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Speaker 1: Wegner Trains. I'm Joel Webber and I'm Marriic Bell Tunis.

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Speaker 1: We got a couple of guests and we have a

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Speaker 1: theme that we've hit on before and we're gonna come

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Speaker 1: back to because I think it's actually a really important one.

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Speaker 1: It is there's a lot to unpack with this. There's

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Speaker 1: layer upon layer. I've been in it for like the

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Speaker 1: past few months and it's uh, there's so many dimensions

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Speaker 1: and conflicting pieces of information and a little hypocrisy. And

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Speaker 1: I were going to dive into it today and try

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Speaker 1: to get further than than we did in the last one.

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Speaker 1: And it's not your personality that we're talking about. We're

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Speaker 1: talking about e s G. It's pretty good, like you're

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Speaker 1: on today, Environmental Social Government Governance. Uh. E s G

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Speaker 1: assets where are they? Uh, they're underwhelming at least in

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Speaker 1: e t f S maybe about twenty billion two billion,

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Speaker 1: that's about point five percent of the assets compared to

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Speaker 1: the press they get. That's not a lot because it

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Speaker 1: gets a lot of press. It does get a lot

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Speaker 1: of press. And but there's well we want to do

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Speaker 1: is breakdown into two levels today, just two things. First

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Speaker 1: is looking at the high level black Rock and Vanguard

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Speaker 1: have a lot of voting power. Larry Fink came out

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Speaker 1: talking about wants to get more green with things, So

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Speaker 1: we'll talk about Yeah, that's a huge announcement. Yeah, they're

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Speaker 1: the two biggest uh for almost every SMP five under company,

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Speaker 1: they're the two biggest voters. Uh. There's some stuff to

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Speaker 1: unpack with that. That's like the macro level. Then we'll

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Speaker 1: shift to the micro level, which is, Okay, there's all

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Speaker 1: these E S G tfs, how do you make sense

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Speaker 1: of them? What are the pros and cons? And we'll

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Speaker 1: sort of try to go through, uh, you know, how

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Speaker 1: to do due diligence on those. And to help us

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Speaker 1: do that, we've got any Masa from Bloomberg News regular

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Speaker 1: Graham Sinclair who's on Twitter as at E S G

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Speaker 1: Architect he's been on the on the show before and

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Speaker 1: the first time, or a Shahem contractor who's an analyst

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Speaker 1: with Bloomberg Intelligence. This is also a big week at

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Speaker 1: Bloomberg and a perfect one for this episode because we've

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Speaker 1: launched a new vertical called Bloomberg Green Go to Bloomberg

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Speaker 1: dot Com slash Green, which is going to be the

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Speaker 1: new go to destination for all kinds of great stories

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Speaker 1: about climate change, all back by data. There's some amazing

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Speaker 1: stories already and the tools are just going to be sensational.

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Speaker 1: You can follow us on Twitter also there at climate

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Speaker 1: this time on Trilliance, everything is E S. G. Annie.

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Speaker 1: How big of a deal was this black Rock announcement

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Speaker 1: or what was it? What was your joke? I called

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Speaker 1: it the pr coup. It definitely drew a lot more attention,

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Speaker 1: even a lot more attention than usual. What was the announcement?

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Speaker 1: So the announcement that happened was Larry Fink came out

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Speaker 1: with his annual Letters to See letter to CEOs, and

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Speaker 1: he generally uses this as a way to come up

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Speaker 1: with some big message for the year. In the past,

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Speaker 1: he said you should pursue purpose and profits at the

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Speaker 1: same time. This year he decided to go big with

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Speaker 1: this message on climate change, and he told CEOs that

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Speaker 1: every single business is going to be affected by climate

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Speaker 1: change and they should all be really thinking about that theme.

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Speaker 1: And alongside that message, he put out this note to

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Speaker 1: clients that laid out exactly how black Rock will address

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Speaker 1: climate change in its own business, and that includes both

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Speaker 1: active and passive products. Let's break this down real quick.

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Speaker 1: What really is going on here? Of course there's a

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Speaker 1: nice letter, he cares he's been under pressure a little bit.

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Speaker 1: But what are they actually doing that will is real.

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Speaker 1: So they laid out a couple of things that they

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Speaker 1: will do that our concrete in their active funds they will, oh,

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Speaker 1: they will divest from thermal coal producers for example. So

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Speaker 1: that's one step on the passive side, though, it's where

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Speaker 1: it gets a lot more tricky, really tricky because as

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Speaker 1: an index provider and player like, they basically have to

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Speaker 1: do what the index tells them to do. Yeah, and

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Speaker 1: this has always been black Rocks kind of push back

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Speaker 1: on M E. S G themes. They've said, well, we

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Speaker 1: can only do so much because we're a provider of

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Speaker 1: passive products. We don't dictate what's in an index. And

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Speaker 1: we're a fiduciary. So when a client tells us to,

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Speaker 1: you know, put a certain amount of money in an

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Speaker 1: S and P five hundred tracking fund, we have to

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Speaker 1: do that. We can't play around with, uh, what's in

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Speaker 1: that index. So so this is a company that has

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Speaker 1: two thirds of its au M in passive products, it

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Speaker 1: does have some ideas for what to do on the

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Speaker 1: passive product side when it comes to E S G.

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Speaker 1: So they're going to double their lineup of M E

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Speaker 1: S G E T F s for example, to A

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Speaker 1: D and fifty products. The question is will the investor

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Speaker 1: money follow? And that's really what we're gonna hit in

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Speaker 1: the second is there's now going to be hundreds of

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Speaker 1: E S G T F s. Um Let's go to

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Speaker 1: the active divestment and I want to bring in Shaheen.

