school and how they are thinking about which organizations to go work for, climate policy certainly pops up as an important factor. And important to them as individuals. So I think those things are all very positive. Climate has become mainstream. It's a mainstream concern for people.
You know, unfortunately, part of the reason for that is we're starting to see the impact in our daily lives, right? These 100 year floods that are now happening regularly. And not just in places where there is not good infrastructure in place, right? Developing economies. We're seeing them in Germany and in our major cities in the United States, right? So this is really, I think, hitting home for people. The physical impacts of climate change, I think, have become much more sudden and I think frightening. Certainly even than I anticipated they would be. So I think that's sort of the alarming part of it, but also, I think, the constant reminder that, I think, allows many people, not just me, right? Part of my job is to think about climate everyday. But I think those things keep it front and center for, you know, wide range of people.
Executives, citizens, right? Students, professors, all these important people in our society, climate change is now a top priority for them, even if it's not their official job to think about it everyday. And I think that will galvanize us into a solution and a set of solutions over these next several years. I tend to be very optimistic on that front.
Jason Jacobs: And I have lots of questions about Blackstone, which we'll definitely get into. But before we go down that path, I-I want to stick to the macro just a little bit longer. When you hear about 10 years or 12 years and it's like a shock clock and that's all we have as a society to save civilization kind of thing... I mean I know you're not a scientist by training, but does that resonate with you? I mean is that just, like, a marketing thing to try mobilize people faster? Is there... Is there merit to that? Do we really have 10 years? How do you think about that? How does Blackstone think about that to the extent that you think about it at all?
Elizabeth Lewis: Yeah. I mean, it absolutely resonates with me. I mean, I think the scientific consensus is completely overwhelming, right? And I think an interesting, maybe even more alarming part about this too, is that many people don't understand that there's actually a pathway to net zero, right? We have to start... To your point, we have to start now. We have to make progress now. And we have to turn the ship on the emissions over the next decade. It's not enough to just continue business as usual. And then in 2040, we all do a tight turn and get to net zero by 2050, right? We will have blown our carbon budget if we do that. So, it's very persuasive and the immediate impact from the physical world that we're seeing, I think are just further evidence that the climate scientists are right and have been right on this front in a number of ways.
So at Blackstone, we are fortunate that we have strong partnerships with our company because we are private equity investors. In many case, we are taking majority control positions of our companies. And so we have... We have influence with our companies. I will say, increasingly even our companies that are not majority control, know that they have to act on climate and have a good climate plan in order to be top in class. In order to be competitive. In order to get the next set of customers, you know, the next set of investors. You know, certainly in order to go public these days, you have to have a good climate story. You have to be able to report on your carbon emissions.
So for us, this is a great opportunity because we can partner with these companies over many years, right? We can actually invest our own time in these companies. We can make sure the climate is part of their culture. And so then they'll carry it on post our ownership. Whether that's three, five, seven years or some of these companies we're going to own potentially for-for decades at a time. So you can really think about the long-term I think in an exciting way there. And that's sort of fundamental to our strategy. Is working with companies to put them on their climate journey.
Jason Jacobs: Uh-huh and there are some that would say that capitalism is such a powerful machine and it's not about abandoning capitalism, it's about channeling it as a force for good. And there's others that say that inequality is already huge and it's only continuing to get worse at the capitalist machine plays out. And as the climate change problem becomes more pronounced, it also will inevitably lead to more of a scarcity mindset, where people with means will take steps to make themselves and their families or their organizations, etc. resilient. But the people without means are the people who least contributed to the problem, but will most bear the brunt of the initial impacts of it. How do you think about that in terms of our existing construct, as a... As a society, do you think that the engine we have is the engine we should use or do you think that we are maybe leading up to a point where we might need to consider a more material change?
