The Future of Infrastructure

Grégoire Baillargeon:

Canada has enough geological formations to store all of the CO2 that is in the atmosphere for the world. Canada could reverse climate change. It's a weird statement, but the point is not all countries in the world will have the right geological formation to store CO2. Canada's one of them, and we should be quick to become a world leader in this. There's a lot of talent in Canada, expertise.

Michael Torrance:

Welcome to Sustainability Leaders. I'm Michael Torrance, chief sustainability officer at BMO. On this show, we will talk with leading sustainability practitioners from the corporate, investor, academic and NGO communities to explore how this rapidly evolving field of sustainability is impacting global investment, business practices and our world.

Disclosure:

The views expressed here are those of the participants and not those of Bank of Montreal, its affiliates or subsidiaries.

Michael Torrance:

Today's episode is based on a panel discussion from the 18th annual Toronto Global Forum, which was organized by the International Economic Forum of the Americas. The panel, which included Gregoire Baillargeon, president of BMO Financial Group Quebec and vice chair of the BMO Climate Institute, focused on the challenges of building infrastructure for the future. I hope you enjoy it.

Karen Mazurkewich:

My name is Karen Mazurkewich. I am the vice president of Stakeholder Relations and Communications at Toronto Pearson. So I'm really excited to talk with these three great panelists today to talk a little bit more about this issue. So let me introduce our panelists here on the stage. So Marie-Claude Dumas is the president and CEO of WSP Canada. Today she leads one of Canada's leading professional services and engineering firms and of course a notable role model, particularly for women in STEM. Macky Tall, he's the chair of Carlyle's Global Infrastructure Group and he oversees investment, transportation, renewable energy, power, water and even digital infrastructure. And Gregoire Baillargeon, who's the president of BMO Financial Group Quebec and the vice chair of BMO Climate Institute. And so I wanted to start by just asking all the panelists, starting with Marie-Claude, to take two or three minutes and just give us a little bit of your thoughts on that headline question, what are the key challenges associated with greening critical infrastructure in Canada?

Marie-Claude Dumas:

Thank you, Karen. And it's a pleasure for me to be here today. Thank you for inviting me. So as you say, greening infrastructure can mean so many different things. It can mean wind or solar power. It can mean electrified public transit. So of course it's hard to say what the key challenges are because all these examples are so different that the challenges will be very different as well. One thing though we always need to consider is cost. So if we want to do things differently, there's going to be a cost associated with it, but we should think about cost as an investment and not an expense. And we need to think about also the cost of not doing it. Just think about... When we think of floods, if our municipalities are equipped to be able to have better water systems or retention as well, then the cost of not doing that, we need to think about that. So it's about really redefining return on investment as well, so cost and return on investment, and it will depend on which asset that we're talking about.

Karen Mazurkewich:

Mack, maybe you can help us unpack to when you look at greening and infrastructure and what that means.

Macky Tall:

I would start by reminding of the fact that the reason we're having this discussion is that the planet faces an existential threat and so we have this obligation to contribute really to migrating the world to a lower carbon economy. And that's the reason why these efforts have to be deployed across the infrastructure chain, and I would stress in particular the need for the energy transition to be successful. What we are noticing recently in Canada and around the world is that energy demand is not decreasing. It's actually increasing, for a number of reasons, but one of the primary driver is the digitalization of the economy, which has many benefits, but which is very energy intensive. If you think about data centers, if you think about more recently AI, we already saw during the pandemic that the change in habits accelerated really the change towards e-commerce, work from home and different items that increased that data consumption. And so that energy demand into this digitalization of the economy is creating that challenge.

And I would say to answer your question about some of the challenges we face, it is balancing energy transition, which is maximizing all of the investment in low carbon energy, all forms of renewable, hydrogen storage and renewable fuels with also maintaining and managing responsibly traditional energy for as long as we need it. And Europe has learned the hard way in the recent years that thinking too quickly about the fact that energy transition will happen with a flip of a switch. It doesn't. It needs to be planned carefully.

The other challenges I do see also is the fact that you have challenges, you have trade barriers, you have a de-globalization of supply chains. Well, some of the key components that we need to succeed in energy transition include, as an example, solar panels, 90% of which come from one place, which is China. And there are trade barriers. There are trade tensions. While electric vehicles, there are meaningful tariffs that have been imposed by Canada, the US and Europe to protect domestic production on Chinese vehicles. So there are many challenges that we will need to solve, not the least of which being the resources, the demand for capital, the demand for labor, the demand for expertise, the demand for critical minerals are all things that we will all need to push to levels we have not seen before to be able to meet the massive effort needed to be successful in the transition.

