January 10, 2024 • 40 mins
Investor action is foundational to ESG, and Ceres has long been at the forefront of working with capital markets to address sustainability challenges. The Ceres Investor Network includes more than 220 institutional investors with more than $45 trillion in assets, and focuses on climate, water and biodiversity. On this episode of the ESG Currents podcast, the Rev. Kirsten Snow Spalding, Ceres’ Vice President, Investor Network joins Eric Kane, Bloomberg Intelligence’s director of ESG research to discuss Ceres’ theory of change, the power of investor networks, how transition plans will become synonymous with business plans and the fact that when the data isn’t perfect, you still have to act.
This episode was recorded on Oct. 17th.
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Episode Transcript
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Speaker 1 (00:07):
ESG has become established is a key business theme as
companies and investors seek to navigate the climate crisis, energy transition,
social megatrons, mounting regulatory attention and pressure from other stakeholders.
The rapidly evolving landscape has become inundated with acronyms, buzzwords,
and lingo, and we aim to break these down with
(00:29):
industry experts. Welcome to ESG Currents, brought to you by
Bloomberg Intelligence, your guide to navigating the evolving ESG space,
one topic at a time. I am Shahin, contractor, senior
ESG strategist and your host for today's episode. Today we're
going to be speaking with Leslie Samuel Rich, who is
(00:50):
the president of Green Century Management. We're going to attach
on a number of topics around climate, delving into data
that might be use for climat trists and also demand
and where this is coming from. Leslie. Thank you for
joining us.
Speaker 2 (01:06):
Thanks for having me.
Speaker 1 (01:08):
Leslie, you mentioned that Green Century is one of the
in one of the oldest environmental fund managers. I have
that right, correct, that's right. That's very interesting. So can
you actually take us through the maybe just the brief
history of climate investing, and I'm particularly interested in how
it's changed and where we are today.
Speaker 2 (01:30):
Sure, I mean, the whole environmentally responsible investing movement probably
began really in the early nineties when there were some
mutual fund companies, including Green Century Capital Manager.
Speaker 1 (01:43):
We started in the nineties in the nineties. Okay, wow, yeah, right, Everyone.
Speaker 2 (01:48):
Sort of thinks has happened in the last five to
ten years, right, But it's actually been around longer than that,
only through a handful of companies in firms though, So
the firms back then, including Green Centry and some other pioneers,
first started excluding companies that they thought were environmentally dangerous,
(02:10):
and for us that meant major what meant coal companies
and major oil companies. So those are companies we never
invested in as time went on. For example, for US
in the around twenty thirteen fourteen, when the rule of
fracking and the environmental problems with fracking became more clear,
(02:33):
we detisened off our remaining gas companies. We had been
doing last shareholder engagement with them, but that can you know,
that can never change a core business. And so at
the end of the day, even if they lined their
wells or capped their methane emissions. They were still doing
environmentally harmful practice, and that coincided with the Global Investment
(02:59):
campaign that some of your listeners may have heard about
either themselves or through their kids on college campuses or
through their faith centers, and that's been going on for
about ten years now. And off of that, I would
say that a lot of bigger firms prepared responses to that.
(03:22):
Most of them did not start offering fossil fuel free
funds like we are, but they came up with other
ways that they wanted to address climate. So some offered
ones that didn't have coal or thermal coal, for example.
As time went on, others now have developed things that
(03:45):
vary from climate conscious funds which don't ask me to
describe what this actually mean, to low carbon funds, which
again can be measured in lots of different ways, to
green bond products so that if you measure fixed income
(04:06):
products by the use of proceeds, those can go to
climate mitigations projects like we do in our balanced fund.
So I think what's happened is that it started out
from a very value bited base place, and then as
the materiality of and the risks of climate change have
become more apparent, more firms have adopted it and have
(04:29):
adopted different strategies to it, and so now there's a
wider array of products available. Right.
Speaker 1 (04:34):
So it sounds like it went from exclusionary you know,
particularly fossil fuels, to more you know, low carbon green
bonds and just a diverse, more diverse set of funds
that tend to include different kinds of data.
Speaker 2 (04:48):
Yeah, and some of them, I would argue, are more
value aligned and some are more driven by perhaps just
material risks, and some do both.
Speaker 1 (05:00):
Right. I'm very intrigued by the climate fund space, and
you've broken down some for us, right, like low carbin
et cetera. But I'm curious as to, you know, are
there any other types of products that you see coming up?
And more importantly, where do you see demand coming from?
Is there something that is you know, particularly maybe unappreciated
(05:22):
a specific theme. Yep.
Speaker 2 (05:26):
I think the sort of last wave now has been
around solution oriented products. Okay, so ones that are certainly
excluding environmentally dangerous companies like fossil fuel companies. They're also
probably excluding high carbon producers like the airplane industry or
(05:48):
maybe even the auto industry. But they I don't want
to say moving beyond that, but that they do that.
But then they also invest in companies that are creating
solutions to the climate crisis that we're facing. So it's
their their core business is somehow addressing climate.
Speaker 1 (06:10):
Okay, so when you say solutions, I'm guessing this goes
beyond just clean energy, right, because that's the first link
people tend to make. I guess, what are some solutions
other than clean energy that I guess excite you.
Speaker 2 (06:24):
There are a lot, yeah, that excite me. Sure they
wouldn't take for granted clean energy pieces because there's still
a lot of development there that can happen on solar
when energy geothermal is coming up and I think will
be more prominent in certain funds in time. There are
also ways to address climate that aren't directly around fossil
(06:48):
fuels and around energy consumption, and so funds that are
looking at scope three emissions for companies and wherever they're
coming from. We've particularly focused on looking at food companies
and their Scope three emissions, which largely coming from the
(07:09):
products that they are sourcing, growing, or using, and so
around deforestation, as biodiversity and forest protection have sort of
hit the ground running here in North America now as
an issue. That is, people are paying attention to looking
at companies that aren't actively engaged in deforestation or purchasing
(07:31):
products that are grown and harvested from deforestation. That's a
real direct way to address climate if people remember, you know,
forests or the lungs of the earth. If they remember
it is right as kids, That's how they were described
and is still an accurate description. They store a lot
(07:53):
of carbon and then they process a lot of carbon
emissions for us. So protecting forests is helping curve climate change.
Speaker 1 (08:02):
Lessie, you mentioned Scope three emissions and that reminds me
of data. When I look at I want to pull
my head out. So I want to get to the
question of data, which is you know, in climate world,
I feel like right now there's an overload of information.
There's just a noble load of data. So what data
sets do you find particularly useful? And you know, another
(08:25):
way to do the question is also what data sets
are not useful? I like to learn from what's not
useful to others.
Speaker 2 (08:33):
Well, Scope one and Scope two emissions are the most
readily available and are always useful for a lot of industries,
and that that data that you know, a lot of
it's publicly available, so you have to search around a
little bit for it. But that is certainly useful. But
(08:53):
there are certain industries, again like the food industry or
the beverage industry, where their missions are really encompassed in
scope three and so for that you need to dig harder.