Elizabeth Lewis: So I think the private sector and capitalism is a critical part of this engine, right? It's not the only engine, but it's a critical part of-of this engine, right? So the economists predict that we need over four trillion dollars of investment a year in order to build out the infrastructure to hit net zero by 2050. So four trillion dollars a year is-is a huge amount of money. The governments alone don't have this money, right? So the private sector is gonna be critical. The private sector also offers innovation and speed and sort of all of the actual practical solutions that are needed to confront this climate crisis head on.
That said, the governments play a really important role in ensuring that the capital is directed to the right parts. That the worlds needs it, really in particular, making sure that these countries and people who were not responsible the climate crisis, receive, you know, the necessary investment capital in order to make sure that they, in the case of emerging markets, that they develop in a clean way. In contrast to the way, right, that the developed countries all developed. We all developed using lots of fossil fuels. And then only when we had a certain amount of wealth, did we shift to cleaner energy sources. And we're still not all the way there. And so we have to, you know, we as a globe, it's in everyone's interest to make sure that that doesn't happen with the emerging market economies.
I will say on the point of who is most at risk and suffers the most... If we don't solve the climate crisis, those who are the poorest and those in emerging market countries are going to suffer tremendously, right? So we-we need to do everything and disproportionately to those of us who have more comfortable lives. But if we don't solve the climate crisis, this all gets worse for everybody. So I think this idea that we should sort of forget solving the climate crisis because it's going to lead to greater convergence. And so that everybody will have a hard life. That doesn't really make-make a lot of sense, right? We need to solve the climate crisis for the good of everybody, especially those who are most poor and most vulnerable. And we need the private sector in order to do that because of everything that the private sector offers.
Jason Jacobs: Turning now to Blackstone, just to clarify, Blackstone is not... It doesn't have impact anywhere in its charter, right? It's not concessionary capital. It's not philanthropic in any way. To the extent that Blackstone does care about impact and act upon impact, where does that come from? Why would an organization like Blackstone... I mean, before we even get in to what Blackstone is doing, like, why should any organization in Blackstone's shoes care? Other than the collective good, which is the obvious reason that you would hope everybody would care. But what about in their own... For their own selfish interests?
Elizabeth Lewis: Right, yeah, so no, yes. We are in the business of producing good returns for our investors, many of whom are pensioners, firefighters, teachers. And so there is obvious tremendous benefit and importance in-in what we do. And that is the heart of our business, is to be a good investment firm platform and to create long-term value for our investors. But we also fundamentally believe that we can be a force for good in this world, while we produce good returns for investors and contribute to a stronger economy. And I think that's very deep in the value system at Blackstone across the board, across our professionals. And ri-right up to the top of our executive leadership. So the way that that actually manifests itself in our investments is that we believe that by implementing strong climate policies... By implementing strong ESG practices within our portfolio companies, we are helping to create stronger and more resilient companies that stand the test of time.
And we have now a bunch of experience doing this, we have over a decade of experience working with our portfolio companies. And so we've seen the impact that that's had on our portfolio companies over time. We also are thematic investors and we have a number of different themes that we invest in. Sustainability has become a huge thematic area where we focus on. So we see this, you know, in my view, this is potentially the biggest investment opportunity of our lifetime. This global transition, not just in energy, but in every single sector. It needs to transition. It needs to become climate friendly and ultimately net zero. And so that's a huge investment opportunity that, on purely commercial terms, our investment teams, you know, are totally focused on and excited about.
You know, I think the third thing to mention is just that all of our important stakeholders find this topic very important right now, right? So our limited partners, that I mentioned, the pension funds, other types of long-term asset owners, right? They hold their capital. They're going to need to produce good returns into perpetuity for their own stakeholders. And so they need to ensure that their portfolios are climate proofed and that they have returns, you know, they have assets a hundred years from now to provide for their constituents. So they've really taken, I think, a very strong focus on climate change. Our potential employees, this is important as a recruitment tool to recruit employees and to retain employees.