Karen Mazurkewich:

Wow. Thank you. But from a financial piece, maybe, Gregoire, you can unpack a little.

Grégoire Baillargeon:

Well, I'll stay on the framing question on greening infrastructure. We all think of infrastructure as long-term assets, stability. And what we're facing is actually volatility. It's unstability. The stable climate we've had, which as long as there've been human on Earth, there's been 280 parts per million of CO2 in the atmosphere, always. Stable climate allowed the built of civilization and infrastructure the way we know it. When I was born it was now 330 parts per million and now we're at 425 and we're quickly heading to 500. And you can debate what the limits should be, but there's a limit. So we have to take into account a couple of things about infrastructure. One is how do we build it without emissions or with less emissions? How do we build infrastructure that allows the industry to reduce their emissions? And then how do we make that infrastructure resilient to a climate volatility we've never experienced as humans? So all of these pieces I think are super important.

The other thing about infrastructure is it's always been a concept of building systems for society to operate efficiently, which was very much led by governments for a long, long period of time. And at some point we became so good at this that it was easy to bring private investment to it, but we're now facing new styles of infrastructure with new technological risks and new costs, and the role of government is enormous.

And then the last piece I would say is when we think of infrastructure that we need, so when you think of the climate question, to me there's always three facets. The main one is you think of a pool, we're building emissions in the atmosphere, so you got to faucet, you got to close it. So we've got to reduce emissions. So again, having the infrastructure to allow industry to reduce and making sure we build proper infrastructure without emissions. The other one is adapting to a higher level in the pool. So resilience is super important. And then the third, which we sometimes don't talk as infrastructure but it is, there is no scenarios in the IPCC report that doesn't have carbon removal from the atmosphere, reducing concentration, as part of it. That's infrastructure. We need CO2 infrastructure to take CO2 out and bring it in the ground. For now, there's a lot of technological risk, but that is infrastructure of the future.

Karen Mazurkewich:

Right. Well, there is a lot of technological innovation coming on the market. I'm going to start with Macky a little on, because you talked about energy transition. Maybe is there any examples that you could give on new technology?

Macky Tall:

Clearly, Karen, innovation is a key part of how we solve the solution to get to a net zero economy. And those are things that are not available today. Gregoire went to one of the most impactful innovation, which is still not at a mature stage and will be critical, is carbon capture and storage. To be concrete on your question, there are many very specific creative innovation in sectors like smart buildings.

One example I can give you is electric vehicle infrastructure. There are a few companies out there that are working on bidirectional charging technologies. Why that is helpful? It's one of those really nice ideas that if you think about the growing fleet of electric vehicles, most hours of the day they're parked, they're fully charged at night, and if you are able to develop efficient, bidirectional charging, bidirectional metering that the utility and regulation, local utility and local regulation, allow for it, then you have that growing fleet that becomes a reserve that helps manage the grid, that helps manage consumption when it's at its biggest and you have to use the most polluting sources of energy. And it also becomes a source of revenue for electric vehicle owners during those times and it can allow them to reduce the higher cost of electric vehicles. So there are many good ideas and none of which in its own is going to be the solution. So that innovation has to continue.

Karen Mazurkewich:

Right. Thank you. Gregoire, I'm going to turn to you because again, scaling up new technologies is quite expensive. What are you seeing from the banking perspective of interesting technologies and where should Canada maybe lean in?

Grégoire Baillargeon:

Yeah. We always need to think about what are the strategic advantages that we have as a country. And when you think of what we're going through, Canada should, if it wakes up fast enough, can really be a world leader in future decades. Reasons for this is we are actually experts at energy from coast to coast. Provinces like Quebec have 100% renewable grid, have been dealing with electricity, electrifying about everything we can because that was our form of energy sovereignty because we import the rest. So there's a lot of knowledge on electrification, tons of knowledge. And you go out west and we know how to deal with molecules like no other place on Earth and we're responsible about it.

So if you mix all that together, the idea of using renewable energy in smart ways, including, again, drawing CO2 down and knowing how to handle that CO2, when you take all of that and CO2 sequestration, which is going to be a huge infrastructure challenge, Canada has enough geological formations to store all of the CO2 that is in the atmosphere for the world. Canada could reverse climate change. It's a weird statement, but the point is not all countries in the world will have the right geological formation to store CO2. Canada's one of them, and we should be quick to become a world leader in this.

