Speaker 1: Hey, this is Tim. Happy New Year. We're on vacation
Speaker 1: this week, but the Crash Course team wanted to re
Speaker 1: air an episode we had fun making with a colleague
Speaker 1: of ours here at Bloomberg. Sagel Kishan is a stellar
Speaker 1: Bloomberg reporter, and she wrote a really great article about
Speaker 1: the backlash to ESG, which is an investing practice that
Speaker 1: takes environmental, social, and governance concerns into account. We worked
Speaker 1: with her to turn the interview for that story into
Speaker 1: the episode that you're about to hear. Thanks for listening.
Speaker 1: Now here's the show. Have you ever looked at the
Speaker 1: stock market and thought, Dear Lord, my portfolio needs some help,
Speaker 1: or thank God, it's not that bad today. Well, for
Speaker 1: one investor in Idaho, that prayer happens every day, though
Speaker 1: with a little less exasperation.
Speaker 2: Heavenly Father, as we head into our week full of work,
Speaker 2: we pray that you would go with us, that you'd
Speaker 2: be with us, Lord, go before us.
Speaker 3: Thank you.
Speaker 1: That's Robert Netsley, the president and CEO of in Investing.
Speaker 1: His company does something he.
Speaker 2: Calls bysically responsible investing.
Speaker 1: Biblically responsible investing for the uninitiated.
Speaker 2: What doesn't mean to invest the Word of God means
Speaker 2: certainly to do what you can to earn a good
Speaker 2: return and use the returns for redemptive purposes, but also means,
Speaker 2: like Proverbs chapter sixteen says, better is a little with righteousness,
Speaker 2: and great gains with injustice. If there has to be
Speaker 2: a trade off between making a ton of money or
Speaker 2: being moral, like we should choose righteousness, morality, ethics. And
Speaker 2: there's very few people that I think wouldn't disagree with that.
Speaker 1: So Robert invests depending on what he thinks the Bible
Speaker 1: might support or not support. He used to label his
Speaker 1: offerings as faith based ESG in twenty.
Speaker 2: Nineteen, like when the latched WWJD. It's the first fund
Speaker 2: that had ESG in the name. What would you Do WWD?
Speaker 1: But now it's just like.
Speaker 2: All of a sudden, I'm talking to people who don't
Speaker 2: even know a sock or an equity or mutual funds
Speaker 2: and they're.
Speaker 3: Like, oh, he is G said that.
Speaker 4: Yeah, exactly what.
Speaker 5: Does it means?
Speaker 3: I don't know, but it's evil wait bad.
Speaker 1: Welcome to Crash Course, a podcast about business, political, and
Speaker 1: social disruption and what we can learn from it. I'm
Speaker 1: Tim O'Brien, Robert Netsley personifies a bigger war going on
Speaker 1: in the investment world and American politics over a little
Speaker 1: acronym called ESG. In the last year, there's been a
Speaker 1: Republican backlash to the trillions of dollars committed to investing
Speaker 1: practices that take environmental, social, and governance concerns into account.
Speaker 1: And then there's Robert. He's an evangelical Christian trying to
Speaker 1: realize his values and stay true to his own beliefs
Speaker 1: in the investing world. That's sometimes intersex with Wall Street's
Speaker 1: ESG strategy, but it also lays bare some contradictions. My
Speaker 1: colleague Sagel Kishan reports on ESG and staying for Bloomberg News,
Speaker 1: and she flew to Idaho to meet with Robert. She
Speaker 1: wrote a fascinating piece last fall called what would Jesus buy?
Speaker 1: Investor charts course for two billion dollar fund and she's
Speaker 1: going to share more of that story with us for
Speaker 1: today's crash course Conservatives versus ESG. It's a tale of
Speaker 1: two conflicts in a way, should there be biases in
Speaker 1: the investing world, be it faith based or social activism?
Speaker 1: And should ESG exist at all? Welcome to the show, Stagel,
Speaker 1: Thanks for having me. So before we dive back into
Speaker 1: Robert's story, I want listeners to get to know you
Speaker 1: a little bit more. You've been at Bloomberg about twenty
Speaker 1: years now. And how long have you been on the
Speaker 1: ESG beat.
Speaker 4: It's just over three years, just before the pandemic. We
Speaker 4: start to the beat, and why ESG?
Speaker 1: Why do you love this little corner of the market.
Speaker 4: It's complex, it's undefined, it's everywhere but nowhere. Just trying
Speaker 4: to figure out the complexities is what draw me to
Speaker 4: the beat.
Speaker 1: And you're good at solving complexities. I wish Oh, I
Speaker 1: bet you are. I think you are. That's why you're here. Now.
Speaker 1: How did you find out about Robert Netsley? What attracted
Speaker 1: you to him as a story?
Speaker 6: Well?
Speaker 4: I first heard about him after the shooting in Yavaldi,
Speaker 4: Texas last year, and I was looking at whether esh
Speaker 4: funds held gunstocks and I thought, obviously no. But then
Speaker 4: I found his funds and we found that he held
Speaker 4: shares in the firearms company called stm Rugger, one of
Speaker 4: the big ones, and a shooting sports company called Vista Outdoor.
Speaker 4: So I called him. He said that gun violence is deplorable,
Speaker 4: but guns themselves aren't unethical or immoral by themselves. I
Speaker 4: remember thinking it was a little weird, but to me
Speaker 4: it was new to hear about a conservative version of ESHI.
Speaker 4: I knew I had to learn more, so I helped
Speaker 4: on a plane and feutre boise last year.