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Speaker 1: Shaheen talked about you analyze the coal companies like Peabody,

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Speaker 1: there's a couple of them that black Rock is going

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Speaker 1: to pull out of in their active mutual funds. Can

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Speaker 1: you talk about exactly what we're talking about here in

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Speaker 1: terms of their ownership, what percentage that is active? Of course,

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Speaker 1: so this message that black Rock puts across, first of all,

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Speaker 1: is a strong message, but it has very limited impact

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Speaker 1: because at the end of the day, as you mentioned,

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Speaker 1: black Rock is a large passive investor. So about if

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Speaker 1: you actually look at the data about of black Rock's

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Speaker 1: holdings and coal companies are passively hell, so these will

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Speaker 1: remain untouched just in ninety just you know, eat for

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Speaker 1: mutual fund data, so not it's inceditional money that could

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Speaker 1: change things, but still largely undoutched Graham E s g

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Speaker 1: is your whole world? What did you think of Larry

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Speaker 1: Fink's message? I'd start very quickly by getting back a

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Speaker 1: year and a fantastic interview at Davos, where Larry Fink

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Speaker 1: was kind of grilled when he came out with his

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Speaker 1: purpose letter, and remembering too, for your audience, he had

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Speaker 1: already done three years before that where you focus along

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Speaker 1: on a lot on long term investing. So I just

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Speaker 1: saw that as the next logical step, although given some

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Speaker 1: of his comments from January at all surprised on haw

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Speaker 1: far it come. Subsequently, yesterday there was a great interviewer

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Speaker 1: on Bloomberg Live. We unpacked some of his reasoning. You

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Speaker 1: went fishing in Alaska and a whole bunch of stuff

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Speaker 1: happened in December. For me, very quickly, I need to

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Speaker 1: drill down to the footnotes and look at the details.

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Speaker 1: I'm checking the receipts. Yeah. First of all, it's the

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Speaker 1: distinction between the passive and active sides of their business. No,

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Speaker 1: don't get me wrong. According to their self reporting a

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Speaker 1: hundred billion and active last year, they've got a decent

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Speaker 1: sized business. An you wanted to love that business, but

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Speaker 1: it's still the smaller part of what black Rock is

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Speaker 1: famous for. Um sercondly, if you look at the line items,

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Speaker 1: it's thermal coal, but it's or more in revenue. So

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Speaker 1: there's enough wiggle room there for businesses that are kind

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Speaker 1: of changing the shape of their business. For me, the

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Speaker 1: bigger part of what they're saying, including comments by their

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Speaker 1: vice chairman and and other people who are representing them,

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Speaker 1: is that these words around finance has fundamentally changed. Climate

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Speaker 1: risk is on a par with every other thematic sick

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Speaker 1: and concept that we're going to be looking at. So

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Speaker 1: I think philosophically, as a house to be sending those

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Speaker 1: messages is almost more important than saying them will call

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Speaker 1: it or ten or eighty or what have you. And Annie,

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Speaker 1: let's talk about if you are holding a shares or

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Speaker 1: Vanguard Passive fund. You're going to hold Exxon, but you're

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Speaker 1: gonna hold Apple, You're gonna hold all of it. Right.

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Speaker 1: You wrote something before the black Rock article about Vanguard

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Speaker 1: and black Rock and voting. They are going to have

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Speaker 1: some some power in their voting, and can you talk

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Speaker 1: a little bit about any plans they have to change

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Speaker 1: how they vote on some of these issues that come

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Speaker 1: up with these companies. That's right. We wrote in our

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Speaker 1: story last year that the scrutiny around the voting practices

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Speaker 1: of black Rock and Vanguard has really stepped up in

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Speaker 1: the past couple of years. And you see nonprofits like

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Speaker 1: Majority Action running analyzes showing that UM they tend to

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Speaker 1: vote relative to their asset management peers. They tend to

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Speaker 1: vote more in line with management at UM. Fossil fuel companies,

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Speaker 1: for instance, tend to vote against shareholder proposals that are

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Speaker 1: around UM climate change type issues. So the big question,

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Speaker 1: while the activist community has been happy that you have

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Speaker 1: this symbolic message coming from Larry think, the big question

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Speaker 1: is will they change their voting practices accordingly. And we'll

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Speaker 1: have to wait for the next proxy season to really

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Speaker 1: see how it will affect their voting practices. And what

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Speaker 1: about the investor reaction, because that's obviously going to be,

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Speaker 1: you know, the one that they're you know, black Rock

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Speaker 1: is gonna really be listening to Yeah, and not everybody

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Speaker 1: lives in Manhattan and agrees on all these issues, right,

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Speaker 1: take guns for example, yet or Berkeley. UM. There's a

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Speaker 1: couple of little hot spots there, phone places to go,

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Speaker 1: but not everybody lives there. Their investors are all over.

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Speaker 1: They get investors in Texas, Alabama. That's a really good point,

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Speaker 1: right Like you, if you're black Rock, you basically are

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Speaker 1: trying to create like this massive vanilla product that every

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Speaker 1: but he can use you like the president in a way,

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Speaker 1: you have to take in all these constituents, a certain president,

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Speaker 1: a certain type of president. But so how does it

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Speaker 1: That's true? Black Rock has just by virtue of being

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Speaker 1: black Rock, it has so many different kinds of clients.

