This is the View from Apollo Podcast, an ongoing conversation on alternative
investing economics and the trends shaping up financial markets.
In this episode of The View from Apollo, chief economist, Torson Schlock
speaks with Olivia Wasser, head of Sustainability and Infrastructure at Apol.
About the outsized and unprecedented investment opportunity.
That is the clean transition.
Here's Olivia's take on recent legislative support in the us.
Climate change is an existential issue.
The consequences today are well known.
We're experiencing higher temperatures, rising sea levels.
The damages from weather and climate related disasters are in the multi-billion.
Last year alone numbers topped 165 billion with 18 individual disasters causing more
than a billion dollars of damage each.
That's wild if you think about it.
Torsten
also, Torsten and Olivia explore their views on the sheer size of
the opportunity considerations to approach the clean transition theme.
And the fact that many of the most interesting opportunities aren't brand
names, but enabling technologies that make the whole transition possible.
Olivia also has a great reading recommendation.
Make sure to stick around for that.
So let's get started.
Hello everyone.
I'm your host, Charleston Slack, chief economist at Apollo, and you're listening
to the View from Apollo Podcast.
My guest today is Olivia Vassar, head of Sustainability and Infrastructure at Apollo.
We are here today to discuss what we believe is an outsized and unprecedented investment
opportunity, investing in the clean transition.
Welcome to the show, Olivia.
It's really great to have you with us.
It's good to be here at Torsten.
Thank you for having me.
So let's start out with setting some context.
At Apollo, we describe the clean transition as an outsize and
unprecedented investment opportunity.
That's the good news.
I watch your recent class on Apollo Academy on the subject, and unlike a lot of doomsdayers
out there, you voiced optimism that decision makers around the globe are finally taking
the impacts of climate change seriously.
But that doesn't change the fact.
That the negative impacts of climate change continue to increase
in both frequency and cost.
This year, for example, seems to have delivered one climate disaster after another.
Can you give us some detail on the scope and scale of the problem?
Sure.
I am very optimistic about where we are heading.
Climate change is an existential issue.
The consequences today are well known.
We're experiencing higher temperatures, rising sea levels.
The damages from weather and climate related disasters are in the multi-billions.
Last year alone numbers topped 165 billion with 18 individual disasters causing more
than a billion dollars of damage each.
That's wild if you think about it, Torsten.
Well, I love it when you can put some numbers on things as we try to wrap our
heads around this problem quantitatively, what does substantial investment mean?
It's a lot.
So as we think about it, the investment, what we call clean transition,
and I should just frame that.
You know, a lot of people say energy transition.
We say clean transition because it's not just energy.
We think about water usage.
We think about the circular economy.
We are very much focused on a world that just doesn't involve.
Transitioning on the energy side, but also the broader economy.
We look at this and think investments need to triple from 20, 22 levels
by 2030 and need to nearly quintuple by 2050, and that's a lot of money.
If you think about it, it's going from, you know, 1.6 trillion today to 4.6
trillion by 2030 and 7.9 trillion by 2050.
Wow.
So the investment needs are going to grow into the trillions over
the, into the trillions decade.
The IEA says the total investment need is 150 trillion.
McKinsey says it's 275 trillion.
I saw something from PWC that said a thousand dollars per year for every person
on the planet, these numbers, any way you slice and dice it are pretty massive.
Wow.
That's an incredible amount of capital.
And when we talk about clean transition.
We are mostly talking about deep decarbonization, which will require
significant innovation and changes in consumer and business behavior.
How do we even start thinking about this?
When we talk about then transition, we are really thinking about this generational
shift in how we power our homes, how we feel, our cars, how we really think
about how we use products, what we do with them at the end of the life cycle.
We tend to focus on it in a few different ways.
So we have parsed out the needs into a few different sectors, energy transition,
sustainable mobility, sustainable resource.
And finally, one of the things I find most fascinating and really massive consumer of
capital is gonna be industrial decarbonization.
That's really thinking about how we focus on hard to abate sectors and how we help
these sectors and businesses achieve the changes they're looking to achieve.
Wow.
While we hear a lot of climate related bad news, on the other hand, we also
hear almost every day about new efforts aimed at addressing climate challenges.
Maybe let's start with what governments are doing, and particularly here in the
US there have been two really significant pieces of legislation passed in recent years.
The Inflation Reduction Act and the Infrastructure Investment and Jobs Act.
What has that kind of support done for the transition?
It has been a game changer for so many years, and I should say I've been
investing in this sector for 20 plus years.
You know, I like to think I was investing in it before.
