BLACKROCK FUTURE FORUM
Infrastructure special: Building for growth
Senator Rob Portman, an author of the Infrastructure Investment & Jobs Act, details the legislation’s path of deployment and the role of private capital. Jim Fitterling, CEO of Dow, shares how businesses can facilitate and benefit from infrastructure modernization, while BlackRock experts identify the opportunity for investors.
LEGISLATION AND IMPACT
Investment opportunities stemming from the legislation
Key takeaways
01
Modernized infrastructure facilitates economic growth
Economic efficiency and competitiveness require revitalized infrastructure like roads, freight, and bridges as well as digital infrastructure like broadband and telecom. The US$1.2 trillion Infrastructure Investment & Jobs Act includes US$65 billion for broadband, US$42 billion of which is dedicated to increasing broadband equity and access.
02
Public-private partnerships scale the societal benefits
The Act unlocks new concessions and encourages the use of public-private partnerships, helping scale the impact of the legislation. The IIJA will focus capital on priorities such as EV charging stations and carbon capture technologies.
03
Infrastructure modernization can address supply chain woes
The legislation provides substantial funding to ports, highways, and freight projects, potentially helping alleviate supply-chain stresses and logistics challenges. Many of these assets have inflation protection built-in through concessions, regulation and contracts.
Global infrastructure needs modernization, with the U.S. unfunded infrastructure gap alone estimated to grow to US$2.6 trillion by 2039.1 The recently passed U.S. Infrastructure Investment & Jobs Act (IIJA) is the largest legislation in nearly 80 years dedicated to funding infrastructure expansion and improvements, that also encourages private sector investments. The IIJA will help create investment opportunities in core infrastructure (roads and bridges) as well as in sectors like broadband, clean energy and electrification. The fiscal spend will also create adjacent public market opportunities in targeted sectors like telecom and semi-conductors.
The whole legislative effort will help in terms of competitiveness because we're talking about making our economy more efficient, therefore more productive, by improving our infrastructure.
00:01:03
ZACH BUCHWALD: Welcome to the BlackRock Future Forum. I’m Zach Buchwald, and I’m delighted to be your host today. We created the Future Forum to bring together thought leaders across business and policy, as well as leading investors to discuss the topics that shake today’s investment landscape.
00:01:17
When we launched the Future Forum, the world was just beginning to deal with the COVID crisis, and today we are slowly emerging from the pandemic, but we face other serious problems, especially the terrible war in Ukraine, and all the big challenges impacting our economy, prolonged inflation, energy prices and shortages, and social unrest. To a large extent, our ability to meet these challenges is what we are here to discuss today.
00:01:42
Infrastructure is critical for us to manage through this era of persistent uncertainty. Now, today’s infrastructure includes not just roads and bridges, but also things like aviation, public transport, digital and broadband technology and so on. It was broadband infrastructure, after all, that allowed most of us to work from home during the quarantine.
00:02:04
But for decades, large parts of our infrastructure have fallen behind. Our deteriorating roads and bridges cost us $130 billion every year, and that burden largely falls to US consumers. Now, fortunately, we have a massive opportunity to modernize our infrastructure to meet today’s needs.
00:02:24
The Infrastructure Investment and Jobs Act is the most significant infrastructure policy of our lifetime, but the public spend will only go so far, and in order to remain competitive, we need private capital to participate as well. Our audience here today represents over $20 trillion in assets, some of which is already committed to infrastructure.
00:02:45
These allocations have big portfolio implications, and they also provide diversification, and with prices reaching all-time highs, infrastructure can also serve as an inflation hedge. It’s also become broad enough as an asset class that investors can specialize even within the sector. So, investors looking for exposure to digitization can invest in broadband, and those looking for sustainability can focus on new energy projects.
00:03:10
But beyond that, as we upgrade one part of our infrastructure, there is a rippling impact of new opportunities and risks. For example, as we increase our use of broadband, we need to invest more in cybersecurity. As we increase our renewable power generation, we need better batteries and better battery storage.
00:03:28
At BlackRock, we believe there is a $100 trillion investment opportunity in infrastructure over the next three decades. To help us explore this topic today, our guests include US Senator Rob Portman of Ohio, and author of the Infrastructure Investment and Jobs Act. Senator Portman’s going to tell us how the legislation came together and how the opportunities are expected to flow across the economy.
00:03:52
We then have Jim Fitterling, CEO and Chairman of Dow. Dow’s business spans across many of the raw core materials that build our infrastructure, and Jim will discuss how the company invests across the infrastructure spectrum, everything from recycling and waste management, to better roads and ports. We’ll also speak with four leading investors in infrastructure.
00:04:13
Now, before we start, please familiarize yourself with our new tech interface. We have an interactive agenda, so there’s a place to ask questions, a chatroom and the opportunity to participate in real-time polls. I’ll join you live in the chatroom, and I’ll share additional footage from today’s session on my LinkedIn page.
00:04:30
Following the conference, you can access replays of all the sessions on this platform as well as on the BlackRock website. Now, to kick us off, I am delighted to pass the mic over to BlackRock’s Global Head of Real Assets, Anne Valentine Andrews. Thank you for joining us today.
00:04:46
ANNE VALENTINE ANDREWS: Thank you, Zach. So, Senator Portman, welcome and thank you for joining us here today, and congratulations on getting the Infrastructure Investment and Jobs Act passed. It’s truly a wonderful accomplishment that will impact the lives of so many Americans, and it’s really great to see this kind of bipartisan support in a world which is increasingly polarized.
00:05:08
So, to open us up today, and given that most of us haven’t been involved in the legislative process, it would be great to hear about your role in authoring and negotiating a signature piece of legislation.
00:05:20
SENATOR ROB PORTMAN: Well, great. First, Anne, thank you very much for allowing me to join you today, and thanks for the help that BlackRock provided through the process to ensure that the infrastructure bill would actually work in the real world, including tracking more private investment in infrastructure. This was a process that is unusual in the United States Senate these days. It shouldn’t be but it is. Where it was truly bipartisan, and I like to say it’s from the center out, meaning we started off with a few of us in the middle and then worked out in concentric circles and brought more and more individuals onboard. In the end, we had about 12 Republicans and 12 Democrats who were championing the legislation.
00:06:01
It all started when President Biden introduced an infrastructure bill that had a number of provisions that had nothing to do with infrastructure, in fact, most of it was not core infrastructure, and it had increasing taxes, pretty substantial tax increases particularly on the corporate side, and we looked at that and said, there’s some lemonade to be made with these lemons. There’s a way to take the core infrastructure out, which was a relatively smaller part of the bill, and to take the taxes out and find other ways to pay for the infrastructure, and then to find a bipartisan consensus around that.
00:06:31
And so, Senator Sinema, from Arizona, and I, took the lead, and again, we just kept building out from that core, and by the time we took it to the floor of the United States Senate, you know, we had a strong vote of about 70 Senators supporting the legislation, out of 100, which is great. And then it also passed the House with some bipartisan support and has been signed into law. So, I think it’s a good model for how other legislative priorities could be pursued. It required concessions on both of our parts, on the Republican part and on the Democratic part, but in the end, infrastructure is relatively popular. We knew it was needed. Every organization who looked at infrastructure, whether it was the World Economic Forum or the Architects of America or the Engineering Associations in our country, they all were saying infrastructure is badly in need of repair. So, it was an opportunity for us to find a bipartisan sweet spot to move that forward.
00:07:30
ANNE VALENTINE ANDREWS: No, again, we need it everywhere, and I think that’s something that everyone agrees on. So, great to hear about that partnership truly. And so, for the next question, I wanted to dive just a little bit deeper on how the specifics came about. So, could you share your thoughts on broadband, on decarbonization, also cybersecurity, all which are parts of this legislation obviously. How are they going to influence America’s competitiveness going forward?