And then, as I alluded to earlier, it's become quite important for us to attract the best portfolio companies, right? For us, this is a big competitive advantage for us. To be able to offer a potential company that we're going to invest in, we're competing against other investors to invest in this company. We want to be able to say to them, "Look. We'll work with you to make you the strongest ESG company in your sector. We have the capability here at Blackstone to make you in a leadership position." And that's really exciting and something that's really important now increasingly for companies that we might invest in.
Jason Jacobs: So you-you mentioned earlier in the discussion, that one of the advantages Blackstone has is the long time horizons and the more hands-on approach that you take with the companies that you work with. And I'm just curious from a time horizon standpoint. I've heard that before with some longer term capital allocators, that if you look out far enough, the collective good and the self interest intersect, right? But is there a threshold below which, from a time horizon standpoint, that they don't intersect and therefore other than voluntary because you're a bleeding heart. if you're just optimizing for your own wallet and those of your shareholders, you would not care about addressing a problem like climate change?
Elizabeth Lewis: I think that's why truly Blackstone's model and the opportunity that we have with private equity is, I think, much more powerful than other types of investors. I mean just, you know, as one example. We recently won the bid with our portfolio company TDI, to build this transmission line from hydro power in Quebec to New York City. It's going to be the equivalent recently of removing 44% of the cars from New York City. This project took over a decade to develop, right? So I think, you know, when Blackstone started this, it was, you know, a nascent idea, many teams at Blackstone worked at this over many years. Worked with the communities, labor organizations, environmental groups with the power company. And there were many times over the course of this decade that there were questions asked, right, internally. Is this a good, you know... Is this a good thing to be putting more money into? It's unclear, right, what the outcome will-will be. And if there will be a positive outcome for Blackstone and when that outcome will be.
And so I think in a lot of investment firms, they would have pulled the plug, you know,, much earlier. So I think this is something where having size, such that you can take some of these risks, but also having the patience allows you to actually A, understand the problem. And then apply resources and apply capital to-to sort of work through what are sometimes complex situations, right? There's no sort of clear road map for how you develop a power plant, working with all these... Or power line, working with all these different stakeholders.
So I think, I guess that's what I would say in terms of the private equity model and the ability just to really implement change. And I guess my other example is just, you know, when we partner with portfolio companies. So we-we've made a long-term commitment. So I think also this would be hard to do if you had a shorter time horizon. We've committed to a three year emissions reduction target across portfolio companies, where we control energy usage. So that, I think, just allows us to all be focused on the same page at a time horizon that is several years out. I don't think it's, again, the end all be all. I mean I think there is sort of these problems that are global and complex can't be solved by the private sector. And I think that is where governments really would like to... Should come in and provide some guidance.
I mean, I guess, you know, anoth-another point to make on this is I think that the private sector has shown that they really would like some structure and framework from government entities. I mean, COP26, which we just had in Glasgow in November, I mean, it had more private sector participants than ever, right? This has become a major private sector event. And so not only are these companies saying that this is a huge business opportunity and they want to go to COP and they want to meet with each other and they want to do deals and they want to develop projects together. It's a competitive advantage for countries to attract companies, to their countries. So the-the businesses go there to meet governments and to build relationships so they can expand into different markets.
But I think they're also pretty loudly and clearly saying, you know, for us to act with even more sort of long-term purpose and strategy, you know, we really need, sort of, global systems in place between the governments.
Jason Jacobs: Well, a lot of what we've talked about so far in this discussion is climate focused and you're title is Managing Director and Deputy Head of ESG, where does ESG sit relative to climate? So some organizations for example have a chief climate officer. Are they synonyms? Is there overlap? Does Blackstone have a separate climate team? How do you think about that and is it tricky to choose whether you put the word ESG on your business card or climate? If you even have business cards. I don't know if they still exist.
Elizabeth Lewis: [laughs] Exactly. Back when we were actually-
Jason Jacobs: [laughs].
