WEBVTT - Is ESG Dead? 0:00:06.400 --> 0:00:06.720 Trillions. 0:00:06.720 --> 0:00:15.240 I'm Joe Webber and I'm Eric Balchunas. 0:00:15.680 --> 0:00:20.520 There are three letters that I know Eric Balcunis obsesses 0:00:20.560 --> 0:00:24.079 about ETF. There's three others that have come up on 0:00:24.200 --> 0:00:27.040 trillions before that are not your favorite, and those three 0:00:27.080 --> 0:00:28.720 letters are ESG. Yeah. 0:00:28.840 --> 0:00:31.640 Look, I get tagged with being anti ESG, but I'm 0:00:31.640 --> 0:00:35.320 not anti ESG. I'm anti nasty surprise. And as analysts, 0:00:35.360 --> 0:00:37.479 our job is to make sure you know, investors find 0:00:37.520 --> 0:00:42.240 the right products. And to me, ESG was active management 0:00:42.400 --> 0:00:45.760 wrapped up in this moralistic face and sold is like 0:00:45.800 --> 0:00:48.120 how you're going to do good and do well, and 0:00:48.200 --> 0:00:49.640 it's not clear if you're going to do either. 0:00:50.159 --> 0:00:51.560 There's a lot to unpacked there. 0:00:51.640 --> 0:00:54.720 And I think again, if it was sold as a 0:00:54.760 --> 0:00:57.360 new way to be active and pay more, I'd be like, 0:00:57.360 --> 0:00:59.440 all right, well, at least the marketing is honest. So 0:00:59.520 --> 0:01:03.000 look the data. I think it's going to stay. This 0:01:03.040 --> 0:01:06.080 is data that will help anybody analyzing a stock. What 0:01:06.160 --> 0:01:08.560 I've been skeptical about, and we're going to debate on 0:01:08.600 --> 0:01:13.000 this show, is ESG sort of taking over your portfolio 0:01:13.040 --> 0:01:16.680 in the form of funds or ETFs, and you basically 0:01:16.720 --> 0:01:21.039 staking your kid's education and your retirement on this sort 0:01:21.040 --> 0:01:25.160 of ESG vision, which again is making active bets and 0:01:25.160 --> 0:01:28.120 can underperform. So this is the thing that I think 0:01:28.200 --> 0:01:31.160 many people just need to understand before going in. But 0:01:31.319 --> 0:01:35.200 then there's also multiple layers of inconsistencies and things that 0:01:35.240 --> 0:01:38.479 sort of offset each other that make it very confusing. 0:01:39.160 --> 0:01:42.240 And now over the years, esg's gotten so much baggage, 0:01:42.640 --> 0:01:45.800 so there's this sort of reputational issue that ESG has. 0:01:45.840 --> 0:01:49.120 So I think ESG is at a major inflection point 0:01:49.200 --> 0:01:51.400 right now. Some people have declared it dead. I won't 0:01:51.440 --> 0:01:53.320 go that far, but I do think it's at a 0:01:53.360 --> 0:01:56.720 crossroads and it may have to go on without actually 0:01:56.800 --> 0:02:04.240 using the phrase ESG. Mike Drop, you like that, well, 0:02:04.560 --> 0:02:07.760 let's I may have just like stolen my own thunder. 0:02:07.960 --> 0:02:09.680 I think that's well. 0:02:09.639 --> 0:02:12.160 Now we really get together, Okay, So joining us for 0:02:12.200 --> 0:02:16.600 this episode two colleagues in Bloomberg Intelligence who are also 0:02:16.600 --> 0:02:20.840 the co hosts of a new podcast called ESG Currents. 0:02:21.240 --> 0:02:27.040 That's robbed Boff, he's the senior ESG analyst in Bloomberg Intelligence, 0:02:27.400 --> 0:02:31.760 as well as Shahem Contractor, who's the senior ESG strategist 0:02:32.919 --> 0:02:39.000 this time on trillions is ESG Dead Rob Shaheen, Welcome 0:02:39.000 --> 0:02:42.120 to Atrillians. Thank you too, thanks for having us Shaheen. 