August 13, 2025 • 42 mins
As government support for climate solutions wanes, attracting private capital becomes even more critical. On this episode of ESG Currents, BI senior analysts Gail Glazerman and Rob Du Boff speak with the Green Impact Exchange’s co-founders Daniel Labovitz (CEO) and Charles Dolan (president) about their new equity-trading platform designed to connect sustainability-minded companies and investors. They discuss the pressure points in impact finance and how products like equitized carbon credits may offer solutions. This episode was recorded on Aug. 31.
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Episode Transcript
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Speaker 1 (00:09):
ESG is constantly evolving. Over the years, it has shifted
from socially responsible investing to impact to sustainable finance, with
terminology changing once again. What is not changing are the
underlying science, market pressures, and tangible physical and financial impacts
from the climate crisis, regulatory pressures and consumer expectations. We
(00:31):
aim to filter out the noise by speaking with industry
experts to identify what is really driving value. Welcome to
ESG Currents. I'm Gail Glazerman, Senior ESG Analyst.
Speaker 2 (00:42):
And I'm robb Yboff, Senior ESG Analyst, and we're your
hosts for today's episode. As ESG comes under increased scrutiny
and government support shrinks, private markets may need to play
a more prominent role to ensure funding for adaptation and transition.
Businesses that can facilitate can capital with projects ensuring accountability
(01:03):
and performance may find significant opportunities. Today we're speaking with
a business seeking to fill this gap. Daniel Labovitz and
Charles Dolan are the co founders and CEO and president
of Green Impact Exchange. Gentlemen, thanks for.
Speaker 3 (01:17):
Joining us, Thanks for having us so tell us.
Speaker 2 (01:20):
About the Green Impact Exchange. What is the problem exactly
you're trying to solve.
Speaker 3 (01:25):
So gi X, which we referred to as GIX, it's
we're revolutionizing sustainable finance. We're first of all, we're building
an exchange to help raise the capital necessary for companies
to transition to sustainable footings. This used to be a
primary function of stock exchanges, but somewhere along the way
it seems that they lost that thread, and nowadays the
(01:48):
focus of private markets seems to be on enabling professional
traders to trade faster and cheaper, and so the result,
not surprisingly, is that fewer and fewer companies see the
benefits of being public, which hurts both the companies and investors.
And so gi X is a registered national securities exchange
that's going back to the roots of capital markets and
(02:10):
we're thinking about how to get companies the sustainable capital
that they need.
Speaker 1 (02:14):
Can you talk a little bit about how you define
the listing criteria for companies that you would expect to
participate on the exchange.
Speaker 3 (02:22):
Well, let me let me starting. I'll throw that part
of that childe. Let me start that listing is one
of the three areas of focus that we're working with.
We are working on improving the quality of disclosures on
sustainability as a way of combat and greenwashing. This gives
investors kind of the intelligent investment allocation information that they need,
and to do that, we're dually listing companies on the
(02:44):
exchange and looking for companies that are actually committed to
doing the hard work of sustainability. But as I mentioned,
the other two aspects of this are creating innovative products
for sustainable finance that we can list on the exchange
as well, and then overall evolving the market toward a
digital footing that there's a lot of sustainable assets that
(03:06):
are moving toward tokenization, and so listing and trading them
on a traditional exchange is going to slowly phase out,
but investors benefit because the tokenization gives them the benefit
of traceability and transparency through the blockchain. So we're simultaneously
building an infrastructure that will allow those digital assets to
seamlessly interact with the traditional market. So now to get
(03:30):
back to your question, I mean, basically, we're looking at
transparency as a way to help investors understand the financial
elements of a company's sustainagability strategy. And I'll throw it
to Charlie to talk a little bit about what those
standards are. With the caveat that we have a rule
amendment in front of the SEC, so we're a little
(03:50):
bit limited in what we can talk about.
Speaker 4 (03:52):
Charlie, I would just say that we did a deep
dive into kind of the holy SG landscape. One important
to understand is we are not an ESG exchange. We're
focused on environmental sustainability. We're not focused on the S
and G. While we think those are important, I shouldn't
say the G, but really the S. While we find
(04:14):
those all to be important, we just thought that it
was that that's one of the problems that ESG has
is combining E plus S plus G just tends to
confuse folks. So we are focusing on environmental sustainability. When
we took a look at the ecosystem, we kind of
recognize some problems that we thought capital markets might help
(04:37):
to solve. First of all, I think last I looked,
someone told me there were six hundred reporting frameworks globally.
Those reporting frameworks are mostly backward looking. They don't really
tell you how a company's going to get to where
they plan to get to. They don't correlate very much
at all. They are, you can selectively report to them.
(04:59):
You can report the things that you want to report.
You don't have to report things you don't want to report.
What we said to ourselves is a lot of work
has been done in those areas, and yes it's important
to have those ratings, But to what we thought was
lacking is context. And what I mean by that is
(05:19):
what is how is the company set up internally? What's
the infrastructure within the company that will help them meet
the promises that they're making publicly. So to us that
comes as kind of a three legged stool at first,
is kind of a values commitment by the company through
the board at the senior levels of the organization. Is
(05:40):
the company set up in a way that they can
follow through on the commitments that they're making publicly? And
is there somebody who reports directly from the company to
the board around those promises and how they're doing towards
their stated goals. The second aspect is the vision. So
(06:00):
it's one thing to say you're going to be carbon
neutral by twenty fifty, but how do you plan on
getting there? So laying out the wigh points that investors
can look at in a very transparent way to see
how you're doing on your sustainability journey towards your own
stated goals, and what are the technologies and the ways
(06:21):
in which you plan to meet those goals. So you know,
think of me saying, Okay, I'm going to lose twenty
pounds and I come in and I sit down next
to you guys, and I'm meeting cheeseburgers and franchise. Right,
That's not really a credible commitment to what I'm telling you.
But if I say to you, I've hired a chef
and I've got a I'm going to have this workout
(06:43):
plan and this is what I plan to lose and
this time by this time, and by this time, it
becomes much more credible. Then. The last part of what
we're looking for companies to do is to we want
them to subscribe to one of the generally accept the
reporting frameworks, but they can choose which one they want
because different businesses use different reporting frameworks for different reasons.
(07:08):
But we would like them to get an assessment done
as to how are they reporting to those frameworks? Is
it consistent with the makeup a limited assurance towards how
they're reporting to those frameworks? And when you put all
those things in place, we think that it helps investors
(07:28):
find out who's really walking the talk and who is
just greenwashing.
Speaker 1 (07:32):
Well, there's definitely a lot that we're going to want
to dig into an unpack there, but just keeping at
the higher level for now, with those kind of three
levels of commitment, the vision, the commitment by the board,
do you have any kind of set exclusions of what
types of companies willing to make those types of commitments
would be willing able to participate. Would an oil and
(07:54):
gas company your relatively high emissions, if they were committed
to reducing their emissions be eligible to participate in GIA.
Speaker 3 (08:06):
We don't really have a pre defined set of exclusions.
Like if you think about where you're going to get impact,
if a company is truly committed to making a change
and truly committed to getting to a position of sustainability,
then it behooves us to bring them into the fold,
rather than excluding them saying you can't participate because you're
not done yet. I would rather be in the situation
(08:27):
where we're incentivizing them to do what's a good thing,
because frankly, you know, if an oil and guest company
reduces its emissions by ten percent, that may have a
huge impact in overall emissions and in their ability to decarbonize.
And if you exclude them from the beginning because they
didn't get there already, then you're just pushing them into
(08:49):
the arms of people who don't care about those things.
So our view is if a company can demonstrate that
they are credibly committed through those things that we talked about,
having a board level commitment, having true policies and proceeds
that support sustainability, the things that prove it's not just
an empty press release. And yeah, I would want to
have that company on the exchange because that's how we're
going to get them aligned with sustainable investors.
Speaker 4 (09:11):
Well, and think about I would just add to that,
think about the model of the NYC and the NASDAC.
Right when a company lists there, the NASTAC in New
York are not making a judgment on the profitability of
the company, whether it's a good or bad company. What
they act as is a conduit for trusted information so
that investors can do what they want to do with
(09:31):
their dollars. Right, They are not passing judgment on those companies.
They're saying you can trust the information that's been provided
to the exchange to make your investment decisions because of
its false it's fraud and that does not exist.