It was cool, really being able to see just one, the magnitude of capital
between all these various different acts.
Also combined with the visibility and certainty.
Right.
I mean, we had, for so many years, we had various different regimes and tax credits we
were looking at that didn't have certainty.
There were a couple years here, a couple years there.
It made it really hard for the private sector to invest.
One of the things I love about all these bills that have been enacted in the us, which is
about 532 billion of federal support here.
It gives us a runway in many cases.
It gives us a 10 year period in and around these various different components
of these bills that we can invest into.
If you're a private equity investor like me, what do you like?
You like certainty.
You know, you like visibility into a time period and what things are gonna look like.
Oh wow.
532 billion in funding across categories of carbon free energy.
That's a very big number in its own, but are there any multiplier effects on top of that?
You're right, it is a big number and it's an impressive one and
one we're very excited about.
I do think there's gonna be a pretty significant multiplier effect here.
We think the number based on that could be up to 1.8 trillion.
And while we're talking again about big numbers in the whole scheme
of things, there's still a gap.
And so when we think about this sort of public private divide, one of the things
that we've talked a lot about is what is the role of private capital, all this.
Ultimately, when we add up all the dollars coming in from governments,
we think we'll probably see about 30%.
Of all the capital needed coming from governments.
Wow.
Which leads to about a 70% gap in funding that's gotta come from the private sector.
And that's gotta come both from the equity side as well as the credit side.
Well, uh, those are really big numbers, but as you pointed out, I mean we need
much more than that to get this job done.
So outside the US and outside the inflation redox act, what has been
done on the infrastructure front?
What are governments around the world doing elsewhere outside the us?
I mean, it's probably one of the most topped about topics, if we think about
it, what various different economies are doing to really prepare themselves
for this transition, what the economic opportunities are in the transition.
I think from my perspective, the US in a lot of ways had been a little bit of a laggard here.
It was, we were not always cutting edge in terms of policy and otherwise
around things like renewable energy and modernization of the grid.
When we announced this massive bill a year ago, one of the things I think it did was,
you know, it, it put other economies on.
Watch Europe said, you know, my goodness, we thought we were the best innovators
and the most forward in this area.
And here the US government has come out with this tremendous amount of support.
We gotta step it up on our end.
There's a lot of discussion too about how the renewables revolution is
redrawing the geopolitical map for key commodities and the supply chains
related to those commodities as well.
Broadly speaking, are there any implications of this energy transition?
Anything that is going to have a broader macro impact in your view?
I do think you're seeing a little bit of redrawing of the map when you're
looking at where minerals and renewable energy components are coming from.
They're coming from a pretty different set of countries.
Then what you saw hydrocarbons coming from.
And so as we're looking at these flows, it's really a remarkable difference in this area.
That's fascinating.
So let's just back up a little bit here.
You are heading up our sustainable investing efforts here at Apollo, and I
know that we are targeting a deployment of 50 billion in clean energy and climate
investments over the next four years and a possible a hundred billion by 2030.
How are we thinking about achieving that vis-a-vis the opportunities
that you have identified?
First thing we did is look at what we've done historically.
So we've put 23 billion to work over the last five years in climate
and transition related investments.
That's a big number and something that we're very proud of that
really happened across Apollo.
You know, that happened in our credit business.
That happened in our real estate business and our infrastructure business
and our private equity business.
It came from so many different pockets of capital.
But one of the things we realized is.
We didn't actually have any dedicated pools of capital going after this opportunity.
So for us, one of the big components of looking at deployment and how we can really
deploy more in this area was trying to figure out are there dedicated pools of capital
that we should be raising to really more proactively go after these opportunities
in a more thoughtful and consistent way?
And so that for me has been one of the big areas I've been focused on over the last year
or so, is trying to get the right pools of capital together for the right opportunities.
That's very interesting.
Is this more of an equity or a debt proposition?
You know, interestingly enough, it really spans everything that we do.
It's really across asset classes.
I mean, when we think about the transition, it's not a sector, right?
It's not a single asset class.
It's a theme.
It's gonna permeate so much of what we do.
So, okay.
Both debt equity,
debt equity, wherever the opportunity is, real asset, it's, it's gonna
be in so many different areas.
And that's one of the things I really like about the opportunity is it allows us to
really deploy across the broader Apollo ecosystem into so many different areas and
frankly, into so many different sectors.
I mean, we're looking at this both on the power and energy side, but we're
also looking at on the industrial side, on the consumer side, there are so many
different ways to come after this thesis.
It really provides a really exciting opportunity for investors.
So, and how would you describe this investment theme more broadly?
I mean, what is the nomenclature?