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Speaker 1: And you're absolutely right, not every type of client is

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Speaker 1: going to be happy with this message that Think is

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Speaker 1: even sending or even changes behavior accordingly. So that comes

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Speaker 1: back to the idea that there's only so much black

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Speaker 1: Rock can do, especially when it comes to index products.

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Speaker 1: They can offer all kinds of index products that have E.

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Speaker 1: S G values. The question will be whether investors respond

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Speaker 1: to that. And um, you know, Think has said that

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Speaker 1: they did this, they came up with this, these changes

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Speaker 1: related to climate change as a result of client interest.

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Speaker 1: But we still have to see to what extend the

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Speaker 1: assets follow That was really interested in the comments when

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Speaker 1: he did the blue book, Clive interview from Davos. He

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Speaker 1: said maybe ten maybe of his investor base, and he

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Speaker 1: mentioned clearly global investor base. We're asking these questions. So

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Speaker 1: this clearly demand, you know, when one in five clients

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Speaker 1: are saying, hey, what do we do? And to be clear,

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Speaker 1: they didn't say you must do a B or C.

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Speaker 1: They said this is a big ticket item. You know,

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Speaker 1: in my view, climate change is overshadows all other business

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Speaker 1: strategies for the foreseeable future. But these investors were saying,

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Speaker 1: you're black Rock, You're the experts and an investment especially

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Speaker 1: you've been telling us about long term investment and corporate

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Speaker 1: governance and purpose and so on. We've got this big

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Speaker 1: ticket item. We need help. You're on go to vendor.

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Speaker 1: What's the plan here? Are you going to do for us? Exactly? Well,

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Speaker 1: I mean, let's just how much does this really matter

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Speaker 1: black Rock whether they buy the stock of this peabody

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Speaker 1: or sell it isn't really what what's going to get

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Speaker 1: changes consumers demanding or changing their ways and not demanding

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Speaker 1: oil based products or coal and or regulation. Aren't those

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Speaker 1: really the way things? Because let's say you don't, let's

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Speaker 1: say black Rock divest from Peabody isn't another investor going

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Speaker 1: to maybe make out on that because now the stocks

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Speaker 1: undervalued because of this artificial reason they're selling. Look, they'll

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Speaker 1: definitely be pricing pressures. There's some commentations already appointed to

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Speaker 1: the diversions between oil price and the price of the

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Speaker 1: energy sector as the first inklings of the long term

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Speaker 1: amount of money out there. There's institutional money out there.

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Speaker 1: They're not so keen to hear the story about hey,

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Speaker 1: they'll be oil forever and we're the best producer. We'll

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Speaker 1: find you another field and executed most efficiently. So there's

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Speaker 1: already you know, at the margin. Yes, it will matter

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Speaker 1: when a significant investor says, we've got all these opportunities,

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Speaker 1: you're over here. You've got too many complications, you've got

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Speaker 1: too much baggage and too many issues. I'm going to

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Speaker 1: put overweight in this sector. Yeah, but again that just

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Speaker 1: makes the price the stock go down. They can still

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Speaker 1: make a ton of money because people can still keep

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Speaker 1: demanding oil flying all over the place, Like, isn't that

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Speaker 1: the route? Isn't if we're gonna do a root canal here,

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Speaker 1: don't we need to get to demand? Oh? Absolutely, but

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Speaker 1: don't divorce investor demand from consumer demand. There's all these pieces,

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Speaker 1: these all stakeholders in the community. So when the regulators say, well,

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Speaker 1: you can no longer pollute here, then that's going to

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Speaker 1: change the cost of doing business. When you've got consumers

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Speaker 1: are saying I don't like this product and it's got

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Speaker 1: too much sugar, and it's got too much salt, and

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Speaker 1: it's got too much hydrocarbons in it. Change your product mix,

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Speaker 1: then they'll change it. But the voice of the investor

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Speaker 1: is a very significant, long term strategic voice. So one

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Speaker 1: comment at a board meeting from an investor is worth

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Speaker 1: I don't know how many thousands of consumer investors, but

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Speaker 1: it does remind me of a question I asked in

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Speaker 1: two thousand four, two thousand five of Hannah Jones, who's

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Speaker 1: sending up sustainability at Nike. I know one of your

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Speaker 1: favorite sustainability topics, Eric, and I asked that fundamental question,

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Speaker 1: are you more afraid of the activist consumer or the

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Speaker 1: activist investor? And the answer was, I'm going to say investor. No. Unfortunately,

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Speaker 1: the activist consumer who triggers all the other parts of

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Speaker 1: the puzzle. Right, So the so, for example, as you're

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Speaker 1: that set up, I almost debate. Yeah, you're very good.

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Speaker 1: We've done that before. They're talking about table stakes. I'm

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Speaker 1: here to play. It's a land worth. We spoke about

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Speaker 1: NGOs and the influence they have right as you saw. Awesome,

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Speaker 1: small little ngo out on the West coast, San Francisco, underpaid.

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Speaker 1: They do a ton of research. They tracked proxy voting.

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Speaker 1: They've been tracking Vanguard and Black Rock of the proxy season.

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Speaker 1: February the report will come out. They've basically called those

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Speaker 1: big fund houses outliers and being so poor at voting

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Speaker 1: their proxies. Now, some people will argue, yeah, we have

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Speaker 1: conversations behind the curtain and we have cups of tea

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Speaker 1: over here, but it doesn't really matter what the no.