Speaker 1 (09:45):
No, that's fair, and that kind of eliminates where I
would have followed up had you said that there were exclusions,
because of course, today's exclusion is tomorrow's inclusion, as we've
seen recently and with lots of talk on defense over
in Europe or nuclear as that's gaining subtraction over year.
So that's certainly makes a lot of sense to me.
Speaker 3 (10:05):
Yeah, there's a story about an energy company that divested
of its coal fired power plants as a way of
getting green. So the company got green, but we didn't
get rid of the power plants. That the changeover was
in effect neutral. And so one of the goals of
exchange is to try to incentivize companies to do it
(10:25):
in a way that actually results in in changes and reductions.
Speaker 4 (10:30):
And you know what, when you really think about it,
why would you want to disincentivize the dirtiest companies to
be greener where they can be greener. That doesn't make
any sense, right, I mean, it's they have we're going
to have to live with oil for a while, right,
But those companies BP and others are doing amazing work
on the sustainability front. Why not give them credit for
(10:51):
where they can beyond petroleum is one of the phrases, right,
So why not incentivize them to be greener where they
can be greener? Airlines, same type of thing. So I
think it's a disservice to the dog vestment that's gone
on in those companies because they're the ones who need
to change the most.
Speaker 2 (11:11):
Yeah, I mean, I think that's a great point, and
BP might be a great example for my next question
that we are seeing a bit of fluctuation back and
forth between greenwashing and green hushing. You know BP specifically.
I mean you mentioned beyond petroleum. I think they're now
beyond petroleum and that you know the way their strategy
is headed back towards oil and gas just because of
(11:32):
current economics. So then how do you expect to measure
and monitor this going forward? If companies are maybe initiatives
or data they were giving a year or two ago,
they're suddenly clamming up about how do you expect that
information to continue to flow?
Speaker 3 (11:49):
So one thing is I think we're trying to encourage
process within a company that will embed sustainability at all
levels of the company what we call from the boardroom
to the loading dock, as a way of getting companies
to make this beyond just empty words and that what
what we find is that you know there is a
(12:12):
there is an economic value to sustainability, that you know
there is a long term risk value, there's a creation
of opportunities. So there are ways in which you can
say to a company this, this is about bottom line.
It's about the things that you care about as a CFO,
as a CEO, as a board for the for the
betterment of your investor story. And green hushing, frankly, is
(12:34):
is a problem with that because basically, you know, green
hushing means companies aren't talking about all the great things
that they're doing, which leaves a vacuum that the head
right headline writers then fill it. You know, the company
a pulls back. Therefore it must be they're not doing anything,
which actually isn't the case. And frankly, you know, headlines
don't give a lot of nuance, so people assume, you know,
(12:56):
they get the wrong idea from that, And what we're
trying to do is essentially encourage instead of green hushing.
Think of it as green casting. You know, it's a
combination of forecasting what the impacts of your sustainability efforts
will be and how they'll build value, and then broadcasting
that to investors. And our view is you can turn
(13:16):
what is a cost center and potentially a what what
people think of as a drag into opportunity into long
term value into a way to get a class of
investors who are more attuned to your sustainability journey, who
are more patient investors, who will understand the short term
investments that are required to make a sustainable transition. Like
(13:39):
all of those things can happen if you're willing to
talk about your your sustainability journey. There is a reward
for that, and we're trying to show companies that reward
is true and exists.
Speaker 4 (13:50):
And I would just add to what Dan said that
over the past two years we have spoken to hundreds,
hundreds and hundreds of companies. Right all of those companies
right now could abandon all these efforts, and because it's
the perfect time in the States maybe to say, oh, well,
guess what, you know what, we don't really have to
(14:12):
worry about this anymore because the current administration isn't looking
at it right and isn't worried about it. Doesn't we
don't want to get into trouble. Why for the past
thirty years have they continued to report through Republican and
democratic administrations Because it's good for their business, Simple as
that it's good for their business. It's not virtue signaling.
(14:36):
It's about driving value to shareholders, and it's about driving
that value. They could give up right now if they
want to do, there'd be no repercussions, right But to them,
it's important to continue down this journey.
Speaker 1 (14:49):
Maybe following on that a little bit the recent we've
all referred to it. But the reason pull back and
I will call it esg ambition on both sides the Atlantic.
I feel like, say, some of the changes in Europe
or maybe or intentioned but underappreciated, How is that affecting
your outlook? When you talk about speaking to hundreds of people,
(15:11):
is it really changing their interest in finding these opportunities
and that patience to be able to capitalize on them.
Speaker 3 (15:21):
I think I think there is a lot of investor
support for this, and investors continue in survey after survey
after survey to express strong preferences for sustainable opportunities, and
that only increases as you talk to younger and younger
cohorts of investors. Morgan Stanley Institute for Sustainability did AS
(15:42):
survey recently found that ninety nine percent of the gen
Z investors that they surveyed and ninety seven percent of
the millennial investors they surveyed expressed a preference for sustainable
investment opportunities. So virtually all of the people who are
coming up who are going to be the asset allocators
in the next fifteen to twenty years, are saying sustainability
(16:03):
is important to us. Two thirds of retail investors would
buy carbon credits if there were a mechanism for the
MEDU SOO. So I think, you know, for companies to
say we're not going to pay attention to this is
a foolish economic decision, fullish financial decision. Brand value is,
you know, brand perception. There have been surveys that show
what is the value of my brand's attributable to green
(16:26):
aspects and to sustainability, And there's billions of dollars of
brand value that is being left on the table because
companies aren't talking about what they're doing they aren't seeking
out opportunities to tell that sustainability. Microsoft was one. They
cited five point six billion dollars of brand value, where
Microsoft is not getting credit for the work that it's doing.
That's real money, it's real value for a CFO to
(16:49):
leave on the table. Of Microsoft, it's a small percentage,
but for other companies it's a large portion of their
financial value that they're not tapping into. I think that
that has to be a consideration for every CEO, every board,
every CFO.
Speaker 1 (17:02):
Maybe staying on this a little bit, particularly on the
corporate side. Even before the policy changes that we've seen
of the last couple of months under the Trump administration,
there were signs of sustainable projects stalling and a lot
of that had to do would appear capital availability and
maybe particularly cost with interest rates rising. This is obviously
going to be compounded by the changes that we saw
(17:23):
codified into law and the Big Beautiful Bill a couple
of weeks ago. And I'm just wondering, do you think
private markets can and maybe more importantly, are interested enough
in stepping up and filling the gap? And are there
any kind of specific examples and anecdotes, you know, as
you're out talking to people about GISs that you can
offer for that.
Speaker 3 (17:44):
Well, Charlie has been spent time sitting on a bunch
of the calls with companies, so I'll let him talk
to the company side, but I'm going to talk on
the finance siding for one second. There has to be
a reason why JP Morgan just announced a two hundred
and ten million dollars deal to collateralize carbon credits. Microsoft
announced four hundred million dollar deal to buy carbon credits
over the next ten years in an off take agreement.
(18:07):
Those are real dollars, and those are real actions that
are happening currently. And so to me that that suggests
a green you know, kind of a spring coming for
green assets, that there are projects that can be financed
using things like carbon credits, that sustainability can be a
value driver and a value creator, and companies are recognizing
(18:30):
that and in a competitive environment, those are important things,
important tools in the financial toolbox. So I think that
the part of the premise is, yeah, I think the
financial industry is interested in this and is growing opportunities
to do this. It's going to take a little while,
(18:52):
so try you want to add anything on the conversations
with companies.
Speaker 4 (18:55):
I mean, I don't I don't have a lot to add.
I will say that we're working on several concepts that
I think would address some of what you're talking about.
And I think, you know, project financing can be done,
like Dan said, with selling forwards of energy production and
(19:15):
things like that that you know a data center needs
to be built, and can you raise money through selling
day forwards of the energy production that might be produced
by that that project, Right, So there's a lot of
different ways that you can use sustainability, and I think
(19:36):
that the private sector would step in and companies are
recognizing this. So as I said, you know, we've spoken
with tons of companies. But when I look at the
markets over the past forty years, and I spent my
life on the floor of the NYC as a market maker,
every innovation that took place during my tenure there seemed
(19:58):
to be for the professionals, for the traders, and it
was all around latency and fees. Right, nothing was really
done to help the companies attract the capital that they
need to make this green transition, right, and why not
get back to what markets were supposed to be for
in the beginning, to help companies raise the money they
(20:20):
need to fortify their businesses, to provide a better standard
of living for their employees, and put the money where
the money needs to go there. I mean, I believe
Bloomberg and Reuters say, then you can argue these numbers
that there are billions and billions and billions of dollars
ear mark for investments in the space right And what
(20:40):
we're trying to do is marry that capital to companies
that are willing to hold themselves accountable to the promises
that they're making. That's all we're really asking them to do.