And sometimes companies are moving toward revealing some of that data.
Speaker 1 (09:15):
That's good to know.
Speaker 2 (09:16):
Yes, it's a slower, it's more complicated.
Speaker 1 (09:19):
In the future. I won't want to put my head out.
Speaker 2 (09:22):
Okay, it's it's more complicated. It takes more resources to
figure it out because say, for example, a big company
like Costco, they need to talk to all of their suppliers,
and those suppliers need to talk to all of their suppliers.
So what is one company's scope one and two is
the next company's scope three? And so I think companies
(09:47):
are responding to investor requests to reveal more of that
Scope three data. I mean, it probably comes as no
surprise that the most reliable kind of data is the
one that's history been well vetted and studied and quantified,
and that is what we rely on in part. But
(10:11):
as more and more voluntary or mandatory reporting comes into line.
I think that that's something in you know, certainly a
Green Century that we'll be looking to use.
Speaker 1 (10:21):
That makes sense. And I think you also answered my
next question, which is how does this data vary by industry?
And I think, as you're saying, Scope three is material
only to specific industries, right, for some it's one and
two and for the others it's it's Scope three. So
I think that that checks up my next.
Speaker 2 (10:40):
Question, does it excellent?
Speaker 1 (10:42):
I think I want to pivot a little more to engagement.
And you mentioned, you know, in terms of the history
of climate investing that exclusions and engagement have been you know,
have gone in hand in hand and what's been done
for many, many years. So my question is, how do
you hold a company accountable in terms of engaging with them?
Speaker 2 (11:07):
Can I take a minute and just explain different kinds
of engagement please? Okay? So engagement is sort of a
broad word and different firms use it in different ways.
And the Green Century put into three buckets. So the
first is proxy voting, which is essentially reactive to another
investor or company putting a question on the ballot, but
(11:30):
it does help to voice a shareholder's opinion about a
particular issue, and so that's sort of the ground floor
on where people and firms it can start getting involved
in the shareholder engagement or advocacy process. The second bucket
(11:50):
is getting companies to reveal more information or to report
on a pass commitment they've made. So, for example, we
have been engaging with companies for almost a decade now
on climate emissions, and sometimes they make plans that take
(12:11):
a few years to implement, and so going back to
those companies ensuring they're implementing the plans, whether again around
whether it's around a zero deforestation pledge, around a pledge
to source more renewable energy, or cap their emissions at
certain levels. So that's the follow up piece, or just
finding out more information. And then the third bucket, which
(12:35):
is really the active engagement or we call it advocacy,
is using your leverage as a shareholder to press a
company to make those changes that you think are materially
relevant to both, in our opinion, help the company prosper
and perform financially better as well as to help the
(12:58):
broader community and world around emissions. And that can take
the form of you know, you start by sending a letter,
which sometimes gets answered, but most times either a dozen
or results results in a phone call or dialogue with
the company, and from there it just depends completely on
the company and how their response is to your inquiry
(13:22):
about what they're releasing as information, what they're going to
be reporting on in the future, and if they're going
to set any goals.
Speaker 1 (13:31):
Right, So, how do companies respond? In other words, are
they excited to talk to you? Do they not want
to talk to you? What is some things you've observed?
Speaker 2 (13:43):
It ranges wildly. Honestly, there are some companies that almost
seem like they're waiting for a call from a call
from an investor to be like, oh, you're interested in that,
let us report on that. We just didn't think of it.
We're maybe a little bit of a smaller company or
(14:03):
a company that is not in the press that often,
and we have a commitment to sustainability. And when I
can think of is Hanes Celestial. We went to them
and were asking them to report on their climate admissions
and making a transition plan, and it was a very
open dialogue and within a phone call or two they
(14:27):
came back and actually agreed to what we were asking.
Then there are other companies that either feel like they're
on the right path or don't feel like they need
to do this, and that takes more pressure from shareholders.
And so either working independently or with other investors, asking
(14:48):
a company to meet with you and explain their current position,
and you explaining the material risks to them and what
you want. If they say but no, thanks, then you
have the option of filing a shareholder resolution, which is
a question that appears on the company's annual proxy ballot,
(15:10):
and then that lets other shareholders vote on it. And
if you do your homework and talk with other investors
and the ask is a reasonable one, you will begin
to get higher and higher votes, either over time or
maybe sometimes even a majority vote in that first year.
(15:31):
And then that gives you the additional leverage to go
back to the company and say, you know, it wasn't
just us asking, It is a majority of your shareholders asking.
They think it's relevant, and so now what do you
think about doing it?
Speaker 1 (15:48):
So does it last over many years?
Speaker 2 (15:50):
It can? Sometimes it can. Our engagement with Costco, for example,
took about a year and a half to get the
company to agree to issue scope three goals and then
it's taking them probably another year or so to come
out with those Scope three goals this year, and then
(16:13):
it will take them a little bit a while to
meet those Scope three goals. So it can and I
think especially on climate, it's not a sort of one
and done kind of deal that those engagements can last longer,
and sometimes they have to, especially the ones with more
complicated supply chains.
Speaker 1 (16:35):
Yeah. Yeah, So I guess how do you measure progress
at the portfolio level and measure impact? Because I feel
like one of the main questions I get is, Okay,
you do ESG and you do impact, but how do
you measure that additionality or the level of impact you're creating.
(16:56):
I think that's a big question.
Speaker 2 (16:59):
And I think it can really be really confusing to
the average investor or even just the average financial advisor
out there. There are lots of firms that are now
putting out really beautiful reports impact reports, and there's all
kinds of metrics in them, but as you've probably seen,
(17:20):
it's hard to sort through what's what. And so we
measure it by as much as we can the real
world impact that we're creating with companies, and so we
do measure the engagement in some pretty standard ways, like
(17:41):
how many companies we worked with this year, how many
said yes to an agreement with us, and or how
many fulfilled their pledge to us in past years, So
just straight out numbers on activities. But what we're really
striving for and what I think the point of an
engagement is really the outcomes. So separating the activity from
(18:05):
the outcomes. You obviously have to have the activity to
get any outcomes, but what you want to see, what
I believe we all want to see, is well, are
the climate and carbon emissions going down? In real world terms?
Are the companies anywhere on track for a one point
(18:25):
five degree scenario?
Speaker 1 (18:27):
I guess my question is are they right? Do you
find that the companies you engage with you actually do
see that real world impact?
Speaker 2 (18:37):
In many cases yes, But I do think it requires
one strong agreement to begin with, and then follow up
and then solid intentions by the company. The sharehold resolutions
and themselves are not binding, so that is not going
to guarantee an outcome, but interested investors who stay engaged
(19:02):
can keep the pressure on and show the company in
part the benefits they can get by being more sustainable,
being more climate conscious and being transparent with their investors,
and you know, hopefully their consumers and other investors appreciate it.
