Ana Nacvalovaite: 0:03

Sovereign wealth funds by investing in renewable energy and low carbon technologies do contribute to addressing climate change and the critical rights that affects the health and well being of present and future generations. So we know that Climate change disproportionately affects vulnerable populations and investment strategies that mitigate environmental harm can directly support their rights to health and safety and contribute to us reaching net zero as soon as possible.

Tom Raftery: 0:31

Good morning, good afternoon, or good evening, wherever you are in the world. This is the Climate Confident podcast, the number one podcast showcasing best practices in climate emission reductions and removals. And I'm your host, Tom Raftery. Don't forget to click follow on this podcast in your podcast app of choice to be sure you don't miss any episodes. Hi everyone. Welcome to the Climate Confident Podcast. My name is Tom Raftery and with me on the show today, I have my special guest, Ana Ana welcome to the podcast. Would you like to introduce yourself?

Ana Nacvalovaite: 1:05

Yes, of course. Good morning, Tom. It's a pleasure to be here. My name is Ana Nacvalovite. I am a research fellow at the University of Oxford Kellogg College Centre for Mutual and Co Owned Business, and I look at sovereign wealth funds especially and ESG and sustainable investment, which is quite a big mix of topics, but a fascinating one given the geopolitical climate of 2024.

Tom Raftery: 1:30

Very true. Very true. And Ana to kick things off, could you explain what sovereign wealth funds are and why they're becoming increasingly important in discussions about sustainability and climate change.

Ana Nacvalovaite: 1:45

Of course. So sovereign wealth funds are funds that have been created by governments from usually a surplus of their income. A lot of oil rich countries have sovereign wealth funds and what they really focus on is ensuring that they have diversified the investments to maintain financial income for generations to come. They essentially the equivalent of private equity funds in many ways. But on a government level with the citizens' capital, because the money that comes in sometimes comes in from taxes, sometimes comes in from businesses that are owned by both the government and the private institutions. And a lot of times comes in from any other surplus that the country may have.

Tom Raftery: 2:33

So it's like a savings account, an investment account, shall we say, but for a country.

Ana Nacvalovaite: 2:40

Yes, it would be very good idea to describe it that way. It's sometimes seen as a rainy day fund. So if something goes wrong, it absolutely can help out the country in need. And I can give you some great examples of that. For example, we have a geopolitical situation now with Ukraine and Russia, and the Russian Sovereign Wealth Fund, although a lot of its assets have been frozen by the West, a part that has been kept within the country or within the states that have been friendly to Russia has been used to invest into gold or Chinese currency to really keep the surplus going. A lot of it has been used for the infrastructure and for further research, especially in the military area.

Tom Raftery: 3:26

Okay. And the ones that I've heard about would be obviously the Norwegian sovereign wealth fund. given it's, I think, the largest in the world right now. And also the Saudi one, is the Saudi one PIF? Is that what it's called? I've heard that talked about as well. Are the others that are around the world, are they of a similar order of magnitude in size or are the Norwegian and Saudi ones just kind of outliers in terms of their size?

Ana Nacvalovaite: 3:55

So you're absolutely right in saying that the Saudis and the Norwegians are very much the giants of the sovereign wealth funds, but we also have China Investment Corporation, for example. The reason why sovereign wealth funds, just to answer the question that you, that you posted a little bit earlier to, to tie it in with the size of sovereign wealth funds, sovereign wealth funds play a significant role in global finance because of their size. And they're recognizing also the strategic value of investments towards sustainable practices. So countries like Saudi Arabia, for example, or China, who may not have been always associated with sustainable practices are beginning to create environmental mandates that lead on to fulfilling their social obligations, which have to be in line with the UN Sustainable Development Goals. We have a lot of oil rich states who are part of the Gulf Cooperation Council, and they have actively been investing into into a number of assets to diversify in this geopolitical climate, but just to give you an idea, we're looking at the gulf council sovereign wealth funds deploying over 55 billion dollars in the first nine months of 2024, which is really a very significant amount if you look at the, at the economy of the world. So you have the Abu Dhabi investment authority, which is one of the giants. You have Mubadala, which is another one of the giants. And this really has an impact on how the economy of the world is shaping up.