And we think that that model will work, and it's
been proven overseas with the London Stock Exchange.
Speaker 3 (20:57):
So can I follow up one point on that? I
think you know we've talked about climate risk is business risk,
and that's one of our mantras if you think about
what are some of the politics aside insurance companies are
right not writing policies the way they used to in
places like southern California and Florida and Texas because of
climate risk. So if you're a business that's trying to
recruit employees to work in those places and they can't
(21:19):
get a mortgage because they can't get home owners insurance.
That's now a competitive risk to your business. If you're
in a place that is prone to natural disasters and
you have a distribution facility there, that's a risk. If
you're in Texas and the and the snap frosts and
things that affect the electrical system prevent you from manufacturing,
that's a business risk. Those are all climate related risks,
(21:40):
and I think businesses are understanding that. You know that
the politics aside, these are real liabilities that we have
to address, and we need capital to address them. Where
do we go to get that capital? And that's what
Charlie is talking about that one of the things public
markets should be doing is providing access to that capital,
and that's where we're trying to head great.
Speaker 2 (22:00):
I do want to Pivo a little bit because we're
just talking about carbon credits, so I did want to touch
on this. You recently launched a product called safe Trust Shares.
Can you talk a little bit about that and maybe
how that might differ from a product like a carbon credit.
Speaker 3 (22:13):
So, again with the caveat that the product is under
development and we have discussions underwear with the SEC I
want I'm not able to go into too much detail,
but what I can tell you is that what we're
developing is a product that allows carbon credits to trade
as a simple equity rather than the way it's traded today.
Right now, the market is not very liquid. It's mostly
(22:35):
an OTC market. It's negotiated on unregulated venues that where
there may be conflicts of interests between the participants, and
all of that affects liquidity in the marketplace. It prevents
some of the market mechanisms that we look at in
the public markets as kind of standard from actually operating.
(22:56):
You generally don't have market makers because it's very difficult
to get into an out of a product and go
home flat at the end of the day the way
a market maker wants to. You don't have hedgers and
other participants, speculators coming in and buying carbon prices as
a hedge against other climate liabilities. You don't have retail participants.
(23:17):
So there are a lot of ways in which the
carbon market today doesn't really structurally work the way you
want public market to work. So our innovation is to
create a public equity that can can trade as a
proxy for the carbon credit and then allow that liquidity
into market. Allows regulatory protections into the market, and it
(23:41):
regularizes and standardizes the market so that it functions with
more stability or more price certainty and a broader group
of participants that can increase the liquidity and depth.
Speaker 4 (23:54):
Quite honestly, it introduces trust.
Speaker 1 (23:57):
Maybe digging into that trust a little bit, there was
a recent Accenter survey that found concerns about carbon credit quality,
transparency and integrity was the top barrier for companies in
terms of working with them. How can you, as you
look to create, you know, kind of equitize those ensure
that that sort of trust in the market.
Speaker 3 (24:19):
That's a that's a great question. You know, one of
the things that a public equity has attached to it
is an S one registration statement that contained certain information.
So when you equitize something and you put introduce into
a public market, you're creating a mechanism for disclosing and
standardizing some of the information about it. You're creating a
(24:41):
trust mechanism. You're creating a liability transfer that somebody is
now responsible for signing off on the information and saying
it's not materially misleading, it's not incomplete, and it's not fraudulent,
and that doesn't exist today in the carbon market. If
a company goes into the carbon market, buys a carbon
credit and there's a reversal next year, who do they sue?
(25:02):
How do they get out of it? What do they
get for the crime credits that they're holding, which may
now effectively be worthless. And better disclosure, better verification comes
with regulatory certainty. If you bring regulators into a market,
you get better and you get better information, you get
more certainty. And so what we're trying to do is
(25:23):
to bring these into a regulated market, trading them on
an equities exchange that's registered with the SEC. That creates
some regulatory certainty, having listing standards for those products, having
the SEC involved in a capacity of determining whether the
s one is materially complete, et cetera. Those are things
that will bring more certainty to the market and enable
(25:46):
better participation and more clarity for the corporate users.
Speaker 4 (25:50):
But also dan the other the certifiers of the that
are reviewing the credits and who's behind them. And you know,
you can give you an example of it, which I
don't know if you're familiar with, but the UN backs
these inmost which is or it's an interesting name, it's
international tradable mitigation outcomes. And so the global South countries,
(26:13):
the rainforest nations have they've they've realized that they have
land that is sequestering carbon and that that's an asset
and it can be sold. Right well, the u N
in that case is looking at that land making sure
that at the end of a year, the land that
was there the previous year, that was there the previous
year is there this year, and then it's it's backward
(26:36):
looking so that you can determine how much carbon was
to question what the value is, and then that can
be traded just like any other type of equity product.
So our thought is to bring this and introduce it
into the capital markets. Ecosystem provides all those trust mechanisms
that you need in order to have high integrity around
(26:59):
the process.
Speaker 1 (27:00):
And you talked about S one, so kind of that
legitimacy kind of on the upfront side. Carbon asset, like
our carbon credit assets, can be still subject to physical risks.
There have been some pretty high profile credits for US
that were sold for credits sort of burned down. A
physical site doing carbon capture could itself be subject to
(27:22):
physical risks? Is that something you would envision the buyer
of that equitized credit taking or do you would you
envision some sort of process for managing that, or that
it just gets priced into the actual security.
Speaker 3 (27:35):
It's a combination of things. For first of all, lots
of companies, you know, you buy shares lots of companies
that have gone bankrupt and failed, and that risk is
priced into the price of the stock. You know, en
Ron shareholders weren't happy when it went bankrupt. We didn't
stop trading all stocks. We didn't say every stock is
now suspect because one company, you know, committed for all
or had a bad thing happened. But so that that
(27:57):
physical risk does have to be priced into the carbon asset.
But at the same time, if you've equitized it, if
you place the carbon credit into a structure, you can
now introduce things like some insurance coverage for delivery on
that carbon credit. You can create structures for replacement with
(28:18):
like quality carbon credits. If there's something wrong with the
original carbon credits that were bought, that there's ways to
substitute in like assets. So there is a mechanism to
start rethinking how do we manage the risks associated with
carbon Nevertheless, there's always going to be some buyer risk
(28:39):
and some holder risk for any fiscal asset. If I
buy a company that's a shipping company, a ship sinks,
that's going to affect the value of my holding, and
we can't eliminate that risk, nor should we. The role
of a market is to create a mechanism.
Speaker 4 (28:55):
Yeah, how do they protect themselves against it? Right now?
The people are buying urbon credits right so how do
they protect against that now? I think it has to
be considered as in terms of the risk app the
title of the investor.
Speaker 2 (29:09):
Yeah, absolutely, I think that's certainly one of the reasons
why you know there are there is such pricing variance
in this as the the the inherent risk and the
inherent uncertainty.
Speaker 3 (29:21):
Right which which is exacerbated by the lack of other participants.
You really you have an end user and you have
a producer, and there's really the only two regular participants
in the market right now, So you don't have speculators, hedgers,
market makers, you know people who you know, retail a
gossors who want to support carbon credits. So there there's
less liquidity, which means the volatility tends to go up.
Speaker 2 (29:43):
Yeah, It's fun just thinking about having carbon credit speculators
out there, you know, running around the pits and betting
on which way it's going to go. All right, switching
gears just a little bit again. You talk to we
talk earlier about the different sustainability reporting frameworks that are
out there, you know, and that you do accept different
(30:06):
frameworks out there. I guess the challenge certainly that we
face in our analysis trying to pull data from all
these different frameworks out there is that, you know, comparability
is a bit of an issue. So how do you
deal with that with you know, investors if they're maybe
you know, looking at two similar companies but getting very
different reporting frameworks.