Elizabeth Lewis: ... going to conferences and meeting in person. It's a great question. So, I mean, ESG for those who don't know it, stand for Environmental Social Governance. And it's really investors' way of applying these nonfinancial factors in their analysis to identify material risks and growth opportunities. For us at Blackstone, we have three main ESG priorities where we really feel we can have a huge impact. But also that these issues are important no matter what type of portfolio company you are. So these are universal top priorities on the ESG front. One is climate. The second is diversity equity and inclusive. And the third is good governance.
And so, for me it's quite helpful that I have a very strong background in climate. Because climate has become such a top priority for Blackstone and also for the world. But the great thing about Blackstone is we have a range of people who have different types of climate expertise. And that's, I think, really required in this world to have a big impact on climate. It's not just, you know, there isn't just one profile of somebody who has climate expertise. As you know from all the amazing guests on this podcast, people now bring all sorts of different types of climate expertise to the table. And in an investment firm, where we invest in every single sector. And we not only do investment, but we work with our companies post investment, roll up our sleeves to actually make them better companies.
And we have this big portfolio operations team for example. We need different types of climate expertise. So I'm very much complemented by my colleagues. I have a tremendous colleague who is on our portfolio operations team, who actually, his expertise is actually helping portfolio companies to get on a lower carbon pathway. He's an operational executive who came from Rocky Mountain Institute. Jamie Mandel is his name and he helps companies become more efficient. He helps them then, you know, acquire renewable energy, both onsite and then moving to offsite. But he's- he's truly an expert in terms decarbonization of our portfolio companies.
And then on our real estate side, where for example, physical climate risk is top of mind. My colleague, Eric DuChon, has tremendous climate background there. And he has helped really lead our physical climate risk pilot at Blackstone And we actually have many more people at Blackstone too who have different types of climate expertise. But I... Those are just a couple names to mention. And then we have experts also on our other ESG topic areas.
So we have a new Global Head of Diversity Equity and Inclusion. So she's really a subject matter in that. I've done some work in that. Again, but like, I'm not as strong in that area. She's really leading that whole effort. So that's sort of how we- we've organized ourselves with a combination of ESG experts and people with ESG in their business card. But then also people with deep climate expertise, sitting in a number of different places and subject matter expertise as well in diversity equity and inclusion, who also work hand in hand with our ESG team.
Jason Jacobs: And I- I read that one of the initiatives that you had taken on was a carbon footprinting exercise within the portfolio. And I'm curious, given that the portfolio spans a bunch of different industries and sectors and that you can't prove what you don't measure. And yet measuring is different and has different challenges, depending on what sector you look at. What's the Blackstone approach been in terms of carbon accounting? Is it tools that you've built in house? Are you using outside tools? Do you feel confident that you have accuracy? Are there key gaps? Does it depend on the sector? Like, what's the general state of the state there?
Elizabeth Lewis: Yeah. It's- it's a great question. This is an area where our work on ESG across our portfolio of companies has really informed our investment strategy. And so our partner on the carbon footprinting exercise is actually a pretty recent investment of ours, Sphera, which is a real leader in carbon life cycle, accounting, ESG data. They've been a tremendous partner for us. We invested in the company last year. And we will partner with them to do the carbon footprinting of our... Of our portfolio companies. And again, we think it's one of the biggest carbon accounting exercises ever done. And it's spanning all different sectors. So it is different, depending on what type of sector you're in. This is a really interesting exercise too because we've... It's actually important for our portfolio comp... It's important for us, again, as you say, to identify with the bigger opportunities for impact are.
But it's also really important for our portfolio companies. And so fundamentally we believe that helping our portfolio companies create this capability is going to make them stronger companies. And so they, you know, welcome our support in this area and the partnership with Sphera. And so, you know, this is an area where it's daunting because of how big it is. But it's sort of at this point, becoming more and more table stakes for any company. And as far as Blackstone is concerned, you know, we've done corporate carbon footprint. But we understand that really the biggest impact that we can have and the most important part of our emissions is our Scope 3 or financed emissions. Which is our portfolio companies and that that's- that's really where we're spending most of our time.