0:02:42.240 --> 0:02:45.040 You're you've been on before, Yes, well, good to have 0:02:45.080 --> 0:02:48.480 you back. We love having returning guests. Okay, so Eric's 0:02:48.560 --> 0:02:50.679 kind of a hater as he's laid out, but we're 0:02:50.680 --> 0:02:54.320 gonna have you, uh do some Mortal Kombat with him 0:02:54.480 --> 0:02:58.240 and we'll see who wins. What's happening in ESG. Now, 0:02:58.440 --> 0:03:01.639 we've had this moment where there was a ton of 0:03:01.680 --> 0:03:05.080 buzz that felt like all of the financial industry went there, 0:03:05.200 --> 0:03:08.360 and then it was like the culture wars happened and 0:03:08.400 --> 0:03:11.320 there was a ton of pushback. Where do things stand now? 0:03:12.320 --> 0:03:14.480 So second chime into this. So I think you know, 0:03:14.560 --> 0:03:17.600 as Eric mentioned, ESG is as at a bit of 0:03:17.639 --> 0:03:21.079 an inflection point. We saw a lot of flows into 0:03:21.280 --> 0:03:26.720 ESG atfs maybe till about twenty twenty one, and we're 0:03:26.720 --> 0:03:29.680 seeing that unravel a little bit. So yes, she ETF 0:03:29.680 --> 0:03:31.840 flows at least in the US for about a negative 0:03:31.960 --> 0:03:35.920 two billion the first half of this year. Now, if 0:03:35.960 --> 0:03:37.840 we get into the y, we can get into it. 0:03:37.880 --> 0:03:41.200 I think it's concentration and all that fun stuff rather 0:03:41.240 --> 0:03:44.120 than the backlash. But we'll get into it. I know 0:03:44.280 --> 0:03:45.760 erics throwing his hands up in the air. 0:03:46.600 --> 0:03:48.080 Let me get I got to jump in here. So 0:03:48.680 --> 0:03:51.360 here's my take on it. Okay, ESG tends to be 0:03:51.400 --> 0:03:54.120 a little overweight tech and underweight Energy. Tends to be 0:03:54.240 --> 0:03:57.040 right because this doesn't want to own the bad I 0:03:57.120 --> 0:03:59.160 just put my hands in quotes. The bad company is 0:03:59.200 --> 0:04:01.640 like Exon, which we all use every day anyway. It 0:04:01.680 --> 0:04:03.760 doesn't want to own those companies. So when Energy had 0:04:03.800 --> 0:04:06.560 the huge rally in twenty twenty two and values stocks 0:04:06.600 --> 0:04:09.280 did very well and growth and tech were like bad, 0:04:09.960 --> 0:04:14.720 then ESG underperformed. And what really happened is Blackrock pulled ESGU, 0:04:15.280 --> 0:04:17.480 which is the biggest ESG ETF in the world, out 0:04:17.520 --> 0:04:19.840 of its own model. That's how bad it got. Its 0:04:19.880 --> 0:04:23.400 clients must have complained, and so really what I think 0:04:23.440 --> 0:04:26.680 happened was it underperformed, which again was our whole thing 0:04:26.800 --> 0:04:29.680 to begin with. Was hey easy, The marketing is so 0:04:29.920 --> 0:04:32.680 rosy and shiny on this, But this could underperform for 0:04:32.720 --> 0:04:34.960 long stretches of time because it's making active bets. 0:04:35.160 --> 0:04:37.840 You don't agree with that, I agree, but so I 0:04:37.839 --> 0:04:40.960 will say that are definitely falls with the ESG funds. 0:04:41.000 --> 0:04:45.960 This overweight deck, underwear energy. I completely think is I 0:04:46.000 --> 0:04:49.520 wouldn't say not valid, but not necessary. I think the 0:04:49.680 --> 0:04:52.920 reason why Black Croc pulled out it could be ESG. 0:04:53.040 --> 0:04:55.479 It could not be ESG. I don't think we have 0:04:55.560 --> 0:04:58.560 a definite evice, at least that's my view. I think 0:04:58.560 --> 0:05:00.880 if we see the money come back buck, we know 0:05:01.000 --> 0:05:03.240 it was not ESG. If the money stays out, maybe 0:05:03.279 --> 0:05:04.960 it was ESG. I think we'll just have to wait 0:05:05.000 --> 0:05:05.400 and watch. 0:05:05.720 --> 0:05:08.279 Well, if the money comes out, I mean it's because 0:05:08.320 --> 0:05:10.520 it was underperforming, because it was lagging the S and P. 0:05:10.680 --> 0:05:13.200 Whether it's overweight tech, I mean I know that one 0:05:13.279 --> 0:05:16.880 is overweight tech little underweight energy, and it lagged, and 0:05:16.960 --> 0:05:19.440 so I think Blackrock pulled it out and went into 0:05:19.440 --> 0:05:22.360 the quality ETF, which was quality stocks, and that was 0:05:22.400 --> 0:05:25.160 the trade Blackrock decided. I'm sure it hurt them because 0:05:25.160 --> 0:05:27.480 they were the biggest cheerleaders so to see, and that 0:05:27.600 --> 0:05:30.200 was eight nine