Speaker 3 (30:27):
Well, one of the issues that we identified in talking
to companies is that in some ways the frameworks are
kind of one size fits all that you are as
a company. You may have different circumstances that don't neatly
fit into one of the boxes. So one of the
things that we're focusing on is requiring companies to disclose
(30:51):
their goals and KPIs and saying to them what are
you planning to be to do and what are you
planning to be measured on? Because that's the thing that's
going to matter more than did you adhere to a
specific provision of CSRD or the TCFD years as me
(31:14):
and then ensuring that they actually report to those things,
and that if they articulate a shortened medium and a
long term goal, and they articulate I'm going to miss
my short term goal, they should be articulating what is
the impact on my medium term goal? And look, every
day companies report projections on their financial results. Every quarterly
(31:34):
earnings call has a projection for what is the earning
is going to be the next quarter, and some companies
miss those earnings targets. We don't delist them, and we
don't prosecute them for fraud unless it was a gross
example of fraudulent reporting. If they miss their target, they
disclose that and the market may or may not punish
(31:55):
them for it, depending what the explanation is, and then
they go about their business just like every other trading.
We treat sustainability as though it's an all or nothing.
If you miss your target, you must have been engaging
in fraud, You must have been doing a bad thing.
We must no longer trust you. Instead of saying why
did you miss your target? What was the target in
the first place? Was it reasonable? How do we know
what you're going to do to rectify it? Tell us
(32:17):
those things and let the market do what markets do.
Markets are very efficient at pricing risk and pricing opportunity,
and sustainability shouldn't be any different from that. If we
give investors that information, whether it's through a specific framework
where we say, tell us what your material KPIs are
and sustainability and tell us how you're going to get there,
and then tell us how you did, that's what investors
(32:38):
should be looking for. You know, adherence to a particular
framework is a useful fact. It's not the be all
end all.
Speaker 1 (32:45):
I guess a couple of things to follow on that.
With that one, you mentioned materiality and is it kind
of sounds like you're defining that in the eye of
the company, because there's I mean, I guess there are
different many different levels. And I should say I used
to work in standard development as SASB, so dearer to
(33:05):
my heart. But is it, you know, kind of financial
materiality that you'd be focusing in. Is it whatever the
company focuses on? Is it dual materiality? You do have
some ambitions on impact.
Speaker 3 (33:18):
We're structurally limited by the thirty four Act unfortunately. So
as an exchange, you know, we operate under delegated authority
from the SEC. So whatever authority we have is determined
by what does section six p. Five of the thirty
four Act say we can do. And you may have heard,
you know, Nasdaq had a board diversity rule that was
(33:40):
the subject of litigation, and the conclusion of that litigation
in the Fifth Circuit Court of Appeals was that the
remit for the SEC and approving exchange listings rules was
narrower than maybe exchanges had thought they were before, and
it really came down to does in exchange this listening
(34:01):
rule deal with fraud, misleading nature of trading, or essentially
speculation and unduce speculation. So our focus as an exchange
is on rules that relate to those things. Greenwashing as
a form of fraud, companies disclosing things that would be fraudulent,
(34:24):
which implies a single level of materiality. We're not in
a position right now given where the law is and
where the policy is necessarily to be able to mandate
something on double materiality. It's not to say I don't
believe in w materiality or don't think it's a good idea,
but to say that, I have to operate within an
a legal system and a legal regime that is, you know,
(34:45):
where does the authority that I'm vested with by the
SEC come from? And that's that's that's a challenge for
us that we've been trying to balance between that and
you know, wishing we could do everything that would you know,
make the world green tomorrow.
Speaker 1 (35:01):
But again, in your vision, companies will basically report based
on how they deem the materiality for their business. And
I just say this with some hesitation because I know,
as someone who spends a lot of time looking through
company reporting, a lot of companies report a lot of
things that aren't actually material, and they may not report
the things that are financially material. And I'm just wondering,
(35:25):
is there any any way that you think that that
will be rectified. Is it just going to be demand
from the investors that on the other side of the trade,
or is it really all the all in the hands
of the report the company.
Speaker 3 (35:41):
Well, I would like to think that that that by
improving disclosure and by asking companies to show how they're
going to get to the place that they say they're
going to go that that will empower investors to price
in the materiality aspect. That investor demand will manifest in
(36:02):
better trading and better disclosure information. So there will be
a push pull. Right now, it's very difficult to discern
the price impact of sustainability because greenwashing is essentially free.
I can greenwash with no real impact on my pricing.
And some of that's because of passive indexing, and some
(36:25):
of that is because of structural impediments and getting information
and incentives for managers not to report thing green hushing.
So the hope is by asking companies to focus on
and disclose their process for how are we going to
get where we're going? What are the KPIs, what are
the short, medium, and long term milestones that that gives
(36:47):
investment information that they can now evaluate whether a company
is being forthcoming with respect to materiality and what.
Speaker 4 (36:55):
We'll also be asking for a CEO certification of that data.
I mean to me, greenwashing is fraud. Look at the
Volkswagen case way back when right, Why are companies? Why
are companies greenwashing? The only reason is to make themselves
look better than they would without it. And if investors
(37:17):
are using that information as one of their data points
to allocate their capital at that information is false. What
else could you call it? I mean, it's it is
one data point, and I'm not saying it's the whole deal,
(37:37):
but it is one data point. And if the company
is not being truthful with that data point, I don't
know what else you can call it but fraud. So
that to us is an important distinction. And this platform
probably will serve as almost a self selecting mechanism for
(37:58):
companies that are doing the right thing, because think about it.
If you do this and make these commitments and and
you know, produce these promises and they are false and
you're on an exchange, that's a major problem. So you
know it's you you're doing. You're listing on this exchange.
(38:21):
Don't forget at the risk of being delisted. So that
adds a credibility and enforceability mechanism that doesn't exist today.
And we think that that's important, and we'll separate greenwashers
from companies that aren't very interesting.
Speaker 2 (38:38):
So I guess before we close out, I just want
to think look ale towards the future. What future problems
do you think the GX can address with future products?
What's on the horizon for you guys.
Speaker 3 (38:52):
So I think there are two areas where we see
some opportunities. One is that if you look at digital assets,
sustainability is a really good use case for digital assets.
Sustainable assets like environmental credits to various types benefit from
the traceability and trackability the blockchain offers and the real
time updating of information and to some extent solves some
(39:14):
of the verification problem. If I can see it in
real time and I can see the process, that helps.
And it dovetails with a trend in markets. Markets are
moving towards stokeanization. I think just yesterday the Trump administration
announced they're a broadening of support for financialization of digital assets.
So one of the things that we're working on is
(39:36):
evolving the market to allow for the interoperability between digital
assets and traditional assets. Because, let's face it, there's fifty
years of market infrastructure around account based trading and custody
of securities versus digital assets, which are wallet based and individualized.
And you're not going to undo fifty years worth of
(39:57):
infrastructure overnight. So one of the things that GaX is
working on is how do we bridge between those two developments,
Those two pools of liquidity. So that's one piece, and
then the other is that us. So how are we
helping the new products for sustainable finance. The other area
that we're focusing on is there are a lot of
(40:19):
sustainable finance projects that are either not well suited to
private equity or the model that private equity applies doesn't fit.
If you look at venture capital, oftentimes they will apply
as sort of a software as a service model. I
need a fifteen or twenty x return, I need a
minimum viable product, and I need to be able to
get in and out within two years. That doesn't describe
(40:40):
any long term sustainable development project I've ever seen. You
can't really do an MVP on a solar array or
rock weathering or something like that that's really going to
show you anything, And you can't do it in two
or three years because the permitting will take you that
long on a solar array. So you have to have
a different model, and plus the amounts of money that
we're talking about often very large order to get to scale.
(41:03):
Once you get to scale, the returns are amazing. If
you look at what China has done. What China's done
has taken promising technology and massively scaled it until the
point where it gets to be profitable. We don't do
that the same way here, and we should be. So
one of the things that we're working on a GIXS
is creating listing standards that would allow those companies to
(41:26):
access the public markets rather than relying solely on private
equity and private markets to fund those things. And the
hope is that we can unlock all of those various
other pools of capital that we've identified, retail and speculators
and hedges and all those to fund the scaling of
these things in order to get to a point of
(41:46):
viability and profitability.
Speaker 4 (41:48):
That makes a lot of sense.