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Speaker 1: It matters at the end of the day, a vote

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Speaker 1: goes through and if Vanguard or State Street or black

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Speaker 1: one of the huge houses, especially in the passive side,

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Speaker 1: aren't voting those proxies to deal with in this case,

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Speaker 1: they're looking at executive pay, which is way out of whack,

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Speaker 1: and then then we've got a big problem systemically to

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Speaker 1: land with. In Davos. Of course, it's going to be awkward.

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Speaker 1: You have Larry Fink speaking and his colleagues and so on.

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Speaker 1: He's probably gonna be shaking hands with the cfs a

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Speaker 1: hundred biggest companies in the world. It's gonna be a

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Speaker 1: little awkward. And he says about that pay package last year,

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Speaker 1: you know, we really need to dial that down. But

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Speaker 1: that's the role of the investor. And you know, I

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Speaker 1: don't know if you disagree on executive pay, but it's

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Speaker 1: clearly out of kilter without companies. That's been one of

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Speaker 1: the other things that has been, uh you know, a

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Speaker 1: talking point about how passive let society down. I guess right, well,

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Speaker 1: let me rip off of this with what Droll said,

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Speaker 1: because as somebody who has tried been tracking passive and

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Speaker 1: is so sensitive to how brutal investors are about driving

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Speaker 1: their cost down. Everybody wants all their investments for like

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Speaker 1: three or four basis points now, I mean, and now

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Speaker 1: they want all this on top of it, the media

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Speaker 1: is dumping on them. I kind of feel a little

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Speaker 1: for them because how much And they build out a

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Speaker 1: corporate governance team that could look through all these statements

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Speaker 1: and vote in certain meticulous ways that are aligned with

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Speaker 1: their investor when they're being squeezed to compete with Vanguard

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Speaker 1: or vanguard itself at two three basis points. I mean,

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Speaker 1: there's just not that much money. Yeah, there's not a

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Speaker 1: lot of wiggle room there. And black Rock really does

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Speaker 1: promote its stewardship team as part of its whole effort

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Speaker 1: to like engage with companies. They say behind the scenes,

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Speaker 1: they say, this is the biggest stewardship team anywhere. It's

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Speaker 1: forty five people for you know, thousands of companies worldwide.

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Speaker 1: So that's where you get critics that say, how can

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Speaker 1: you possibly meaningfully tackle these issues behind the scenes with

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Speaker 1: so many companies to cover, um, you know, even with

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Speaker 1: a team that big. So that's something that they've come

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Speaker 1: under fire with on the activist side. But back on

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Speaker 1: the pr side, I would really say that Fink has

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Speaker 1: been followed around by activists and and there's been this

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Speaker 1: increasing drumbeat of adgetation. So I think that as far

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Speaker 1: as this message goes that he sent it will at

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Speaker 1: least help, uh, you know, offer an olive branch to

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Speaker 1: those kinds of protesters who are you know, are showing

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Speaker 1: up outside is speaking engagements outside Black Rock offices. And

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Speaker 1: I think that by sending this message, black Rock is

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Speaker 1: at least trying to say hey, like, we're trying to

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Speaker 1: be on your side, and that feels to me more

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Speaker 1: like activist consumers than activist investors. Right, So Graham, maybe

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Speaker 1: maybe you're ouno upthing there. Okay, So another place that

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Speaker 1: pressure could come down is on the index providers. Any

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Speaker 1: what about that? That's right? One other piece of the

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Speaker 1: passive um plan that think laid out for climate change

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Speaker 1: is to pressure the index providers. Those are like the

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Speaker 1: m s c I s of the world to create

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Speaker 1: black Rock basically basically almost licenses. Yes, there are a

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Speaker 1: customer of m s c I s. They use those

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Speaker 1: M s c I indexes for their index products, and

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Speaker 1: and this is where they said they'll they'll start to

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Speaker 1: apply more pressure to the index ers to create more

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Speaker 1: sustainable UM indexes, which would allow them to make more

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Speaker 1: sustainable products. Does that also mean that there might be

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Speaker 1: more self indexing, because that's another place that black Rock

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Speaker 1: could say, Hey, we can just do this ourselves, we

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Speaker 1: don't even need you. That will be really interesting to watch.

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Speaker 1: They've always raised like there could be problems with self indexing.

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Speaker 1: We don't. We don't want to go too far down

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Speaker 1: that road necessarily, but it will be an interesting pope

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Speaker 1: to watch, yeah, exactly like it will. It will be

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Speaker 1: really interesting to see if if they decided to pursue

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Speaker 1: that more if the index providers don't fall in line. Well,

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Speaker 1: you know, M s c I, S and P. They

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Speaker 1: have a whole suite of different types of E s

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Speaker 1: G indexes. That's not really the issue. The issue is

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Speaker 1: the main indexes, like the SMP five hundred. Do you

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Speaker 1: ever change that because that's beta and I think a

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Speaker 1: lot of people probably won't don't want that changed, but

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Speaker 1: they're good news is there are options. You could just

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Speaker 1: use something that's a little like barely um it's like

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Speaker 1: the SMP with a little less fall so fuel, and

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Speaker 1: then you keep going into waves till you're down to

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Speaker 1: maybe something that's really aggressively E s G. But I mean,

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Speaker 1: one thing that's really interesting is back when M S

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Speaker 1: C I and the index providers were trying to come

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Speaker 1: down and exclude UM dual class shares UH share companies

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Speaker 1: with dual class shares from indexes, black Rock actually came

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Speaker 1: out and said, it's not on the index providers to

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Speaker 1: say what the investable universe should be. And so this

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Speaker 1: seems like a bit of a reversal in that way.