Jason Jacobs: And when you see the net zero commitments that are increasingly coming out from some of the largest organizations in the world, what reaction do you have when you see that flood of commitments? Is it excitement? Is it skepticism? Does it depend? And if it depends, then how do you jud... Like what's your own filter to judge which ones are for real?
Elizabeth Lewis: Yeah. I mean, it's exciting to see all of the net zero commitments. I applaud, you know, those companies and those- those leaders who are making those commitments. For us, we've been really focused on immediate impact and tangible results over the short-term. You know, we feel like that's where we have a potentially, you know, pretty unusual opportunity to really make an impact at scale because of our investment model. Because of our scale, where we can invest the resources to actually work with our portfolio companies to build out these capabilities. And to put them on this lower carbon pathway and in my view it, you know, it aligns very well with the climate science. Which is that we need to make immediate impact. We need to turn the ship within the next decade on climate emissions. And we can't... We can't sort of wait until, you know, close to 2050 to do that. So I feel that, you know, we really have a leadership position by having this commitments that are short-term.
So in our portfolio, companies where we control energy usage, we've committed to 15% emissions reductions over the first three years of ownership and aggregate. And so that's very much informed by this pathway that the world needs to be on to hit net zero by 2050. So, you know, and potentially we will consider how we can go beyond that in the future. But for right now, we really like that we have this short-term immediate focus, having tangible results. And I think, you know, it'll be interesting to see what happens with all these global commitments and how much scrutiny there is really on them.
Going forward, I think that's a really important question to just keep asking companies and investors. Whether they have a net zero target or not, but just what are you doing over the short-term? Because that's really where- where we all need to go as a world, as much as I applaud these net zero commitments.
Jason Jacobs: So when you talk about the long time horizons of Blackstone and what an advantage that is, and then you talk about the short-term progress, I think the short-term progress is great for the climate. Two immediate questions that come to mind are... So I get that in the long-term, it's a healthy thing for these companies and their balance sheets. But how disruptive is it to their short-term operating performance? And then, the second question is what's the reception from the portfolio companies'' CEOs and what's the message to them? And then same question about your LPs?
Elizabeth Lewis: We've learned a lot about what works and what doesn't work and what is most cost effective. And so when we're working with a portfolio company, we're always going in and at first, tackling the highest ROI changes. So that's usually energy efficiency. The second tier is usually onsite renewables. And then we have capital expenditures. And then finally, offsite renewables. Lastly, and this is something, I think, we're increasingly excited about, is creating new pools of clean energy, right? That doesn't exist. Bringing new pools of clean energy onto the grid, that doesn't exist. So you can see from that, that obviously that last one is expensive and, you know, will take a longer term... Longer time horizon to actually pay longer term ROI.
So we- we love this model that where we start with the highest ROI investments first. Because then we have more money, we're saving money, right? And so you can do more. The more cheaply you reduce emissions, the more capital you have to reduce more emissions. I think that's a really sort of important point for, you know, businesses to understand. So that's sort of the knowledge and the skillset that we're bringing to our portfolio companies. We actually have a company that we had partnered with for many years, that we then loved partnering with so much, that it's now a portfolio company RE Tech. And RE Tech is now our partner in working with our other portfolio companies to help them reduce emissions. So that's another way where just our experience in ESG over many decades has lead to interesting new investment opportunities for us.
The reception from our portfolio companies is very positive. I think increasingly portfolio companies realize they need to get on a lower carbon trajectory. They wanna know how. They often have many goals and many things that they're trying to do at one time. So the more we can make it easy for them to actually have this capability to become climate smart and to become more climate resilient, the better as far as they're- they're concerned. And they don't necessarily come in with this capability in house. So that's one thing that they find really appealing about the partnership with us. Where there is resistance, in my experience, it's been mostly because the management teams of portfolio companies have many objectives, right? And this may not be their top objective.