Speaker 2 (41:50):
So I want to thank you both for your time
today and let our listeners know you can find more
information on topics like carbon by going to BI carbon,
go on the Bloomberg terminal, or ESG more broadly by
going to BI s G And if you have an
ESG quandary or burning question you would like to ask
bi's expert analysts, send us an email at ESG Currents
(42:13):
at Bloomberg dot net.
Speaker 4 (42:15):
Thank you again,
ESG is constantly evolving. Over the years, it has shifted
from socially responsible investing to impact to sustainable finance, with
terminology changing once again. What is not changing are the
underlying science, market pressures, and tangible physical and financial impacts
from the climate crisis, regulatory pressures and consumer expectations. We
(00:31):
aim to filter out the noise by speaking with industry
experts to identify what is really driving value. Welcome to
ESG Currents. I'm Gail Glazerman, Senior ESG Analyst.
Speaker 2 (00:42):
And I'm robb Yboff, Senior ESG Analyst, and we're your
hosts for today's episode. As ESG comes under increased scrutiny
and government support shrinks, private markets may need to play
a more prominent role to ensure funding for adaptation and transition.
Businesses that can facilitate can capital with projects ensuring accountability
(01:03):
and performance may find significant opportunities. Today we're speaking with
a business seeking to fill this gap. Daniel Labovitz and
Charles Dolan are the co founders and CEO and president
of Green Impact Exchange. Gentlemen, thanks for.
Speaker 3 (01:17):
Joining us, Thanks for having us so tell us.
Speaker 2 (01:20):
About the Green Impact Exchange. What is the problem exactly
you're trying to solve.
Speaker 3 (01:25):
So gi X, which we referred to as GIX, it's
we're revolutionizing sustainable finance. We're first of all, we're building
an exchange to help raise the capital necessary for companies
to transition to sustainable footings. This used to be a
primary function of stock exchanges, but somewhere along the way
it seems that they lost that thread, and nowadays the
(01:48):
focus of private markets seems to be on enabling professional
traders to trade faster and cheaper, and so the result,
not surprisingly, is that fewer and fewer companies see the
benefits of being public, which hurts both the companies and investors.
And so gi X is a registered national securities exchange
that's going back to the roots of capital markets and
(02:10):
we're thinking about how to get companies the sustainable capital
that they need.
Speaker 1 (02:14):
Can you talk a little bit about how you define
the listing criteria for companies that you would expect to
participate on the exchange.
Speaker 3 (02:22):
Well, let me let me starting. I'll throw that part
of that childe. Let me start that listing is one
of the three areas of focus that we're working with.
We are working on improving the quality of disclosures on
sustainability as a way of combat and greenwashing. This gives
investors kind of the intelligent investment allocation information that they need,
and to do that, we're dually listing companies on the
(02:44):
exchange and looking for companies that are actually committed to
doing the hard work of sustainability. But as I mentioned,
the other two aspects of this are creating innovative products
for sustainable finance that we can list on the exchange
as well, and then overall evolving the market toward a
digital footing that there's a lot of sustainable assets that
(03:06):
are moving toward tokenization, and so listing and trading them
on a traditional exchange is going to slowly phase out,
but investors benefit because the tokenization gives them the benefit
of traceability and transparency through the blockchain. So we're simultaneously
building an infrastructure that will allow those digital assets to
seamlessly interact with the traditional market. So now to get
(03:30):
back to your question, I mean, basically, we're looking at
transparency as a way to help investors understand the financial
elements of a company's sustainagability strategy. And I'll throw it
to Charlie to talk a little bit about what those
standards are. With the caveat that we have a rule
amendment in front of the SEC, so we're a little
(03:50):
bit limited in what we can talk about.
Speaker 4 (03:52):
Charlie, I would just say that we did a deep
dive into kind of the holy SG landscape. One important
to understand is we are not an ESG exchange. We're
focused on environmental sustainability. We're not focused on the S
and G. While we think those are important, I shouldn't
say the G, but really the S. While we find
(04:14):
those all to be important, we just thought that it
was that that's one of the problems that ESG has
is combining E plus S plus G just tends to
confuse folks. So we are focusing on environmental sustainability. When
we took a look at the ecosystem, we kind of
recognize some problems that we thought capital markets might help
(04:37):
to solve. First of all, I think last I looked,
someone told me there were six hundred reporting frameworks globally.
Those reporting frameworks are mostly backward looking. They don't really
tell you how a company's going to get to where
they plan to get to. They don't correlate very much
at all. They are, you can selectively report to them.
(04:59):
You can report the things that you want to report.
You don't have to report things you don't want to report.
What we said to ourselves is a lot of work
has been done in those areas, and yes it's important
to have those ratings, But to what we thought was
lacking is context. And what I mean by that is
(05:19):
what is how is the company set up internally? What's
the infrastructure within the company that will help them meet
the promises that they're making publicly. So to us that
comes as kind of a three legged stool at first,
is kind of a values commitment by the company through
the board at the senior levels of the organization. Is
(05:40):
the company set up in a way that they can
follow through on the commitments that they're making publicly? And
is there somebody who reports directly from the company to
the board around those promises and how they're doing towards
their stated goals. The second aspect is the vision. So
(06:00):
it's one thing to say you're going to be carbon
neutral by twenty fifty, but how do you plan on
getting there? So laying out the wigh points that investors
can look at in a very transparent way to see
how you're doing on your sustainability journey towards your own
stated goals, and what are the technologies and the ways
(06:21):
in which you plan to meet those goals. So you know,
think of me saying, Okay, I'm going to lose twenty
pounds and I come in and I sit down next
to you guys, and I'm meeting cheeseburgers and franchise. Right,
That's not really a credible commitment to what I'm telling you.
But if I say to you, I've hired a chef
and I've got a I'm going to have this workout
(06:43):
plan and this is what I plan to lose and
this time by this time, and by this time, it
becomes much more credible. Then. The last part of what
we're looking for companies to do is to we want
them to subscribe to one of the generally accept the
reporting frameworks, but they can choose which one they want
because different businesses use different reporting frameworks for different reasons.
(07:08):
But we would like them to get an assessment done
as to how are they reporting to those frameworks? Is
it consistent with the makeup a limited assurance towards how
they're reporting to those frameworks? And when you put all
those things in place, we think that it helps investors
(07:28):
find out who's really walking the talk and who is
just greenwashing.
Speaker 1 (07:32):
Well, there's definitely a lot that we're going to want
to dig into an unpack there, but just keeping at
the higher level for now, with those kind of three
levels of commitment, the vision, the commitment by the board,
do you have any kind of set exclusions of what
types of companies willing to make those types of commitments
would be willing able to participate. Would an oil and
(07:54):
gas company your relatively high emissions, if they were committed
to reducing their emissions be eligible to participate in GIA.
Speaker 3 (08:06):
We don't really have a pre defined set of exclusions.
Like if you think about where you're going to get impact,
if a company is truly committed to making a change
and truly committed to getting to a position of sustainability,
then it behooves us to bring them into the fold,
rather than excluding them saying you can't participate because you're
not done yet. I would rather be in the situation
(08:27):
where we're incentivizing them to do what's a good thing,
because frankly, you know, if an oil and guest company
reduces its emissions by ten percent, that may have a
huge impact in overall emissions and in their ability to decarbonize.
And if you exclude them from the beginning because they
didn't get there already, then you're just pushing them into
(08:49):
the arms of people who don't care about those things.
So our view is if a company can demonstrate that
they are credibly committed through those things that we talked about,
having a board level commitment, having true policies and proceeds
that support sustainability, the things that prove it's not just
an empty press release. And yeah, I would want to
have that company on the exchange because that's how we're
going to get them aligned with sustainable investors.
Speaker 4 (09:11):
Well, and think about I would just add to that,
think about the model of the NYC and the NASDAC.
Right when a company lists there, the NASTAC in New
York are not making a judgment on the profitability of
the company, whether it's a good or bad company. What
they act as is a conduit for trusted information so
that investors can do what they want to do with
(09:31):
their dollars. Right, They are not passing judgment on those companies.
They're saying you can trust the information that's been provided
to the exchange to make your investment decisions because of
its false it's fraud and that does not exist.
Speaker 1 (09:45):
No, that's fair, and that kind of eliminates where I
would have followed up had you said that there were exclusions,
because of course, today's exclusion is tomorrow's inclusion, as we've
seen recently and with lots of talk on defense over
in Europe or nuclear as that's gaining subtraction over year.
So that's certainly makes a lot of sense to me.