billion dollars. I mean, this is not 0:05:30.560 --> 0:05:32.919 a little bit of money. They knew people would notice, 0:05:32.960 --> 0:05:34.120 and so it was that bad. 0:05:34.720 --> 0:05:37.840 But maybe they just wanted to move from sort of 0:05:38.080 --> 0:05:41.039 things that resemble a cost strategy, which ESGU does in 0:05:41.080 --> 0:05:44.400 a way. It's very sort of light in ESG to 0:05:44.520 --> 0:05:46.919 a quality fund. I don't know. I'm just saying that 0:05:47.600 --> 0:05:50.919 we don't know if it was allocated fort ESG rob. 0:05:51.240 --> 0:05:54.240 What is the conversation around ESG missing. 0:05:54.640 --> 0:05:57.080 Yes, well, I was just going to say, you know, 0:05:57.160 --> 0:05:59.440 Shehen has talked about the greed, I'm going to talk 0:05:59.480 --> 0:06:03.240 about the fear, the anti ESG pushback. So we've seen 0:06:03.279 --> 0:06:05.400 a lot of politicians, you know, it tends to be 0:06:05.480 --> 0:06:08.560 red state, blue state, but really it's more along the 0:06:08.560 --> 0:06:12.680 lines of energy producers versus energy consumers, you know, really 0:06:12.760 --> 0:06:16.360 pushing back on this notion about allocating capital away from 0:06:16.400 --> 0:06:19.719 some of these high emitting sectors or you know, part 0:06:19.720 --> 0:06:21.720 of it is also feeding into the cultural wars to 0:06:22.120 --> 0:06:23.800 let's be honest, get themselves elected. 0:06:24.720 --> 0:06:27.719 You know, we do see a lot of noise being made. 0:06:28.320 --> 0:06:31.200 Now, whether that's impacting ESG, I don't think that's the case. 0:06:31.240 --> 0:06:33.799 I think the reasons you guys have talked about performance 0:06:33.839 --> 0:06:36.000 and some of the nuts and bolts of the financials 0:06:36.000 --> 0:06:39.400 are really what's driving it. But there is definitely a 0:06:39.440 --> 0:06:42.839 lot of noise out there that maybe hasn't affected how 0:06:43.000 --> 0:06:45.440 ESG funds are run, but definitely how they market themselves 0:06:45.480 --> 0:06:47.840 and how they talk about it. So, for example, you know, 0:06:47.960 --> 0:06:51.440 black Rock barely uses the phrase ESG anymore, and it's reports. 0:06:51.640 --> 0:06:55.080 They'll talk about the actual issues, they'll talk about the 0:06:55.120 --> 0:07:00.080 carbon transition, they'll talk about diversity, but you know they 0:07:00.120 --> 0:07:02.119 won't actually use the phrase ESG. 0:07:02.600 --> 0:07:04.360 Well, what's interesting to me about the black Rock thing, 0:07:04.400 --> 0:07:08.200 I guess is, obviously I think it was a huge priority. 0:07:08.600 --> 0:07:12.160 They got attacked hard. How much of this of them 0:07:12.200 --> 0:07:14.440 not using the phrase ESG anymore has to do with 0:07:14.520 --> 0:07:18.600 that versus them just moving on and prioritizing new Yeah, 0:07:18.640 --> 0:07:19.280 so I think. 0:07:19.160 --> 0:07:21.960 They're connected but disconnected. I think the returns are why 0:07:21.960 --> 0:07:24.000 they pulled money out of ESGU in their own portfolio. 0:07:24.120 --> 0:07:27.200 My guess is they I think Blackrock put ESGU in 0:07:27.280 --> 0:07:29.880 the core when tech was doing a little better and 0:07:29.920 --> 0:07:32.240 it was like it didn't disturb anything. But when it 0:07:32.240 --> 0:07:34.680 started in performing, my guess is their advisor clients were like, heit, 0:07:34.720 --> 0:07:35.600 wait a second, why. 0:07:35.440 --> 0:07:36.280 Is ESU in here? 0:07:36.720 --> 0:07:39.400 I didn't ask for it, and it's underperforming, it's dragging. 0:07:39.680 --> 0:07:41.640 And they thought, also, this trade isn't working, and they 0:07:41.680 --> 0:07:43.200 went to something that's working. I see this do this 0:07:43.320 --> 0:07:45.720 other funds all the time. It's not like anything personal. 