BBVA Chair Carlos Torres Vila spoke with Larry Fink, founder and CEO of BlackRock, at the 2nd Sustainability Forum held by the bank on Thursday in Madrid. They both agreed on the need to invest in new technologies that will make the transition toward a decarbonized economy as fair and equitable as possible, with realistic short-term goals and without leaving emerging countries behind. The BlackRock CEO saluted BBVA's role in this decarbonization process: “BBVA is making a difference in Mexico, in Spain and everywhere,” he said.
During the talk, Larry Fink, CEO of BlackRock, the world’s largest asset manager and one of the most renowned figures in the world in the fight for a carbon-free economy, cited Spain as a model of leadership in solar power. “Spain has been a leader in solar power for many years and is increasingly powering its grid with renewables.” Renewable energy like wind and solar can compete with fossil fuels, he said, although they could have a problem with supply disruptions. “And to do this, we're going to have to create better battery technology”, he added.
“Spain is underappreciated by global investors. I think Spain has the opportunity to be the transformational country of Europe,” said Larry Fink. The financier pointed to several positive factors, such as Spain's leadership in solar and wind energy, its proximity to gas sources, and the presence of large international companies. “I look to Spain as a global driver towards decarbonization,” he said.
“Moving from words to action”
At the beginning of the conversation, the BBVA Chair called for "moving from words to action" in the fight against climate change. Carlos Torres Vila recalled the "palpable and manifest" effects seen this summer, such as heat waves, fires and floods. He believes we are facing a "formidable challenge” to decarbonize the economy that will require significant investment in the development of new technologies and their implementation worldwide.
All of this in a context of uncertainty, “that we haven't seen in decades.” The humanitarian tragedy of the invasion of Ukraine has exposed the risks of energy dependence on fossil fuels. But also due to high inflation, the response of central banks with interest rate hikes and how this will affect growth.
Carlos Torres Vila raised the possibility with Larry Fink that these short-term challenges may complicate decarbonization. The BlackRock CEO expressed confidence that solutions will be found, just like with the development of vaccines for the COVID-19 pandemic. However, he called for realistic goals to eliminate dependence on fossil fuels, with "long-term solutions."
Gas as an ally in the transition to a carbon-free economy
The founder of BlackRock feels that in the short-term it is necessary to adopt some forms of fossil fuels like gas, with lower emissions.
One example of economic distortion is high inflation, resulting from events such as the invasion of Ukraine, Russia's gas strategy and oil prices. All these factors have a direct impact on energy prices, although fossil fuels continue to be cheaper than cleaner alternatives. However, Larry Fink advocates for developing new technologies to make energy with lower emissions more competitive in price.
In his view, gas could be a key energy source in the transition to a decarbonized economy, using this hydrocarbon instead of coal when renewable sources like solar and wind are not available, for example.
The BlackRock CEO points to the construction of gas pipelines as a key move in the current energy context, although its set-up entails high costs. In this context, he suggests using hydrogen as “a major component of renewables. Hydrogen is going to be, in our opinion, the source of energy for large engines, for large machinery,” he explained.
Climate risk is investment risk
Carlos Torres Vila believes that decarbonization is one of the most significant strategic issues for any business in the long-term . BBVA is well aware of this, which is why sustainability is one of the bank's six strategic priorities, for example. The BBVA Chair asked the BlackRock CEO how companies should prepare for and participate in this shift to net zero emissions.
Larry Fink stated that, for companies, "climate risk is investment risk", as he pointed out in 2020 in his annual letter to the CEOs of the companies in which BlackRock invests on behalf of its clients. But he also strongly believes that the opportunity to invest in decarbonization technology is immense. “We have to be working with the energy companies of today, not against them,” he said.
He also underscored the role of the public sector in this process, working alongside the private sector “to find solutions that is not the abandonment of hydrocarbons.” “Governments have to be consistent. If we're going to move forward together, we have to ask all businesses to move forward together,” he added.
Emerging economies continue to lag behind in the energy transition
During the talk, Carlos Torres Vila stressed that, unlike what is happening in the developed world, investment in clean technologies in emerging markets excluding China remains stagnant at 2015 levels. “Emerging markets are lagging behind. And they're essential if we are to decarbonize given that they are more exposed to climate risks,” he said.
In the same vein, the BlackRock CEO admitted to being "worried about the future decarbonization in the emerging world." In his view, limiting the use of hydrocarbons in the short-term would result in economic inequality, particularly for emerging markets. The role of the IMF and the World Bank will be decisive in promoting the necessary investments in these areas of the planet. But he also said, “There are some countries in the emerging world that are going to do fantastically well. For instance, I am very bullish in Mexico,” due to factors such as the country’s proximity to the U.S., its labor capacity and its infrastructure.
To wrap up, Carlos Torres Vila advocated for implementing mechanisms such as carbon pricing, a global market, and more structured and organized voluntary carbon markets. In his opinion, it is a matter of availability of capital, and, he said, “The responsibility lies with the developed world to make sure that the structures exist to mobilize the capital towards the emerging world.”