Speaker 3 (10:05):
Yeah, there's a story about an energy company that divested
of its coal fired power plants as a way of
getting green. So the company got green, but we didn't
get rid of the power plants. That the changeover was
in effect neutral. And so one of the goals of
exchange is to try to incentivize companies to do it
(10:25):
in a way that actually results in in changes and reductions.
Speaker 4 (10:30):
And you know what, when you really think about it,
why would you want to disincentivize the dirtiest companies to
be greener where they can be greener. That doesn't make
any sense, right, I mean, it's they have we're going
to have to live with oil for a while, right,
But those companies BP and others are doing amazing work
on the sustainability front. Why not give them credit for
(10:51):
where they can beyond petroleum is one of the phrases, right,
So why not incentivize them to be greener where they
can be greener? Airlines, same type of thing. So I
think it's a disservice to the dog vestment that's gone
on in those companies because they're the ones who need
to change the most.
Speaker 2 (11:11):
Yeah, I mean, I think that's a great point, and
BP might be a great example for my next question
that we are seeing a bit of fluctuation back and
forth between greenwashing and green hushing. You know BP specifically.
I mean you mentioned beyond petroleum. I think they're now
beyond petroleum and that you know the way their strategy
is headed back towards oil and gas just because of
(11:32):
current economics. So then how do you expect to measure
and monitor this going forward? If companies are maybe initiatives
or data they were giving a year or two ago,
they're suddenly clamming up about how do you expect that
information to continue to flow?
Speaker 3 (11:49):
So one thing is I think we're trying to encourage
process within a company that will embed sustainability at all
levels of the company what we call from the boardroom
to the loading dock, as a way of getting companies
to make this beyond just empty words and that what
what we find is that you know there is a
(12:12):
there is an economic value to sustainability, that you know
there is a long term risk value, there's a creation
of opportunities. So there are ways in which you can
say to a company this, this is about bottom line.
It's about the things that you care about as a CFO,
as a CEO, as a board for the for the
betterment of your investor story. And green hushing, frankly, is
(12:34):
is a problem with that because basically, you know, green
hushing means companies aren't talking about all the great things
that they're doing, which leaves a vacuum that the head
right headline writers then fill it. You know, the company
a pulls back. Therefore it must be they're not doing anything,
which actually isn't the case. And frankly, you know, headlines
don't give a lot of nuance, so people assume, you know,
(12:56):
they get the wrong idea from that, And what we're
trying to do is essentially encourage instead of green hushing.
Think of it as green casting. You know, it's a
combination of forecasting what the impacts of your sustainability efforts
will be and how they'll build value, and then broadcasting
that to investors. And our view is you can turn
(13:16):
what is a cost center and potentially a what what
people think of as a drag into opportunity into long
term value into a way to get a class of
investors who are more attuned to your sustainability journey, who
are more patient investors, who will understand the short term
investments that are required to make a sustainable transition. Like
(13:39):
all of those things can happen if you're willing to
talk about your your sustainability journey. There is a reward
for that, and we're trying to show companies that reward
is true and exists.
Speaker 4 (13:50):
And I would just add to what Dan said that
over the past two years we have spoken to hundreds,
hundreds and hundreds of companies. Right all of those companies
right now could abandon all these efforts, and because it's
the perfect time in the States maybe to say, oh, well,
guess what, you know what, we don't really have to
(14:12):
worry about this anymore because the current administration isn't looking
at it right and isn't worried about it. Doesn't we
don't want to get into trouble. Why for the past
thirty years have they continued to report through Republican and
democratic administrations Because it's good for their business, Simple as
that it's good for their business. It's not virtue signaling.
(14:36):
It's about driving value to shareholders, and it's about driving
that value. They could give up right now if they
want to do, there'd be no repercussions, right But to them,
it's important to continue down this journey.
Speaker 1 (14:49):
Maybe following on that a little bit the recent we've
all referred to it. But the reason pull back and
I will call it esg ambition on both sides the Atlantic.
I feel like, say, some of the changes in Europe
or maybe or intentioned but underappreciated, How is that affecting
your outlook? When you talk about speaking to hundreds of people,
(15:11):
is it really changing their interest in finding these opportunities
and that patience to be able to capitalize on them.
Speaker 3 (15:21):
I think I think there is a lot of investor
support for this, and investors continue in survey after survey
after survey to express strong preferences for sustainable opportunities, and
that only increases as you talk to younger and younger
cohorts of investors. Morgan Stanley Institute for Sustainability did AS
(15:42):
survey recently found that ninety nine percent of the gen
Z investors that they surveyed and ninety seven percent of
the millennial investors they surveyed expressed a preference for sustainable
investment opportunities. So virtually all of the people who are
coming up who are going to be the asset allocators
in the next fifteen to twenty years, are saying sustainability
(16:03):
is important to us. Two thirds of retail investors would
buy carbon credits if there were a mechanism for the
MEDU SOO. So I think, you know, for companies to
say we're not going to pay attention to this is
a foolish economic decision, fullish financial decision. Brand value is,
you know, brand perception. There have been surveys that show
what is the value of my brand's attributable to green
(16:26):
aspects and to sustainability, And there's billions of dollars of
brand value that is being left on the table because
companies aren't talking about what they're doing they aren't seeking
out opportunities to tell that sustainability. Microsoft was one. They
cited five point six billion dollars of brand value, where
Microsoft is not getting credit for the work that it's doing.
That's real money, it's real value for a CFO to
(16:49):
leave on the table. Of Microsoft, it's a small percentage,
but for other companies it's a large portion of their
financial value that they're not tapping into. I think that
that has to be a consideration for every CEO, every board,
every CFO.
Speaker 1 (17:02):
Maybe staying on this a little bit, particularly on the
corporate side. Even before the policy changes that we've seen
of the last couple of months under the Trump administration,
there were signs of sustainable projects stalling and a lot
of that had to do would appear capital availability and
maybe particularly cost with interest rates rising. This is obviously
going to be compounded by the changes that we saw
(17:23):
codified into law and the Big Beautiful Bill a couple
of weeks ago. And I'm just wondering, do you think
private markets can and maybe more importantly, are interested enough
in stepping up and filling the gap? And are there
any kind of specific examples and anecdotes, you know, as
you're out talking to people about GISs that you can
offer for that.
Speaker 3 (17:44):
Well, Charlie has been spent time sitting on a bunch
of the calls with companies, so I'll let him talk
to the company side, but I'm going to talk on
the finance siding for one second. There has to be
a reason why JP Morgan just announced a two hundred
and ten million dollars deal to collateralize carbon credits. Microsoft
announced four hundred million dollar deal to buy carbon credits
over the next ten years in an off take agreement.
(18:07):
Those are real dollars, and those are real actions that
are happening currently. And so to me that that suggests
a green you know, kind of a spring coming for
green assets, that there are projects that can be financed
using things like carbon credits, that sustainability can be a
value driver and a value creator, and companies are recognizing
(18:30):
that and in a competitive environment, those are important things,
important tools in the financial toolbox. So I think that
the part of the premise is, yeah, I think the
financial industry is interested in this and is growing opportunities
to do this. It's going to take a little while,
(18:52):
so try you want to add anything on the conversations
with companies.
Speaker 4 (18:55):
I mean, I don't I don't have a lot to add.
I will say that we're working on several concepts that
I think would address some of what you're talking about.
And I think, you know, project financing can be done,
like Dan said, with selling forwards of energy production and
(19:15):
things like that that you know a data center needs
to be built, and can you raise money through selling
day forwards of the energy production that might be produced
by that that project, Right, So there's a lot of
different ways that you can use sustainability, and I think
(19:36):
that the private sector would step in and companies are
recognizing this. So as I said, you know, we've spoken
with tons of companies. But when I look at the
markets over the past forty years, and I spent my
life on the floor of the NYC as a market maker,
every innovation that took place during my tenure there seemed
(19:58):
to be for the professionals, for the traders, and it
was all around latency and fees. Right, nothing was really
done to help the companies attract the capital that they
need to make this green transition, right, and why not
get back to what markets were supposed to be for
in the beginning, to help companies raise the money they
(20:20):
need to fortify their businesses, to provide a better standard
of living for their employees, and put the money where
the money needs to go there. I mean, I believe
Bloomberg and Reuters say, then you can argue these numbers
that there are billions and billions and billions of dollars
ear mark for investments in the space right And what
(20:40):
we're trying to do is marry that capital to companies
that are willing to hold themselves accountable to the promises
that they're making. That's all we're really asking them to do.