(19:23):
For example, several years ago, we engaged with Verizon. They
had a then a goal of sourcing three percent of
their energy from renewable energy sources, and the next year
they had announced that they were going to go to
four percent. We thought that was insufficient for the industry
and for the world we're living in, and so we
(19:45):
asked them to move to one hundred percent. Okay, they
wouldn't go that far.
Speaker 1 (19:50):
I was just going to say, that's a big jump.
Speaker 2 (19:52):
It's a big jump, but you know, sometimes you need
to ask boldly. What they came back and announced was
that they were going to source fifty percent of their
energy from renewable energy sources. And then you know, by
a few years later, they had met that goal. Okay,
And so there are concrete stories like that that demonstrate
(20:15):
both the power of shareholder engagement and advocacy and how
companies are moving forward.
Speaker 1 (20:21):
That's interesting, and I like that you said that, you know,
these things take years, which brings me to my next
question about short termism, my favorite topic, right. I mean,
so when you think of climate. You're obviously thinking of
a long term play, right, But investing is so short
(20:42):
term in nature. Right, you have portfolios that are marked
day to day, quarter to quarter year tear So how
does how do you manage short termism versus you know
your your climate outlook? In other words, suppose somebody invests
in your fund and you know it underperforms due to
(21:03):
market risk, but you still have a more favorable long
term outlook. What do you tell them?
Speaker 2 (21:10):
I tell them that climate is both a short term
and long term play.
Speaker 1 (21:13):
Interesting, and that.
Speaker 2 (21:19):
They need to be looking to the future and understanding
that there is real climate risk and that in the
long run there will be likely regulations around what or
just market forces or consumer pressure that needs to get
us to the place we need to be on climate admissions.
(21:42):
And so for us as a fossil fuel free mutual
fund family, you can look at any given time period
and see how we're outperforming or underperforming the benchmark. So
you can slice and dice the data, right however you want.
(22:04):
The firms that are very pro traditional energy could do
the same thing. So it's really most useful to look
at over a longer horizon. And so when oil and
gas prices are rising and maybe a fund is not
keeping up with this benchmark during that quarter. It's just
(22:27):
helpful to remind people like, right, this is a quarter,
Remember like, remember the last couple of years, Remember the
last ten years, remember whatever period you've invested, and remember
why you invested.
Speaker 1 (22:40):
I think, yeah, because I find that to be what
people pick on ESG and climate for, which is that,
Oh no, everybody underperformed in twenty twenty two. But of
course everyone unperformed. That's because energy had sort of a
little bit of a black swawon event. And you know,
I remind people that take any traditional investing mechanism right,
(23:05):
value investing growth, they all perform differently in different market environments.
You know. I don't think any of person can stand
in front and say this is outperformed and will outperform forever.
I mean that that doesn't happen.
Speaker 2 (23:19):
Well, right, And that would be promisary too, So there
definitely shouldn't be saying that. But say, even if they
weren't violating rules, that you can't predict that. And then
there are also other reasons to think about not investing
in traditional energy in that there could be stranded assets,
(23:43):
which I think people wrote and spoke about more, say
five years ago. Though it's interesting because some of that
is already happening, and we and others had predicted it
wouldn't happen for twenty five years. And so that's a show.
Speaker 1 (24:01):
Risk of climate that you spoke about because you said
climate is both the short term and long termsk right.
Speaker 2 (24:07):
Well, this stranded assets is probably more the long term
bucket in that over time, if companies who hold carbon
reserves are forced to or are not allowed to burn
those carbon reserves, say there's regulation or pressure or whatever,
(24:29):
that may cause that that right now they're a positive
on their balance sheet and would move to a negative
on their balance sheet. And then probably the big major
companies can absorb those losses, and some have already written
off losses like that. But you know, there's hundreds of
fossil fuel companies. People just think there's Exon and not
(24:50):
people but like you know, the common perception is like
there's Exxon, Shell, Chevron, a few, right, and then there's
really hundreds of them, and so the smaller ones may
not be able to absorb those losses, in which case
that would really potentially hurt an investor in the stocks
of those companies, and so there's that. It's also been
(25:12):
one of the more volatile industries over that is a
short term risk. So if you're a short term investor
and you like to move around, you as we all know,
it's very hard to time the market you might be
in when you should be out, or vice versa. And
so you're experiencing that and then it's maybe it's medium term,
(25:36):
but it might be long term depending on your horizon.
Is that the IRA here in the US will hopefully
be and it's already boosting short term some financial performance
of some of those companies that will be getting some
of that money to really expand unclean energy. And so
you couldn't have necessarily positioned yourself to take advantage of
(25:59):
that as an average investor, but those companies should be
benefiting from that. As the fossil fuel industry has gotten
subsidies for a long time. Now it's the turn of
some renewable and cleaner energy companies to have that same benefit,
and so that can benefit the investors too.
Speaker 1 (26:21):
That makes sense. And I want to switch over to demand,
and we've spoken about this where I remember asking you,
like everyone talks about the millennial interest and all this
generational wealth and money moving over I don't see it
in fun flows. I want to know from you, where
(26:44):
do you see demand coming from historically, today and in
the future.
Speaker 2 (26:51):
I think there's a lot of excitement about millennial money,
and I think some of it's warranted, Okay, but I think,
as you say, you don't see the data on it,
and that's because not that many millennials have that much
money to invest. So it's it's less that they are
(27:12):
moving the needle on the actual dollars right now. It's
more that they are, you know, in a family situation
or if there are slated to become the controllers of
their family money in time, and they're being kind of
(27:33):
groomed to make those decisions. They're the ones more both
anecdotically but a lot of anecdotes. They're the ones raising
those questions around the table with their advisors. I do
hear about it. I'm not in those rooms, but I
(27:53):
hear about it from advisors and family offices. And sometimes
they are successful and other times, you know, they're urging
their elders to make changes or to move some of
the money into cleaner energy portfolios. And the people in
(28:15):
charge right now are not as interested in it, but
it is there. People are growing up in a different
excuse the pun climate, but in both ways. I mean,
environmental sustainability is all around us in a way that
just didn't exist in the early nineties when Green Century started.
(28:37):
I mean that's when there were battles around whether there
be a recycling program on a campus. And now it's
I mean it's taken for granted that they're in campuses
and town halls and communities and such in the US,
and so people have grown up with a different sensibility
about sustainability. Everyone carries on a water bottle that's refillable,
(29:02):
there's refillable watering stations at airport. I mean, those just
didn't even occur to anyone before, and so I think
it's more natural that they would expect that their investments
would have that kind of eye or there would be
that kind of opportunity for them. It's not always true, right,
(29:23):
I mean.
Speaker 1 (29:23):
I hope so, because the one thing I remember somebody
telling me, like you see a survey rate, everybody quotes
that millennials are more likely to know put money into
ESG and sustainable investing. But then you look at the
money and you don't see it right, And I'm wondering
if you know, there's a point where the rubber hits
the road and that will change in the future. And
(29:45):
then you last time, I mentioned something that was even
more intrigging, which is that millennials, you know, they prefer
sustainable outcomes, but they also like things that are cheap.