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Speaker 1: So just one point to add on sort of investorsis

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Speaker 1: consumer demand is don't underestimate the impact that an investor

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Speaker 1: has on a company's cost of capital. I mean, that's

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Speaker 1: what's happened to Cool. It's this mix of demand pressure

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Speaker 1: but also investors in short as saying they're not going

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Speaker 1: to underte such assets. You guys, I'd like to pick

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Speaker 1: up on what Annie was speaking about around the black

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Speaker 1: Rock announcement. There's much to be admired about it. It's

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Speaker 1: signaling it's important. They're going to make internal changes. That's great.

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Speaker 1: They've got forty five heads. Larry actually promised to think

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Speaker 1: I promised in January last year, there'll be seventy one.

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Speaker 1: They're still hiring, you know, throw your resume there. But

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Speaker 1: on I think the comment around the indexes, uh, that's

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Speaker 1: a bit soft because, as Eric pointed out earlier, indexes

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Speaker 1: will build you whatever you want. That's my business. I mean,

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Speaker 1: st architect, someone walks through the door, they say, build

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Speaker 1: me an index. The shape of the strategy that looks

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Speaker 1: like this, I'm going to figure it out right now.

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Speaker 1: I'm working at Harvard on an Arctic strategy. How we're

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Speaker 1: going to build an Arctic strategy using five sectors in

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Speaker 1: the geography. So the comment on the indexes index construction vendors,

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Speaker 1: I don't really buy that, but it is very, very

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Speaker 1: significant that a major player is saying this is core

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Speaker 1: to what we're doing and it's going to affect what

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Speaker 1: we're doing across the house. Now, how do we check that?

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Speaker 1: As any suggested at the end of the proxy season,

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Speaker 1: don't you worry every NGO that's tracking this and any

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Speaker 1: cynic like some of the people in the room here

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Speaker 1: again and be saying so what so how did it

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Speaker 1: play out? And then there's also going to be the

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Speaker 1: aspect of what happens in the marketplace. I don't know

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Speaker 1: if you saw the news about a quick spike and

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Speaker 1: the E t F inflows the day after the day

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Speaker 1: of the announcement, I don't know if it was time.

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Speaker 1: If there's a partner going in with money, well, I

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Speaker 1: know what happened there. Yeah, this wasn't a bunch of

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Speaker 1: millennials who got excited about Larry Fink's letter and all

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Speaker 1: bought into E s G because they were excited. Was

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Speaker 1: the balance sheet money? Well, black Rock has E t

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Speaker 1: F models and they just put E S G E

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Speaker 1: t F s into the emerging markets and the U

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Speaker 1: S slug and that right, there was billion dollars. So

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Speaker 1: that's black Rocks doing it still counts, but that's not different.

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Speaker 1: That's different. That said, we did look, there was about

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Speaker 1: twenty E S G T F that have taken in

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Speaker 1: money this month. So there's the grassroots is there. It's

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Speaker 1: just tiny little piece of grass. Black Rock moving in

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Speaker 1: that kind of money is Mortalizer, Intertalizer. So here's why strategic.

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Speaker 1: It's a whole new field. Frankly, more than that is

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Speaker 1: because one of the promises about a hundred and fifteen

399
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Speaker 1: a t S is that basically cloning you want it?

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Speaker 1: Do you want it green or brown? So that is

401
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Speaker 1: a big deal. When you go and buy your cherios.

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Speaker 1: How many types of cherios are there? I'm a parent,

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Speaker 1: I know you are. How many types of cherios? Only one?

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Speaker 1: That's idea like dor coal position with Bloomberg, we need

405
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Speaker 1: to be more in minded. I think coke is a better.

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Speaker 1: There's diet coke, zero coke, cherry coke. Yeah, and so

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Speaker 1: these are all good. They're gonna be all these versions

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Speaker 1: of the SMP. Excuse me, there are twenty flavors of cherios,

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Speaker 1: and there's one type of cheer thank you, especially because

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Speaker 1: General General Mills back the Beast. Remember do you remember

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Speaker 1: the cheerios box? Yeah, because that was an important social missage.

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Speaker 1: That's why landing with there'll be clones of everything that's

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Speaker 1: that's awesome. But then what happens next, that's what we're

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Speaker 1: watching and who cares? Like, are people gonna uh migrate

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Speaker 1: from the SMP to the SMP fossil fuel? So far,

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Speaker 1: not too much. And I think that brings us to

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Speaker 1: our second part of the conversation. And just on that,

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Speaker 1: I've already heard whispers from Hana worth Side who's saying

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Speaker 1: he's seen some of the black Rock models that he's

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Speaker 1: got clients in have already flipped over that was the

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Speaker 1: money that you're So as those play out, as everyone

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Speaker 1: does their quickly updates, that's going to be very interesting

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Speaker 1: to watch. Okay, So we started by saying that there's

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Speaker 1: relatively little assets center management in this space, Graham, how

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Speaker 1: many more products do you think we're about to see

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Speaker 1: enter the field and what's that going to do from

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Speaker 1: an a N standpoint? So, last time I was visiting

428
00:22:35,000 --> 00:22:37,680
Speaker 1: with you, gentleman I said, any shop is trying to

429
00:22:37,760 --> 00:22:39,960
Speaker 1: launch E T F strategy that it's probably the asset

430
00:22:40,000 --> 00:22:43,560
Speaker 1: gathering for will continue to be maybe even because of

431
00:22:43,560 --> 00:22:45,720
Speaker 1: this announcement, they're going to rampant and push it forward.