So there's a lot of talent in Canada, expertise, places like WSP. We know these spaces and we are going to be able to become world leaders. We need to let that innovation happen. We need to permit quickly such that our entrepreneurs find their wings and rapidly take the world stage. So those are some of the elements. For us in the banks, it's about finding the right products to finance those entrepreneurs at the right time. We can't denature the Canadian banks. We are not venture capitalists. We are not long-term risk-takers. The duration of our loans is short. So we don't finance infrastructure on 25 years. That's not why we do. But we are mobilizers of capital. We raise long-term capital for infrastructure. We raise funds for companies that need venture capital so we can be an aggregator of capital and continue to be the center of the economy in terms of making it work. So that's where the banks are focused.

Karen Mazurkewich:

Right. Marie-Claude, what are you seeing out there from WSP on innovation? And where do you see Canada leaning in, whether it's carbon capture? We're hearing a lot about electrification. We know battery development in this country is a big investment.

Marie-Claude Dumas:

Yeah. So I think I totally agree with what Macky and Gregoire just said of we need to make sure we identify the big needle movers. But it's really a mix of solution. It's not just one solution we invest everything into it and we're going to solve the issue. It's a mix. And I think that we can't either forget, because sometimes I find that as citizens, we believe it's someone else's problem. The banks, the big banks, will take care of that or someone else will take care of it. And some level of government intervention in terms of incentives, because we're all creatures of habit. And if we want... As human beings, if you want to change your behavior, you need a bit of a push. Just think about when you used to grocery shop and they started not giving you the plastic bags. You're like, "What do you mean? I can't carry my stuff home." But... And at first I remember I was like, "Oh, my God. This is ridiculous. We need these bags." But then we did change this behavior and we completely got rid of the plastic bags.

So we also need to make sure we don't forget the population's impact and when we think... But totally agreeing that we need to find ways to capture carbon, but we also need to find ways to reduce consumption.

Karen Mazurkewich:

Thank you. We hear a lot about under-investment in infrastructure and particularly if I see one more maybe op-ed on productivity and infrastructure. It's out there a lot. We talk about it a lot. But so how do we ensure that climate proofing and sustainability is seen as a value add and an enabler for investment? So Gregoire, I'm going to start with you again from the financial side.

Grégoire Baillargeon:

Yeah. I'm going to pull on a thread that we started with earlier on the role of government and also the role that infrastructure plays, which is to make society function properly and you need to have a future mindset to this. When we started having cars, there was no concept of, "Okay. Which company's going to build roads and own roads?" Of course we need roads, it's going to be government. And there's a long-term focus to where do you build them and how do you organize the economy around that concept. So in the same way here, we need to think of resilience and we need to think of infrastructure. We need to decarbonize industry as links in the system. And they can be expensive and they can seem like non-economical relative to the cheap version in the present, but they are actually the right infrastructure for the future.

And it's all about either government ordering the right systems and then consortiums of private capital and builders come around and actually deliver it. But the framework, what is asked, is the right future-proofed infrastructure. And it's about if it is difficult for the private sector to do it, for government to do it, period. That still exists. So to me, that governments see clearly where the future is going is the key piece, making sure we order the right things and then understanding that we can't build these things to perfection. When we say greening, you can't order a full highway of green cement. It's not going to happen, nor green steel. But you can start to order a few things in the mix that are stimulating industry in their transition. And those steps are actually bringing more players to bring the technologies and then in five years next project can actually ask for more and that incrementalism actually goes somewhere.

Karen Mazurkewich:

Yes. Macky, yeah, [inaudible 00:17:41] can respond to that as well.

Macky Tall:

I mean, I couldn't agree more with Gregoire's comments. Speaking as an investor, I actually think that there is absolutely no conflict between the objective of making secure investments, profitable investments, and taking into account sustainability. Corporations are committing to net zero objectives. Our stakeholders, whether it's our employees, our clients, are also increasingly asking for it. So when I think today and I look at our portfolio of investment or new investment, it is a must that on both things we have in the portfolio a new investment we do to assess how those assets will perform over the long-term in an economy that's transitioning to a low carbon and those investment today that appear to be average carbon intensity, where will they be positioned in 10, 15 years? And that's in a way to protect the capital of the investment to ensure. And that is one, to your question, you make sure to make the right decision about really how sustainable that investment is. It is the basic requirement of prudent capital management as an investor.