How do you marry those two together.
Speaker 2 (30:00):
It's going to require I think it's going to require
a little bit more education and a little bit more patients.
There are a lot of products out there, whether they're
ESG or sustainable or operate under some other banner, that
are very inexpensive, and I think the continued focus on fees, fees,
(30:25):
fees is what has driven it. And so when you
have the big players, you know, like Van Garden Fidelity
offering these products, I mean it's if you're just starting out,
it's hard to turn away from that, right, But you.
Speaker 1 (30:39):
Have to be able to compete with them also.
Speaker 2 (30:42):
You do, and so I think part of it is
explaining the value proposition that you're offering, which is, you know,
not just to look at fees, but look at fees
plus performance, and then you know, why do you want
to do sustainable investing to begin with, and if you're
interested in outcomes, then you have to look at what
(31:07):
is the investment doing in the real world. So part
of it is some of the products. You can match
up your values to those products if they're screening, So
not investing in tobacco or fossil fuels or factory farms
or whatever. Your values are faith based values. Even there's
(31:27):
funds around that do that. But then ESG, which I'm
if you haven't covered I'm sure you'll cover at some
other point, is that that's really about material risks to
the company and it's not about what the company is
doing in the real world, which is like the greatly
(31:49):
misunderstood concept right of this decade on ESG. And so
just being in a fund that says they're an ESG fund,
you're just picking, you know, the best compared to your peers.
But your investment dollar isn't really moving the market and
making any real world impact. It's perhaps giving you better
(32:11):
performance and reducing the risk for you. So I'd argue
that if you want to see an impact, you need
to figure out how to do it in different vehicles.
So you need to pick funds that are doing the
kind of shareholder engagement that we talked about with real
world outcomes. You need to pick fixed income products that
(32:32):
have for example, labeled green bonds or social bonds in them,
or you need to do private equity investing, which is
usually not very accessible for the average investor, and so
then you can invest in some interesting startup, but that
is after you've probably covered your bases with your basic
(32:55):
investing in public equities.
Speaker 1 (32:57):
That makes sense in sticking to de mind. Curious as
to whether you think the climate investing landscape will change
here in the US thanks to the fun political well
things that we have to listen to today.
Speaker 2 (33:14):
I think it has changed already, but only in some places.
And I think for the people who already are thinking
about making an impact with their investments, that they're not
swayed by the sort of quote unquote backlash against ESG
that's mostly like political posturing, and it's not getting much
(33:38):
traction with voters, so in some ways it just may
die down. I think where it is hurting us as
a field is that for the people who don't know
very much about it, but maybe we're interested in it
a little bit. It's sort of put a pause button
on for them. So both for individual investors and for
(34:00):
financial advisors and intermediaries who were thinking about, you know,
adopting a sleeve of this or putting out some offerings
on it, or starting to talk to their clients about
you know, if they're interested in it, that they have
become nervous because they're hearing a lot of information, most
(34:21):
of it is incorrect, but it's making them pause. And
so I think it will kind of come around again
because the climate crisis is so much of a dire crisis,
and the new generation as it comes into more money
(34:44):
and as it starts investing more both with their own
money and inherited wealth, that they will start to pick
it up again. And then for the people who are
more in their forties, fifties, in sixties, that is a
lot of the sweet spot for mutual funds like Green Centry,
(35:07):
and that those people are not swayed by what it is.
They are really thinking ahead to what kind of legacy
that they want to leave. So they're opening accounts for
their grandchildren, and they want to do that in a
way that they can be you know, proud of on
the environmental legacy side, you.
Speaker 1 (35:27):
Know, what you said about you know people are doing
who people are doing this, you know, have been doing
it for decades. They're not swayed.
Speaker 2 (35:34):
You know.
Speaker 1 (35:35):
That's exactly what we've seen in fun flows. We're not
seeing flows, you know, come out to some kind of
mass exodus. They've come up, but from like one fund
when it comes to ESG and I track ETFs, I'm
talking about the world of atfs. But but then what
we see is there's a drop off and positive inflows.
So in other words, you know, flows aren't coming out
(35:59):
besides just a couple of funds, but new flows are
not coming in. So yes, she is sticky as and
money stays in. It's not like somebody who's done this,
you know, is one day going to be like, yes
she is a scam. You know, that's not happening. But
it is restricting new money from coming in. And I
do think that's one of the bigger challenges because today,
(36:20):
if we have to sustain growth, we need a wider
investor base. Right the investor base, and my from my research,
is too concentrated at least in adffold. Too much money
comes from a couple of investors, and we need that expansion.
Speaker 2 (36:35):
Right, yep. I think the dedicated money is pretty sticky. Yeah,
I know that from US and other mutual funds in
this space. And I do think though your research would
probably be a welcome compliment to the statement, is that
the money that or some of the money that's coming
(36:56):
out is from these light versions of ESG. So they're
using one or maybe just a few ears of the environmental, social,
and governance factors, and so you know, perhaps people invested
in that thinking like I've heard ESG enhances returns, and
so I'm going to go in and maybe they had
(37:18):
a bad quarter or two and so now it's coming out.
Speaker 1 (37:21):
Right, Or it's even just model boordfolio changes, right. In
other words, ETF set out in these models just switch
away from maybe an equity fund, and the money flows
out of every equity fund. So we find these changes
to be either driven by ESG or not driven by ESG,
and we can't ascertain it's either or right. So to
(37:42):
say it's es SHE is not really fair, right. I
think that's that's also another.
Speaker 2 (37:46):
Point it's really great to point out, Lessie.
Speaker 1 (37:49):
Thank you so much. I think my last question for
you is what is the biggest challenge you face today,
be it metrics, be it you know anything. I think
that just gives us all food for thought into what
we need to sell it.
Speaker 2 (38:01):
It's an excellent question. I do think the biggest challenge
is the misinformation around and the confusion around what ESG
is and what it isn't. ESG alone is using material
relevant data to assess the risk to a company, and
(38:24):
unfortunately a lot of them messaging and understanding about what
ESG is has meant something else, and so that people
think when they're investing in an ESG fund, for example,
like that fund would never invest in tobacco, or prisons,
(38:46):
or fossil fuel companies or those things. And in fact
ESG doesn't involve screening necessarily at all. I think that
the tricky part is ESG is just one It can
be just one part of an overall portfolio construction, and
it's the name of it has come to be used
(39:08):
to describe the entire field of anything from ESG through
sustainable and responsible investing, through again green bonds, through community impact,
through private equity, and so the average person doesn't have
time to follow all this and just is picking up
(39:30):
the headlines on things and now picking up the controversy
quote unquote around ESG, and there's just a whole wealth
of opportunities out there for people to look at and
see where they might fit and where they might align.
And I'm on a constant crucy to try to help
(39:52):
people understand that and try to help them figure it out.
Speaker 1 (39:56):
Some more education, which is exactly what this podcast just about.