Speaker 1: Okay, well, so why don't you take over the story
Speaker 1: from there, and then we'll meet back here later in
Speaker 1: the eppisode to talk more about ESG and.
Speaker 4: What you've learned sounds great, Robert Nesle is a small
Speaker 4: part of a bigger clash that's going on in America.
Speaker 4: Red versus blue, and the worlds of financing investing haven't
Speaker 4: been immune. EESG, which stands for Environmental, Social and Governance Investing,
Speaker 4: has become a pinata and dragged into the cultural wars.
Speaker 4: On the one hand, proponents of ESG say it's important
Speaker 4: to take into account things like climate change and workers'
Speaker 4: rights when making financing and investing decisions, especially amid societal changes,
Speaker 4: regulation and pressing problems like global warming, when opponents on
Speaker 4: the political right say ESG has become a way for
Speaker 4: progressives to impose their views and their goals on financial markets,
Speaker 4: essentially a threat to the American way of doing business.
Speaker 4: Robert Nesley is somewhere in the middle of those two.
Speaker 4: He's a bit of an anomaly. He straddles both sides.
Speaker 4: In one sense, he is a faith based investor who
Speaker 4: excludes things like tobacco and alcohol from his portfolio. On
Speaker 4: the other he invests in gun makers and pushes back
Speaker 4: on things like LGBTQ issues. We'll get into more of
Speaker 4: that later, but first I want you to hear where
Speaker 4: Robert came from. He grew up in California, in the
Speaker 4: Monterey Bay area. His parents married right out of high
Speaker 4: school and had Roberts and his younger brother not long
Speaker 4: after that. His mom stopped using drugs, but his dad didn't.
Speaker 3: So they got the worst one.
Speaker 2: I was about three, reading by my mom, my younger
Speaker 2: brother's artistic in on food stamps for a little bit,
Speaker 2: and all that kind of thing, going through life, and
Speaker 2: just really seeing the faithlesser going.
Speaker 3: Through all of that.
Speaker 4: As evangelical Christians, they went to church. The community there
Speaker 4: gave Robert sability and he had a sense that God
Speaker 4: was providing for his family. But he really found God
Speaker 4: one day when he was seven years old and on
Speaker 4: time out.
Speaker 2: I remember this really feeling like sorry for myself whatever, whatever,
Speaker 2: nobody loves me, YadA, yah YadA, And you know, writing
Speaker 2: in my ciddy and it's remembering what the pastor said
Speaker 2: that you know, Jesus loves you actually and he will
Speaker 2: forgive you of your sin. And as a seven year
Speaker 2: old does, I remember praying and asking Jesus to come
Speaker 2: into my heart, you know, and I give him mind
Speaker 2: to him there and then that's when personally I made
Speaker 2: a decision to really follow Christ in a very childlike way.
Speaker 4: Robert went to community college then later got his college
Speaker 4: degree online. In between that, he met his wife at
Speaker 4: a tiny church in his hometown. They lived a life
Speaker 4: of what he called intentional ministry, doing work in the
Speaker 4: community in the name of God. He worked with high
Speaker 4: schoolers with disabilities and at a pro life pregnancy center.
Speaker 4: When he and his wife started having kids and needed
Speaker 4: more money, he got a job at a Volkswagen dealership
Speaker 4: until it closed during the two thousand and eight financial crisis.
Speaker 2: On my way home from getting let go, when they
Speaker 2: told everybody, you know what was going on, like ahead
Speaker 2: was kind of spending respecting our second baby, and like,
Speaker 2: I don't know what I'm going to do, So we
Speaker 2: just kind of pulled over and spraying and really felt
Speaker 2: the piece of God to say, like, you know what,
Speaker 2: you've never liked that job anyway, this is your opportunity
Speaker 2: to do whatever you want to do and.
Speaker 3: I'll take care of it.
Speaker 4: So he thought about what jobs could have family friendly hours,
Speaker 4: and he decided to look for a job at a bank.
Speaker 4: He applied to everything he could, and then he got
Speaker 4: a gig with Wells Fargo in their investment department. Even
Speaker 4: though math was his worst subject in school, he picked
Speaker 4: it up really quickly, got license and moved into a
Speaker 4: role advising clients on their investments. He says he was
Speaker 4: happy as clam until decided to lead a Bible study
Speaker 4: on finances at his church. He wanted to talk about
Speaker 4: what the Bible teaches people about money. So he starts
Speaker 4: for searching and then.
Speaker 2: Some article came up about the response investing like investing
Speaker 2: interesting click and introduced this concept of Hayrid thought about
Speaker 2: what the companies you own, like you're an owner, what
Speaker 2: they're actually doing to make money? Right? And so if
Speaker 2: you own Netflix or whatever videos like would you have
Speaker 2: a video store that sold pornography videos in the back?
Speaker 2: Like no, I wouldn't, and yet that's exactly what we
Speaker 2: do as shareholders.
Speaker 4: Robert says, there are lots of scriptures in the Bible
Speaker 4: that say it's bad to make money off of things
Speaker 4: that are.
Speaker 3: Immoral, that is attestable to the Lord.
Speaker 4: So he turned to his own investments, and he quickly
Speaker 4: found what he considers to be a major red flag.
Speaker 4: He had been investing in companies that manufacture aborta fashions
Speaker 4: or drugs that help end a pregnancy. His heart sank.