0:07:46.040 --> 0:07:48.960 That's my whole point. The returns aren't personal. And the 0:07:49.000 --> 0:07:52.040 case of Larry Fink and ESG them coming out with 0:07:52.240 --> 0:07:54.600 ESG putting in the portfolio was all part of that 0:07:54.640 --> 0:07:59.080 big push about four years ago cheerleading ESG. The political 0:07:59.280 --> 0:08:02.360 blowback I think was more than he thought. I think 0:08:02.360 --> 0:08:06.240 he was like overwhelmed and probably thought to himself, I 0:08:06.280 --> 0:08:08.600 thought I was saying good things here. But you have 0:08:08.600 --> 0:08:10.600 to understand that's a whole thing about Larry Fink, the 0:08:10.680 --> 0:08:13.840 leader of Blackrock, who controls ten trillion dollars and a 0:08:13.840 --> 0:08:16.520 lot of that is voting shares of US stocks. Not 0:08:16.720 --> 0:08:19.560 all of the millions of investors in Blackrock feel exactly 0:08:19.560 --> 0:08:22.520 the way he does. So as an asset manager, you're 0:08:22.560 --> 0:08:25.320 almost like a president, where you're always going to piss 0:08:25.360 --> 0:08:26.480 off like half the people. 0:08:26.960 --> 0:08:28.160 And so I think that's what happened. 0:08:28.160 --> 0:08:30.360 He didn't realize this was completely political to a lot 0:08:30.360 --> 0:08:33.160 of people, and he kind of stepped into that political realm, 0:08:33.200 --> 0:08:35.720 which asset managers are not used to doing. And I 0:08:35.720 --> 0:08:37.600 think it was a little too much. I think they 0:08:37.640 --> 0:08:44.000 got some pensions and institutional investors down South pulled money out, 0:08:44.120 --> 0:08:45.680 and I think that's when it started to become like 0:08:45.760 --> 0:08:49.440 real and they took a few steps back, only to 0:08:49.480 --> 0:08:52.440 get hit harder from the left. And I think they 0:08:52.480 --> 0:08:54.920 get hit from both sides regularly and you can't win. 0:08:55.120 --> 0:08:58.240 And so Vanguard is really I think probably set the 0:08:58.280 --> 0:09:01.120 better model of just day and the hell out of that. 0:09:01.559 --> 0:09:03.760 And they're out in Malvern, so protesters can't go there 0:09:03.800 --> 0:09:05.760 because the schoogle's a pain to get to. But Black 0:09:05.840 --> 0:09:07.960 Rock gets protesters at their office all the time, although 0:09:08.040 --> 0:09:10.120 now they move to Chelsea Peers where it's much harder 0:09:10.120 --> 0:09:13.320 to get to, so probably less. It's not it's such all, 0:09:13.400 --> 0:09:16.120 but yeah, but if you're like a I don't know, 0:09:16.360 --> 0:09:19.320 twenty four year old protester, you probably it's it's just 0:09:19.360 --> 0:09:21.559 not some like fifty second Street's right off the subway. 0:09:21.880 --> 0:09:23.880 You get out protests and you can make like your 0:09:23.920 --> 0:09:27.280 sushi dinner or whatever. But going to Chelsea Peers that's 0:09:27.280 --> 0:09:29.680 a pain. That's a whole day activity. Go into vout Malvern, 0:09:30.000 --> 0:09:32.560 that's like a I mean, they might not even make it. 0:09:33.440 --> 0:09:35.319 You can you can do some bowling afterwards. 0:09:35.360 --> 0:09:38.400 Though, let's be that's true. It's a good place to go. 0:09:38.520 --> 0:09:40.400 I like it out there, just say it's it's not easy. 0:09:40.400 --> 0:09:41.959 It's like five long blocks. 0:09:42.080 --> 0:09:46.440 Okay, stream, what's the future of ESG having had this 0:09:46.520 --> 0:09:50.840 thing happen the cultural war? Is there an investing pisis 0:09:50.920 --> 0:09:54.280 there that works and that we're gonna hear more of 0:09:54.400 --> 0:09:57.160 Because ultimately this comes down to data. And if people 0:09:57.400 --> 0:10:00.480 look in the data and find stuff they value, aren't 0:10:00.480 --> 0:10:01.760 they going to double down? Yeah? 0:10:01.800 --> 0:10:04.680 So I think what I'm hearing right now at least, 0:10:04.720 --> 0:10:06.640 and I'll speak to the short term view first, and 0:10:06.720 --> 0:10:10.400 the US is people are continuing to do what they do, 0:10:10.840 --> 0:10:14.760 but they're not expressing it as loudly as they were. 0:10:15.280 --> 0:10:18.760 That's what I'm hearing from massive managers. Europe is a 0:10:18.800 --> 0:10:21.600 whole different ballgame. People continue to do what they do, 0:10:21.600 --> 0:10:24.960 they're probably expressing it even more. So That's that's sort 0:10:24.960 --> 0:10:27.040 of the short term view. I think the long term 0:10:27.120 --> 0:10:30.239 view really depends on this political pushback. 