Tom Raftery: 5:36

Interesting. And do sovereign wealth funds strategically allocate investments towards companies that prioritize sustainable practices or, and if so, do you have examples of this in action?

Ana Nacvalovaite: 5:49

Well, it, I think. One thing that is very difficult to define is sovereign wealth funds are sovereign because they belong to a state. So the data that we have is truly the voluntary data from public transactions and any information that the sovereign wealth funds may want to share with us. But strategic allocation of sovereign wealth funds towards sustainability is a topic that is being discussed and truly is shaping up because sovereign wealth funds represent government held investments derived from natural resources or surpluses, as I have mentioned. And they are very uniquely positioned to influence ESG practices. So they integrate sustainability into their strategic allocation models. Well, there are quite a few examples to think about, but overall, I think that you probably would want to hear more about countries that have really invested into green technologies and renewable energy. There's quite a few of those. Yes, I know that the Norwegian fund is very much at the front of talking about pioneering and sustainable investments. So example of Norway Government Pension Fund Global is a company or a fund that is really invested into ethical guidelines, and it has divested from companies which are involved in coal production, continues to shift this portfolio towards renewable energy. But, for example, the Abu Dhabi Investment Authority, ADIA, it has made a lot of direct investments in global healthcare infrastructure, which aligns with sustainable development goals improving access to health care and reducing inequalities, which is very much the S in the ESG and that goes in hand in hand with E in the ESG. So we're talking about relatively resilient and essential investment that has to be done. Green technologies, renewable energy, they focus on clean technology and low carbon solutions as part of the ESG strategy. So I think that the Middle Eastern funds, along with, of course, Norway, are funds to look out for, and they are trying to create a social infrastructure that is covering all the ESG aspects and works hand in hand with the UN Sustainable Development Goals.

Tom Raftery: 8:16

And why? Why are they working hand in hand with the sustainability development goals?

Ana Nacvalovaite: 8:22

So the UN Sustainable Development Goals they followed the Millennium Development Goals to, ensure that we are creating industries that are very much responsive to environmental issues, governance issues, and to those of human rights. When it comes to the UN Development Goals, they were created to ensure that by 2030, we have a community impact that has a positive social outcome with every industry and every business ensuring that they do not breach human rights, that they have good governance, and that, of course, they look after our environment. Each country, then, in turn, has, as a government looked into what it is that they can do within their own sphere of influence and you have got, for example, the UAE Vision 2050, Kingdom of Saudi Arabia Vision of 2030. They all see how they can focus on reducing inequalities and create social inclusion as well as environmentally friendly investments as part of their mandate. So by aligning its investment with the UN Sustainable Goals, they are able to achieve competitive returns and promote a more equitable society. That of course means that they have to create a lot of partnerships and collaborations, but, and, and follow international guidelines to some extent, which are voluntary not mandatory. And that means that sovereign wealth funds are now investing and talking to multilateral organizations, as well as private sector members to co invest in ESG related projects. So it helps mitigate risks and leverages broader pool of expertise and capital for sustainable projects.

Tom Raftery: 10:11

Okay. I mean, if I'm, if I'm asking this, it's just because when I look into other funds, for example a lot of times, or even companies, a lot of times they say they can't invest in these kinds of things because they have have a fiduciary responsibility to look after their shareholders and they have to look after the share price. And so maybe they can take a, if they could take a long-term vision, that's one thing, but they have to do a quarter to quarter to quarter report. And so I'm just wondering, in terms of sovereign wealth funds, they don't have this quarterly reporting to worry about. Is that why Their hands aren't bound and they can take this kind of longer approach to their investments.