00:07:58
SENATOR ROB PORTMAN: No, I think the whole legislative effort will help in terms of competitiveness because we’re talking about making our economy more efficient, therefore more productive by improving our infrastructure, which is one reason this was so exciting because this was being put together at a time when inflation starting to increase. We didn’t know, frankly, it would be as high as it is now or as seemingly non-transitory it would be, but we did like the fact that we were investing in hard assets over time that would add to the efficiency, and therefore, the productivity and competitiveness of our economy.
00:08:31
So, really, everything we’re doing, whether it’s freight or whether it’s ports or whether it’s roads and bridges was going to be very helpful to our competitiveness. We made a decision early on to keep it to core infrastructure with one major exception, and that was digital infrastructure that had not previously been considered infrastructure, which would be broadband. And so, we made an historic commitment to broadband in the legislation, $65 billion, about $43 billion that goes to the states, to build out highspeed internet. And the notion was this is a core infrastructure now, in our digital age, but also incredibly important for competitiveness.
00:09:10
And frankly, we got a lot of support for it because pretty much everybody had interest, whether it was worried about people being able to access it for commercial reasons, say the small business entrepreneur who could not set up in about 30 counties in Ohio because they don’t have highspeed internet, whether it was the child trying to stay up with his or her schoolwork. We had so many stories of a daughter being taken by her mom to a – you know, to a parking lot at a library 20 miles away from their home just to do her homework. This was a time when, because of COVID, there were a lot of schools that were closed, and people were learning remotely.
00:09:46
And then, of course, with regard to healthcare, a lot of people were getting their healthcare over the internet, and increasingly, with regard to some of our veterans, as an example, they’re receiving some of their healthcare, including behavioral health, mental health through online services. So, it became something that was very popular as part of the bill, and we tried to come up with a way to implement it so that we were involving the private sector, which ultimately will build out this new highspeed internet around the country.
00:10:15
ANNE VALENTINE ANDREWS: Yeah, I know exactly. We talk about the internet being the fourth utility. I know certainly it’s the only thing my kids care about when we go anywhere on the planet these days. So, you know, it’s amazing to build that out. So, let’s switch gears. I mean, the people watching this today are representing about $20 trillion worth of investment, you know, capacity, and many of them want to put more infrastructure into their portfolios.
00:10:41
So, you just touched on the value for money provision, which requires some projects to take into account private funding. Realistically, which segments do you think the private sector is most likely to get involved in funding, and part two of the question, do you have any recommendations for how we should engage with the public sector to try and make that happen, to try and get more private money to work.
00:11:04
SENATOR ROB PORTMAN: Well, it’s a great question, and it’s one of the exciting parts of this legislation for me is if we will be able to leverage a lot of private sector investment, and frankly, that’s going to result in more efficient deployment of resources and more projects. And so, I think it’s a great opportunity. One thing I will also add is that we made historic changes in permitting in this legislation. Meaning that it will be easier and faster to permit something if it’s under this legislation, and so, that was one of my priorities in all this from the start is that we want that federal dollar to go as far as possible and we want the private dollar to go as far as possible, and that would doing something to address what has become a real problem in our country.
00:11:47
We’ve fallen behind many other countries. We’re number 13 or 14 in the world in permitting, you know, greenlighting a project, so that will also help. But I think there’s a few areas that I find particularly interesting for private sector investment, one, of course, I mentioned, which is broadband. That money will be spent ultimately, you know, with the private sector. I mentioned the $43 billion going out to the states. So, that’s a great opportunity.
00:12:11
Second would be something that hasn’t gotten as much attention, and that’s the private activity bonds. There are a number of different uses for private activity bonds that we came up with. One that I like is to encourage carbon sequestration, and this is, you know, part of the overall effort of this legislation. It is not the primary focus in terms of CO2 emissions, but it is helpful. So, carbon capture and sequestration will be funded through this legislation by private activity bonds, and this can be at the utility level as an example.
00:12:45
So, it’s a great opportunity. But also, there’s some new hydrogen technologies that are deployed through this legislation that I find very interesting. Both blue hydrogen and green hydrogen, and I think this is part of our energy future, but also really exciting in terms of our transportation future. So, the value for money provision you mentioned was added to the legislation to require an analysis to be done on things TIFIA, which is, you know, low interest loans for transportation projects and railroad rehabilitation and improvement financing loans.
00:13:18
So, we actually included a provision that Senator Joe Manchin and I had introduced separately to help encourage private sector participation through these value for money analyses. So, my hope is that it will result in, again, you know, more money going into infrastructure from the public sector, of course, and there’s an additional roughly $540 billion over the next five years on top of what we normally spend, but also more private sector funding to be able to take advantage of the opportunities in this legislation to leverage those private sector dollars as well.
00:13:53
ANNE VALENTINE ANDREWS: Switching gears, you talked a lot about the electrification and digitization of the economy, but at the same time, we’re experiencing major supply chain disruptions for the materials that we need to implement this innovation. What is critical for creating a more resilient supply chain to meet this digital demand in your view?
00:14:13
SENATOR ROB PORTMAN: What we do in this legislation is improve infrastructure, meaning that at our ports, in particular, there will be substantial funding provided to help to alleviate some of the bottlenecks that we currently see. These are ports on the west coast, but also ports in places like Lake Erie, who will receive some assistance here. So, I do think it helps.
00:14:33
In terms of freight, there is also significant funding increases, which is very, very important, and then, of course, highways and bridges, which, for some of our areas of the country, including my own, we have a lot of antiquated bridges that need repair. We have one in my hometown of Cincinnati, Ohio that is a bottleneck virtually every day at rush hour, and it is carrying twice the capacity that it was designed to carry, meaning it is functionally obsolete. It’s also unsafe with no shoulders. So, that will be great. The truckers are very excited about it as are other who commute every day on that bridge, but it’ll really help in terms of commercial traffic and helping to deal with the supply chain issues that we have. It’s not the only answer, but I think it will help.
00:15:20
ANNE VALENTINE ANDREWS: Yeah, and that’s a nice segue to where I was going next, which is, you know, with the funds that are already being deployed out there, where do you think we’ll start to see the most immediate impact? And also, where are you personally most optimistic for the longer-term growth?
00:15:36
SENATOR ROB PORTMAN: Well, we’re already seeing some funds being distributed. As an example, there’s $7.5 billion in here for a special kind of infrastructure, which is charging infrastructure. Now, both the competitive grant program and the program that’s done by formula to the states, will involve the private sector. So, for those interested in charging stations, and I know that BlackRock has had some interest in that over the years, you know, to have the electrification of our fleet that people want, it’s kind of a chicken and the egg proposition, isn’t it? So, if you don’t have the charging stations, people aren’t going to be comfortable knowing that they might not be able to get recharged as they travel through out relatively big country with long distances. So, that’s $7.5 billion that’s already going out the door. The formula money has been allocated already. Ohio got its share of it, and I know other states have as well.
00:16:28
So, some of the money’s going out right now. We did meet last, the week before last now, with Mitch Landrieu, who is the President’s Chairman of the committee that is helping on the implementation, and former Mayor Landrieu and our group of, again, about 12 Democrats and 12 Republicans are staying in very close touch, ensuring that this money gets out the door quickly, but also it goes to the right places and it’s used effectively, and my hope is that with regard to the projects like the infrastructure for charging stations, that we can see some significant action even this year, and you know, we can, you know, begin to put this money to work creating more jobs, creating hard assets that are a good inflation hedge, and this is, you know, I think going to be, again, dependent on the private sector stepping up as well.
00:17:19
ANNE VALENTINE ANDREWS: No, look 100%, and EV charging is definitely in the core of what we’re looking at, and so I couldn’t agree with you more in terms of building it and extending the network for everyone to use a more carbon acceptable, you know, charging situation. So, Senator Portman, thank you so much for your insights and your time here today. It was incredibly valuable, certainly for me and for our investors. So, thank you very much.
00:17:46
SENATOR ROB PORTMAN: Thank you, Anne. Great to be on with you.
00:17:50
ANNE VALENTINE ANDREWS: So, back over to you, Zach, for our conversation on what this all means for investors.