And on that perfect note, Leslie, thank you so much
for joining us. And you can find more information on ESG,
on climate investments, and a whole array of other topics
by going to BIESG on the Bloomberg terminal, which opens
up Bloomberg Intelligence, our research dashboard. If you have any
(40:19):
SG quandary or a burning question you'd like to ask
our expert analysts, please send us an email at ESG
Currents at Bloomberg dot net. Thank you
ESG has become established is a key business theme as
companies and investors seek to navigate the climate crisis, energy transition,
social megatrons, mounting regulatory attention and pressure from other stakeholders.
The rapidly evolving landscape has become inundated with acronyms, buzzwords,
and lingo, and we aim to break these down with
(00:29):
industry experts. Welcome to ESG Currents, brought to you by
Bloomberg Intelligence, your guide to navigating the evolving ESG space,
one topic at a time. I am Shahin, contractor, senior
ESG strategist and your host for today's episode. Today we're
going to be speaking with Leslie Samuel Rich, who is
(00:50):
the president of Green Century Management. We're going to attach
on a number of topics around climate, delving into data
that might be use for climat trists and also demand
and where this is coming from. Leslie. Thank you for
joining us.
Speaker 2 (01:06):
Thanks for having me.
Speaker 1 (01:08):
Leslie, you mentioned that Green Century is one of the
in one of the oldest environmental fund managers. I have
that right, correct, that's right. That's very interesting. So can
you actually take us through the maybe just the brief
history of climate investing, and I'm particularly interested in how
it's changed and where we are today.
Speaker 2 (01:30):
Sure, I mean, the whole environmentally responsible investing movement probably
began really in the early nineties when there were some
mutual fund companies, including Green Century Capital Manager.
Speaker 1 (01:43):
We started in the nineties in the nineties. Okay, wow, yeah, right, Everyone.
Speaker 2 (01:48):
Sort of thinks has happened in the last five to
ten years, right, But it's actually been around longer than that,
only through a handful of companies in firms though, So
the firms back then, including Green Centry and some other pioneers,
first started excluding companies that they thought were environmentally dangerous,
(02:10):
and for us that meant major what meant coal companies
and major oil companies. So those are companies we never
invested in as time went on. For example, for US
in the around twenty thirteen fourteen, when the rule of
fracking and the environmental problems with fracking became more clear,
(02:33):
we detisened off our remaining gas companies. We had been
doing last shareholder engagement with them, but that can you know,
that can never change a core business. And so at
the end of the day, even if they lined their
wells or capped their methane emissions. They were still doing
environmentally harmful practice, and that coincided with the Global Investment
(02:59):
campaign that some of your listeners may have heard about
either themselves or through their kids on college campuses or
through their faith centers, and that's been going on for
about ten years now. And off of that, I would
say that a lot of bigger firms prepared responses to that.
(03:22):
Most of them did not start offering fossil fuel free
funds like we are, but they came up with other
ways that they wanted to address climate. So some offered
ones that didn't have coal or thermal coal, for example.
As time went on, others now have developed things that
(03:45):
vary from climate conscious funds which don't ask me to
describe what this actually mean, to low carbon funds, which
again can be measured in lots of different ways, to
green bond products so that if you measure fixed income
(04:06):
products by the use of proceeds, those can go to
climate mitigations projects like we do in our balanced fund.
So I think what's happened is that it started out
from a very value bited base place, and then as
the materiality of and the risks of climate change have
become more apparent, more firms have adopted it and have
(04:29):
adopted different strategies to it, and so now there's a
wider array of products available. Right.
Speaker 1 (04:34):
So it sounds like it went from exclusionary you know,
particularly fossil fuels, to more you know, low carbon green
bonds and just a diverse, more diverse set of funds
that tend to include different kinds of data.
Speaker 2 (04:48):
Yeah, and some of them, I would argue, are more
value aligned and some are more driven by perhaps just
material risks, and some do both.
Speaker 1 (05:00):
Right. I'm very intrigued by the climate fund space, and
you've broken down some for us, right, like low carbin
et cetera. But I'm curious as to, you know, are
there any other types of products that you see coming up?
And more importantly, where do you see demand coming from?
Is there something that is you know, particularly maybe unappreciated
(05:22):
a specific theme. Yep.
Speaker 2 (05:26):
I think the sort of last wave now has been
around solution oriented products. Okay, so ones that are certainly
excluding environmentally dangerous companies like fossil fuel companies. They're also
probably excluding high carbon producers like the airplane industry or
(05:48):
maybe even the auto industry. But they I don't want
to say moving beyond that, but that they do that.
But then they also invest in companies that are creating
solutions to the climate crisis that we're facing. So it's
their their core business is somehow addressing climate.
Speaker 1 (06:10):
Okay, so when you say solutions, I'm guessing this goes
beyond just clean energy, right, because that's the first link
people tend to make. I guess, what are some solutions
other than clean energy that I guess excite you.
Speaker 2 (06:24):
There are a lot, yeah, that excite me. Sure they
wouldn't take for granted clean energy pieces because there's still
a lot of development there that can happen on solar
when energy geothermal is coming up and I think will
be more prominent in certain funds in time. There are
also ways to address climate that aren't directly around fossil
(06:48):
fuels and around energy consumption, and so funds that are
looking at scope three emissions for companies and wherever they're
coming from. We've particularly focused on looking at food companies
and their Scope three emissions, which largely coming from the
(07:09):
products that they are sourcing, growing, or using, and so
around deforestation, as biodiversity and forest protection have sort of
hit the ground running here in North America now as
an issue. That is, people are paying attention to looking
at companies that aren't actively engaged in deforestation or purchasing
(07:31):
products that are grown and harvested from deforestation. That's a
real direct way to address climate if people remember, you know,
forests or the lungs of the earth. If they remember
it is right as kids, That's how they were described
and is still an accurate description. They store a lot
(07:53):
of carbon and then they process a lot of carbon
emissions for us. So protecting forests is helping curve climate change.
Speaker 1 (08:02):
Lessie, you mentioned Scope three emissions and that reminds me
of data. When I look at I want to pull
my head out. So I want to get to the
question of data, which is you know, in climate world,
I feel like right now there's an overload of information.
There's just a noble load of data. So what data
sets do you find particularly useful? And you know, another
(08:25):
way to do the question is also what data sets
are not useful? I like to learn from what's not
useful to others.
Speaker 2 (08:33):
Well, Scope one and Scope two emissions are the most
readily available and are always useful for a lot of industries,
and that that data that you know, a lot of
it's publicly available, so you have to search around a
little bit for it. But that is certainly useful. But
(08:53):
there are certain industries, again like the food industry or
the beverage industry, where their missions are really encompassed in
scope three and so for that you need to dig harder.
And sometimes companies are moving toward revealing some of that data.
Speaker 1 (09:15):
That's good to know.
Speaker 2 (09:16):
Yes, it's a slower, it's more complicated.
Speaker 1 (09:19):
In the future. I won't want to put my head out.