They just... They maybe... There are only so many hours in a day and only so many things you can get your own team excited about. So the more we can work with them to actually just integrate this into the program plan that we have for them, I think the better. I mean the great thing is is that my colleagues at Blackstone are tremendously supportive of this. So I, you know, we work really close with our deal teams. They're all very supportive so at least we're all coming in sort of with one voice and a collective effort to actually make our company stronger and more resilient by helping them reduce their emissions.
And then in terms of our investors, both are limited partners and our funds, and our shareholders. I mean, they're very enthusiastic about this work, right? I think this is... Climate has become a top priority for so many asset owners. And so this is something that we like to talk about and actually, often times, you know, they're learning from us about how we're doing this. Because we've been doing it for years and we have these capabilities in-house. And so many of them have their own climate commitments themselves, that they either want sort of accounting data from us that shows that they're making progress. Or frankly, just they want to learn from us about our capabilities and how we've built this out internally.
Jason Jacobs: And when it comes to these emissions reductions goals, which I think are great, and the competing priorities on the operating company leadership teams. Have there been any examples in the portfolio of financial incentives getting tied to these emissions reductions goals? And have you thought at all about standardizing across the portfolio in situations where you have a controlling stake and the ability to do so?
Elizabeth Lewis: So, yes. That's a great question. I think this is an emerging topic that's something that we're looking at seriously. We have this corporate commitment that we've been very public about, this 15% emissions reductions target. And so, that's, you know, required and everybody knows that that's important and we can't not do that. So I think there's a high level of focus and seriousness on that. And, you know, I think we've seen so much enthusiasm for the program and from our portfolio companies as well. That I think there hasn't been, I guess, as much of a need to create incentives around that. But I think it's certainly... This is a topic that I think is growing in interest frankly. And growing as a practice potentially in private equity and in investment... The investment world as a whole is compensation tied to ESG topics. So it's something we're putting a lot of research into and thinking about.
Jason Jacobs: Well, I would just say, if you really believe that it leads to higher performing companies from a financial performing standpoint, then incorporating that into financial compensation doesn't seem like it's at odds with building the strongest companies, climate aside. But what do I know? I'm in the cheap seats.
Elizabeth Lewis: No-
Jason Jacobs: What do I know?
Elizabeth Lewis: ... it's true.
Jason Jacobs: [laughs].
Elizabeth Lewis: It's true. But I think-
Jason Jacobs: [laughs].
Elizabeth Lewis: ... it's true. But I guess the counter is that the incentive might already be there. I mean, to me, that's an interesting model where... For something where potentially the economic return, the investment return, isn't quite as, I guess, understood by everybody maybe. But I don't know.
Jason Jacobs: Uh-huh. And a similar question, just around... You mentioned that the portfolio companies don't necessarily have the expertise in-house. Does Blackstone have the expertise in-house? Like what percentage of the value propositions that you're providing these companies in this area comes from Blackstone versus from partners and vendors?
Elizabeth Lewis: Yeah. So it's a big team. So we have a portfolio operations team at Blackstone. And in that, we have a sustainability team, That's lead by Jamie Mandel, who joined last year from Rocky Mountain Institute. And he has been scaling up his team. We now how an expert on carbon accounting on his team. We have different experts who have worked for years with companies on energy efficiency and reducing emissions. And then they work in lock step with RE Tech, the portfolio company that actually works with our other portfolio companies to help them reduce emissions. And you know, it's a nice partnership because, you know, by having a portfolio company as our partner, they actually see other things in the market too, right? They have other- other, you know, they work... Do a lot of work for example with the US government. And so they see emerging policies and trends that are really important for Blackstone and also for all of our other portfolio companies. Yeah, so that's, you know... And there are a number of sort of synergies across the real estate portfolio, where we've introduced solar panels.