00:17:56
ZACH BUCHWALD: Anne, thank you. That was great. What a privilege to have Senator Portman join us here at the BlackRock Future Forum
Sen. Rob Portman and Anne Valentine Andrews on infrastructure policy
Watch Senator Rob Portman of Ohio, an author of the Infrastructure Investment & Jobs Act, and Anne Valentine Andrews, Global Head of Real Assets for BlackRock Alternatives, discuss the ways the legislation is will impact economic efficiency, productivity and competitiveness.
ZACH BUCHWALD: And how exciting for us, we’re here together in person.
00:18:04
ANNE VALENTINE ANDREWS: It’s great. So great to see you, Zach.
00:18:06
ZACH BUCHWALD: It’s good to see you, Anne. Okay, I want to open by asking you to help us. Think about the opportunity for private investors to participate in the buildout. We sometimes talk about a funding gap in infrastructure here in the US, which represents the amount of investments that’s required to modernize our country’s infrastructure needs.
00:18:22
Now, the funding gap’s about $2.6 trillion and the legislation that you just discussed with the Senator, it covers about half of that. So, what are the investment opportunities that you see coming out of the legislation, and where’s the room on the other side beyond what’s covered in the public spend.
00:18:37
ANNE VALENTINE ANDREWS: Yeah, so great question. To start with, overall, the Act is just a big net positive for infrastructure investors. It’s bold and it’s the most we’ve seen since the 1940s really. It truly increases the federal government's involvement in US infrastructure, and it provides funding for projects that can drive overall economic growth, as well as prepares the US for the transition to net zero.
00:18:59
So, as we know, the Act covers $1.2 trillion of spending over the next decade, and it’s got a big focus on transport and energy, and on top of that it does a few things. All right, it unlocks capital for transport, and there’s going to be new concessions which are going to allow private investors to come in either as operators or teaming up as PPPs, public/private partnerships.
00:19:19
Turning to the debt side, the Act should also produce more bonds for both broadband and carbon capture projects, just like the Senator mentioned. And it also, importantly, includes a renewal of tax credits for renewables, which is just great.
00:19:33
So, thinking about what it does that the private capital can’t do, it actually will cover assets that are either too high risk or too low for private capital. So, we think of it as being sort of a small drop, right, in the bigger ocean of investment needed, but it’s definitely a move in the right direction, and we really applaud it.
00:19:54
ZACH BUCHWALD: All right, Anne, now most people look at infrastructure, and they still think it’s pretty unsexy, like roads and bridges. But, in fact, over the past decade or two, it’s become quite sexy. It includes renewables, EV charging, water conservation, broadband, the list goes on and on. So, from this whole opportunity set, Anne, where are we deploying capital right now?
00:20:15
ANNE VALENTINE ANDREWS: Yeah, well, first of all, Zach, infrastructure has always been sexy, right? It’s the asset class that powers and moves the whole world, and it has a massive impact because we all touch infrastructure every day, but yes, you’re right, there has been an increase in investment, particularly focused on those big structural themes that are out there moving the world.
00:20:33
We actually label them the three Ds, right? So, they’re easy to remember. Decarbonization, digitalization and decentralization, and I’ll go through each of those in order. So, starting with decarbonization, this is talking about the shift, right, from fossil fuels to renewables on the power side, and it’s also referring to the rest of the built universe, right? We need to remove carbon across transport, industrials and ag as well. And here’s an interesting stat, right, in the US, greenhouse gas emissions from transport account for 29% of all total emissions, right, which is just pretty huge.
00:21:11
So, that explains why electrifying our transport is so crucial, and this means all vehicles, not just passenger cars but buses and trucks as well. We’ve actually done a number of transactions in the EV charging space recently, and we did one just the other day with an electric ride share and Moped rental company based here in New York. We’ve also invested in EV infrastructure for a government fleet of vehicles.
00:21:38
So, on the second D, digitalization, this is the whole digital world. We all know from the pandemic, we can work at home, we are shopping like crazy and getting it delivered to our house, and also, just we want everything smart within our homes. So, we have invested in a number of fiber and broadband companies which allow this to happen, right, allow all of that digitalization to happen, and we also invested in one that serves underserved communities, which the Senator mentioned.
00:22:06
And last, but not least, decentralization. Infrastructure traditionally has been big and centralized, but it’s now moving closer to the end user. So, for example, in the US, the residential solar market represents one of the fastest growing sectors within renewables, and we are bringing renewable power closer to the home. So, we’ve invested into a US residential solar platform, which is going to power 200,000 homes with clean energy. So, that gives you a bit of a feel for some of the deals we’ve been looking at.
00:22:37
ZACH BUCHWALD: Anne, it’s a lot of deals, and it’s hard to imagine, and it’s ironic, but most of our clients are still under allocated to real assets, and especially to infrastructure. Now, it’s starting to change as clients have ramped up their asset allocation plans, but most of the institutional investors that I help, they’re still underinvested versus their target allocations.
00:22:57
So, you know, two-part question. First, how do we help clients understand why they should consider investing in infra, and then, secondly, how do we, at BlackRock, help them actually get the capital deployed.
00:23:06
ANNE VALENTINE ANDREWS: Yeah, so infrastructure’s got a lot of benefits, and people investing it to get income, diversification, long-term risk-adjusted returned, and also, it has a low correlation to other asset classes, and in addition, it provides some broader, measurable societal benefits that you don’t get with other asset classes. And, if you think about it, we’re buying these very long-dated assets, and so, they correspond nicely with long-dated liabilities, such as, you know, retirement and insurance. But none of those benefits matter, right, if we can’t deliver on performance, which is our number one focus.
00:23:39
So, turning to the second part of your question, how do we get invested, right? Getting capital deployed and getting it invested into the ground takes a huge amount of relationships and focus, and in a world awash with capital, which is where we are right now, finding the right deals is key. So, we have a very large team focused on this, and we rely on that team to get market access, and we also rely on our capital markets group to find us the best deals. So, if you sort of take a step back, it’s all about reach, access and scale to get those great deals.
00:24:13
ZACH BUCHWALD: All right, Anne, last question. Inflation remains the number one topic among our clients right now. It’s certainly part of the conversation when we talk about infrastructure. How do you think about that?
00:24:24
ANNE VALENTINE ANDREWS: Yeah, no, big, big topic at the moment. The good news is infrastructure is inflation protected and has historically outperformed in periods of high inflation. And why? Why is this the case? The assets themselves can have explicit or implicit links to inflation through regulations, concession agreements or other long-term contracts. So, this means it’s generally a great hedge.
00:24:47
And lastly, this is something I like to mention, we have very long-term fixed rate debt put on most of our assets, right? So, when you’re paying that down with inflated dollars, that’s beneficial.
00:24:57
ZACH BUCHWALD: Okay, Anne, thank you for joining us today at the Future Forum, and thanks for that great conversation with the Senator.
00:25:04
You know, we launched Future Forum in 2020 when everything was 100% virtual. Here we are now, together, in person two years later, finally in the same space. I’m so thrilled to share this milestone with you.
00:25:16
ANNE VALENTINE ANDREWS: Thanks, Zach.
Anne Valentine Andrews on evolving infrastructure opportunities
Infrastructure investments can help bolster portfolios against inflation, while providing uncorrelated sources of income and long-term capital appreciation. BlackRock Alternatives’ Global Head of Real Assets outlines the mega trends and legislative milestones impacting the opportunity set for real assets investors.
INDUSTRY PERSPECTIVE
Industries and sectors participating in the modernization
Key takeaways
01
Broadband is essential for modern infrastructure
Access to broadband is essential for economic competitiveness and productivity, as well as to the next generation of roadways and transport. Autonomous mobility also means more digitally interconnected, smart roadways and therefore an investment in seamless 5G coverage.
02
Efficiency in data sharing & logistics bolster supply chains
Whether you are talking about shipment delivery trucks or ships arriving in American ports, data sharing technologies are critical to the efficient functioning of supply chains.