432
00:22:45,760 --> 00:22:47,960
Speaker 1: So any shop is looking to roll E T S

433
00:22:48,160 --> 00:22:51,800
Speaker 1: if they've got any inkling of the marketing nows and timing,

434
00:22:52,200 --> 00:22:55,080
Speaker 1: they will figure the trend and map two. We need

435
00:22:55,080 --> 00:22:56,920
Speaker 1: the E S T version of whatever we're going to

436
00:22:57,040 --> 00:23:00,440
Speaker 1: roll out before E M growth. What have you choose

437
00:23:00,440 --> 00:23:06,080
Speaker 1: your thematic? So your phone's ring so exactly um um.

438
00:23:07,320 --> 00:23:10,960
Speaker 1: I'd just like to remind the team though again E

439
00:23:11,119 --> 00:23:15,320
Speaker 1: s G. Environment Social Governance. There's environmental, social and governance

440
00:23:15,359 --> 00:23:19,080
Speaker 1: factors in every investment decision. And bring it all back

441
00:23:19,119 --> 00:23:21,240
Speaker 1: to this is what they put on the label. That's

442
00:23:21,240 --> 00:23:24,919
Speaker 1: a marketing decision. Every investment on planet Earth relying on

443
00:23:25,000 --> 00:23:26,680
Speaker 1: humans and the rule of the law has e s

444
00:23:26,720 --> 00:23:29,440
Speaker 1: G in it. What Black Rock has done and helps

445
00:23:29,560 --> 00:23:31,400
Speaker 1: realize and from the front page and have us talking

446
00:23:31,400 --> 00:23:34,560
Speaker 1: about today is they're just reminding people that it's in

447
00:23:34,600 --> 00:23:37,080
Speaker 1: there and now we're going to take it seriously. The

448
00:23:37,359 --> 00:23:42,040
Speaker 1: more interesting question is, especially if you're having a grumpy afternoons. Hey, guys,

449
00:23:42,320 --> 00:23:44,240
Speaker 1: what did you do do for the last twenty years? Lord

450
00:23:44,320 --> 00:23:46,400
Speaker 1: Stearn did his paper in two thousand and seven about

451
00:23:46,400 --> 00:23:47,920
Speaker 1: the cost of climate change and how we're going to

452
00:23:48,000 --> 00:23:51,080
Speaker 1: adapt for that. If you any kind of long term investor,

453
00:23:51,240 --> 00:23:54,720
Speaker 1: you've been watching this play out and Larry Frank talks

454
00:23:54,720 --> 00:23:57,600
Speaker 1: about were institutional investors. We're trying to pull forward risk

455
00:23:57,640 --> 00:23:59,720
Speaker 1: and deal with it now so we can mitigate through it.

456
00:24:00,520 --> 00:24:02,600
Speaker 1: Many questions have to be asked, is it well we

457
00:24:02,680 --> 00:24:06,440
Speaker 1: saw this coming ten fifte years ago. So the solution

458
00:24:06,560 --> 00:24:08,800
Speaker 1: is there's all these alternatives for people who want to

459
00:24:08,840 --> 00:24:11,080
Speaker 1: do it right. So we've got if you want to

460
00:24:11,160 --> 00:24:14,639
Speaker 1: numbers here, it's about hundred number s gts with black Rock.

461
00:24:14,720 --> 00:24:16,720
Speaker 1: There could be one fifty by the end of the year.

462
00:24:17,040 --> 00:24:20,119
Speaker 1: All but with the hundred there's only about twenty billion assets.

463
00:24:20,160 --> 00:24:22,560
Speaker 1: That's two million per e t F. Just to give

464
00:24:22,600 --> 00:24:24,920
Speaker 1: an idea of how low that is. The average is

465
00:24:24,960 --> 00:24:27,720
Speaker 1: about one point one billion for all ets, but categories

466
00:24:27,760 --> 00:24:30,879
Speaker 1: like growth value like growth there's four billion per e

467
00:24:31,000 --> 00:24:34,000
Speaker 1: t F. So two dred million tells you there's too

468
00:24:34,040 --> 00:24:36,480
Speaker 1: much product for the assets now and now there's gonna

469
00:24:36,480 --> 00:24:38,240
Speaker 1: be more product there's gonna be more products, so she

470
00:24:38,600 --> 00:24:41,240
Speaker 1: why don't you talk about um all the product out there?

471
00:24:41,280 --> 00:24:43,800
Speaker 1: Part of sheen and my job is to sort of

472
00:24:43,840 --> 00:24:47,600
Speaker 1: sift through them. What's your take on just how good

473
00:24:47,640 --> 00:24:50,280
Speaker 1: of a job these products do? Sure? So that that's

474
00:24:50,280 --> 00:24:52,680
Speaker 1: a that's a great question on sort of these assets

475
00:24:52,720 --> 00:24:55,080
Speaker 1: being very small, and I guess the E T F

476
00:24:55,160 --> 00:24:57,119
Speaker 1: would when it comes to E S. She is getting

477
00:24:57,160 --> 00:25:00,080
Speaker 1: divided into two things. One is these large as that

478
00:25:00,119 --> 00:25:05,000
Speaker 1: managers like black Rock One is these small thematic niche strategies.