Ana Nacvalovaite: 10:56

Hmm. That is a very good question. I mean, it depends on the sovereign wealth fund and they do have the quarterly reporting, but they're not obliged to share it with anyone publicly. So in a lot of cases, we don't really know what goes on inside the sovereign wealth fund ledger because they're not supposed to disclose it to anyone. But. You said you touched a very important point. When we talk about mandates of sovereign wealth funds and increasing engagement of public private partnerships we look at the appearance of sustainability in a much broader scale, because, yes, returns are very important, not just for sovereign wealth funds, but for any investment funds. But the scale is tipping towards really impactful investments. And because the private public partnerships a lot of times become newsworthy if they are large enough and I think consumers are beginning to vote with their ability to go and purchase something or really make their feelings known. So media has a big participation in how companies are beginning to invest. Therefore, when we talk about profit, we now live in a society where people come before profit. Yes, the mandates are do no harm, but return investment and protect the money for future generations. However, we're looking at a, at a world where governments now are collaborating with private sector companies and leverage the capital expertise, scale up and deliver sustainable outcomes as part of their mandates, I think we're looking at a big shift of how business is going to be done. But also, let's not forget that when things are looking gloomy in the market or generally in the geopolitical environment, a lot of times the concept of sustainability goes out the window. It's usually the first thing to go.

Tom Raftery: 14:15

And why are they so opaque? I mean, surely this is public money, so surely the citizens of any particular nation, Norwegians for example, should have access to those quarterly reports to see what their money is being used to invest in.

Ana Nacvalovaite: 14:34

So, there are funds which are very transparent. Norwegians are definitely the leaders in that. So is the New Zealand Fund, for example. And you can really access pretty much any document you wish. If it's not available online, if you write in, they will send you all the information. They have nothing to hide or so they say, which is fantastic, but a lot of other funds choose not to be that transparent. They choose how transparent they want to be and what documentation they want to share and which questions they want to answer. The reason behind that is sovereign. Sovereignty of a state and the sovereignty of a sovereign wealth fund has a lot of geopolitical implications. A lot of times sovereign wealth funds don't want you to know exactly how many funds are what's the assets on the management amount. They don't want you to know what they're invested into. And that is part of a political strategy. You don't want your neighbors to know exactly where you are at financially, where you are at with your assets, because it puts your infrastructure at risk. And we talk about financial warfare. For example, again, I go back to the current Russia and Ukraine conflict. We do not know exactly the amount of money that Russia manages. And we do not know what they are using it for, but we never did because the fund was never 100 percent transparent. The same can go out to, for example, Israel has a sovereign wealth fund. Will they be dipping into it for rainy day? Do they want us to know exactly what they're invested into? They have been much more transparent than many other funds. But again, it's almost a part of financial warfare and countries will protect their assets and protect what the possibilities are.

Tom Raftery: 16:27

Fair enough. Fair enough. And if we think about things like net zero, how can sovereign wealth funds contribute to achieving net zero emissions and other specific sectors or technologies that could or should or are investing in?

Ana Nacvalovaite: 16:43

Net zero is a difficult question. We are in a place where there was the last climate week in New York for the United Nations General Assembly, and the main point of discussion actually was what are we going to do about net zero? How are we going to achieve it quicker? The answer in many levels is public private partnerships. And as we look at public private partnerships, we have to understand that there is a whole myriad of issues that comes with it. First off, when it comes to sovereign wealth funds and how they can contribute is strategically allocating investments towards sustainable projects. So human and environmental rights play a crucial role in shaping the investment landscape. And so the integration of these rights needs to, of course, a financial benefit, but also making sure that we deliver financial returns that respect human dignity and protect the environment. That will always accelerate our path to net zero on prioritizing investments and companies and projects that uphold decent working conditions very much focused around ensuring that we have got rights of workers and protect the environment where business takes place. Marginalized communities, for example, with better opportunities. And I think one of the best examples that sets it is the New Zealand Superannuation Fund. It adopted an investment strategy that aligns with Sustainable Development Goal 10. Reduced inequalities. Whilst it's not focused completely on environment, it includes investments and projects that aim to bridge the gap between rich and poor, which offer long term social benefits such as enhanced social mobility and improved living standards. Now that ties in with environment. So in that indigenous rights and land use, because some of the most contentious issues around sovereign wealth and investments have been, for example, when projects impact indigenous communities or involve land use that has cultural and traditional significance. So, whilst environmentally a move towards net zero is sovereign wealth funds invest in infrastructure, energy, agriculture, they need to carefully assess whether these projects respect the rights of people and the rights of the environment. The Abu Dhabi Investment Authority that I spoke about earlier, it is incorporating human rights assessment into infrastructure and how do businesses affect local communities, environmental rights and sustainable investment. When we talk about climate change and the right to a healthy environment, what are we going to leave behind? How will achieve net zero as soon as possible? But sovereign wealth funds by investing in renewable energy and low carbon technologies do contribute to addressing climate change and the critical rights that affects the health and well being of present and future generations. So we know that climate change disproportionately affects vulnerable populations and investment strategies that mitigate environmental harm can directly support their rights to health and safety and contribute to us reaching net zero as soon as possible. So again, we have to align with global environmental agreements such as Paris Agreement and support the transition to a low carbon economy.