03
Adoption of carbon capture technology is accelerating
For many big industries, carbon capture technology and decarbonization energy infrastructure are already providing solutions for meeting net zero emission targets. Corporations like Dow are transitioning away from carbon intensive processes and investing in technologies that can recycle, convert, and store carbon and hydrogen.
Keeping America moving is a big them for the IIJA, with the majority of funds being dedicated to transportation and new projects that connect and protect communities. These range from cybersecurity, broadband expansion, grid modernization and carbon capture. Private capital currently invests in these on the fringes, and we believe the increase in public funding will entice more investment opportunities.
Digital infrastructure addresses not only giving everyone access but helps a lot of small and medium-size enterprises get started up. It helps the education levels. It helps with some of the income disparities that we see.
ZACH BUCHWALD: At BlackRock, our mission is to help more people experience financial wellbeing, and our infrastructure platform is an important part of that commitment. Infrastructure connects people through transportation, as well as through broadband, and with the right investments, it can help provide everyone with affordable power and internet, and when everyone has access to these essential services, there’s more opportunities for education and health, careers and financial security.
00:25:43
Now, we must be innovative in how we rebuild our infrastructure. We cannot rely on the building blocks of the past. Take, for example, transportation. If we’re planning on autonomous driving and electric vehicles, we can’t rely on highway systems that were built decades before the internet. The new automotive technologies rely on data and connectivity, and we have to make sure that our new roads and bridges facilitate that, which is why I am so thrilled to be joined next by Jim Fitterling, Chairman and CEO of Dow. Jim, I am so delighted to welcome you to the Future Forum.
00:26:15
JIM FITTERLING: It’s really great to be with you, Zach. Thank you for the invitation.
00:26:19
ZACH BUCHWALD: Thanks, Jim. It's a pleasure and a privilege to have you here. Now, we just heard from Senator Portman about the monumental rebuild that’s happening of our country’s infrastructure. And manufacturing and industrials are just a huge contributor in driving infrastructure innovation, and I know this has been central to Dow under your leadership. So, tell us, what excites you most about the legislation, and in your view, what are some of the things that we can’t afford to miss?
00:26:41
JIM FITTERLING: Sure. Well, I'm excited that we’re making investments again. I think the infrastructure bill was a big step forward. You know, we’ve had massive under-investment for many years in our infrastructure. I chair the National Association of Manufacturers and we did a little bit of research on this area.
00:26:59
But infrastructure investment is only about a third of what it was in 1960. We’ve been living off of the infrastructure we’ve had for quite some time, and we need reinvestments. We need it in ports, waterways, bridges, airports, roads. They all need upgrades and those are the basic things that everybody thinks about.
00:27:18
But we also need new infrastructure and different infrastructure to support the changes that we see coming. So digital infrastructure, 5G and broadband I think was one of the big target items for the infrastructure bill. That addresses not only giving everyone access but, you know, broadband access helps a lot of small and medium-size enterprises get started up. It helps the education levels. It helps with some of the income disparities that we see.
00:27:50
We’re going to need a new and different energy grid and we’re going to need, obviously, industrial decarbonization. And what works in energy for, you know, a homeowner may not work for large-scale huge users of power. You know, in our case we use about eight gig, gigawatts of electricity and we’re just a fraction of the petrochemical industry, which is just a fraction of the basic economy. So, these things are going to pave the way for a lot of new energy efficiency investments and a lot of industrial decarbonization that we’re going to see happening. And those are some of the challenges that we’ve got.
00:28:29
Over the past two years, we’ve seen how important infrastructure is to things like just-in-time manufacturing. So, anything we can do to make basic infrastructure, transportation, water, energy, decarbonization more efficient is going to provide some real wins for the economy.
00:28:48
And we also, today we’re on the heels of a decision from UNEA-5 around stopping plastic waste around the world and getting our handle around waste management and pollution. So, infrastructure for recycling is going to have to increase so that we can pursue a more circular and sustainable economy, because right now not just in the United States but globally our infrastructure can’t keep up with our recycling goals to close that loop.
00:29:17
ZACH BUCHWALD: I'm going to want to ask you a little bit more about recycling in just a minute. But before we get there, let’s just double-click on the notion of innovation and disruption that’s happening, because I think a lot of that won’t be obvious to the investor community that’s on the audience today. You know, what’s the biggest impact on the infrastructure designs of the future? What are you working on at Dow that we haven’t heard about yet?
00:29:39
JIM FITTERLING: Well, obviously, we sell quite a bit into the mobility space, and I think that’s something that people have heard about, and they typically hear it about electric vehicles. But we’re also working on the things that make roadways smarter and digitally interconnected and to get to autonomous mobility you’ve got to have seamless 5G coverage. You can’t have any interruptions in that coverage.
00:30:02
And so, that’s requiring investments in 5G, broadband, our ability to cable up all these roadways, our abilities to have roadways and signposts and other things that actually talk to the vehicles so that the autonomous vehicle could navigate is big. Data sharing, whether you’re talking about vehicles or shipment delivery trucks or ships that come into port or managing ports to deal with logistics issues like we just saw, data sharing is going to become more efficient.
00:30:36
I think decarbonization is growing. Obviously in energy, everybody talks about moving to more alternatives, solar and wind. We’re no different. We use more than 850 megawatts today. We’re one of the top 20 alternatives users in industry. But we can’t do it all with alternatives.
00:30:56
You know, for big industry to decarbonize, for me to decarbonize my whole footprint, we’re going to have to move in the transition to things like hydrogen and then longer-term nuclear’s going to have to come back into the equation because solar and wind won't be able to be the baseload for reliable and 24/7 electricity availability.
00:31:18
ZACH BUCHWALD: Now, I want to go back to something you said earlier which is the circular economy, because you've been a big proponent of improving recycling infrastructure at Dow and more broadly in the communities that you serve. I saw the tweet that you put out recently. It was an infographic of a plastic bag becoming a future road, which was great. You know, what are some of the developments in recycling infrastructure that you’re leading at Dow and how are consumers going to benefit from these innovations?
00:31:45
JIM FITTERLING: Most plastics that we make today can be recycled. You know, much more than 80% of our product mix today can be recycled. It isn’t recycled today because it isn’t collected and it isn’t curbside collected and brought back into the stream, but it can be. So, we’re working on a variety of verticals to increase the circularity and we’re working on breakthrough innovations.
00:32:11
So, you know, the way plastics are made needs to be decarbonized. The way plastics are used needs to be more circular and we’ve got to stop just landfilling our waste and we’ve got to look at the waste as a feedstock or a raw material. There was a study that we did recently that said plastic in waste represents about $120 billion a year of opportunity as a raw material. If you think about it, every time we use a plastic over, it’s less drilling that we have to do for fossil fuel.
00:32:47
But plastics serve a very useful purpose and especially in areas like food preservation, healthcare. They’re there to keep things clean, sterile. They’re there to extend life. They’re there to make sure that people have fresh food and food doesn’t go to waste.
00:33:21
But they’re not recycled today, and the systems today don’t pick them up. There’s not an economic incentive to recycle them. In some cases, it’s very cheap to landfill them. And so, what we have to do is we have to create a system where we can bring those plastics back and turn them into useful materials.
00:33:41
In some cases, if they can’t be cleaned up to the point where they can go back into food packaging, we look at alternatives like in asphalt modification. We’ve got a program right now in Michigan with Meyer Stores, which is our leading grocery store here. And we work with them. They collect plastic bags at the store entrances. When they repave parking lots, we convert that back into material that’s used in the plastic asphalt. And we’re seeing that it has a better performance and especially in, you know, a climate like this where wintertime can be pretty tough, that’s good.
00:34:17
We also have a line of plastic resins that we call REVOLOOP. That's a line of post-consumer recycled products which help close the loop on plastics.
00:34:27
ZACH BUCHWALD: Jim, it’s a wonderful ambition. It’s very inspiring to hear about. One last topic before we change gears and that’s ten years ago few of us would have predicted that a chemical company would be at the forefront of decarbonization. But Dow has made enormous advancements to lowering emissions. So, what are you doing to reach those targets? You know, and specifically with all the investment that’s on the line today listening to you, where do you see opportunities for partnerships with private capital to spur more innovation?