And we think that that model will work, and it's
been proven overseas with the London Stock Exchange.
Speaker 3 (20:57):
So can I follow up one point on that? I
think you know we've talked about climate risk is business risk,
and that's one of our mantras if you think about
what are some of the politics aside insurance companies are
right not writing policies the way they used to in
places like southern California and Florida and Texas because of
climate risk. So if you're a business that's trying to
recruit employees to work in those places and they can't
(21:19):
get a mortgage because they can't get home owners insurance.
That's now a competitive risk to your business. If you're
in a place that is prone to natural disasters and
you have a distribution facility there, that's a risk. If
you're in Texas and the and the snap frosts and
things that affect the electrical system prevent you from manufacturing,
that's a business risk. Those are all climate related risks,
(21:40):
and I think businesses are understanding that. You know that
the politics aside, these are real liabilities that we have
to address, and we need capital to address them. Where
do we go to get that capital? And that's what
Charlie is talking about that one of the things public
markets should be doing is providing access to that capital,
and that's where we're trying to head great.
Speaker 2 (22:00):
I do want to Pivo a little bit because we're
just talking about carbon credits, so I did want to touch
on this. You recently launched a product called safe Trust Shares.
Can you talk a little bit about that and maybe
how that might differ from a product like a carbon credit.
Speaker 3 (22:13):
So, again with the caveat that the product is under
development and we have discussions underwear with the SEC I
want I'm not able to go into too much detail,
but what I can tell you is that what we're
developing is a product that allows carbon credits to trade
as a simple equity rather than the way it's traded today.
Right now, the market is not very liquid. It's mostly
(22:35):
an OTC market. It's negotiated on unregulated venues that where
there may be conflicts of interests between the participants, and
all of that affects liquidity in the marketplace. It prevents
some of the market mechanisms that we look at in
the public markets as kind of standard from actually operating.
(22:56):
You generally don't have market makers because it's very difficult
to get into an out of a product and go
home flat at the end of the day the way
a market maker wants to. You don't have hedgers and
other participants, speculators coming in and buying carbon prices as
a hedge against other climate liabilities. You don't have retail participants.
(23:17):
So there are a lot of ways in which the
carbon market today doesn't really structurally work the way you
want public market to work. So our innovation is to
create a public equity that can can trade as a
proxy for the carbon credit and then allow that liquidity
into market. Allows regulatory protections into the market, and it
(23:41):
regularizes and standardizes the market so that it functions with
more stability or more price certainty and a broader group
of participants that can increase the liquidity and depth.
Speaker 4 (23:54):
Quite honestly, it introduces trust.
Speaker 1 (23:57):
Maybe digging into that trust a little bit, there was
a recent Accenter survey that found concerns about carbon credit quality,
transparency and integrity was the top barrier for companies in
terms of working with them. How can you, as you
look to create, you know, kind of equitize those ensure
that that sort of trust in the market.
Speaker 3 (24:19):
That's a that's a great question. You know, one of
the things that a public equity has attached to it
is an S one registration statement that contained certain information.
So when you equitize something and you put introduce into
a public market, you're creating a mechanism for disclosing and
standardizing some of the information about it. You're creating a
(24:41):
trust mechanism. You're creating a liability transfer that somebody is
now responsible for signing off on the information and saying
it's not materially misleading, it's not incomplete, and it's not fraudulent,
and that doesn't exist today in the carbon market. If
a company goes into the carbon market, buys a carbon
credit and there's a reversal next year, who do they sue?
(25:02):
How do they get out of it? What do they
get for the crime credits that they're holding, which may
now effectively be worthless. And better disclosure, better verification comes
with regulatory certainty. If you bring regulators into a market,
you get better and you get better information, you get
more certainty. And so what we're trying to do is
(25:23):
to bring these into a regulated market, trading them on
an equities exchange that's registered with the SEC. That creates
some regulatory certainty, having listing standards for those products, having
the SEC involved in a capacity of determining whether the
s one is materially complete, et cetera. Those are things
that will bring more certainty to the market and enable
(25:46):
better participation and more clarity for the corporate users.
Speaker 4 (25:50):
But also dan the other the certifiers of the that
are reviewing the credits and who's behind them. And you know,
you can give you an example of it, which I
don't know if you're familiar with, but the UN backs
these inmost which is or it's an interesting name, it's
international tradable mitigation outcomes. And so the global South countries,
(26:13):
the rainforest nations have they've they've realized that they have
land that is sequestering carbon and that that's an asset
and it can be sold. Right well, the u N
in that case is looking at that land making sure
that at the end of a year, the land that
was there the previous year, that was there the previous
year is there this year, and then it's it's backward
(26:36):
looking so that you can determine how much carbon was
to question what the value is, and then that can
be traded just like any other type of equity product.
So our thought is to bring this and introduce it
into the capital markets. Ecosystem provides all those trust mechanisms
that you need in order to have high integrity around
(26:59):
the process.
Speaker 1 (27:00):
And you talked about S one, so kind of that
legitimacy kind of on the upfront side. Carbon asset, like
our carbon credit assets, can be still subject to physical risks.
There have been some pretty high profile credits for US
that were sold for credits sort of burned down. A
physical site doing carbon capture could itself be subject to
(27:22):
physical risks? Is that something you would envision the buyer
of that equitized credit taking or do you would you
envision some sort of process for managing that, or that
it just gets priced into the actual security.
Speaker 3 (27:35):
It's a combination of things. For first of all, lots
of companies, you know, you buy shares lots of companies
that have gone bankrupt and failed, and that risk is
priced into the price of the stock. You know, en
Ron shareholders weren't happy when it went bankrupt. We didn't
stop trading all stocks. We didn't say every stock is
now suspect because one company, you know, committed for all
or had a bad thing happened. But so that that
(27:57):
physical risk does have to be priced into the carbon asset.
But at the same time, if you've equitized it, if
you place the carbon credit into a structure, you can
now introduce things like some insurance coverage for delivery on
that carbon credit. You can create structures for replacement with
(28:18):
like quality carbon credits. If there's something wrong with the
original carbon credits that were bought, that there's ways to
substitute in like assets. So there is a mechanism to
start rethinking how do we manage the risks associated with
carbon Nevertheless, there's always going to be some buyer risk
(28:39):
and some holder risk for any fiscal asset. If I
buy a company that's a shipping company, a ship sinks,
that's going to affect the value of my holding, and
we can't eliminate that risk, nor should we. The role
of a market is to create a mechanism.
Speaker 4 (28:55):
Yeah, how do they protect themselves against it? Right now?
The people are buying urbon credits right so how do
they protect against that now? I think it has to
be considered as in terms of the risk app the
title of the investor.
Speaker 2 (29:09):
Yeah, absolutely, I think that's certainly one of the reasons
why you know there are there is such pricing variance
in this as the the the inherent risk and the
inherent uncertainty.
Speaker 3 (29:21):
Right which which is exacerbated by the lack of other participants.
You really you have an end user and you have
a producer, and there's really the only two regular participants
in the market right now, So you don't have speculators, hedgers,
market makers, you know people who you know, retail a
gossors who want to support carbon credits. So there there's
less liquidity, which means the volatility tends to go up.
Speaker 2 (29:43):
Yeah, It's fun just thinking about having carbon credit speculators
out there, you know, running around the pits and betting
on which way it's going to go. All right, switching
gears just a little bit again. You talk to we
talk earlier about the different sustainability reporting frameworks that are
out there, you know, and that you do accept different
(30:06):
frameworks out there. I guess the challenge certainly that we
face in our analysis trying to pull data from all
these different frameworks out there is that, you know, comparability
is a bit of an issue. So how do you
deal with that with you know, investors if they're maybe
you know, looking at two similar companies but getting very
different reporting frameworks.