Speaker 2 (09:22):
Okay, it's it's more complicated. It takes more resources to
figure it out because say, for example, a big company
like Costco, they need to talk to all of their suppliers,
and those suppliers need to talk to all of their suppliers.
So what is one company's scope one and two is
the next company's scope three? And so I think companies
(09:47):
are responding to investor requests to reveal more of that
Scope three data. I mean, it probably comes as no
surprise that the most reliable kind of data is the
one that's history been well vetted and studied and quantified,
and that is what we rely on in part. But
(10:11):
as more and more voluntary or mandatory reporting comes into line.
I think that that's something in you know, certainly a
Green Century that we'll be looking to use.
Speaker 1 (10:21):
That makes sense. And I think you also answered my
next question, which is how does this data vary by industry?
And I think, as you're saying, Scope three is material
only to specific industries, right, for some it's one and
two and for the others it's it's Scope three. So
I think that that checks up my next.
Speaker 2 (10:40):
Question, does it excellent?
Speaker 1 (10:42):
I think I want to pivot a little more to engagement.
And you mentioned, you know, in terms of the history
of climate investing that exclusions and engagement have been you know,
have gone in hand in hand and what's been done
for many, many years. So my question is, how do
you hold a company accountable in terms of engaging with them?
Speaker 2 (11:07):
Can I take a minute and just explain different kinds
of engagement please? Okay? So engagement is sort of a
broad word and different firms use it in different ways.
And the Green Century put into three buckets. So the
first is proxy voting, which is essentially reactive to another
investor or company putting a question on the ballot, but
(11:30):
it does help to voice a shareholder's opinion about a
particular issue, and so that's sort of the ground floor
on where people and firms it can start getting involved
in the shareholder engagement or advocacy process. The second bucket
(11:50):
is getting companies to reveal more information or to report
on a pass commitment they've made. So, for example, we
have been engaging with companies for almost a decade now
on climate emissions, and sometimes they make plans that take
(12:11):
a few years to implement, and so going back to
those companies ensuring they're implementing the plans, whether again around
whether it's around a zero deforestation pledge, around a pledge
to source more renewable energy, or cap their emissions at
certain levels. So that's the follow up piece, or just
finding out more information. And then the third bucket, which
(12:35):
is really the active engagement or we call it advocacy,
is using your leverage as a shareholder to press a
company to make those changes that you think are materially
relevant to both, in our opinion, help the company prosper
and perform financially better as well as to help the
(12:58):
broader community and world around emissions. And that can take
the form of you know, you start by sending a letter,
which sometimes gets answered, but most times either a dozen
or results results in a phone call or dialogue with
the company, and from there it just depends completely on
the company and how their response is to your inquiry
(13:22):
about what they're releasing as information, what they're going to
be reporting on in the future, and if they're going
to set any goals.
Speaker 1 (13:31):
Right, So, how do companies respond? In other words, are
they excited to talk to you? Do they not want
to talk to you? What is some things you've observed?
Speaker 2 (13:43):
It ranges wildly. Honestly, there are some companies that almost
seem like they're waiting for a call from a call
from an investor to be like, oh, you're interested in that,
let us report on that. We just didn't think of it.
We're maybe a little bit of a smaller company or
(14:03):
a company that is not in the press that often,
and we have a commitment to sustainability. And when I
can think of is Hanes Celestial. We went to them
and were asking them to report on their climate admissions
and making a transition plan, and it was a very
open dialogue and within a phone call or two they
(14:27):
came back and actually agreed to what we were asking.
Then there are other companies that either feel like they're
on the right path or don't feel like they need
to do this, and that takes more pressure from shareholders.
And so either working independently or with other investors, asking
(14:48):
a company to meet with you and explain their current position,
and you explaining the material risks to them and what
you want. If they say but no, thanks, then you
have the option of filing a shareholder resolution, which is
a question that appears on the company's annual proxy ballot,
(15:10):
and then that lets other shareholders vote on it. And
if you do your homework and talk with other investors
and the ask is a reasonable one, you will begin
to get higher and higher votes, either over time or
maybe sometimes even a majority vote in that first year.
(15:31):
And then that gives you the additional leverage to go
back to the company and say, you know, it wasn't
just us asking, It is a majority of your shareholders asking.
They think it's relevant, and so now what do you
think about doing it?
Speaker 1 (15:48):
So does it last over many years?
Speaker 2 (15:50):
It can? Sometimes it can. Our engagement with Costco, for example,
took about a year and a half to get the
company to agree to issue scope three goals and then
it's taking them probably another year or so to come
out with those Scope three goals this year, and then
(16:13):
it will take them a little bit a while to
meet those Scope three goals. So it can and I
think especially on climate, it's not a sort of one
and done kind of deal that those engagements can last longer,
and sometimes they have to, especially the ones with more
complicated supply chains.
Speaker 1 (16:35):
Yeah. Yeah, So I guess how do you measure progress
at the portfolio level and measure impact? Because I feel
like one of the main questions I get is, Okay,
you do ESG and you do impact, but how do
you measure that additionality or the level of impact you're creating.
(16:56):
I think that's a big question.
Speaker 2 (16:59):
And I think it can really be really confusing to
the average investor or even just the average financial advisor
out there. There are lots of firms that are now
putting out really beautiful reports impact reports, and there's all
kinds of metrics in them, but as you've probably seen,
(17:20):
it's hard to sort through what's what. And so we
measure it by as much as we can the real
world impact that we're creating with companies, and so we
do measure the engagement in some pretty standard ways, like
(17:41):
how many companies we worked with this year, how many
said yes to an agreement with us, and or how
many fulfilled their pledge to us in past years, So
just straight out numbers on activities. But what we're really
striving for and what I think the point of an
engagement is really the outcomes. So separating the activity from
(18:05):
the outcomes. You obviously have to have the activity to
get any outcomes, but what you want to see, what
I believe we all want to see, is well, are
the climate and carbon emissions going down? In real world terms?
Are the companies anywhere on track for a one point
(18:25):
five degree scenario?
Speaker 1 (18:27):
I guess my question is are they right? Do you
find that the companies you engage with you actually do
see that real world impact?
Speaker 2 (18:37):
In many cases yes, But I do think it requires
one strong agreement to begin with, and then follow up
and then solid intentions by the company. The sharehold resolutions
and themselves are not binding, so that is not going
to guarantee an outcome, but interested investors who stay engaged
(19:02):
can keep the pressure on and show the company in
part the benefits they can get by being more sustainable,
being more climate conscious and being transparent with their investors,
and you know, hopefully their consumers and other investors appreciate it.
(19:23):
For example, several years ago, we engaged with Verizon. They
had a then a goal of sourcing three percent of
their energy from renewable energy sources, and the next year
they had announced that they were going to go to
four percent. We thought that was insufficient for the industry
and for the world we're living in, and so we
(19:45):
asked them to move to one hundred percent. Okay, they
wouldn't go that far.
Speaker 1 (19:50):
I was just going to say, that's a big jump.