Speaker 4: Remember he was the president of a pro life pregnancy center,
Speaker 4: and his reading of the Bible concluded that abortion is bad,
Speaker 4: So that investment was a complete no no for him.
Speaker 2: I remember sitting in my desk sort of slack job
Speaker 2: like this son, that this was something that I had missed,
Speaker 2: that the church is obviously missing, and that I couldn't
Speaker 2: do my job like somebody came to mist right now
Speaker 2: and asked me to play the trade.
Speaker 3: Like I couldn't do it with a queen conscience. And
Speaker 3: then I go craps because what else was I going
Speaker 3: to do? And so it's incredibly frightening.
Speaker 4: So he quit the bank, and he said he felt
Speaker 4: God was calling him to do something else, he dabbled
Speaker 4: with what he called biblically responsible investing, and then in
Speaker 4: twenty fifteen he started his own firm called Inspire Investing. Essentially,
Speaker 4: Inspire invests in companies it seems worthy, engages with those
Speaker 4: that it hopes to convert, and excludes or divest from
Speaker 4: ones that it finds immoral.
Speaker 2: In the Apostle Paul, in one of his letters to churches,
Speaker 2: it talks about how he's like he's compelled to preach
Speaker 2: the gospel and there's there's nothing else that he can do.
Speaker 3: He's just he's compelled to preach the gospel.
Speaker 2: And I really felt like that, like I'm compelled, like
Speaker 2: there's nothing else I can do other than then this,
Speaker 2: you know, goes share this story with people, and I
Speaker 2: don't know how it's going to end up, you.
Speaker 3: Know, maybe terribly financially, but this is what I have
Speaker 3: to do.
Speaker 2: So of course of my eye step out of the mote,
Speaker 2: and you know, trusted God, and he's been he's been faithful.
Speaker 4: The market was exceptionally bad last year because of inflation,
Speaker 4: the war in the Ukraine, and fears of a global overcession.
Speaker 4: So maybe it doesn't mean a lot that his biggest
Speaker 4: fund slumped about twenty four percent last year. If we
Speaker 4: look back to a good year twenty nineteen, his fund
Speaker 4: was up twenty eight percent, but it was still slightly
Speaker 4: below the overall startle markets. But remember what Robert said
Speaker 4: at the beginning of this episode. For him, it's not
Speaker 4: all about making money.
Speaker 2: I'm not an investor who's a Christian, like I'm a
Speaker 2: Christian who has to work and investment industry.
Speaker 4: Many of the biggest and most profitable companies are excluded
Speaker 4: from his portfolio, which is almost a guarantee that his
Speaker 4: investments will underperform.
Speaker 2: We exclude companies that you know, support legislation that is
Speaker 2: anpathetical to a biblical viewpoint, like pushes a certagy or
Speaker 2: doing money to an activist organization that's explicitly pushing an
Speaker 2: unbiblable viewpoint on those areas.
Speaker 4: So Robert's reading of the Bible says abortion is bad.
Speaker 4: We'll think of all the companies that announce that they
Speaker 4: would pay for employees to travel for an abortion after
Speaker 4: the Supreme Court overturn rov Wade last summer, They're out
Speaker 4: of his portfolio. Also excluded all of the companies that
Speaker 4: support or finance floats during the Pride Parade. His reading
Speaker 4: of the Bible isn't supportive of LGBTQ rights either. I'll
Speaker 4: just note here that while Netley says that he loves
Speaker 4: his LGBTQ neighbors, he doesn't want what he describes as
Speaker 4: their lifestyles promoted in society and by companies. Nor does
Speaker 4: he want companies to discriminate against people like Kim in
Speaker 4: the workplace who hold more traditional views on marriage. So
Speaker 4: abortion access and LGBTQ rights are only two issues, but
Speaker 4: they put a lot of companies on the exclude list.
Speaker 4: Other companies are shunned for reasons such as distributing pornography,
Speaker 4: selling tobacco and alcohol products, funding stem cell research, and
Speaker 4: promoting in vitro fertilization. All in all, Robert says Inspire
Speaker 4: excludes about half of this in P. Five hundred, companies
Speaker 4: like Amazon, Walmart's Apple, and Google's parent company alphabets. In
Speaker 4: an effort to limit the number of companies on the
Speaker 4: exclude list, Robert will often press executives, encouraging them to
Speaker 4: avoid what he says is politicization. Here's one examples.
Speaker 7: So, who likes costco wholesale fans of free samples in
Speaker 7: the room.
Speaker 4: He's on the stage at a conservative conference in twenty eighteen.
Speaker 7: Last summer, we were alerted to the fact that they
Speaker 7: had begun sponsoring certain gay pride parades throughout the country,
Speaker 7: a handful of different cities. Obviously, this is concerning to us.
Speaker 7: So I picked up the phone and I just called
Speaker 7: Investor Relations, he said.
Speaker 4: The CFO called him back and they had several conversations.
Speaker 7: About six weeks after that initial phone call, got another
Speaker 7: call from this gentleman telling us that Costco had made
Speaker 7: the executive decision not to support divisive issues his word,
Speaker 7: divisive issues such as gay pride parades.
Speaker 4: Costco wouldn't respond to requests for comment, but these sorts
Speaker 4: of campaigns show that his work is about more than
Speaker 4: just investing in this faith. He's having an influence. It
Speaker 4: doesn't always go his way, though, He says he's tried
Speaker 4: to persuade Smuckers against supporting lgbth wrights and other quality issues.