Put them on warehouses, which as been an increasingly important investment area for us at Blackstone. Warehouses are really a perfect place to put solar panels across them so you can... We can scale up things, I guess, in a lot of ways by really leveraging the power of our portfolio companies. And it adds capabilities that, you know, we wouldn't necessarily have in-house. Although I would say our- our in-house actual Blackstone employees, you know, I think we're second to none sort of in terms of how much we've been able to scale up expertise on climate across the firm.
Jason Jacobs: It sounds like it's fair to say that you're ahead of your peers in this area, given how long you've been doing it and the sophistication of your expertise. Is that fair to say?
Elizabeth Lewis: Yes, I think so. I think we have a very strong leadership position in this.
Jason Jacobs: Well, a natural follow-up question is, have you thought about... I mean, maybe this goes counter to your short-term self interests, but have you thought about educating your competitors on these capabilities? So that more companies outside of Blackstone portfolio step up their game in a way that you've been having success getting the Blackstone portfolio companies to step up their game.
Elizabeth Lewis: Absolutely. Yeah, we actually think about that all the time. And it's an area that excites us a lot. So I- I think, you know we're... Right now undertaking just some really tremendous exciting work both on our... Work to help emissions reduction. So the mitigation side, the carbon accounting side. And then just investing at scale into these solutions. And so we, yeah, and how you... How do you measure the impact of that? And what can you learn about emerging technologies that are going to be part of the critical solution to solving the climate crisis? All of this stuff, I think, is just very powerful learnings that we have at Blackstone because we do invest across every single sector and asset class and because we now have these real experts in-house across a number of different areas that are critical to climate. So we have thought a lot about this and how we create some greater good just by the knowledge that we have. And so more to come on that.
Jason Jacobs: Awesome. And, if you think about big levers that are outside of the scope of your control, that if changed, would have the greatest impact on accelerating your efforts to get big industry to decarbonize, what would you change and how would you change it?
Elizabeth Lewis: So I think... I think the really big lever is having greater guidance from governments and from intergovernmental organizations and standard setters, sort of everything outside of the private sector. I think the last few years have showed us that the private sector is- is all in. I mean, I really think that's- that's true. They're just on the whole, companies and investors are just extremely eager to invest in climate solutions. They're extremely eager to reduce carbon emissions. But they also operate in a marketplace, right? And it's in a capitalist system in our country. And so, sort of greater coordination within government and then also between governments, I think is really important rules of the road, right?
If we're going to scale up investments such that it is this four trillion dollars a year that's required, there's gonna be greater need for rules of the road. And again, I think you just see the huge desire for that when you look at COP. And you sort of look at what companies are most proud, sort of what they talk about. I mean, the private sector is just, I think, yearning to have some guidance, I guess, about... To help them invest at bigger scale even and into new technologies that haven't gotten to scale yet to solve the climate crisis.
Jason Jacobs: And with a US hat on, how do you see that coming about, given how politicized the issue has become and how polarized we are as a country right now?
Elizabeth Lewis: I mean, I think we have to sort of get over the idea that solving the climate crisis will be bad for our economy or will only benefit parts of our population. I mean, I think, you know, solving the climate crisis is the best way to create economic revitalization in parts of the country that frankly have fallen behind. It's the best way to provide us with products and services that are just better than our old traditional products and services. It's the best way for the country to actually, you know, lead and sort of regain its leadership role in the world in sectors where it's fallen behind. So I think that's, to me, the sort of economic competitive case is very clear. And I think that's- that's how the case has to be made on this.
I mean, when you think about some of the infrastructure upgrades that our country needs, just doing them in a climate smart way is, you know, shouldn't be that difficult actually when you think about the tremendous capital of the private sector can provide. The technologies that are already cost effective. And what parts of the country those will benefit. I think, you know, there should be room for negotiation on this... On this front and potentially not, you know, making the economic case for it really, more than that just is about solving the climate crisis. It's about that, but also about sort of our country and making sure that we're... That we're leaders in the global economy.