Speaker 2 (19:52):
It's a big jump, but you know, sometimes you need
to ask boldly. What they came back and announced was
that they were going to source fifty percent of their
energy from renewable energy sources. And then you know, by
a few years later, they had met that goal. Okay,
And so there are concrete stories like that that demonstrate
(20:15):
both the power of shareholder engagement and advocacy and how
companies are moving forward.
Speaker 1 (20:21):
That's interesting, and I like that you said that, you know,
these things take years, which brings me to my next
question about short termism, my favorite topic, right. I mean,
so when you think of climate. You're obviously thinking of
a long term play, right, But investing is so short
(20:42):
term in nature. Right, you have portfolios that are marked
day to day, quarter to quarter year tear So how
does how do you manage short termism versus you know
your your climate outlook? In other words, suppose somebody invests
in your fund and you know it underperforms due to
(21:03):
market risk, but you still have a more favorable long
term outlook. What do you tell them?
Speaker 2 (21:10):
I tell them that climate is both a short term
and long term play.
Speaker 1 (21:13):
Interesting, and that.
Speaker 2 (21:19):
They need to be looking to the future and understanding
that there is real climate risk and that in the
long run there will be likely regulations around what or
just market forces or consumer pressure that needs to get
us to the place we need to be on climate admissions.
(21:42):
And so for us as a fossil fuel free mutual
fund family, you can look at any given time period
and see how we're outperforming or underperforming the benchmark. So
you can slice and dice the data, right however you want.
(22:04):
The firms that are very pro traditional energy could do
the same thing. So it's really most useful to look
at over a longer horizon. And so when oil and
gas prices are rising and maybe a fund is not
keeping up with this benchmark during that quarter. It's just
(22:27):
helpful to remind people like, right, this is a quarter,
Remember like, remember the last couple of years, Remember the
last ten years, remember whatever period you've invested, and remember
why you invested.
Speaker 1 (22:40):
I think, yeah, because I find that to be what
people pick on ESG and climate for, which is that,
Oh no, everybody underperformed in twenty twenty two. But of
course everyone unperformed. That's because energy had sort of a
little bit of a black swawon event. And you know,
I remind people that take any traditional investing mechanism right,
(23:05):
value investing growth, they all perform differently in different market environments.
You know. I don't think any of person can stand
in front and say this is outperformed and will outperform forever.
I mean that that doesn't happen.
Speaker 2 (23:19):
Well, right, And that would be promisary too, So there
definitely shouldn't be saying that. But say, even if they
weren't violating rules, that you can't predict that. And then
there are also other reasons to think about not investing
in traditional energy in that there could be stranded assets,
(23:43):
which I think people wrote and spoke about more, say
five years ago. Though it's interesting because some of that
is already happening, and we and others had predicted it
wouldn't happen for twenty five years. And so that's a show.
Speaker 1 (24:01):
Risk of climate that you spoke about because you said
climate is both the short term and long termsk right.
Speaker 2 (24:07):
Well, this stranded assets is probably more the long term
bucket in that over time, if companies who hold carbon
reserves are forced to or are not allowed to burn
those carbon reserves, say there's regulation or pressure or whatever,
(24:29):
that may cause that that right now they're a positive
on their balance sheet and would move to a negative
on their balance sheet. And then probably the big major
companies can absorb those losses, and some have already written
off losses like that. But you know, there's hundreds of
fossil fuel companies. People just think there's Exon and not
(24:50):
people but like you know, the common perception is like
there's Exxon, Shell, Chevron, a few, right, and then there's
really hundreds of them, and so the smaller ones may
not be able to absorb those losses, in which case
that would really potentially hurt an investor in the stocks
of those companies, and so there's that. It's also been
(25:12):
one of the more volatile industries over that is a
short term risk. So if you're a short term investor
and you like to move around, you as we all know,
it's very hard to time the market you might be
in when you should be out, or vice versa. And
so you're experiencing that and then it's maybe it's medium term,
(25:36):
but it might be long term depending on your horizon.
Is that the IRA here in the US will hopefully
be and it's already boosting short term some financial performance
of some of those companies that will be getting some
of that money to really expand unclean energy. And so
you couldn't have necessarily positioned yourself to take advantage of
(25:59):
that as an average investor, but those companies should be
benefiting from that. As the fossil fuel industry has gotten
subsidies for a long time. Now it's the turn of
some renewable and cleaner energy companies to have that same benefit,
and so that can benefit the investors too.
Speaker 1 (26:21):
That makes sense. And I want to switch over to demand,
and we've spoken about this where I remember asking you,
like everyone talks about the millennial interest and all this
generational wealth and money moving over I don't see it
in fun flows. I want to know from you, where
(26:44):
do you see demand coming from historically, today and in
the future.
Speaker 2 (26:51):
I think there's a lot of excitement about millennial money,
and I think some of it's warranted, Okay, but I think,
as you say, you don't see the data on it,
and that's because not that many millennials have that much
money to invest. So it's it's less that they are
(27:12):
moving the needle on the actual dollars right now. It's
more that they are, you know, in a family situation
or if there are slated to become the controllers of
their family money in time, and they're being kind of
(27:33):
groomed to make those decisions. They're the ones more both
anecdotically but a lot of anecdotes. They're the ones raising
those questions around the table with their advisors. I do
hear about it. I'm not in those rooms, but I
(27:53):
hear about it from advisors and family offices. And sometimes
they are successful and other times, you know, they're urging
their elders to make changes or to move some of
the money into cleaner energy portfolios. And the people in
(28:15):
charge right now are not as interested in it, but
it is there. People are growing up in a different
excuse the pun climate, but in both ways. I mean,
environmental sustainability is all around us in a way that
just didn't exist in the early nineties when Green Century started.
(28:37):
I mean that's when there were battles around whether there
be a recycling program on a campus. And now it's
I mean it's taken for granted that they're in campuses
and town halls and communities and such in the US,
and so people have grown up with a different sensibility
about sustainability. Everyone carries on a water bottle that's refillable,
(29:02):
there's refillable watering stations at airport. I mean, those just
didn't even occur to anyone before, and so I think
it's more natural that they would expect that their investments
would have that kind of eye or there would be
that kind of opportunity for them. It's not always true, right,
(29:23):
I mean.
Speaker 1 (29:23):
I hope so, because the one thing I remember somebody
telling me, like you see a survey rate, everybody quotes
that millennials are more likely to know put money into
ESG and sustainable investing. But then you look at the
money and you don't see it right, And I'm wondering
if you know, there's a point where the rubber hits
the road and that will change in the future. And
(29:45):
then you last time, I mentioned something that was even
more intrigging, which is that millennials, you know, they prefer
sustainable outcomes, but they also like things that are cheap.
How do you marry those two together.
Speaker 2 (30:00):
It's going to require I think it's going to require
a little bit more education and a little bit more patients.
There are a lot of products out there, whether they're
ESG or sustainable or operate under some other banner, that
are very inexpensive, and I think the continued focus on fees, fees,
(30:25):
fees is what has driven it. And so when you
have the big players, you know, like Van Garden Fidelity
offering these products, I mean it's if you're just starting out,
it's hard to turn away from that, right, But you.