0:10:30.520 --> 0:10:32.920 I got to jump in this whole. Everybody always brings 0:10:33.000 --> 0:10:35.120 up Europe. Okay, we got to address the europe issues. 0:10:35.240 --> 0:10:37.040 You know, your Erican thoughts. 0:10:37.280 --> 0:10:39.640 Yeah, I always hear this. 0:10:39.679 --> 0:10:41.719 They're like, oh yeah, it's kind of petered out in 0:10:41.720 --> 0:10:43.720 the US, but Europe they love it, you know, and 0:10:43.760 --> 0:10:46.720 I agree two things on Europe though. A when you 0:10:46.760 --> 0:10:48.840 invest in a fund in Europe and they carve out 0:10:48.880 --> 0:10:53.040 a stock or two, it's less dangerous because here in 0:10:53.040 --> 0:10:55.840 the US we have so much innovation and you can't 0:10:55.880 --> 0:10:57.839 miss out on a Tesla or an Amazon, or your 0:10:57.840 --> 0:11:00.400 returns are going to be a lot lower. There are 0:11:00.440 --> 0:11:02.959 no companies like that over in Europe. Pretty much, it's 0:11:03.040 --> 0:11:05.640 less dangerous to do it. Second, there's a lot of 0:11:05.679 --> 0:11:08.760 people who has the retirement already covered, so they don't really. 0:11:08.640 --> 0:11:10.480 Care that much about their end results. 0:11:10.640 --> 0:11:14.320 Yeah it's here, We're like, we don't think so securities 0:11:14.360 --> 0:11:16.240 can be there, so our retirement is major. So at 0:11:16.240 --> 0:11:18.640 the end of the day, I think returns will trump 0:11:19.080 --> 0:11:22.240 that whole ESG thing for ninety five percent of people. 0:11:22.760 --> 0:11:27.640 So I think the reason why Europe is doubling down 0:11:27.800 --> 0:11:30.480 is actually because of its pension funds. Right, Like you 0:11:30.559 --> 0:11:32.760 may say like they don't miss out on things and 0:11:32.760 --> 0:11:35.240 all that stuff, but their pension funds have been doing 0:11:35.240 --> 0:11:36.679 it for a long time and they just shove it 0:11:36.720 --> 0:11:39.600 down people's throats whether they like it or not, and 0:11:39.800 --> 0:11:42.559 just one point on the return. So you know, even 0:11:42.720 --> 0:11:46.560 if Blackrock pulled the SEO out because of performance. Even 0:11:46.600 --> 0:11:50.839 if right, it's not like an ESG ETF world by 0:11:50.840 --> 0:11:54.720 seeing mass outflows from other funds. It's a very concentrated outflow, 0:11:54.800 --> 0:11:56.960 so it's not like there's a mass uprising. I think 0:11:56.960 --> 0:11:58.199 that's that's my point. 0:11:58.640 --> 0:11:59.760 I'll give you it's one example. 0:12:00.080 --> 0:12:02.160 The flows are out of ESGU, which is good news 0:12:02.160 --> 0:12:02.360 for you. 0:12:02.480 --> 0:12:05.440 But when the media jumped on this train two years ago, 0:12:05.600 --> 0:12:07.360 most of the inflows for ESGU correct. 0:12:07.360 --> 0:12:10.520 So that's a separate problem orchestrated all this, to be honest. 0:12:10.400 --> 0:12:13.480 That's a separate problem of concentration risk, which I know 0:12:13.520 --> 0:12:17.480 you've mentioned before. So positive flows have slowed, but it's 0:12:17.480 --> 0:12:20.640 not like negative flows are increasing at a pace that 0:12:20.960 --> 0:12:23.079 signals some kind of exodus. 