Speaker 4: He's also tried to press six Sporting Goods against paying
Speaker 4: for employee travel for abortions, but so far he's been unsuccessful. Yet,
Speaker 4: Robert says he avoids the shame game.
Speaker 2: One of the big criticisms of physically responsible investing generally
Speaker 2: is that it can be easily perceived or assumed that
Speaker 2: it's a guilt trip game, right, like, hey, did you
Speaker 2: know that you're invested in this thing?
Speaker 6: Shame?
Speaker 2: And unfortunately, I think historically there have been those that
Speaker 2: have taken that approach. Good intentions maybe, but you know,
Speaker 2: run approach. And you know, we've heard a lot of people,
Speaker 2: especially from the early days and like before we got
Speaker 2: involved in like the decades, you know, nineties and eighties
Speaker 2: and whatnot, that that really was the perception that it
Speaker 2: was like a guilt and shame sort of legalistic approach,
Speaker 2: which is, you know, distasteful and not really difficult. We're
Speaker 2: supposed to be compelled by love and grace, not guilt
Speaker 2: and shame.
Speaker 4: So take that as you will. But one thing that
Speaker 4: really struck me was that he decided to label his
Speaker 4: funders e SG. When I thought about it, it made
Speaker 4: sense in some ways. I mean, Inspire certainly screens companies
Speaker 4: by a variety of categories that fall under E S
Speaker 4: and G topics, which is environmental, social and governance issues.
Speaker 4: Inspire will screen for human rights violations, forced labor and
Speaker 4: other worker issues like minimum wage policies. It'll look at
Speaker 4: whether companies are cognizant of their environmental impacts such as
Speaker 4: water consumption and air pollution, and INSPIRE will screen for
Speaker 4: discriminatory or prejectory lending, whether companies are aggressively marketing products
Speaker 4: in low income communities. All of those are considered issue factors.
Speaker 4: But the day I visited him last August, that was
Speaker 4: all about to change. Right before our interview, he was
Speaker 4: in a meeting with his board and they decided to
Speaker 4: remove the E issue label from their funds.
Speaker 2: I don't know if there was some meeting that they
Speaker 2: had in conservative radio land or something, right, but like, hey,
Speaker 2: this year, let's talk about USU every.
Speaker 3: Single time we go on here. So the you know,
Speaker 3: just we noticed the rhetoric is like increasing. Hmm. Watching this,
Speaker 3: I don't know how that's going to go.
Speaker 2: We're committed to like trying to be alive, trying to
Speaker 2: be redemptant influence on ESG, and meanwhile we're getting like
Speaker 2: lambassad from the left for like staying reesg.
Speaker 4: Roberts says he got blowback from liberal corners for claiming
Speaker 4: the ESG label while investing in socks that might contradict
Speaker 4: a more traditional understanding of what ESG means. Meanwhile, his
Speaker 4: more conservative clients were also getting confused by the label.
Speaker 4: Conservative talking heads like Glenn Beck and Tucker Carson had
Speaker 4: been attacking ESG on air, describing it as what they
Speaker 4: call a leftist agenda. So have high profile politicians such
Speaker 4: as Florida Governor Ron de Santis and former Vice President
Speaker 4: Mike Pence. Beck has said ESG poses a danger to
Speaker 4: soul of America. DeSantis has gone as far as directing
Speaker 4: his state to pull billions of dollars from black Rock,
Speaker 4: the Wall Street money manager that's been the most vocal
Speaker 4: about pressing companies on issues like climate change, and more
Speaker 4: than a dozen states have pushed anti ESG laws. So,
Speaker 4: if all these guys are calling ESG woke capitalism, what
Speaker 4: was inspired doing? Robert says he wishes es SHE could
Speaker 4: be seen as more neutral, But it is what it is.
Speaker 2: It's a narrative that we are powerless to counteract. If
Speaker 2: we had a bigger microphone than maybe we would try.
Speaker 2: But the amount, Yeah, like when every conservative pundit is
Speaker 2: calling an evil, like, we just cannot.
Speaker 3: Counteract that narrative.
Speaker 4: Not that Robert necessary wants to counteract conservative talking points.
Speaker 4: He is on the conservative end of the spectrum, after all,
Speaker 4: and he shared the stage at conservative conferences with big
Speaker 4: names from the Republican Party. He says he won't endorse candidates,
Speaker 4: but his work naturally leads him to back or speak
Speaker 4: as against companies based on whether they're handling of socially
Speaker 4: shoes conforms to his reading of the Bible.
Speaker 2: We believe that a healthy business respects all viewpoints, right,
Speaker 2: and they certainly they claim to be tolerant and inclusive,
Speaker 2: then they should actually be so in practice.
Speaker 3: So do you want them neutral or do you want
Speaker 3: them to keep kends what you mean by neutral? Right,
Speaker 3: So it means neutral by allowing all points.
Speaker 4: Just making shoes, just sit to making cheese.
Speaker 6: If it's Nike, yes I would like him Betral, not
Speaker 6: if it's Bobby Lobby or just like what I'd like
Speaker 6: them to keep not being neutral, you know.
Speaker 2: But even those companies they respect new point, diversity and
Speaker 2: all sorts of people working there, so they're not It's
Speaker 2: neutrality in you know, not imposing your beliefs, you know
Speaker 2: upon people working there in a way that is you know,
Speaker 2: heavy handed or whatever else like it's respecting all viewpoints.