Tom Raftery: 20:22

Great, and I've read as well that, you know, China does a lot of investing with their sovereign wealth fund in developing countries in Africa in particular. I'm sure some of that is about gaining influence, but what impact can sovereign wealth funds have in developing countries, both in terms of economic growth and sustainable development?

Ana Nacvalovaite: 20:45

That is a heavy question because there is a lot, there is truly a lot of inequality when it comes to investment in countries in Africa. We have to focus on environment heavily and protection of environment. China has indeed deployed a lot of its funds into Africa. The impact has not been measured yet, but we can talk about deforestation and biodiversity, for example. So investments which cause environmental degradation, deforestation, large scale agriculture, mining, those violate a lot of environmental rights by disrupting ecosystems, displacing communities. So responsible sovereign wealth funds will take steps to avoid that and comply with sustainable land use practices, but we have no data. The good example, for example, is Qatar Investment Authority, because through collaboration with the ESG Conscious Funds, it's taken steps into sectors that are linked to deforestation and other activities to ensure that they stop biodiversity loss and work with local communities to protect natural ecosystems. We also have to think about pollution and resource management. Again, water and air pollution often direct consequence is poor environmental governance in industries like mining, oil extraction, manufacturing, to name a few. We don't have data again on how the Chinese are managing that or that is available. It's, it's, it's very opaque. But a good example of New Zealand's super funds, they are very good at talking about water management, over-extraction. They ensure that they have equitable access to water for local communities and their projects. So there's a lot of corporate accountability on a number of funds. It's not all looking gloomy. I think by engaging with companies sovereign wealth funds push for environmental practices, but they have to really divest from companies which fail to comply. That is the answer to that. And we've seen Norway do that. They regularly engage with the companies in their portfolio, and they ensure that they adhere to not just human rights, but to environmental standards. So, this very active ownership approach and a clear ownership approach that's transparent means their policies on labor rights and environmental sustainability are very, very good.

Tom Raftery: 23:11

Okay, great. You spoke last year at COP28 in Dubai. Will you be speaking at the upcoming COP29 in Baku?

Ana Nacvalovaite: 23:23

Yes, I am heading to COP 29 in Baku. We're currently ironing out the schedule, which is not that straightforward. Unfortunately, as you have seen, the situation in the Middle East and Ukraine is making a lot of travel difficult, I think, for security reasons. So, it's not as straightforward as we'd like it to be, but I'm very much hoping to be there and speak more on sovereign wealth funds, and greenwashing especially. Also talking about the concept of investments being backed up by due diligence and human rights, ongoing monitoring to ensure true adherence to ESG principles, particularly in respect to human and environmental rights. Also, one of the topics I will be touching on is a lack of global standards because in the global frameworks, UN guiding principle on business and human rights and the Paris agreement on climate change, but enforcing these standards across all markets is a challenge and sovereign wealth funds, especially those investing in emerging markets face difficulties in ensuring that human environmental rights are respected in the countries with weaker regulatory frameworks.

Tom Raftery: 24:49

Okay. And you mentioned greenwashing at the start. What are you going to be saying about that?

Ana Nacvalovaite: 24:55

Greenwashing is a real challenge. We are talking about a box ticking exercise in many cases, but there should be more ways to be responsible for the way that business is done and just covering the top three requirements that state that you will be investing into environmentally friendly businesses does not mean that you do not need to ensure that your supply chain is also compliant with the requirements of the UN SDGs. So green washing can come in all shapes and forms, and it's the due diligence and human rights and environmental rights that we have to dive deeper into. So that's what I'm going to be focusing on.