0:12:23.160 --> 0:12:25.160 I just said that, but the shoving it down your throat, 0:12:25.200 --> 0:12:27.880 I agree. That's why I think Europe and US are different, 0:12:27.880 --> 0:12:31.400 and US is more of a meritocracy, consumer oriented market, 0:12:31.440 --> 0:12:33.280 and I think more of a natural place to judge 0:12:33.320 --> 0:12:36.000 if ESG sentiment is real versus a pension who has 0:12:36.040 --> 0:12:45.679 to do because the government. I feel like I was 0:12:45.720 --> 0:12:48.600 at an SEC conference in DCA, which I went over 0:12:49.440 --> 0:12:52.840 two months ago, and a Virginia professor said something very interesting. 0:12:52.880 --> 0:12:58.079 She said, the demand for change, especially on climate is 0:12:58.080 --> 0:13:02.360 is so big that the supply of regulation is so small, 0:13:02.440 --> 0:13:05.680 and so that demand just is finding wants to be 0:13:05.800 --> 0:13:08.559 satisfied somewhere, and so it should be satisfied on the 0:13:08.600 --> 0:13:11.640 regulatory front, but it's not. So it goes to the 0:13:11.679 --> 0:13:14.440 asset management world, where you could argue this is not 0:13:14.559 --> 0:13:18.120 the right place for it, whereas the regulatory front is 0:13:18.160 --> 0:13:21.480 the way to move forward on many of these issues. So, 0:13:21.559 --> 0:13:24.559 in other words, regulation in the US that tells you 0:13:24.600 --> 0:13:26.760 how much you can pollute or emissions and a lot 0:13:26.760 --> 0:13:30.000 of harder standards is the way to solve this problem. 0:13:30.160 --> 0:13:32.800 Not oh, I own a little less Exxon than the 0:13:32.920 --> 0:13:34.559 S and P. I'm going to change the world. 0:13:35.160 --> 0:13:38.280 Yeah, now that's an interesting question. I think certainly there's 0:13:38.320 --> 0:13:41.240 a lot more politics in it in the States, whereas 0:13:41.400 --> 0:13:43.640 in Europe kind of most of the continent is on 0:13:43.800 --> 0:13:45.960 board with the fact that climate change is an issue 0:13:46.080 --> 0:13:49.200 that needs a whole of government approach, and that includes 0:13:49.240 --> 0:13:54.160 both regulating energy policy as well as regulating the funds industry. 0:13:54.520 --> 0:13:56.720 But in the States it's a bit more. 0:13:57.280 --> 0:13:59.280 There's a lot more of a lively debate on what 0:13:59.400 --> 0:14:03.240 can be done Interestingly enough, plug here, we did have 0:14:04.800 --> 0:14:09.200 the co head of the Congressional Sustainable Investing Caucus on 0:14:09.200 --> 0:14:13.679 our podcast ESG Currents who discussed this very issue, and 0:14:13.800 --> 0:14:16.760 basically it was that there's a lot of it's a 0:14:16.760 --> 0:14:21.320 lot more difficult to get, particularly in our divide of Congress, 0:14:21.320 --> 0:14:23.680 to get the sticks in there than it is the carrot. 0:14:23.720 --> 0:14:27.240 So that's why you saw legislation like the Inflation Reduction 0:14:27.360 --> 0:14:33.000 Act which really incentivize going green and carbon reduction policies. 0:14:33.240 --> 0:14:36.120 But again, I would say part of what's behind ESG 0:14:36.160 --> 0:14:39.080 investing is to take advantage of that to find the 0:14:39.120 --> 0:14:41.880 businesses that will make money in the long term in 0:14:41.960 --> 0:14:45.600 a world. So I'm not disagreeing with you that you know, 0:14:46.040 --> 0:14:49.640 it really takes government action to do most of the change, 0:14:49.680 --> 0:14:51.880 But I would say that as an investor, you kind 0:14:51.920 --> 0:14:54.040 of want to pay attention to these government actions and see, 0:14:54.040 --> 0:14:55.880 you know, how how can I make money off of this? 0:14:56.520 --> 0:14:58.920 I think I would agree. So, Eric, your point is 0:14:58.960 --> 0:15:02.360 that they should fall on the regulators to push it 0:15:02.400 --> 0:15:05.560 through and not asset managers in a way. 0:15:05.880 --> 0:15:08.800 And really speaking, yes, I feel like your role as 0:15:08.840 --> 0:15:12.720 a voter and as a consumer are way stronger in 0:15:12.800 --> 0:15:16.520 this climate issue than whether you sell s and P 0:15:16.640 --> 0:15:19.560 five hundred and buy something that has almost the same 0:15:19.640 --> 0:15:23.000 