479
00:25:05,280 --> 00:25:08,199
Speaker 1: And that's where it gets interesting, because what's interesting is

480
00:25:08,240 --> 00:25:11,720
Speaker 1: this sergeant assets. So it's it's the delta. Now assets

481
00:25:11,720 --> 00:25:14,040
Speaker 1: have doubled, but with that are going to come it's

482
00:25:14,080 --> 00:25:16,680
Speaker 1: challenges like you mentioned, it's going to be more liquidation,

483
00:25:17,240 --> 00:25:20,720
Speaker 1: more sort of the big expansive guys crowding out these

484
00:25:20,720 --> 00:25:23,040
Speaker 1: small ones like you mentioned. So we saw that last

485
00:25:23,119 --> 00:25:25,000
Speaker 1: year and we think we're going to see it continue.

486
00:25:25,359 --> 00:25:27,240
Speaker 1: I will say that one thing that's helped E S.

487
00:25:27,280 --> 00:25:29,040
Speaker 1: G s's double last year was a lot of them

488
00:25:29,080 --> 00:25:31,879
Speaker 1: got cheap vangarded black Rock Wall coming under twenty basis

489
00:25:31,920 --> 00:25:35,520
Speaker 1: points like the magic number UM and that almost all

490
00:25:35,560 --> 00:25:38,920
Speaker 1: the money goes to those because I do think to

491
00:25:39,119 --> 00:25:42,000
Speaker 1: Graham's point is like, if you put a green product

492
00:25:42,080 --> 00:25:44,080
Speaker 1: and a brown product next to each other and you

493
00:25:44,119 --> 00:25:47,920
Speaker 1: play up what's in it? I do think that the

494
00:25:48,000 --> 00:25:50,440
Speaker 1: consumer is gonna say, it's pretty easy for me to

495
00:25:50,480 --> 00:25:53,400
Speaker 1: take the green, especially when cost is flat. Okay, let

496
00:25:53,440 --> 00:25:55,439
Speaker 1: me challenge this. This is my big thing. I've been

497
00:25:55,480 --> 00:25:57,159
Speaker 1: on this like a dog on a bone for the

498
00:25:57,200 --> 00:26:00,840
Speaker 1: last three months. What's in it? What isn't in it? Okay? Okay.

499
00:26:00,840 --> 00:26:02,359
Speaker 1: So we looked at s U s A. This is

500
00:26:02,359 --> 00:26:04,199
Speaker 1: the M s c I E s G Social Index

501
00:26:04,240 --> 00:26:06,399
Speaker 1: that this one has been around fifteen years. So it's

502
00:26:06,440 --> 00:26:08,120
Speaker 1: the only s G t F one of a couple

503
00:26:08,160 --> 00:26:10,119
Speaker 1: that have been around a long time. It's trailed the

504
00:26:10,200 --> 00:26:13,520
Speaker 1: SMP by about thirty five percentage points. Why, well, it

505
00:26:13,560 --> 00:26:17,760
Speaker 1: tracks the hundred best scoring E s G stocks. That's fine, right,

506
00:26:17,760 --> 00:26:23,200
Speaker 1: But it doesn't have Amazon, doesn't have uh Netflix MasterCard.

507
00:26:23,640 --> 00:26:25,320
Speaker 1: So there's a lot of hot hot shot. Those of

508
00:26:25,359 --> 00:26:28,240
Speaker 1: all returned over a thousand percent in the past ten years.

509
00:26:28,280 --> 00:26:30,680
Speaker 1: So and this is something I find through and through

510
00:26:31,280 --> 00:26:33,840
Speaker 1: um take something, and there's many other examples. You'll look.

511
00:26:33,880 --> 00:26:36,640
Speaker 1: You'll be like, why is Nike right in the top ten.

512
00:26:36,840 --> 00:26:40,320
Speaker 1: Yet Berkshire Hathaway is in literally none um or why

513
00:26:40,440 --> 00:26:42,960
Speaker 1: is Facebook in here? Um? But then you have a

514
00:26:43,000 --> 00:26:45,560
Speaker 1: company like um, I don't know that you might. Netflix

515
00:26:45,760 --> 00:26:48,560
Speaker 1: isn't and there's a lot of questions on what gets

516
00:26:48,560 --> 00:26:52,159
Speaker 1: in and what gets out? Graham, I mean, what do

517
00:26:52,200 --> 00:26:53,560
Speaker 1: you think of this? I mean, is this going to

518
00:26:53,640 --> 00:26:55,600
Speaker 1: be baffling to people? Because you have to recognize most

519
00:26:55,600 --> 00:26:58,720
Speaker 1: people have images of companies. I don't argue Apple's image

520
00:26:58,760 --> 00:27:00,960
Speaker 1: isn't that great, but that's in all that makes it

521
00:27:00,960 --> 00:27:02,800
Speaker 1: into most of them. Also as an investor, like I

522
00:27:02,840 --> 00:27:04,959
Speaker 1: don't want to miss out in a thousand percent returns

523
00:27:04,960 --> 00:27:07,080
Speaker 1: as part of an Indian who doesn't want Amazon. But

524
00:27:07,119 --> 00:27:09,080
Speaker 1: Amazon is like bad, like they have their are in

525
00:27:09,080 --> 00:27:11,760
Speaker 1: the dirty dozen, right Gene, So they get excluded from

526
00:27:11,760 --> 00:27:16,080
Speaker 1: a lot. So, uh, there's no easy answer. It's complex.