Tom Raftery: 25:45

Okay. Interesting. And what guidance would you offer to investors or businesses that who want to align their portfolios with ESG objectives, especially regarding the social and environmental goals you've emphasized.

Ana Nacvalovaite: 26:00

me talk a little bit about that in the shape of guidance and maybe policy because I don't think that we all realize how significant the power of sovereign wealth fund investments can be. So they have the capacity to really significantly influence policy development. And that's through the investment decisions that they have on corporations. They are major institutional investor. They have seats on multinational companies and they are major contributor to environmental impact. So we talk about global trade, resource allocation, international relations, and sovereign wealth funds are a catalyst for sustainability. They have everything that one needs to exert power to make changes and engage companies, engage businesses to adhere to environmental, social and governance principles. I also can go back to China Investment Corporation for a second. It's one of the largest sovereign wealth funds, as you have said, but it's also has begun placing a great emphasis on green investment. So in the areas of critical supply chains, such as manufacturing technology and logistics they say so. And by prioritizing investments in companies that adopt green supply chain practices. China is a global hub . They push in alliance with China's national policies to decarbonize the economy and transition to greener technologies. But does that translate into their investments in Africa is still a big question. So. CIC influences geopolitically are very strong and because of the sourcing and manufacturing practices, they have such great potential to influence policy and through corporate engagement make changes.

Tom Raftery: 27:56

Okay, well consideringg the kind of geopolitical implications you just talked about there, how do sovereign wealth funds navigate investing in critical industries without exacerbating tensions or conflicts?

Ana Nacvalovaite: 28:10

Gosh that's a very hard question. I think that currently they're navigating a very difficult landscape because let's not forget it's sovereign money. So whether we want it or not, it will be viewed as political, especially when it comes from certain sources. And we can't get away from that. So, that remains to be seen. I think that us in the past, depending on what the situation is, some sovereign wealth funds could be sanctioned. Russian sovereign wealth fund was sanctioned. So it's, it's a difficult question to answer, but I will tell you that what is fascinating in terms of engagement of sovereign wealth and the times of conflict and navigation of what is happening in this day and age. We have, as I have mentioned an Israeli Sovereign Wealth Fund that we do not know yet how it's going to be used in terms of a rainy fund, but Palestine has an equivalent of a sovereign wealth fund that came mostly from foreign aid, and we do not know how it has been used in the period of conflict. We don't have enough data, but one would hope that it was used in order to aid its citizens. We know that Lebanon was in conversation to have a sovereign wealth fund in 2023, but that did not come to fruition. Now, if they had set it up in 2023, would it help with the rebuilding of infrastructure post conflict? Most certainly. Going back to the Russia and Ukraine conflict, Ukraine does not have a sovereign wealth fund, but it was in discussion in 2023 with UAE to set up a sovereign wealth fund. So I think that answers the question of how geopolitically, sovereign money is trying to navigate and make a return and protect the rights of their citizens with the, whatever surplus they may have at that particular time.

Tom Raftery: 30:14

Okay, something I should have asked earlier on, obviously, is who manages the sovereign wealth funds? Is it civil servants? Is it, is it who? And does that, I suppose that depends from country to country, but typically who would be managing a sovereign wealth fund?

Ana Nacvalovaite: 30:32

Traditionally, a sovereign wealth fund is managed by professional managers who are trained in finance. And it is civil servants, b ut they're experienced individuals who would have previously worked in finance and have a good track record. They have extremely professional teams. A lot of them would have been educated in the West and then would come back to their respective countries. And focus on ensuring that they improve the performance of the fund. So it is not the government that runs it. It's absolutely independent, the management group that they would have. But they also focus on ensuring that they adhere to the standards that are both national and international. If they are a good, reliable sovereign wealth fund,

Tom Raftery: 31:34

Okay, super. And a personal question. What inspired you to focus your career on sovereign wealth funds and the social dimensions of ESG? Was there a defining moment or influence that set you on this path?