stocks but like one percent x on instead of two percent, right, 0:15:23.000 --> 0:15:24.640 So that just seems so pointless to me. 0:15:25.200 --> 0:15:27.760 So I would say that you know, there are facets 0:15:27.800 --> 0:15:31.400 of climate change that don't wait for regulation, right, Like 0:15:32.000 --> 0:15:36.080 say you have physical risk of a mind has a 0:15:36.200 --> 0:15:40.080 risk of flooding, like that is not in fact by 0:15:40.200 --> 0:15:43.280 regulation if regulators come, and what are they gonna ask 0:15:43.320 --> 0:15:46.440 acid managers to incorporate? So I think that that is where, 0:15:47.120 --> 0:15:49.760 like Rob said, people are seeking opportunities, are trying to 0:15:49.800 --> 0:15:53.920 mitigate risk using these things like floods don't wait for regulation. 0:15:54.240 --> 0:15:57.760 So I think also behind your question is really one 0:15:57.840 --> 0:15:59.640 of the biggest issues getting to the heart of this 0:15:59.720 --> 0:16:03.160 debate is that ESG is not one single strategy. There's 0:16:03.280 --> 0:16:05.520 kind of two different phases of it. As I like 0:16:05.560 --> 0:16:08.840 to call three three, there actually are three. So one 0:16:08.880 --> 0:16:11.440 is an inclusion which is the. 0:16:10.880 --> 0:16:12.520 Church not the. 0:16:14.440 --> 0:16:14.640 Like it. 0:16:15.040 --> 0:16:18.200 There are three are three SG one two three. 0:16:18.080 --> 0:16:21.280 But there's also three types of strategy. There's the exclusionary strategy, 0:16:21.320 --> 0:16:24.200 which is really where sustainable investing started from the old 0:16:24.280 --> 0:16:26.920 church pension funds. It said don't invest in gambling, don't 0:16:26.960 --> 0:16:30.800 invest in tobacco, et cetera. And then you have what's 0:16:30.840 --> 0:16:34.120 called ESG impact, which is, you know, let's invest in Tesla, 0:16:34.480 --> 0:16:38.760 let's really divest from Exxon to drive capital. And then 0:16:38.840 --> 0:16:41.600 there's really the heart of what we consider ESG integration, 0:16:41.680 --> 0:16:43.720 which is not so much how how am I going 0:16:43.760 --> 0:16:47.000 to change the world with my investments, but the world's changing. 0:16:47.480 --> 0:16:51.920 How can I shape my investment investments to to benefit. 0:16:51.480 --> 0:16:51.920 All of that? 0:16:52.000 --> 0:16:53.520 So those are really two different things. 0:16:53.560 --> 0:16:55.520 One let me come back to you on that. 0:16:55.600 --> 0:16:57.600 So this idea of like, oh, I have the S 0:16:57.600 --> 0:16:59.040 and P five hundred, but I don't want to miss 0:16:59.080 --> 0:17:02.600 out on regulation that could hurt some companies or something 0:17:02.640 --> 0:17:05.159 that could benefit But that's sort of the point of 0:17:05.200 --> 0:17:08.160 an index fund, right, active will sort that out. Active 0:17:08.200 --> 0:17:10.800 managers will and I always said ESG data here to 0:17:10.840 --> 0:17:14.959 stay Active management using ESG data here to stay active 0:17:14.960 --> 0:17:17.040 will be like, well, this company is a massive risk 0:17:17.160 --> 0:17:19.360 with this new regulation. They'll sell it, the price will 0:17:19.400 --> 0:17:21.240 go down, and it will fall as a waiting in 0:17:21.280 --> 0:17:24.679 the SMP. My point is, as an index fund investor, 0:17:24.720 --> 0:17:29.280 I'm kind of getting that ESG injection. If active deems 0:17:29.320 --> 0:17:31.960 it the thing to do, and I think that's sort 0:17:32.000 --> 0:17:35.560 of why it's difficult for esgtfs to dislodge. The core 0:17:35.720 --> 0:17:38.639 is a the core is cheaper, and most passive investors, 0:17:38.640 --> 0:17:42.680 I think, understand that you're getting active's. Active is driving 0:17:42.680 --> 0:17:45.840 the car you're following, and ESG decisions will go into 0:17:45.880 --> 0:17:48.760 active management's decisions, and so a company that has a 0:17:48.840 --> 0:17:51.680 huge risk will probably get trickled down and get kicked 0:17:51.680 --> 0:17:54.280 out of the SMP at some point. 