Speaker 1 (30:39):
Have to be able to compete with them also.
Speaker 2 (30:42):
You do, and so I think part of it is
explaining the value proposition that you're offering, which is, you know,
not just to look at fees, but look at fees
plus performance, and then you know, why do you want
to do sustainable investing to begin with, and if you're
interested in outcomes, then you have to look at what
(31:07):
is the investment doing in the real world. So part
of it is some of the products. You can match
up your values to those products if they're screening, So
not investing in tobacco or fossil fuels or factory farms
or whatever. Your values are faith based values. Even there's
(31:27):
funds around that do that. But then ESG, which I'm
if you haven't covered I'm sure you'll cover at some
other point, is that that's really about material risks to
the company and it's not about what the company is
doing in the real world, which is like the greatly
(31:49):
misunderstood concept right of this decade on ESG. And so
just being in a fund that says they're an ESG fund,
you're just picking, you know, the best compared to your peers.
But your investment dollar isn't really moving the market and
making any real world impact. It's perhaps giving you better
(32:11):
performance and reducing the risk for you. So I'd argue
that if you want to see an impact, you need
to figure out how to do it in different vehicles.
So you need to pick funds that are doing the
kind of shareholder engagement that we talked about with real
world outcomes. You need to pick fixed income products that
(32:32):
have for example, labeled green bonds or social bonds in them,
or you need to do private equity investing, which is
usually not very accessible for the average investor, and so
then you can invest in some interesting startup, but that
is after you've probably covered your bases with your basic
(32:55):
investing in public equities.
Speaker 1 (32:57):
That makes sense in sticking to de mind. Curious as
to whether you think the climate investing landscape will change
here in the US thanks to the fun political well
things that we have to listen to today.
Speaker 2 (33:14):
I think it has changed already, but only in some places.
And I think for the people who already are thinking
about making an impact with their investments, that they're not
swayed by the sort of quote unquote backlash against ESG
that's mostly like political posturing, and it's not getting much
(33:38):
traction with voters, so in some ways it just may
die down. I think where it is hurting us as
a field is that for the people who don't know
very much about it, but maybe we're interested in it
a little bit. It's sort of put a pause button
on for them. So both for individual investors and for
(34:00):
financial advisors and intermediaries who were thinking about, you know,
adopting a sleeve of this or putting out some offerings
on it, or starting to talk to their clients about
you know, if they're interested in it, that they have
become nervous because they're hearing a lot of information, most
(34:21):
of it is incorrect, but it's making them pause. And
so I think it will kind of come around again
because the climate crisis is so much of a dire crisis,
and the new generation as it comes into more money
(34:44):
and as it starts investing more both with their own
money and inherited wealth, that they will start to pick
it up again. And then for the people who are
more in their forties, fifties, in sixties, that is a
lot of the sweet spot for mutual funds like Green Centry,
(35:07):
and that those people are not swayed by what it is.
They are really thinking ahead to what kind of legacy
that they want to leave. So they're opening accounts for
their grandchildren, and they want to do that in a
way that they can be you know, proud of on
the environmental legacy side, you.
Speaker 1 (35:27):
Know, what you said about you know people are doing
who people are doing this, you know, have been doing
it for decades. They're not swayed.
Speaker 2 (35:34):
You know.
Speaker 1 (35:35):
That's exactly what we've seen in fun flows. We're not
seeing flows, you know, come out to some kind of
mass exodus. They've come up, but from like one fund
when it comes to ESG and I track ETFs, I'm
talking about the world of atfs. But but then what
we see is there's a drop off and positive inflows.
So in other words, you know, flows aren't coming out
(35:59):
besides just a couple of funds, but new flows are
not coming in. So yes, she is sticky as and
money stays in. It's not like somebody who's done this,
you know, is one day going to be like, yes
she is a scam. You know, that's not happening. But
it is restricting new money from coming in. And I
do think that's one of the bigger challenges because today,
(36:20):
if we have to sustain growth, we need a wider
investor base. Right the investor base, and my from my research,
is too concentrated at least in adffold. Too much money
comes from a couple of investors, and we need that expansion.
Speaker 2 (36:35):
Right, yep. I think the dedicated money is pretty sticky. Yeah,
I know that from US and other mutual funds in
this space. And I do think though your research would
probably be a welcome compliment to the statement, is that
the money that or some of the money that's coming
(36:56):
out is from these light versions of ESG. So they're
using one or maybe just a few ears of the environmental, social,
and governance factors, and so you know, perhaps people invested
in that thinking like I've heard ESG enhances returns, and
so I'm going to go in and maybe they had
(37:18):
a bad quarter or two and so now it's coming out.
Speaker 1 (37:21):
Right, Or it's even just model boordfolio changes, right. In
other words, ETF set out in these models just switch
away from maybe an equity fund, and the money flows
out of every equity fund. So we find these changes
to be either driven by ESG or not driven by ESG,
and we can't ascertain it's either or right. So to
(37:42):
say it's es SHE is not really fair, right. I
think that's that's also another.
Speaker 2 (37:46):
Point it's really great to point out, Lessie.
Speaker 1 (37:49):
Thank you so much. I think my last question for
you is what is the biggest challenge you face today,
be it metrics, be it you know anything. I think
that just gives us all food for thought into what
we need to sell it.
Speaker 2 (38:01):
It's an excellent question. I do think the biggest challenge
is the misinformation around and the confusion around what ESG
is and what it isn't. ESG alone is using material
relevant data to assess the risk to a company, and
(38:24):
unfortunately a lot of them messaging and understanding about what
ESG is has meant something else, and so that people
think when they're investing in an ESG fund, for example,
like that fund would never invest in tobacco, or prisons,
(38:46):
or fossil fuel companies or those things. And in fact
ESG doesn't involve screening necessarily at all. I think that
the tricky part is ESG is just one It can
be just one part of an overall portfolio construction, and
it's the name of it has come to be used
(39:08):
to describe the entire field of anything from ESG through
sustainable and responsible investing, through again green bonds, through community impact,
through private equity, and so the average person doesn't have
time to follow all this and just is picking up
(39:30):
the headlines on things and now picking up the controversy
quote unquote around ESG, and there's just a whole wealth
of opportunities out there for people to look at and
see where they might fit and where they might align.
And I'm on a constant crucy to try to help
(39:52):
people understand that and try to help them figure it out.
Speaker 1 (39:56):
Some more education, which is exactly what this podcast just about.
And on that perfect note, Leslie, thank you so much
for joining us. And you can find more information on ESG,
on climate investments, and a whole array of other topics
by going to BIESG on the Bloomberg terminal, which opens
up Bloomberg Intelligence, our research dashboard. If you have any
(40:19):
SG quandary or a burning question you'd like to ask
our expert analysts, please send us an email at ESG
Currents at Bloomberg dot net. Thank you
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