00:34:54
JIM FITTERLING: We’re working in several areas. So, partnerships on alternatives obviously, because we’re an off taker. Longer-term, we’re looking at partnerships on things like advanced nuclear. So, you know, for example, we have sites where an advanced nuclear investment would take an entire site to net zero. And the beauty of small modular reactors is the balance between electricity and steam, and we use kind of equal parts of both, fits with what we do. So, we have some locations where that would be an easy retrofit and take an entire site to net zero. That's a longer-term investment, but there is support in the government for that.
00:35:40
We’re working on new technologies. We’ve got a joint venture with Shell on electric cracking technology. So, I talked about using hydrogen as a fuel. We’re actually working on, you know, could there be an electric coil that would run a, an ethylene cracker. That's a big jump because, you know, 1,500 degrees Fahrenheit is what you have to operate at and in order to get a radiant coil that has any life to it is going to take some development effort.
00:36:09
And that’s the challenge with green hydrogen and with electrification is they can be done, but they can’t be done at scale and they’re not anywhere close to the cost competitiveness that we have today. So, the, you know, circular hydrogen that we’re doing in Canada, or blue hydrogen, is going to have to be part of a transition and we’re looking at partnerships with companies that are in that blue hydrogen/clean hydrogen space. And then, we’re also keeping an eye longer-term on can the costs come down on green hydrogen?
00:36:40
ZACH BUCHWALD: You know, manufacturing is going to be critical to commercializing these technologies and that’s the only way it ultimately becomes affordable to the consumer, and it has to make sense at that level.
00:36:51
JIM FITTERLING: You know, when you think about it, right now consumers are pushing back at increases in energy costs that are like 40 or 50% and some of the cost premiums right now for the green premium are many times that. So, if you can imagine the public pushback with just the changes that we’ve seen here recently, what it’s going to be if the public has to bear the full brunt of that cost, it’s really going to damage the transition. So, we really have to work hard on a logical transition.
00:37:18
ZACH BUCHWALD: We agree 100%. Jim, if you have a few more minutes, I want to just change gears and ask you a little bit more on a personal level. One of the outcomes of the pandemic is we’ve all kind of had to get more comfortable with having our personal lives be more visible and intermingle with our professional ones. And it’s a big reason I think why we’ve seen the companies that are committed to DEI perform, you know, so well in the new normal.
00:37:43
And this might not be obvious to many of our audience, but Dow leads its peers with respect to DEI measurements and progress. So, I'd like to ask you as the CEO, how do you think about the alignment between your business goals and your DEI goals and your accomplishments in that space?
00:37:59
JIM FITTERLING: Well, our customers are society. I mean, you know, 98% of everything you use every day starts with chemistry. And so, there’s no difference between society and our customers and our shareholders. And so, I think that’s the starting point.
00:38:16
For us, it starts with how we treat each other. One of the reasons I joined Dow was because of the culture that was here. You know, in my case I’ve spoken a lot about the importance of people being able to be themselves at work. And it doesn’t, you know, in my – as an out CEO, that’s part of it. We try to create a culture where people feel comfortable with that, a culture where somebody brings their whole self to work every day and contributes and doesn’t feel like they have to hide anything, which I think is what drives innovation.
00:38:50
ZACH BUCHWALD: Jim, I want to close on that note. It’s music to my ears. And, you know, I certainly think that having an inclusive and open-minded approach dovetails strongly with the, you know, the innovative culture that you’ve developed at Dow. Thank you for joining us today at the Future Forum and thank you for your leadership. We’re so glad to have you.
00:39:08
JIM FITTERLING: Thanks very much, Zach. Great to meet you and thanks to all the investors and look forward to working with you in the future.
00:39:15
ZACH BUCHWALD: Us as well. All right, then. Thank you, Jim.
00:39:18
I so appreciated how Jim thinks about creating an inclusive culture and how it can help the business we successful and innovative. We’ve tried to make that a central part of our strategy at BlackRock. In many ways, it’s the reason we’ve been able to create the Future Forum and bring these insights to you.
00:39:34
I recently wrote an op-ed in Fortune Magazine on this topic, saying that US investors are ready to bridge this funding gap.
Jim Fitterling, Chairman and CEO of Dow, on infrastructure innovation
The manufacturing industry is developing key innovations that will make improve infrastructure across transportation, energy, recycling and decarbonization.
00:07:32
ZACH BUCHWALD: You've been a big proponent of improving recycling infrastructure at Dow and more broadly in the communities that you serve. I saw the tweet that you put out recently. It was an info graphic of a plastic bag becoming a future road, which was great. You know, what are some of the developments in recycling infrastructure that you’re leading at Dow and how are consumers going to benefit from these innovations?
JIM FITTERLING: Sure. The – most plastics that we make today can be recycled. You know, much more than 80% of our product mix today can be recycled. It isn’t recycled today because it isn’t collected and it isn’t curbside collected and brought back into the stream, but it can be. So, we’re working on a variety of verticals to increase the circularity and we’re working on breakthrough innovations.
So, you know, the way plastics are made needs to be decarbonized. The way plastics are used needs to be more circular and we’ve got to stop just landfilling our waste and we’ve got to look at the waste as a feedstock or a raw material. There was a study that we did recently that said plastic in waste represents about $120 billion a year of opportunity as a raw material. If you think about it, every time we use a plastic over, it’s less drilling that we have to do for fossil fuel.
So, most of our consumers have or brand companies have moved to have targets of 30% post-consumer recycled material in their products by 2030. That's a big change. That's a big demand pull for us. The supply is not anywhere near that today. Mechanical recycling is typically the way it gets done. Heat the plastic up, melt it, make it into a plastic again. But we can actually take it back to a molecular recycling level, take it back to a feedstock and make plastic out of again, and that’s much more energy efficient than way, the way we do things today.
So, a couple of examples. One is them is on the production of plastics and this is a big project that we just announced. And that is moving away from using natural gas as the material that we burn in the furnaces to make ethylene, the monomer to make polyethylene. And for your viewers/listeners, polyethylene and polypropylene are the two most widely used plastics in the world and they’re used for everything.
So, how do we get that to zero carbon emissions? Well, at Fort Saskatchewan in Alberta we’re going to build the first zero carbon emissions ethylene cracker and derivatives complex. And the way we’re going to do that is we’re going to construct a new cracker that burns clean hydrogen.
One of the beauties of cracking ethane, which is what we do in Canada, is when you crack ethane you make ethylene, but you also make methane and hydrogen. So, off of the cracking process we’ll take the methane and hydrogen, and we’ll take that through a unit called an autothermal reformer to make pure hydrogen. So, we’re using a waste product off the cracker to make pure hydrogen. Off of that autothermal reformer, we can much more easily strip out the CO2 and sequester the CO2 and then we burn the hydrogen fuel in the cracker, which has no CO2 emissions. And that becomes really a nice circular production without any CO2 emissions. We’ve got CO2 sequestration there. There’s a carbon capture trunkline that runs very near our Alberta site and we’ve already contracted for the offtake there.
Once we get that new facility up and running, we’ll take the existing facility and we’ll convert it to be able to burn hydrogen and that site will be 20% of my global ethylene production and just a little bit more than 15% of my global polyethylene production, all zero carbon emissions. And then, we’ll really just go site-by-site and replicate that so that by 2050 we’ve taken the whole footprint of the country, of the company for our plastics manufacturing to zero carbon emissions.
And in parallel, we’re working on doing similar things with our energy assets. So, about half of our footprint for CO2 is in the making of ethylene and propylene and about half of it is in power and steam for utilities to run our sites. So, that’s a big area, an exciting area and we’ve got projects. You know, we’ve got the Canada project, we've got a project in Terneuzen in the Netherlands, and then once we get those up and going, we’ll be moving site-by-site.