How do you think about it?
From an investing perspective,
I'd say about 60% of what we've done as a firm, historically has been in the energy transition.
So, what do I put in that category?
I put in things like renewable energy, biofuels, energy storage, you know,
anything really around the electrical grid.
It's, that's energy transition, and that's a big part of what we've done.
And frankly, a big part of what we will continue to do, but that's not
the only part of where we're investing.
We're also looking at sustainable mobility, how we think about the changes in the vehicles
we use, how we think about electrification infrastructure in and around that.
There are many technologies and services around that are investible.
We think about sustainable resource use.
So we're thinking about things like, you know, the circular economy, how we think
about waste and water management, smart agriculture, sustainable metals, and
mining, right to the point before about where these components are coming from.
And finally, industrial decarbonization.
So that for me, we talk a lot about grade green, so how do we keep, how do
we take high admitters and help them really go through their own transition?
That's something that we are very focused on, both on the equity
and credit side of the business.
Well, and you said that most of the historical investment has been in the
first theme, namely energy transition.
Well, what's the breakdown today?
Where are the most interesting in sizeable investment opportunities coming from
across those four different themes?
You know, interestingly, I think today we're still seeing the most
outta the energy transition for sure.
But I will say we see a real emerging trend around industrial decarbonization.
So really working with our corporate partners, working with lots of Apollos, you know, legacy
relationships is as they think about, you know, how they are meeting their own goals.
The ability l for us to be able to finance that is really exciting for me.
Well, let's dive a little bit deeper into the themes individually.
So what energy transition investments, what are the themes?
What different things are you looking at?
Gosh, we are looking at a lot these days.
I mean, one of the things that's really fascinating for me is around
the grid, the aging grid in the us.
We did an expert briefing a couple weeks ago led by Jonathan Silver,
who chairs our climate council.
On what it's gonna take to modernize the grid in the us.
Yeah.
How
bad is it in your view?
I
mean, it's bad.
Okay.
Uh, it's, but therein lies opportunity, right?
I mean, we look at the delay in interconnects, we look at permitting.
Like, I think there are a lot of things that, you know, I, my hope is we'll get sped up, you
know, in the process over the next few years.
But there are a lot of components to updating the grid that we think will be exciting for us.
Is it across the whole country or is there some parts that are a bit
better, or is it just really not good?
Yeah, it's pretty much everywhere.
Okay.
You know, we've had a bit of a changing landscape in this country.
Right.
As we think about power sources, you know, our power sources are different
today than they were 50 years ago.
I'm a big believer in batteries.
I think wind and solar have been fantastic, but one of the things that we see is
the effects of intermittent power.
Yeah,
I think the real solution for that is going to be around the battery landscape, so
that's something that we're very focused on.
We see a real opportunity for gas to replace some of the less clean fuels
and how we think about transporting those from one area to another.
I think energy transition is such a. Big topic, we could invest that whole $50
billion really in energy transition alone.
But there is so much more even beyond that.
And what about the topic of industrial decarbonization?
What are the themes?
What are the opportunities that you're looking at there?
We are looking at a variety of different businesses, helping companies change some
of the parts of their infrastructure.
So for example, industrial businesses as they are focused on transitioning
to a different type of fleet.
What is the infrastructure around that?
Can we help companies finance their EV charging build?
Down the road as we think about hydrogen as a source, are there
things that we can do around that?
So we're having some pretty good discussions around where our different
pools of capital can be most active and most applicable in these areas.
And your third theme of the sustainable mobility obviously includes electric cars,
and you spoke about batteries of course, which is a very important part also of that theme.
But there are numerous ways to invest in that transition beyond the big brand names.
So what kind of interesting developments are happening in EVs?
I think we will look back on EV infrastructure and that build out and
think of that a little bit like, you know, we do cell towers today, right?
I think getting into the prime locations for charging is going to be a big
part of the opportunity set here.
So really wanting to, you know, frankly, pick the best spots, get
into the markets that are growing.
We've really liked the European charging opportunity.
It's a market that is much more advanced than the US today, you know, and a lot
of it has to do with just the layout.
How you think about cities, how you think about connectivity of cities in Europe,
how you think about availability of things like, you know, like garages, right?
You know, in the US we're gonna be doing a lot of charging, like in our homes.
Right.
People have garages.
Interesting, you know, the way cities are laid out, so that's gonna be a big component.
Whereas in Europe, you know, you have old buildings, you don't always
have, you know, personalized garages where you can install a charger.
So you're thinking about how can I charge in a downtown area?
How can I charge my local grocery store?