0:17:54.600 --> 0:17:57.720 I would agree with that in a way. It's I 0:17:57.800 --> 0:18:00.760 do think passive the word of bass when it comes 0:18:00.760 --> 0:18:03.480 to ESG. You know things like lowcubin where it's like 0:18:03.520 --> 0:18:07.240 a very index base you just take out the highest carbon. 0:18:07.280 --> 0:18:09.760 Emto is that it's a little easier. But when it 0:18:09.800 --> 0:18:12.399 comes to these complicated things, I agree. 0:18:12.480 --> 0:18:15.560 You just talked about a company like the Exxon, and 0:18:15.760 --> 0:18:18.760 I would call those suppliers of things that are bad 0:18:18.840 --> 0:18:22.360 or whatever. But what about the user? So I look 0:18:22.359 --> 0:18:25.880 at a company like Apple. It's in like every ESG ETF. 0:18:25.920 --> 0:18:28.520 But we all know Apple has the phones made in 0:18:28.600 --> 0:18:32.240 China and then all those parts and the phones get 0:18:32.280 --> 0:18:34.720 shipped all over the world. I mean, they have to 0:18:34.760 --> 0:18:38.880 be one of the biggest users or consumers of what 0:18:38.960 --> 0:18:43.000 Exon makes, yet they're in the fund. In fact, you 0:18:43.000 --> 0:18:45.160 start looking at the whole SMP, the whole thing runs 0:18:45.200 --> 0:18:48.040 on fossil fuels. Like, I just feel like the demand 0:18:48.119 --> 0:18:50.600 the supply side these oil companies kind of get a 0:18:50.640 --> 0:18:53.960 bad rap. It's almost like the movie Traffic where you're 0:18:54.000 --> 0:18:56.520 just blaming the people running the drugs in for Mexico, 0:18:56.680 --> 0:18:59.320 but like the kid's daughter is using them, she's in 0:18:59.359 --> 0:19:01.640 the demand side, and it's like, well, hey, why don't 0:19:01.680 --> 0:19:03.439 we focus on the demand and the supply should take 0:19:03.440 --> 0:19:04.080 care of itself. 0:19:04.920 --> 0:19:08.000 Just fact check apple huge commitment to renewables. 0:19:08.320 --> 0:19:11.560 By the way, so al add that Apple is in 0:19:11.680 --> 0:19:15.560 many ESG funds, but is on average underweight in all 0:19:15.600 --> 0:19:19.640 these ESG funds, at least in the ones you've analyzed. Sorry, 0:19:19.680 --> 0:19:20.800 would not answering your question. 0:19:21.880 --> 0:19:24.600 I would I would wait in here, You're you're talking 0:19:24.600 --> 0:19:28.080 about kind of to geek out here. Something that's called 0:19:28.119 --> 0:19:31.040 scope one versus scope two versus scope three. Emission Scope 0:19:31.040 --> 0:19:33.719 one is basically you know everything you burn from the 0:19:33.720 --> 0:19:36.120 engine in your car. Scope two is basically what you're 0:19:36.160 --> 0:19:39.520 outsourcing to the public utility. So the emissions from the 0:19:39.520 --> 0:19:42.159 power plant. And then scope three is every product I 0:19:42.240 --> 0:19:44.960 make or every supplier, what's their emission, so up and 0:19:45.000 --> 0:19:47.520 down the supply chain. So you're really talking about Apple 0:19:47.560 --> 0:19:51.560 scope three or sorry, Exxon scope three emissions are being Apple. 0:19:51.640 --> 0:19:54.439 And I don't disagree with you that there is a 0:19:54.440 --> 0:19:58.360 lot of emphasis on getting Apple to cut or Exxon. 0:19:58.440 --> 0:20:00.879 I keep mixing the two up, getting Exxon to cut 0:20:00.960 --> 0:20:03.960 their Scope three emissions, when really a lot more responsibility 0:20:04.160 --> 0:20:07.520 should probably fall on the consumers to reduce their missions 0:20:07.520 --> 0:20:10.800 by investing, as Joel said, in renewables, or maybe reducing 0:20:10.840 --> 0:20:16.000 the plastic content everyone buying a Tesla, things like that. 0:20:16.119 --> 0:20:19.600 So that said, there are certain things that Exon can control. 0:20:19.640 --> 0:20:22.280 They can make you know the Exon I used to 0:20:22.320 --> 0:20:24.359