Speaker 1: Wow. Wow, I'm sorry to interrupt Segel, but this is
Speaker 1: just so interesting to me. Robert sounds like such a
Speaker 1: likable man, and he has goals of realizing his values
Speaker 1: as an investor and through his portfolio. But I also
Speaker 1: think there's some hypocrisy and contradictions going on here that
Speaker 1: are worth exploring. He's asking companies like Nike, for example,
Speaker 1: to be neutral and to not put values ahead of
Speaker 1: their product line for example, or do not put values
Speaker 1: ahead of their sponsorships. And yet then he's turning around
Speaker 1: and saying Chick fil A or a hobby lobby is
Speaker 1: doing the right thing by restricting certain people from its
Speaker 1: premises or from its product line. And that just feels
Speaker 1: to me like a deep contradiction, especially from someone who
Speaker 1: says they're a Christian if you accept that sort of
Speaker 1: a basic tenet of Christianity is love and forgiveness. Who
Speaker 1: is he really forgiving? Who does he really love when
Speaker 1: he's working through where he's going to invest? And then
Speaker 1: the criticisms he has of other people for making exactly
Speaker 1: the same choice as he does.
Speaker 4: Well, that's where it gets all murky. A lot of
Speaker 4: conservatives feel that corporate America has been co opted by
Speaker 4: liberals who are pushing goals like climate change, for instance.
Speaker 4: These conservatives want businesses to focus on business and to
Speaker 4: be more neutral and not following liberal goals.
Speaker 1: Yeah, but neutrality is in the eye of the beholder,
Speaker 1: too right, right, too right, and at least classically with investment,
Speaker 1: if you're saying you're being neutral, you're trying to look
Speaker 1: just at the numbers. And now you have these conflicts
Speaker 1: between people who say, we have the numbers, but we
Speaker 1: also have values. But then you have Robert Ntsley who's saying,
Speaker 1: my values are good for me, but your values aren't
Speaker 1: good for you.
Speaker 4: Maybe this is a good place to pause on the story.
Speaker 1: I agree. Let's take a break, and then where are
Speaker 1: we going When we get back.
Speaker 4: I want to step back and talk to some of
Speaker 4: the experts I've been speaking to about what's going on
Speaker 4: in the issue space, and then we'll go back to
Speaker 4: roberts and here's some of his sorts.
Speaker 1: Great, we'll be right back with all of that. Okay,
Speaker 1: we're back with Bloomberg's ESG reporter Segel Kishan.
Speaker 4: Thanks for having me.
Speaker 1: So we've just heard the story of Robert Netsley, a
Speaker 1: faith based investor in Idaho. But he's not the first
Speaker 1: person obviously who's invested this way. So Sagel, why don't
Speaker 1: you take over the story again and give our listeners
Speaker 1: some of that history.
Speaker 4: Faith based investing is the oldest full of sag Old capitalism.
Speaker 3: Sure, I mean going back to you know, slave trade
Speaker 3: in the UK.
Speaker 4: This is Robert Netsley again.
Speaker 2: Yeah, you had the Quakers and others who just refused
Speaker 2: to invest in the slave trade. And we're outspoken about
Speaker 2: slave trade. So it was people of faith, specifically Christian
Speaker 2: faith in that context, and scripturally, like even thousands of
Speaker 2: years before that, you've got proverbs and rules surrounding commerce
Speaker 2: that prohibit immorality, like including the slave trade. You know,
Speaker 2: kidnop exhilivating in Moses. This is an a moral business.
Speaker 3: You don't steal people and sol THEO.
Speaker 4: I called Nikita Singal to learn more about this. She's
Speaker 4: the co head of Sustainable Investment and ESG at Lizard
Speaker 4: Asset Management in New York.
Speaker 8: Esg's birthplace was kind of from the Sri movement.
Speaker 4: SRI that's socially responsible investing. She pointed to religious groups
Speaker 4: like the Methodists as well. As sharer law in the
Speaker 4: Muslim faith.
Speaker 8: And many other religions have some form of influence over
Speaker 8: how the followers of that faith should invest in line
Speaker 8: with the principles of that religion.
Speaker 4: When hot butts in is shoes later arose around the
Speaker 4: Vietnam War and Apartheis in South Africa, a lot of
Speaker 4: consumers started using their purchasing power to boycott companies turning
Speaker 4: a profit there.
Speaker 8: All of that time period was about investing in companies
Speaker 8: that were we believed they were engaging in activities that
Speaker 8: were not positive for society, and the tool that was
Speaker 8: used was to just simply exclude investing in those companies
Speaker 8: because it was signaling a specific value or a virtue.
Speaker 8: I think ESG is very different from all of that.
Speaker 4: In the Keysa's eyes as a person who does this
Speaker 4: kind of investing every day.
Speaker 8: ESG is not virtue signaling. It's not a product, it's
Speaker 8: a process. It's actually part and parcel and a very
Speaker 8: essential part of good investing. And what it is about
Speaker 8: is thinking on behalf of our clients as their fiduciaries.
Speaker 8: What are these emerging risks and opportunities related to the
Speaker 8: environment and society that are increasingly becoming market issues.
Speaker 4: When I told Nikisa about Robert's fund, she was unequivocal.
Speaker 8: I would not consider that ESG.
Speaker 4: She highlights it for me, the difference between ESG and
Speaker 4: what she calls impacts investing. That's where an investor might
Speaker 4: try to use their investments to affect change or influence
Speaker 4: a company's policies.
Speaker 8: There is a healthy and growing subst set of our
Speaker 8: clients who are interested in that, and we need to
Speaker 8: make sure that we can do it while keeping in
Speaker 8: mind their risk return objectives. But it's not the place
Speaker 8: of a global asset manager like us to be able
Speaker 8: to have an opinion on that.