How am I charging on the side of a highway between cities as I'm on a trip?
I do think that opportunity for our type of capital is, at least in the near to
medium term, gonna be more interesting.
So we will have charging stations across the country at a whole different scale
relative to what we're seeing today.
Eventually, yes, it's gonna take some time.
It's definitely not happening overnight.
I mean, if you have an electric vehicle today, range anxiety is real.
So that is gonna take some time to develop that connectivity, but it's coming.
Okay.
And finally on your fourth theme of sustainable resource use, tell us about that.
The circular economy, for example, is a great idea, but how and where is it investible?
One of the things we've been really focused on are plastics.
My kids come home and they want no plastics in the home.
They are actually very versed on how we think about recycling there.
We invested in a business about a year ago that focuses on plastics recycling, you
know, the thin wrap that goes on packaging.
I do think there's gonna be a lot to do around the circular economy.
That's something that is coming into increased focus.
The EU has enacted legislation around recycling plastics, but you know, more recently, the US
has also introduced some pretty significant grants and programs to increase the recycling
rate in the US trying to target 50% by 2030.
That's gonna require a massive investment around infrastructure as well.
Well, Olivia, we could continue and keep going here, but sadly we reached our allotted time.
But before I let you go, the way we try to close out our episodes
is with a personal recommendation.
So what's your recommendation today?
Could be anything.
A book you're reading, a movie you're seeing.
What's occupying your time when you're not thinking about sustainable
investing, which I do know that you're thinking about all day long.
When I get home at night, I like to relax and so I don't really read nonfiction.
I like a good book.
I come from a family of writers.
Both my parents are writers.
Two of my sisters are writers, and my grandfather was a writer.
It's, you know, it was such a big part of my childhood.
I was a literature major in college.
I thought for many years that I was gonna be a writer as well, but I always loved math.
It was something that I almost kind of had to fight the fact that what I was good at
was maybe a little bit different from what everyone else in my family was good at.
Everyone always jokes that I was switched to birth because I'm, you know, the
only one who's not a writer these days.
I just finished the Lincoln Highway, which was a phenomenal book.
I had a highly recommend it.
I started reading that on a Friday evening and really tore through
it over the course of the weekend.
Oh, it just shows how versatile you are both, uh, humanities and math.
Well, on my side, what I enjoy doing when I'm not doing what I'm doing
in my day job is to watch soccer.
And I happen to be a fan of Manchester United.
And unfortunately they haven't been doing too well.
They do have a Danish soccer player, a Rasmus Hoer and who scored two goals recently.
So I'm proud of that.
But I recommend everyone to find a sport or find a book or
something that they really enjoy.
And unfortunately my team is not doing too well at the moment, but
hopefully they will soon come back.
But thanks so much.
We really appreciate it, Olivia.
That's really interesting conversation we have had, and I really appreciate your time.
I know how busy you are.
So with that, thanks so much for joining us today and thanks so much to everyone else
for listening, and stay safe everybody.
Thanks George, and thanks for having me.
And thanks to everyone today for listening.
This podcast was recorded on October the fourth, 2023.
Thanks for listening.
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Thanks for listening.
As of December 31st, 2022, deployment commensurate with Apollo's Clean Transition
Investment Framework, which provides guidelines and metrics with respect to the
definition of a clean transition investment reflects a for equity investments, one
total enterprise value at time of signed commitment for initial equity commitments.
Two additional capital contributions from Apollo funds and co-invest vehicles for
follow on equity investments and three contractual commitments of Apollo funds and
co-invest vehicles at the time of initial commitment for preferred equity investments.
B for debt investments, purchase price on the settlement date for private non-traded
debt to increases in maximum exposure on.
Period over period basis for publicly traded debt.
Three.
Total capital organized on the settlement date for syndicated debt,
and four contractual commitments of Apollo funds and co-invest vehicles.
As of the closing date for real estate debt.
C for SPACs, the total sponsor, equity and capital organized as of
the respective announcement dates.
D for platform acquisitions, the purchase price of the sign commitment, date, and
E for platform originations, the gross origination value of the origination date.
Apollo Global Management Incorporated together with its subsidiaries.
Apollo makes no representation or warranty express or implied with respect to the
accuracy, reasonableness, or completeness of any of the statements made during this
podcast, including but not limited to statements obtained from third parties.
Opinions, estimates and projections constitute the current judgment of
the speaker as of the date indicated.
They do not necessarily reflect the views and opinions of Apollo and are subject
to change at any time without notice.
Apollo does not have any responsibility to update this
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Statements made throughout this podcast are not intended to provide and should not be
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