Marie-Claude Dumas:

So I think definitely all the Canadians in the room will know that in the past 40 years we've probably under-invested in our roads, highways and bridges. We all drive on these roads. And I think that we now have come to a point... And even when you look at the water infrastructure, what happened in Calgary earlier this year, but also... We have water mains and then when it happens, it's not like, "Oh, you know what? We're not going to invest." You don't have water. You need to. So I think that it's now everyone understands that you can't invest into infrastructure sporadically. You really need to make sure... It's not just about the cost of engineering construction, but it's really about the total cost of the asset and making sure that you can operate and maintain properly this asset for its full life cycle and not have surprises like, "Oh, my God. This bridge's going to fall down. We need to replace it," as an urgent thing to do. So I think we're learning to be a lot more proactive about the conditions of our infrastructure.

Karen Mazurkewich:

So does private sector need to be led by government, Gregoire?

Grégoire Baillargeon:

For sure.

Karen Mazurkewich:

I know you've talked a little bit about government.

Grégoire Baillargeon:

I talked about government, the importance of government to set the frameworks and to order the right things. But government would make a huge mistake not to leverage the private sector. There's tons of private capital, more so than ever in history. So you don't want government to be funding and building by itself. It needs to bring the private sector. There's tons of models for that collaboration. The question is how do you put the right models and order the right things, but ultimately government needs to be steering the ship, but needs to find ways to order from investors the capital. We the banks, that's what we do. So our infrastructure group at BMO does lots of mandates for governments organizing the capital stack, the availability payment, the tolls, whatever we need to create a financial model that attracts the Carlyles and that attracts the WSPs to build. Now we need all of that, but the role of government to set where the ship is going is absolutely important.

Karen Mazurkewich:

If there was one thing you would focus on or ask government to lean in on, whether it's regulatory or funding on the infrastructure side, is there one area you would say you really-

Grégoire Baillargeon:

No. I'm going to answer the answer Marie-Claude gave at the beginning. The recipe is everything. So we need to touch on everything and we can't break the system. So nothing... We're not going to suddenly change infrastructure entirely without saying it's incremental because that's also a bad word, but it has to be on all parts so that we end up by 2050 in this net zero economy that seems almost impossible now. It is actually doable. We're going to get there. We're going to get to low carbon industries. But again, when all of these things happen all at the same time, at some point, it's exponential and we get to the right place. And I think we will.

Karen Mazurkewich:

Right. I might just ask all three of our esteemed panelists here to maybe leave a last word to the audience, if there's a call to action or something that the financial sector should be doing around this. Marie-Claude, maybe I'll start with.

Grégoire Baillargeon:

Yeah. So maybe for me it's really a mix. It's not one solution that will solve it because there are so many facets. And also it needs to work with what we currently have. We can't break the system. We can't start over. We need to look. So it's a mix of solutions that will be tailored to different locations. And it's also our duty as citizens to act.

Karen Mazurkewich:

Gregoire.

Grégoire Baillargeon:

I think that's a great thread. Ultimately, society is composed of all of us. That's it. So if all of us are conscious of the issues we're facing and that we discuss the right topics. Doesn't mean the decisions are easy. It doesn't mean they're simple. There's scarcity of resources everywhere from capital to other things. But we're going to tweak the dials all together to the right place over time. But those conversations need to happen, including the decision not to do something. And that's a decision. That's fine. But we need to involve everyone around the table, make sure those conversations. And the last thing I would say is start conversations early. We talked about the concept of permitting. Infrastructures require permitting. We need to permit faster. And everyone cringes when we say that because permitting faster, does that mean we do it too fast or start earlier? Start the conversation soon.

Karen Mazurkewich:

Macky, last word.

Macky Tall:

Well, what I would say is simply that the challenge ahead of us may seem overwhelming and challenging. The perspective I will put on that, and you might say it's the investor speaking, is that I actually see a land of opportunity ahead of us and that it's a generational opportunity with so many investments, attractive investment opportunity, across the sectors of energy, transport, building, and for many businesses for innovating around the energy space. There is an awful lot of opportunity. And I think the message I would give is actually focusing on that and that will be contributing when capturing that opportunity, to Marie-Claude's point, on contributing to the solution.

Karen Mazurkewich:

Great. Well, thank you. I want to thank the panelists so much for great insights today. So thank you very much.

Michael Torrance:

Thanks for listening to Sustainability Leaders. This podcast is presented by BMO. You can find our show on Apple Podcasts, Spotify or your favorite podcast player. Press the Follow button if you want to get notified when new episodes are published. We value your input, so please leave a rating, review and any feedback that you might have or visit us at bmo.com/sustainability leaders. Our show and resources are produced with support from BMO's marketing team and Puddle Creative. Until next time, thanks for listening and have a great week.

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