Speaker 4: To learn more about what makes EESG ESG, I called
Speaker 4: an expert who I've spoken to you while on the beat.
Speaker 5: VET told Hennish and I'm Weistein and faculty director of
Speaker 5: the ESG Initiative at the Wharton School, and I'm also
Speaker 5: the Deloitte and Tusche Professor of Management.
Speaker 4: Viz has a similaritate to Nikisa when it comes to
Speaker 4: what factors go into an ESG investment plan.
Speaker 5: ESG is about doing hard financial analysis and it's not
Speaker 5: at all driven by ideology. It's driven by economics.
Speaker 4: He'll study data to try to understand how companies are
Speaker 4: analyzing environmental, social, and governance factors. Then he'll look into
Speaker 4: how those factors might affect a company's bottom line. Here's
Speaker 4: an example. Palmle is a common ingredient found in cosmetic
Speaker 4: products like lipsticks, but it's also leading to a lot
Speaker 4: of deforestation around the world.
Speaker 5: That's just one of many examples. Or an agricultural company
Speaker 5: by changing its mix of supplies, by changing where and
Speaker 5: how it's sourcing, can have an impact on deforestation and
Speaker 5: an impact on clear cutting and other environmentally damaging practices.
Speaker 5: Companies are going to be increasingly pressured to undertake those actions.
Speaker 5: Some companies are head in that transition. Some companies are behind.
Speaker 5: That should be reflected in their valuation. Otherwise, government policy
Speaker 5: or consumer changes in preferences will lead them to be
Speaker 5: forced to make these changes later on when they're more
Speaker 5: expensive to make.
Speaker 4: It's not a short term gain. He's really trying to
Speaker 4: map out how a company's decisions today will affect its
Speaker 4: profits in the future.
Speaker 5: There may be periods of time like twenty twenty two,
Speaker 5: where you outperform the market, but you will underperform over
Speaker 5: the medium to long term.
Speaker 4: Of industry groups report that trillions of dollars are already
Speaker 4: weighing ESG issues to some degree. That's a massive pool
Speaker 4: of capital, and Fitz says it's only going to get bigger.
Speaker 4: But the southern political polarization of ESG worries him. Sure,
Speaker 4: ESU models need work, but he doesn't think that's a
Speaker 4: reason to give up on the strategy or ignore how
Speaker 4: these factors affect the market.
Speaker 5: What I'd point to is the unfair standard they're holding
Speaker 5: the ESG movement to. They say, we haven't built the
Speaker 5: data set yet that can predict future stock market returns,
Speaker 5: that we haven't built the financial model that can predict
Speaker 5: which stock will outperform the others over the next ten years.
Speaker 5: Show me anyone in the financial service space who has
Speaker 5: a data set that can predict which stocks are going
Speaker 5: to outperform the others over the next ten years. Anyone
Speaker 5: who had such a data set would be a billionaire.
Speaker 5: There's a struggle to always, in each market cycle, in
Speaker 5: each month, try to figure out which stocks are going
Speaker 5: to outperform and which art There's.
Speaker 4: So much confusion about what ESG is. It means different
Speaker 4: things to different people. The data is incomplete, it's difficult
Speaker 4: to compare, and overall the field is still a work
Speaker 4: in progress, and even experts acknowledge that ESG analysis is
Speaker 4: still in its infancy. Nikisa says people just have to
Speaker 4: appreciate where the industry is.
Speaker 8: That's the wild wild West that we're still in.
Speaker 4: Nikita also says she doesn't see bias at work in
Speaker 4: ESG analysis. Regardless of how the models are built.
Speaker 8: There is no such thing as a good ESG company
Speaker 8: or a bad ESG company, because you're throwing in three
Speaker 8: very different variables and you're somehow assuming that that is
Speaker 8: going to make some sense. Our job as an investor
Speaker 8: is not to say whether that's good or bad for society.
Speaker 8: It's about saying how does that impact the financial markets.
Speaker 4: Roberts agrees with Nikisa and fits that ESH shouldn't be prescriptive,
Speaker 4: but he thinks that's actually what's happening.
Speaker 2: The Pollyanna and me probably wishes that there could be
Speaker 2: a two part of UHG system.
Speaker 4: And how would that work. We'll take the E for example.
Speaker 2: There are those who just think mining is bad and
Speaker 2: oil production is literally evil and it's killing mother Earth
Speaker 2: and we should stop all drilling period, no matter what
Speaker 2: the costs. The Bible says that we're here. God has
Speaker 2: put us in his earth to exercise his dominion over
Speaker 2: this world. We have a right to extract things from
Speaker 2: the earth. Right we have a right to use the
Speaker 2: resources to benefit mankind.
Speaker 4: Robert's biblical view of mining lines up with a more
Speaker 4: conservative way of thinking. So the conservative ESG system miight
Speaker 4: grade mining companies highly and invest in more of them,
Speaker 4: whereas a liberal EESG system miight grade them poorly and
Speaker 4: not invest one issue cheaper, and two very different approaches.
Speaker 1: Okay, hang on a second, I'm going to butt in
Speaker 1: here again to clarify. Nikita and Vitt are saying that
Speaker 1: ESG is not political and it's not partisan. They say
Speaker 1: they're just looking at data that shows how a company
Speaker 1: will perform in the future depending on how they handle environmental, social,
Speaker 1: and governance factors. But some conservatives think that issues like
Speaker 1: climate change, for instance, are inherently political, even if the
Speaker 1: vast majority of scientists agree that climate change is real.