And I'm proud of the team. Over the two years of the COVID pandemic, they took 18 months. They went through our top 25 sites which make up 90% of our CO2 footprint and they’ve got detailed plans for how we would go site-by-site to take those sites to zero. We also went through – we have about 500 suppliers that make up 90% of our Scope 3 emissions. We’ve got more than 150 of those deep drilled and, interestingly enough, 80% of those have targets on CO2 emissions. And so, by the end of this year and next year, in that timeframe we’ll have the rest of those 500 deep drilled and have a target there.
On the plastic circularity side, it’s a lot more complex. A lot of people don’t like the pollution in the environment, and we don’t either. I don’t think anybody out there does. You know, our employees represent society, just like all of your investors.
But plastics serve a very useful purpose and especially in areas like food preservation, healthcare. They’re there to keep things clean, sterile. They’re there to extend life. They’re there to make sure that people have fresh food and food doesn’t go to waste.
But they’re not recycled today, and the systems today don’t pick them up. There’s not an economic incentive to recycle them. In some cases, it’s very cheap to landfill them. And so, what we have to do is we have to create a system where we can bring those plastics back and turn them into useful materials.
In some cases, if they can’t be cleaned up to the point where they can go back into food packaging, we look at alternatives like in asphalt modification. We’ve got a program right now in Michigan with Meyer Stores, which is our leading grocery store here. And we work with them. They collect plastic bags at the store entrances. When they repave parking lots, we convert that back into material that’s used in the plastic asphalt. And we’re seeing that it has a better performance and especially in, you know, a climate like this where wintertime can be pretty tough, that’s good.
We also have a line of plastic resins that we call REVOLOOP. That's a line of post-consumer recycled products which help close the loop on plastics. And in those cases, we’re trying to recover those plastics and turn them into something that’s tailor-made for the customer’s need, maybe back into a consumer product package, maybe back into a food package. But certainly, that’s an area that is growing in importance.
The demand right now for recycled content far exceeds the supply. You’ve seen a big move into recycling in any number of ways, not just through companies like WM, who are working very hard to put in more capacity. But they’re doing things like automatic sorting to be able to sort different plastics out at the MERFs. That allows them to pick up more at the curbside. As we pick up more at the curbside, we can start to generate more volumes. And then, from our standpoint, we have to take those recycled plastics, compatibilize them, help make the quality that a brand owner needs for their product and put it back on the shelf.
Plastics are still the lowest carbon footprint material out there, bar none, and have the lowest CO2 impact. And when we take them to zero CO2 footprint and close the loop through recycling, that’s going to be a big advancement.
ZACH BUCHWALD: Jim, it’s a wonderful ambition. It’s very inspiring to hear about. I do want to ask you a quick follow-up question on the Fort Saskatchewan, the site in Alberta. Is there – you know, we have a lot of folks from – Canadian investors on the line, but we also have folks from the official sector, including Department of Transportation. Is there anything in particular about, you know, that the Administration should be thinking about in terms of why you’re pursuing this innovation in the Alberta plant rather than here in the US? And are there learnings that we should be thinking about?
JIM FITTERLING: Well, there are a few things that I think the Administration is thinking about and our political leaders are thinking about. We haven’t – we’re not quite there yet in terms of implementation.
One is we need carbon capture infrastructure. So, I mentioned the carbon capture trunkline that is there. That's an existing line that’s in place. We signed on with a consortium of companies to try to build that in the Houston area and the US Gulf Coast to help Houston get to net zero targets. We need to do something like that in Louisiana. And I would say there are probably five or six places in the country where if we develop carbon capture hubs that would allow industry to decarbonize and then have a place for that carbon to go and be sequestered.
Longer-term, I'd say this is much longer-term, beyond sequestration we need to look at things that we can do to turn CO2 into useful products. That isn’t as easy as it sounds, because the energy balances don’t quite work with you. But that’s another area.
Canada’s also got an emissions trading system. So, there’s a market-related price on carbon and this is important. A carbon tax, which was part of the Build Back Better bill, did not end up happening. And I think one of the reasons it didn’t have support was because the tax looked like it was going to go to just fund social programs and we’re trying to tackle a sustainability and a decarbonization effort.
So, what you need is a market-related price on carbon. Europe has one today. That, that’s helping our project in the Netherlands. That price over the last several months has been between $60 and $100 a ton and that is enough for us to offset some of the operating costs of doing the autothermal reforming and the carbon capture.
And then there’s capex. The Canadian government’s been helpful with, especially in Alberta with us getting some support to be able to have some support for the capex that’s required. It’s not – it’s a little more capex than we would typically deploy into these assets. And so, you need a little bit of help on all three of those. And what that does is it means you’re not having to push all of the costs downstream to the consumer, but you’re able to have a logical way to not only decarbonize, give a return to your investors, and the consumer sees some costs but not bears the full brunt of the costs. So, those are the things that are in place and that’s what we’re trying to work with the Administration and the government on, trying to get some support there.
Bonus: Jim Fitterling on the circular economy & decarbonization
Jim Fitterling shares his insights on recycling technology and how the circular economy can help decarbonize big industry.
HOT SEAT SESSIONS
Investment implications
Public-private partnerships in energy and infrastructure investing
Featuring Mark Florian, Managing Director, BlackRock Infrastructure Equity
ZACH BUCHWALD: And that brings us to the next segment, the Investment Hot Seats. We’ve asked three additional investors who are putting capital to work in infrastructure to tell us more about the opportunity set. And, first, I am delighted to welcome Mark Florian, our Global Head of Power and Energy, to the BlackRock Future Forum. Hello, Mark.
00:40:01
MARK FLORIAN: Great to see you, Zach.
00:40:02
ZACH BUCHWALD: It’s good to see you. Thanks for coming. Mark, listen, power and energy are central to our infrastructure system, and they really touch every part of our economy. Anne Valentine was on earlier. She mentioned one of the biggest themes shaping infrastructure investing is the energy transition. You know, tell us more about the opportunity set and maybe you can give us a couple examples of projects that you’re investing in.
00:40:22
MARK FLORIAN: Thanks, Zach, and it’s great to be here today. You know, there’s a few things we think about with regard to the energy transition and specifically decarbonization. We’ve done a tremendous amount over the last 10 to 15 years in terms of decarbonizing the power sector and that’s really primarily been through wind and solar. But there are other sectors that we really are barely scratching the surface of how we’re going to decarbonize them going into the future. And those are sectors such as manufacturing, industrial sectors, agriculture, transportation.
00:40:52
And so, there’s a lot we need to do in those sectors to ultimately get to net zero into the future. One example of this is an investment recently done into a company that is doing carbon capture. And what this company is doing is it’s capturing CO2 off of industrial processes, and this is in the Midwest of the United States, putting that carbon dioxide in a pipe and moving that carbon dioxide to a place where it can be permanently sequestered in the ground. What an interesting way to decarbonize a heavy industrial process.
00:41:25
And we think there are other opportunities, not just in carbon capture, but also in cleaner fuels in the circular economy, which is you make it, you use it, and then you reuse it, and in other ways we can decarbonize into the future beyond just wind and solar. So, that’s our excitement for the future in terms of investment opportunity.
00:41:45
ZACH BUCHWALD: All right, Mark. I want to ask you about traditional energy as well. And by that, I mean, you know, oil and natural gas, because you’ve been one of the biggest active investors in traditional energy. What’s your view of the opportunity set in that space today?
00:41:58
MARK FLORIAN: Thanks, Zach. I think there’s a very viable opportunity to invest in existing oil and gas infrastructure. The fact of the matter is the vast majority of the world still runs on traditional infrastructure and this is a transition that’s going to happen over many decades. And so, this is viable infrastructure that’s needed and needs to be invested in.
00:42:18
Interestingly enough, there also is a very good opportunity to invest in traditional infrastructure that’s actually enabling the energy transition as well. And one example of that is natural gas peaking power plants. And so, there are interesting investments around investing in these plants that really fill the gaps when the wind isn’t blowing and the sun’s not shining in regions where there’s a lot of renewables.