Ana Nacvalovaite: 31:50

definitely. In 2008, when the financial crisis hit, I, was looking at how we are going to get through this. And at that stage, I worked in protection of children in armed conflict. And I saw that we are dealing with a lack of funds to be efficient in terms of ensuring that we get to this conflict areas quickly and we make an impactful change, especially for those that need most protection. So the question of financing was very much on my mind. And that is when everybody was talking about sovereign wealth funds because they came to bail out quite a few businesses. So I wanted to understand what power they have. How is it that they invest? How is it they're regulated? And I saw the potential in them to be absolutely groundbreaking, which they've become. I mean, if you see the conversations about sovereign wealth and in 2008, when barely anyone knew what those entities were to now being in 2024 and them being the mega players in the financial market,

Tom Raftery: 32:59

Very good. Looking ahead, where do you see the role of sovereign wealth funds in the next decade when it comes to driving sustainable and equitable global development?

Ana Nacvalovaite: 33:10

I think that they will have first row seat in that, if not drive it altogether because you are talking about a colossal amount of money that needs to be deployed and it needs to be profitable. But the further we go with the environmental issues, the more crises we have in terms of geopolitical issues, the more money is required to protect and rebuild the countries. So it is within the sovereign wealth and interests to ensure that they are always at the top of the investment community, steering the change that creates a protective role. So almost working in prevention and the only way that is going to work is if the investments are ESG compliant. There's no way you are going to reach net zero and ensure that we have an environment that is safe for us to reside in unless you start thinking about reducing emissions, improving labor practices, adopting sustainable resources, and initiating policy changes that encourage sustainability across all industries. So I see sovereign wealth funds very much in the driving seat.

Tom Raftery: 34:36

Okay, very good. A left field question, if you could have any celebrity or fictional character alive or dead as a spokesperson for sustainable sovereign wealth funds, who would it be and why?

Ana Nacvalovaite: 34:53

That is such a great question, and I would really have to, I would really have to think about it because if you take someone from popular culture, you of course get the attention of the youth. But I think the young generation is just so much more attuned into, what environmental responsibility is and what climate changes. I think it's probably the more mature generation that needs a little bit of encouragement at times. So I would say Elvis Presley.

Tom Raftery: 35:27

Oh,

Ana Nacvalovaite: 35:29

I know it's, it's just, I feel that he was such a mega star. And he appealed, obviously, to the youth, but we are now sentimental about what the times used to be. If you could convert someone like Elvis Presley into being a spokesman for environment and sovereign wealth funds, I think everyone would certainly pay attention.

Tom Raftery: 35:55

Sure. Finally, what can our listeners do to support or advocate for the sustainable investment strategies that you've advocated for today, if anything?

Ana Nacvalovaite: 36:09

Of course, no, I I think it's important to have conversations about the geopolitical implication of sovereign wealth investments in critical industries. So definitely the listeners that you have I think they are very concerned about what is going to happen to the future of the next generations, but also how can we create profitable businesses? So, The conversation that ESG and sustainable development goals do not take away from profit, but in fact, help us preserve critical resources and give us a future that we all can thrive in, is an important one. Take away the fear from ESG, sovereign wealth funds, and geopolitical issues and see how we can solve them together.

Tom Raftery: 37:04

Great. We're coming towards the end of the podcast now, Ana Is there any question I did not ask that you wish I had or any aspect of this we haven't touched on that you think it's important for people to think about?

Ana Nacvalovaite: 37:17

Tom, I think you've been extremely thorough in your lines of questioning, and I've really enjoyed speaking with you. I think perhaps one message that I would like to leave with is it doesn't matter which part of ESG we are talking about and which one it is that one supports most. We have to work together, whether it's the environment, the social issues, or the governance issues. They all come under the umbrella of the United Nations Development goals, and we all have to work together to ensure that the change that we need happens quickly. Because the world needs unity, not more division.

Tom Raftery: 37:59

Well said. Well said. Great. Ana if people would like to know more about yourself or any of the things we discussed in the podcast today, where would you have me direct them?

Ana Nacvalovaite: 38:09

They can go onto the University of Oxford's website for Kellogg College, and I'm right there under the researchers.

Tom Raftery: 38:17

Superb. I'll put a link to that in the show notes Ana so everyone has access to it. That's been incredibly interesting, Ana Thanks a million for coming on the podcast today.

Ana Nacvalovaite: 38:25

Thank you for having me, Tom.