Speaker 4: Yeah, that's a pretty good summary, tim, And actually there
Speaker 4: may be even more approaches to issue than what I've
Speaker 4: laid out. I spoke to another faith based investor Mark
Speaker 4: Regier who works in Wisconsin, and he has a different
Speaker 4: reading of the Bible than Robert does.
Speaker 5: I make it a rule not to tell anybody what
Speaker 5: Jesus would do, because I don't know.
Speaker 2: That's what makes the difference between somebody who's the son
Speaker 2: of God and somebody who's definitely not.
Speaker 4: Like I said, there's no clear definition of ESG. There's
Speaker 4: lots of different takes on it. It depends on who
Speaker 4: you speak with.
Speaker 1: What a minefield. I want to talk more about this,
Speaker 1: but we have to take an ad break first. We'll
Speaker 1: be right back. Okay, we're back with Sagel Kishan, the
Speaker 1: ESG wizard of Bloomberg News. I've found this whole story
Speaker 1: so fascinating, Sagel, and a lot's gone on since you
Speaker 1: interviewed Robert the last time. Tell me about some of
Speaker 1: the most significant things that have happened within the ESG
Speaker 1: movement during that period.
Speaker 4: Gosh, so much has happens. We've had Ronda Santis Pylon
Speaker 4: An attack EESG. We've had attorney generals across different states
Speaker 4: launch investigations into ESG. We've had billions of dollars pulled
Speaker 4: out of black Rock, Wall Street's biggest champion of ESG
Speaker 4: and plenty of anti ESCH bills being pushed through states.
Speaker 1: You know, it's very interesting to me when these things
Speaker 1: happen in the US, where a momentum comes behind a movement,
Speaker 1: whatever the movement might be. We saw this happening with
Speaker 1: another acronym CRT or critical race theory that invaded the
Speaker 1: discussion of education and what's appropriate for the classroom and
Speaker 1: what isn't it's rare that you get that same phenomenon
Speaker 1: on Wall Street and that it becomes so clearly politicized
Speaker 1: so quickly, And what do you think gave it this
Speaker 1: kind of energy? Like why now? And why has it
Speaker 1: gotten such traction?
Speaker 4: Why now? I mean, the E issue movement, if you
Speaker 4: can call it a movement, has overtaken in some ways
Speaker 4: asset managers and banks. Everybody's been pushing to look at
Speaker 4: things like climate change, c suite diversity, inequalities.
Speaker 1: The composition of boards exactly exactly.
Speaker 4: And so that's why we've had this big pushback because
Speaker 4: Wall Street has gone big on this in the last
Speaker 4: three years.
Speaker 1: And is that pure lunacy. Has Wall Street gone off
Speaker 1: its rocker that it's now actually trying to embrace things
Speaker 1: like climate change, or corporate diversity or boardroom diversity. I mean,
Speaker 1: clearly its critics think it has and they're painting it
Speaker 1: as dangerous, but just trying to step back for our
Speaker 1: listeners a little bit. As someone who watches Wall Street
Speaker 1: as a sophisticated observer, as a very numerous, sophisticated observer,
Speaker 1: do you think this is a threat to the foundations
Speaker 1: of American finance and the roots of Wall Street.
Speaker 4: It's funny that you say that, because progressives who are
Speaker 4: trying to push and act on things like climate change
Speaker 4: and inequalities in society, they don't feel that capital markets
Speaker 4: corporations are doing enough. In fact, they think it's something
Speaker 4: called greenwashing, where a company saying they're doing good things,
Speaker 4: but really they're not. So it's been pushed and pulled
Speaker 4: from both sides at the moment.
Speaker 1: And that critique from the left is you actually are
Speaker 1: not putting your money where your mouth is, exactly, and
Speaker 1: now you have Wall Street step being up or at
Speaker 1: least attempting to to put its money where its mouth is.
Speaker 1: The left says it's not enough money, and the right
Speaker 1: saying watch your mouth. And caught in the middle are
Speaker 1: essentially money managers trying to figure out both profitable ways
Speaker 1: to invest and socially responsible ways to invest in hence
Speaker 1: a firestorm.
Speaker 4: Absolutely, by the end of the day, Wall Street is
Speaker 4: about making money. They're doing this to generate fees, to
Speaker 4: generate revenue, but the antiesh backlash is actually now sent
Speaker 4: a chill down Wall Street's spine. We've seen a lot
Speaker 4: of banks, a lot of investors who two years ago
Speaker 4: would wax lyrical about climate change and sea suit diversity.
Speaker 4: Now they've gone on the down load.
Speaker 1: And is that because they see reputational risk baked into
Speaker 1: that that at the end of the day they're saying
Speaker 1: to themselves it might be socially responsible, we even might
Speaker 1: make money off of this, but this sort of firestorm
Speaker 1: of criticism we're getting doesn't make it worth it, because
Speaker 1: we might lose business in the long run.
Speaker 4: Absolutely, I mean Larry Think, the chief of Black Rock,
Speaker 4: he's really been attacked in many ways by the Republicans.
Speaker 1: And deeply personally attacked.
Speaker 4: Absolutely, they've really called him.
Speaker 1: On billboards anti semitism.
Speaker 4: And so he's had to then tone down his rhetoric
Speaker 4: on climate change. And last year he went down to
Speaker 4: Texas to even meet all executives who explain to them
Speaker 4: the energy transition and they need to shift to cleaner fuels.