00:42:43
ZACH BUCHWALD: Mark, we know the war in Ukraine is having a terrible human cost. But it’s also putting pressure on the energy sector, and we’ve learned how much Europe depends on Russia for its natural gas. So, you know, long-term how will Europe satisfy its energy needs and what’s the lesson here for investors?
00:43:01
MARK FLORIAN: If you look back over the last 10 or 15 years, Europe has really pivoted towards wind and solar and away from nuclear and coal. And it’s become more reliant on Russian gas as it has its own indigenous resources, such as in the North Sea, but the production of those resources has been deemphasized.
00:43:20
Again, we think that a system that works is one that provides a lot of energy diversity in terms of the sources of ultimately what you need for what is a basic need, energy. So, it’s interesting to note if you want clean, reasonable cost, 24/7 availability, you need this energy diversity and that means that you need more than just wind and solar going into the future.
00:43:46
So, it’ll be interesting to see how Europe and the EU reacts to this whole situation, whether there’s going to be a further emphasis on energy diversity and energy security. And if there is, I think you’re going to see more diversity over time. That's an opportunity for investors to participate in diversifying Europe’s energy supply system.
00:44:06
ZACH BUCHWALD: Now, let’s set aside energy for a minute. Mark, what are the other big trends that are driving your investments today?
00:44:12
MARK FLORIAN: Yeah. We think a lot about two other trends beyond decarbonization and those are also Ds. One is decentralization and the other is digitalization. Decentralization is really the outsourcing of infrastructure by companies that own, need, or develop infrastructure. And actually, Dow Chemical is a great example of that. They have outsourced rail, marine ports, and other infrastructure around their chemical production facilities to infrastructure investors such as ourselves.
00:44:43
The other is digitalization. And interestingly enough, the amount of data that we all use every year is going up by 30% into the future. That means every three years we’re doubling the amount of data that we need to store, move, and utilize. That's staggering in terms of not only the amount of data we’re using, but the amount of infrastructure we need to support that whole ecosystem. And so, we see a lot of investment opportunity in terms of data centers, telecommunications towers, fiber to move and to manage all this data that we see into the future. And that is a trend that’s not stopping anytime soon.
00:45:21
So, also interesting in all this is there’s a convergence between energy infrastructure and these other areas. I’ll give you one example of that. Data centers, basically big server farms that really help us manage the internet, what is the biggest input in terms of running those data centers day-to-day? It’s energy. And so, the users and the owners of those data centers, they want cleaner, cheaper, and 24/7 availability of energy. And so, we see a lot of these infrastructure areas actually converging as we move into the future. So, tons of opportunity in decentralization and digitalization as well.
00:45:57
ZACH BUCHWALD: All right, Mark. Good stuff. Last question now. The spending from the recent legislation, it’s really just a drop in the bucket in terms of what we need here in the US to upgrade our infrastructure. Does the rest just get filled in by investors? And, you know, what are the opportunities for us as private capital?
00:46:13
MARK FLORIAN: Well, Zach, there is a huge wall of capital, private infrastructure capital, that wants to invest in public/private partnerships, essentially public projects where the private sector can participate. And those PPPs, so-called, have already been done in the United States very successfully. For example, there are toll roads in Virginia and Texas that have been done under this format and they’ve been very successful, not only for the governments and the citizens that use that infrastructure, but also for the investors.
00:46:44
A great current example is right here in New York City, which is LaGuardia Airport. A lot of people don’t realize that that airport, the reconstruction of that airport is actually happening under the guidance of a privately owned consortium that’s taking all the construction risk, all the operating risk in order to enable that project to happen. So, the capital is there if the projects are available under the government sponsorship.
00:47:10
ZACH BUCHWALD: All right, Mark. Good stuff. Thanks for joining us here at the Future Forum.
00:47:14
MARK FLORIAN: Really appreciate you having me today. Thanks so much.
00:47:17
ZACH BUCHWALD: You bet. I loved hearing about the private investment in the new LaGuardia Airport. I was just there this week, and it is gorgeous. It’s also working better with smoother traffic flows. Very cool to know that this is private capital creating a better experience for us travelers.
Manufacturing, agriculture & other sectors need scaled solutions
Over the last 15 years, wind & solar helped drive the energy transition. But scaled decarbonization in industries like manufacturing and agriculture will require innovative solutions.
Digitization & decentralization are evolving infrastructure investing
The amount of data produced is doubled every three years, creating an opportunity for data storage, warehousing, and power infrastructure.
Transformational technologies at the forefront of decarbonization
Featuring Megan Sharp, Head of Decarbonization Partners
00:47:32
ZACH BUCHWALD: All right. Our next guest is Meghan Sharp, who recently joined BlackRock to lead our Decarbonization Partners platform. Meghan, welcome to the Future Forum.
00:47:43
MEGHAN SHARP: Thank you. Happy to be here.
00:47:45
ZACH BUCHWALD: It is great to have you here, right here in person. Now, decarbonization as a technology, it remains quite new. And as I understand it, it includes everything from pipelines to carbon capture, concrete. We heard earlier from Jim Fitterling that Dow was developing something called ethylene crackers and hydrogen technologies.
00:48:02
Now, there’s a lot of big words in there and I'm hoping you can help us understand, you know, what it all means. Can you give us the 30-second pitch on decarbonization?
00:48:10
MEGHAN SHARP: Absolutely. There are three major components to decarbonization. Firstly, using clean energy everywhere. Secondly, using less energy and using energy more efficiently. And lastly, removing carbon from the atmosphere.
00:48:24
Among these three components, there are different technologies at different stages of development. A lot of the activity we have seen to date has been concentrated at the later stage of the spectrum, which lends itself well to infrastructure investments, for example wind and solar. Some decarbonization technologies are in really early stages of lab development, R&D, where there is still a need to prove out the science.
00:48:48
This has been the focus for the many traditional early-stage venture capital funds who take on this binary risk. However, between those two ends we are finding a growing number of the companies at the stage where their technologies have been significantly de-risked, and they now require capital to grow the business and achieve commercial scale. We believe that the next big story and the net zero investment opportunity space is in this growth opportunity, taking proven technologies and scaling fast to drive down the cost profile.
00:49:21
ZACH BUCHWALD: All right. Now, I want to understand how all that ties back to specific investment opportunities. Can you give us, you know, an example or two of one of the initial projects that you're pursuing?
00:49:31
MEGHAN SHARP: Absolutely. So, areas of investment should sound really familiar, bio and low carbon products, carbon management, carbon capture and storage, carbon capture and utilization, and the digital transformation that underpins all of this, and of course advanced mobility. We have already reviewed over 150 opportunities to date across energy, industry, mobility, buildings, and digital and it’s global in nature.
00:49:57
Let's bring this to life with a case study. One area we are really interested in is in the alternative materials and material science space. The company we’re investing in has developed a mushroom-based leather product. This is a highly disruptive material that doesn’t sacrifice on quality and displaces an emissions-intensive incumbent material, animal leather.
00:50:21
The company is at an inflection point. It’s poised for commercial ramp-up. This is an opportunity to acquire a stake in an emerging winner. We’re going to help them scale.
00:50:31
So, that’s just one example. And, again, we’re looking at 150 opportunities across all segments.
00:50:37
ZACH BUCHWALD: Super-interesting stuff. Now, I want to ask you to give us a little bit of context, because you just joined BlackRock from BP Ventures and I'm hoping you can give us some insights on how the traditional energy companies like BP are innovating into some of these new energies that you’re talking about.
00:50:51
MEGHAN SHARP: BP writ large made the commitment to achieve net carbon zero by 2050 or sooner and BP Ventures was there to help reach that goal. We made over 70 investments in the decarbonization space, everything from advanced mobility to carbon management to bio and low carbon products. As BP moves through the energy transition, diversifying its portfolio from oil and gas and growing its renewables business, they can then acquire some of these startups that we invested in at BP Ventures or they can partner with them to help create their future business.