Speaker 3 (30:27):
Well, one of the issues that we identified in talking
to companies is that in some ways the frameworks are
kind of one size fits all that you are as
a company. You may have different circumstances that don't neatly
fit into one of the boxes. So one of the
things that we're focusing on is requiring companies to disclose
(30:51):
their goals and KPIs and saying to them what are
you planning to be to do and what are you
planning to be measured on? Because that's the thing that's
going to matter more than did you adhere to a
specific provision of CSRD or the TCFD years as me
(31:14):
and then ensuring that they actually report to those things,
and that if they articulate a shortened medium and a
long term goal, and they articulate I'm going to miss
my short term goal, they should be articulating what is
the impact on my medium term goal? And look, every
day companies report projections on their financial results. Every quarterly
(31:34):
earnings call has a projection for what is the earning
is going to be the next quarter, and some companies
miss those earnings targets. We don't delist them, and we
don't prosecute them for fraud unless it was a gross
example of fraudulent reporting. If they miss their target, they
disclose that and the market may or may not punish
(31:55):
them for it, depending what the explanation is, and then
they go about their business just like every other trading.
We treat sustainability as though it's an all or nothing.
If you miss your target, you must have been engaging
in fraud, You must have been doing a bad thing.
We must no longer trust you. Instead of saying why
did you miss your target? What was the target in
the first place? Was it reasonable? How do we know
what you're going to do to rectify it? Tell us
(32:17):
those things and let the market do what markets do.
Markets are very efficient at pricing risk and pricing opportunity,
and sustainability shouldn't be any different from that. If we
give investors that information, whether it's through a specific framework
where we say, tell us what your material KPIs are
and sustainability and tell us how you're going to get there,
and then tell us how you did, that's what investors
(32:38):
should be looking for. You know, adherence to a particular
framework is a useful fact. It's not the be all
end all.
Speaker 1 (32:45):
I guess a couple of things to follow on that.
With that one, you mentioned materiality and is it kind
of sounds like you're defining that in the eye of
the company, because there's I mean, I guess there are
different many different levels. And I should say I used
to work in standard development as SASB, so dearer to
(33:05):
my heart. But is it, you know, kind of financial
materiality that you'd be focusing in. Is it whatever the
company focuses on? Is it dual materiality? You do have
some ambitions on impact.
Speaker 3 (33:18):
We're structurally limited by the thirty four Act unfortunately. So
as an exchange, you know, we operate under delegated authority
from the SEC. So whatever authority we have is determined
by what does section six p. Five of the thirty
four Act say we can do. And you may have heard,
you know, Nasdaq had a board diversity rule that was
(33:40):
the subject of litigation, and the conclusion of that litigation
in the Fifth Circuit Court of Appeals was that the
remit for the SEC and approving exchange listings rules was
narrower than maybe exchanges had thought they were before, and
it really came down to does in exchange this listening
(34:01):
rule deal with fraud, misleading nature of trading, or essentially
speculation and unduce speculation. So our focus as an exchange
is on rules that relate to those things. Greenwashing as
a form of fraud, companies disclosing things that would be fraudulent,
(34:24):
which implies a single level of materiality. We're not in
a position right now given where the law is and
where the policy is necessarily to be able to mandate
something on double materiality. It's not to say I don't
believe in w materiality or don't think it's a good idea,
but to say that, I have to operate within an
a legal system and a legal regime that is, you know,
(34:45):
where does the authority that I'm vested with by the
SEC come from? And that's that's that's a challenge for
us that we've been trying to balance between that and
you know, wishing we could do everything that would you know,
make the world green tomorrow.
Speaker 1 (35:01):
But again, in your vision, companies will basically report based
on how they deem the materiality for their business. And
I just say this with some hesitation because I know,
as someone who spends a lot of time looking through
company reporting, a lot of companies report a lot of
things that aren't actually material, and they may not report
the things that are financially material. And I'm just wondering,
(35:25):
is there any any way that you think that that
will be rectified. Is it just going to be demand
from the investors that on the other side of the trade,
or is it really all the all in the hands
of the report the company.
Speaker 3 (35:41):
Well, I would like to think that that that by
improving disclosure and by asking companies to show how they're
going to get to the place that they say they're
going to go that that will empower investors to price
in the materiality aspect. That investor demand will manifest in
(36:02):
better trading and better disclosure information. So there will be
a push pull. Right now, it's very difficult to discern
the price impact of sustainability because greenwashing is essentially free.
I can greenwash with no real impact on my pricing.
And some of that's because of passive indexing, and some
(36:25):
of that is because of structural impediments and getting information
and incentives for managers not to report thing green hushing.
So the hope is by asking companies to focus on
and disclose their process for how are we going to
get where we're going? What are the KPIs, what are
the short, medium, and long term milestones that that gives
(36:47):
investment information that they can now evaluate whether a company
is being forthcoming with respect to materiality and what.
Speaker 4 (36:55):
We'll also be asking for a CEO certification of that data.
I mean to me, greenwashing is fraud. Look at the
Volkswagen case way back when right, Why are companies? Why
are companies greenwashing? The only reason is to make themselves
look better than they would without it. And if investors
(37:17):
are using that information as one of their data points
to allocate their capital at that information is false. What
else could you call it? I mean, it's it is
one data point, and I'm not saying it's the whole deal,
(37:37):
but it is one data point. And if the company
is not being truthful with that data point, I don't
know what else you can call it but fraud. So
that to us is an important distinction. And this platform
probably will serve as almost a self selecting mechanism for
(37:58):
companies that are doing the right thing, because think about it.
If you do this and make these commitments and and
you know, produce these promises and they are false and
you're on an exchange, that's a major problem. So you
know it's you you're doing. You're listing on this exchange.
(38:21):
Don't forget at the risk of being delisted. So that
adds a credibility and enforceability mechanism that doesn't exist today.
And we think that that's important, and we'll separate greenwashers
from companies that aren't very interesting.
Speaker 2 (38:38):
So I guess before we close out, I just want
to think look ale towards the future. What future problems
do you think the GX can address with future products?
What's on the horizon for you guys.
Speaker 3 (38:52):
So I think there are two areas where we see
some opportunities. One is that if you look at digital assets,
sustainability is a really good use case for digital assets.
Sustainable assets like environmental credits to various types benefit from
the traceability and trackability the blockchain offers and the real
time updating of information and to some extent solves some
(39:14):
of the verification problem. If I can see it in
real time and I can see the process, that helps.
And it dovetails with a trend in markets. Markets are
moving towards stokeanization. I think just yesterday the Trump administration
announced they're a broadening of support for financialization of digital assets.
So one of the things that we're working on is
(39:36):
evolving the market to allow for the interoperability between digital
assets and traditional assets. Because, let's face it, there's fifty
years of market infrastructure around account based trading and custody
of securities versus digital assets, which are wallet based and individualized.
And you're not going to undo fifty years worth of
(39:57):
infrastructure overnight. So one of the things that GaX is
working on is how do we bridge between those two developments,
Those two pools of liquidity. So that's one piece, and
then the other is that us. So how are we
helping the new products for sustainable finance. The other area
that we're focusing on is there are a lot of
(40:19):
sustainable finance projects that are either not well suited to
private equity or the model that private equity applies doesn't fit.
If you look at venture capital, oftentimes they will apply
as sort of a software as a service model. I
need a fifteen or twenty x return, I need a
minimum viable product, and I need to be able to
get in and out within two years. That doesn't describe
(40:40):
any long term sustainable development project I've ever seen. You
can't really do an MVP on a solar array or
rock weathering or something like that that's really going to
show you anything, And you can't do it in two
or three years because the permitting will take you that
long on a solar array. So you have to have
a different model, and plus the amounts of money that
we're talking about often very large order to get to scale.
(41:03):
Once you get to scale, the returns are amazing. If
you look at what China has done. What China's done
has taken promising technology and massively scaled it until the
point where it gets to be profitable. We don't do
that the same way here, and we should be. So
one of the things that we're working on a GIXS
is creating listing standards that would allow those companies to
(41:26):
access the public markets rather than relying solely on private
equity and private markets to fund those things. And the
hope is that we can unlock all of those various
other pools of capital that we've identified, retail and speculators
and hedges and all those to fund the scaling of
these things in order to get to a point of
(41:46):
viability and profitability.
Speaker 4 (41:48):
That makes a lot of sense.
Speaker 2 (41:50):
So I want to thank you both for your time
today and let our listeners know you can find more
information on topics like carbon by going to BI carbon,
go on the Bloomberg terminal, or ESG more broadly by
going to BI s G And if you have an
ESG quandary or burning question you would like to ask
bi's expert analysts, send us an email at ESG Currents
(42:13):
at Bloomberg dot net.
Speaker 4 (42:15):
Thank you again,
Host
Eric Kane
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