Speaker 4: But the atacks on him and the company have been
Speaker 4: pretty relentless, and that's why a lot of other companies
Speaker 4: have kind of duck for cover and they're really toning
Speaker 4: down what they're saying about climate change in particular. And
Speaker 4: on top of that, we've had Attorney general's launch investigations
Speaker 4: looking at the legal ease in many of the efforts
Speaker 4: that Wall Street are doing when it comes to the
Speaker 4: energy transition. So yeah, everybody's really looking at their marketing documents,
Speaker 4: their pitch books, making sure that they have all their
Speaker 4: ducks lined up.
Speaker 1: I guess so as we both know, no one really
Speaker 1: has all their ducks lined up, no matter what they're doing,
Speaker 1: whether they're investor, a corporate manager, a parent, or a teacher.
Speaker 1: I think one of the things I wonder about in
Speaker 1: all this is if there is a consensus, a scientific
Speaker 1: consensus that climate change might be a problem. I think
Speaker 1: there's definitely a social consensus that people should not be
Speaker 1: discriminated against for leadership positions in politics or in corporate
Speaker 1: America simply because they're a woman, or because they're a
Speaker 1: person of color or have a different ethnic background. If
Speaker 1: we're forestalling putting money behind these kinds of efforts based
Speaker 1: on bad information and it runs against both scientific information
Speaker 1: and broadly held social values, we're getting into a pretty
Speaker 1: problematic place, aren't we, in terms of being able to
Speaker 1: take the necessary action we need to solve problems.
Speaker 2: No.
Speaker 4: Absolutely, But to people on the right, a lot of
Speaker 4: diversity initiatives smacks of affirmative action of quote, and historically
Speaker 4: they've hated all of that.
Speaker 1: Yeah, I wonder how many of those people on the
Speaker 1: right come from lots of different countries historically and have
Speaker 1: lots of different backgrounds, and now they kind of want
Speaker 1: just one thing. But that's probably for a different podcast.
Speaker 1: I want to come back to money in ESG here.
Speaker 1: I also think it's useful to frame exactly how vast
Speaker 1: the ESG realm is, because most money invested in Wall
Speaker 1: Street is still invested the old fashioned way. People try
Speaker 1: to find either growth opportunities or undervalued companies and create
Speaker 1: a calculus that will result in a profitable payoff somewhere
Speaker 1: down the road. How big actually is the ESG universe
Speaker 1: right now in terms of what percentage of assets on
Speaker 1: Wall Street flow towards it.
Speaker 4: Well, it's certainly not a majority of the assets. It's
Speaker 4: probably less than ten, if not five percent of the assets.
Speaker 4: But ESG investors they have said, like trillions is involved
Speaker 4: in ESG. But what's happening now because of concerns of
Speaker 4: greenwashing when people exaggerate their environmental claims, we're seeing a
Speaker 4: sort of shrinkage going on both in Europe and the US.
Speaker 4: So the numbers are in flux at the moment.
Speaker 1: So from where you sit, do you think this means
Speaker 1: that the SG movement is going to run out of steam?
Speaker 1: Does it die? Does it get repackaged with different initials
Speaker 1: and sort of sneak past its critics? How does this
Speaker 1: play out?
Speaker 4: There are even people within the ESG who want to
Speaker 4: get rid of the acronym altogether because of all the
Speaker 4: bad press in the past year. They're thinking of more
Speaker 4: mundane labels like sustainable investing or de risking or material
Speaker 4: risk factors, which they don't really excite people, but that's
Speaker 4: really what the issue is.
Speaker 1: Maybe they could call it save the planet so your
Speaker 1: grandchildren can still live on it, but that's too long
Speaker 1: for an investment them, isn't it.
Speaker 4: But despite the malaise, we're not really seeing companies or banks,
Speaker 4: even though they're being less vocal about it, they're still
Speaker 4: pushing on behind the scenes on man these initiatives, something
Speaker 4: called green hushing, where you don't talk about your green
Speaker 4: activities but you do it anyway, but you do it anyway. Yeah,
Speaker 4: this backlash isn't going to go away. There's gonna be
Speaker 4: ebbs and flows. But we've got the elections next year.
Speaker 4: We've got some of the candidates riding on anti woke tickets,
Speaker 4: Rando Sentis and another one, Vivek Ramaswami.
Speaker 1: Uh huh yeah.
Speaker 4: So yeah, it's going to continue to be bashed.
Speaker 1: Okay, So Joe, I don't let anybody escape this show
Speaker 1: without sharing with our listeners what they've learned, that little
Speaker 1: aha that they've discovered by examining the subject we're talking about. So,
Speaker 1: what have you learned about ESG and the anti ESG
Speaker 1: movement that you didn't know before you began talking to
Speaker 1: Robert Netsley and others.
Speaker 4: I guess maybe this is naive of me. But in Europe,
Speaker 4: in other parts of the world, there isn't this backlash.
Speaker 4: It's only in America where this backlash. So I've been
Speaker 4: surprised by the pushback by the rights on an investment
Speaker 4: strategy that people on the left are saying is not
Speaker 4: really doing much. What I've learned things aren't so black
Speaker 4: and white.
Speaker 1: They never are. Thank you for joining us today.
Speaker 4: Thank you.
Speaker 1: You can find Segel Kishan's reporting on Bloomberg dot com
Speaker 1: and if you want to become a subscriber the Bloomberg
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