Jason Jacobs: I don't know why this question popped in my head now and I've never asked it before. But any zany, crazy ideas that you think would be really cool, that are way out of the box, that you've never put out there, that you want to plant a seed with this diverse, highly strategic, highly engaged audience today?
Elizabeth Lewis: Well, one thing that I worked on. Early on in my career, which is not an original idea, but I think it, you know, I think it's new for most people. Which is, you know, we could have a clean energy bank of the United States, right? We've scaled up, you know, our... We developed the internet, you know. We've been leaders in space exploration. You know, our country has been such a leader in so many important technological things that have changed the world. And there's no reason that the climate crisis should not be an area where we lead and we change the whole world because of our leadership. So I think, you know, something like having a clean energy bank of the United States, where we invest at bigger scale into emerging technologies. But also really think about how to create financing mechanisms, such that we can scale up the technologies that right now seem a little bit risky, whether they are or not. But are perceived to be risky by investors.
And many of these technologies could be placed in these solutions. And these companies could be placed in, you know, maybe rural areas of the country, right? That have been, maybe not benefited as much from some of these companies and innovation as much as big cities have. And as much as places near big research universities. So, you know, you could put a lot of these projects in rural areas. And then also use some risk capital to have transmission, right? To build, for example, clean energy and bring it to ares of greater population. So I think there's just a lot of, if you think about the country as a whole and doing things that bring the country together, while also creating the industries of tomorrow. The government should have an important role in that and something like a clean energy bank of the United States, you know, would be my zany idea.
Jason Jacobs: I'm so glad I asked that. I'm gonna ask that again. One of these days, the coolest thing would be if someone's zany idea on the show, actually planted a seed and then someone ran with it and then it became a real thing. So who knows?
Elizabeth Lewis: Oh, yeah.
Jason Jacobs: One never knows, but now- now you put it out there. My last question is just, for anyone listening that's inspired by the work that you're doing, which is pretty awesome, by the way, how can we be helpful to you? Who do you want to hear from and about what?
Elizabeth Lewis: Thank you. I'd love to hear from many of your listeners. I think your listeners and the other guests you have on your show are just this amazing community. And I think, you know, one thing that's become totally clear over the course of my career is that it takes people with all sorts of expertise to solve the climate crisis. Like, there is no one mindset that's gonna do it. It's gonna take people with all sort of expertise, sitting in organizations across the private sector, governments, non-profits, academic institutions. So I would love your ideas. I would love your ideas. I would love to partner with you on anything innovative that you think can really be revolutionary and bring us to the next level, where there would be a place for an investor like Blackstone.
Certainly bring us your investment opportunities and these any of you running any exciting companies in the energy transition, or more broadly in climate solutions, pleas come my way. You know, we'd love to talk to you and learn more about your business. So thank you so much. It's amazing to meet your audience.
Jason Jacobs: Well, likewise. And anything I missed, right? Any parting words for listeners that I didn't ask?
Elizabeth Lewis: Always be thinking creatively. Think about what you can do to solve the climate crisis in your own role. I think truly everybody has a role, not just at the personal capacity, but also in, you know, your professional role. So think creatively and don't hesitate to reach out.
Jason Jacobs: Okay, Elizabeth Lewis, thanks again.
Elizabeth Lewis: Thank you. Thanks for having me.
Jason Jacobs: Hey everyone, Jason here. Thanks again for joining me on My Climate Journey. If you'd like to learn more about the journey, you can visit us at myclimatejourney.co. Note that is .co, not .com. Someday we'll get the .com, but right now, .co. You can also find me on Twitter @jjacobs22, where I would encourage you to share your feedback on the episode or suggestions for future guests you'd like to hear. And before I let you go, if you enjoyed the show, please share an episode with a friend or consider leaving a review on iTunes. The lawyers made me say that. Thank you.