00:51:23
ZACH BUCHWALD: All right, Meghan, last question. Now, Senator Portman was on earlier and his view is that the legislation in infrastructure is going to entice private investors to actually participate in these new energy upgrades. Are you seeing the opportunities?
00:51:38
MEGHAN SHARP: The market opportunity is growing, broadening, and evolving and we believe there is a role for both private and public capital to play in the transition globally. We are seeing government action primarily across infrastructure, which is supporting the end markets for many of the solutions that we will be investing in. However, it will be private capital that will focus on scaling new solutions that are technologically de-risked through both VC and private equity.
00:52:06
That is the white space Decarbonization Partners operates in. We invest in private companies with transformational technologies at the forefront of decarbonization. We’re partnered with Temasek on this.
00:52:18
Areas where we won’t invest: We won’t invest in opportunities that do not have a decarbonization impact. We are a venture and growth private equity fund. Think of us as providing capital to commercialize the next generation of technologies that will feed infrastructure projects.
00:52:34
ZACH BUCHWALD: Meghan, that was really good stuff. We’re so excited to have you at BlackRock. And thanks again for joining us at the Future Forum.
00:52:41
MEGHAN SHARP: Thank you for having me.
00:52:42
ZACH BUCHWALD: You bet.
De-risked decarbonization technologies require capital to scale
Growth equity and late-stage venture capital are helping scale transformational technologies at the forefront of decarbonization.
Decarbonization can be approached in three ways
The three components for decarbonization are: using clean energy everywhere, using less energy and using energy more efficiently, and lastly, removing carbon from the atmosphere.
The legislation’s impact on public markets
Featuring Gargi Chaudhuri, Head of iShares Americas Investment Strategy
ZACH BUCHWALD: Let’s switch gears and end on infrastructure’s far-reaching implications and how investors can access these opportunities. I am delighted that we have the brilliant Gargi Chaudhuri with us today. Gargi leads our iShares Strategy in the Americas, and she is an expert on how macro events drill down into portfolios. Gargi, welcome to the Future Forum.
00:53:06
GARGI CHAUDHURI: Zach, it’s great to be here.
00:53:07
ZACH BUCHWALD: It is great to see you here in person. Now, we’ve just heard from three other investors who participate in infrastructure, all of whom through the private markets. And what I want to ask you is how can investors gain access to growth opportunities and infra but across the public markets?
00:53:22
GARGI CHAUDHURI: Sure thing, Zach. So, I want to stress the importance of this Infrastructure and Jobs Act in terms of the breadth of influence with – it’ll have across sectors. So, whether we’re talking about the more traditional forms, such as the roads and the bridges, but also investments in broadband and electric vehicle and clean energy. So, in essence building out the next generation of US information and transportation and power generation.
00:53:46
So, when you think about that and accessing it in the public markets, what investors are going to get an opportunity to invest into is not just the owners and the operators, but also importantly the enablers. So, really think about it along the value chain. And I would also say that you should think about in the public space thinking about investing across a thematic of infrastructure, such that you can have that liquidity, which really complements your private infrastructure really well. So, whether it’s through an ETF or whether you just want to sort of access the entire value chain, I think doing it with enablers, operators, as well as owners makes sense.
00:54:27
ZACH BUCHWALD: All right. Now, we’re all waiting for the announcement from the Fed later today on rates and there’s so much going on right now with the war in Europe and the lingering effects of COVID, you know, and the related needs for government support. Gargi, you’re our resident inflation expert. What does all this mean for monetary policy and how are you positioned for the range of possible outcomes?
00:54:47
GARGI CHAUDHURI: Sure thing, Zach. So, really exciting day ahead of us, the first rate hike since the end of 2018. And despite all the recent volatility that we’ve seen in the markets around expectations of about a 50-basis point rate hike, we think that this is going to be the Fed actually raising rates just 25 basis points. But more important than today’s interest rate move will actually be the path of policy for the remainder of the year. And we’ll obviously hear about the Fed from that in their statement of economic projections, as well as in the press conference. And our expectation there is that the Fed will not be able to raise rates as many times as is currently priced in the market.
00:55:25
I do think on that note, it’s important also to talk a little bit about the trajectory of growth, which has obviously been, has been reconsidered and people are expecting a little bit of a slowdown because of the oil prices and the impact that might have on the consumer. I will say there that the stagflation narrative that has become quite popular now is a little bit too premature and that is not our base case right now.
00:55:50
ZACH BUCHWALD: Okay. Now, let’s double-down a little bit on the topic of inflation, because we had Senator Portman on earlier, and his view is on the policy side, they wanted to direct spending to improve bottlenecks in our ports, in our waterways, and they did that as a way to help bring down costs. So, I want to get your view. How is all the infrastructure spending from the new legislation going to, you know, going to play out? Is it actually going to bring down costs, like the Senator suggested?
00:56:12
GARGI CHAUDHURI: Sure. So, I think about this in two ways. So, first all, there’s going to be a shorter-term impact and then a slightly longer-term impact. In the shorter-term, there will be a need to hire more specialized labor, and this could further exacerbate some of the wage pressures that we’re already seeing in the market. So, the job opening/labor turnover survey data tells us that there are about 11 million open jobs right now and if we look at the details of that report, three million of those open jobs are already in the manufacturing, trade, utilities, construction, all of those sectors which, of course, are very related to this act.
00:56:48
So, is it possible to see further wage acceleration in those sectors, especially when there’s a need for them in a meaningful manner? Yes. But I think what we have to focus on is the medium to longer-term, where of course the improved resiliency of supply chains, having better roads, having ports congestions cleared up, all of that will have a strong impact on good growth and also possibly will bring down some of the supply chain-related inflation that we have been seeing over the last year.
00:57:19
ZACH BUCHWALD: All right, Gargi. Before I cut you loose, I want to ask you about some of the investment ideas that you see coming out of the infrastructure spend by the government. How are you targeting some of, you know, the adjacent opportunities that are coming alongside the infrastructure bill?
00:57:32
GARGI CHAUDHURI: Sure, Zach. So, when we see the spending bill, there are obviously sections that are outside of traditional infrastructure, and I think that some of the most exciting opportunities can come there. So, for example, electric vehicle is an area that obviously comes to mind. But what’s related to electric vehicles is the entire semiconductor industry. What do electric vehicles need? They need chips. So, really allocating to that semiconductor sector, which can have a huge tailwind, both in the medium and in the long-term.
00:57:57
Similarly, I think investments in clean energy space, looking at sort of solar, wind, but also clean energy tech and equipment like fuel cells. And, incidentally, if we think about how clean energy has behaved since the invasion of Ukraine, it’s been up 20% and at the same time we all know that traditional energy prices have also been up meaningfully. So, the broader point here is that there is space for both clean energy and traditional energy in a diversified portfolio and I think the infrastructure bill will obviously just have a further tailwind for that.
00:58:31
ZACH BUCHWALD: Gargi, that’s a great insight that traditional energy and new energies can both perform well hand-in-hand in a diversified portfolio. Thanks for joining us here at the Future Forum. I’ll keep my eyes out for you on Bloomberg and CNBC and we’re delighted to have you here.
00:58:44
GARGI CHAUDHURI: Thank you, Zach.
00:58:45
ZACH BUCHWALD: You bet. All right. That concludes this session of the BlackRock Future Forum. I'd like to thank our guests for sharing their expertise with us.
00:58:53
We’re going to post some additional footage from the Future Forum on my LinkedIn page over the next several days and all of today’s content can be viewed on the BlackRock institutional website. And because the future is always unfolding, we may send some follow-ups to you with more insights.
00:59:09
Finally, let me thank all of you for joining us today. Stay well. Zach Buchwald signing off.
00:59:16
(END)
IIJA has a rippling impact across the infrastructure value chain
The Act has rippling growth effects across the full infrastructure value chain, for both infrastructure owning companies, operators, and adjacent sectors that are enabling growth.
Infrastructure investments can be accessed in public markets, too
In the public markets, accessing the infrastructure growth opportunity through liquid ETFs and public securities can help complement more illiquid private infrastructure portfolios.
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