“Some of the best meetings I had in 2021 were with hydrocarbon companies. Our job is to inform and educate our clients – how should they be thinking about decarbonisation in a world that needs hydrocarbons, and how do you manage that transition?” Hydrocarbon Companies WILL Become Leaders We have to go from all these different granular shades as we move to green, and we’re going to create and find those technologies to accelerate this pathway. If we want to decarbonise tomorrow, we probably could do it, but it would create hyperinflation, it would create more inequalities. “Right now, we do not have enough technology to decarbonise in a fair, just way. I believe the opportunity of finding those new technologies to rapidly create a decarbonised world is going to be fascinating and it’s going to create huge sums of profits for those who discover those firms and technologies.” We Should Decarbonise Slowly We are all going to have to be astute in terms of navigating our portfolios, and some industries that are going to be left behind if they are not adapting. The risk is, we cannot be the environmental police on behalf of governments, so there is a delicate balance there. Right now, governments are asking the private sector to do more because they are incapable of doing as much as they would like to. At the same time, politicians have two, four, six-year terms to effectuate a proper policy, and we’re talking 20-30 years. “The issue around climate and climate risk is going to be the biggest change in capital markets. It means we’re resilient, and I don’t think it’s lasting.” The Private Sector Can't be the Environmental Police But it doesn’t mean it’s perfect, it doesn’t mean it’s lasting. There is so much evidence of growing mental health issues, loneliness is growing, despite how well everything is going in evidence by corporate profits. Virtually and independently, it is hard to move people to different parts of organisations (…) and bringing back the essence of an organisation in person is going to be vital.
I don’t know how they are going to grow out of their vertical. “I feel bad about the young people who have joined with our organisations and spent so little time in the office. I truly believe culture is the number one difference between a bad company and a good company, or a good company and a great company.” Young People are Struggling. We have to be mindful that human connectivity is the essence of so much of the culture of an organisation. Having the banter of a conversation about an economy, or having a political debate over dinner is far more expansive than doing it on a virtual call. There is a great need for interconnectedness with your team and with your organisation. “I don't believe remote working can create culture. That’s probably the biggest question I’m being asked: ‘where do I put my money?’ not ‘how do I protect my money?’” Technology Boosts Resilience, But. The pool of money sitting on the side-lines is enormous. So I am not that worried about global capital markets. Likewise, I’m a big believer that you can find opportunities in fixed income even with rising rates. I am a big believer of owning equities in 2022. So that’s why I’m not fearful of equities. But it should create less fear of higher inflation. So we are seeing real changes in investor behaviour worldwide. Our clients are aggressively investing in more and more privates, whether it's private debt, private equity, or real estate. And there's so much momentum in the equity markets. There's no question some valuations are very extreme. It would be very hard for me to see those type of outcomes. In 2022 this will be a backdrop that will lead to changes in the behaviour of central banks, especially the Federal Reserve.” Equity Investors Shouldn't Expect Bumper Returns I could almost call it sustainability inflation. I believe this is going to be with us for some time. That’s what we experienced late last year, where there was so much pressure and supply mitigation of hydrocarbons, without any negation of demand.
But if we don't have proper government policies to navigate the demand side of energy versus its supply, we're going to have big imbalances. “We are a big believer in the world moving faster and in a decarbonised way. So the question is: are we going to have more wage inflation, or more core inflation? That’s going to be a big issue politically.” ‘Sustainability Inflation’ is a Thing That in itself is now stimulating more wage inflation. People…quit because they have confidence they could find something better and easier. We have the largest quit rate in the United States we've ever had, which is the a great statement of the confidence of the worker. “Inflation is a big, a big issue going into 2022 because of this change in consumerism.
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