527
00:27:16,240 --> 00:27:19,679
Speaker 1: So picture graphic equalizer. Yeah, your music, guys, that's why

528
00:27:19,720 --> 00:27:22,560
Speaker 1: I listen to trillions, It's for the music references. So

529
00:27:22,800 --> 00:27:26,760
Speaker 1: it's it's complicated like an equalizer. Even song are you

530
00:27:26,840 --> 00:27:29,840
Speaker 1: thinking about right now? How soon as now? As soon

531
00:27:29,880 --> 00:27:33,919
Speaker 1: as we'll take awesome guitar intro? You hear that at

532
00:27:33,960 --> 00:27:36,320
Speaker 1: any club? Anywhere around the world. You know what's coming,

533
00:27:37,960 --> 00:27:41,720
Speaker 1: It's it's coming. Um So, so E s G in

534
00:27:41,720 --> 00:27:44,200
Speaker 1: itself is a simplification so we can put a handle

535
00:27:44,320 --> 00:27:47,560
Speaker 1: on this complexity of sustainability. Why is why is it complex?

536
00:27:47,600 --> 00:27:50,440
Speaker 1: Because the world is complex? Ione just calm down, Okay,

537
00:27:50,480 --> 00:27:53,800
Speaker 1: any investment decision, you're just trying to make a simplification

538
00:27:54,000 --> 00:27:56,840
Speaker 1: by hold cell decision based on the complexity of many

539
00:27:56,880 --> 00:27:59,240
Speaker 1: things you can put your money into, yeah, including your

540
00:27:59,280 --> 00:28:02,720
Speaker 1: kid's career. So so when it comes to environment social

541
00:28:02,760 --> 00:28:05,639
Speaker 1: governance factors, there's always going to be complexity in the

542
00:28:05,640 --> 00:28:08,359
Speaker 1: same way that your motive vehicle is complex. For example,

543
00:28:08,359 --> 00:28:10,479
Speaker 1: all your iPhone is I bet their features on your

544
00:28:10,480 --> 00:28:13,440
Speaker 1: iPhone you haven't even found yet. Yeah, so does it

545
00:28:13,560 --> 00:28:15,119
Speaker 1: do what you needed to do? Is going to be

546
00:28:15,160 --> 00:28:17,359
Speaker 1: one of the fundamental questions that are asked. This is

547
00:28:17,400 --> 00:28:19,800
Speaker 1: why we love E t S as a methodology. Big fan.

548
00:28:19,920 --> 00:28:21,960
Speaker 1: I'm a big fan of E t S as a technology.

549
00:28:22,200 --> 00:28:25,240
Speaker 1: They help they roll things back to the acid allocator

550
00:28:25,359 --> 00:28:27,920
Speaker 1: level where you can make some of these investment decisions

551
00:28:27,920 --> 00:28:30,720
Speaker 1: and then implement them at lowest cost, with greatest diversity

552
00:28:30,840 --> 00:28:33,719
Speaker 1: and great transparency, which is a core tarrant of anything

553
00:28:33,720 --> 00:28:36,640
Speaker 1: around s G. You said that better than Erica. It's

554
00:28:36,640 --> 00:28:40,880
Speaker 1: pretty good. Yeah, but not, I mean, thank you. I'm

555
00:28:40,960 --> 00:28:44,160
Speaker 1: the South African clone. You know something happened over the Atlantic.

556
00:28:44,200 --> 00:28:47,800
Speaker 1: I'm not clear. It was very well eloquently put. Thank you.

557
00:28:47,840 --> 00:28:50,280
Speaker 1: We'll try so. So, when we think of a motor vehicle,

558
00:28:50,720 --> 00:28:52,360
Speaker 1: some people just want something to get you from A

559
00:28:52,440 --> 00:28:54,240
Speaker 1: to B. Okay, I want to get from A to

560
00:28:54,320 --> 00:28:57,040
Speaker 1: B with zero tail pipe emissions, so I'm able to

561
00:28:57,000 --> 00:28:59,000
Speaker 1: get in a different direction. I want automated. I want

562
00:28:59,040 --> 00:29:00,840
Speaker 1: the best software on the and it I have that

563
00:29:00,960 --> 00:29:04,040
Speaker 1: unable to buy that particular vehicle. So there's gonna be

564
00:29:04,120 --> 00:29:07,240
Speaker 1: some humans who just and their advisors, frankly, because the

565
00:29:07,240 --> 00:29:09,160
Speaker 1: first sale is to the advisor, who are just going

566
00:29:09,240 --> 00:29:12,959
Speaker 1: to say, you want global exposure. Great. I know this

567
00:29:13,040 --> 00:29:15,240
Speaker 1: is important to you have a childhood special needs what

568
00:29:15,320 --> 00:29:18,120
Speaker 1: have you? Or your dad was treated poorly at the factor,

569
00:29:18,200 --> 00:29:19,920
Speaker 1: what have you. It's very important to hear about fair

570
00:29:19,960 --> 00:29:23,240
Speaker 1: wages or you know, a childhood education so on. You

571
00:29:23,280 --> 00:29:25,400
Speaker 1: know that there's a tilt for that, and the tilter

572
00:29:25,520 --> 00:29:28,640
Speaker 1: is blah blah, particularly E t F. So I think

573
00:29:28,720 --> 00:29:30,480
Speaker 1: that I think of it there in terms of the

574
00:29:30,480 --> 00:29:35,760
Speaker 1: opportunities that are available. And one of my favorite things

575
00:29:35,760 --> 00:29:38,400
Speaker 1: that I know Eric is looking to track and maybe

576
00:29:38,480 --> 00:29:40,040
Speaker 1: it will be a future episode for you, is the

577
00:29:40,040 --> 00:29:42,560
Speaker 1: E t F Graveyard like the Ben and Jerry's grave

578
00:29:42,600 --> 00:29:45,280
Speaker 1: food graveyard up in Vermont, And there's going to be

579
00:29:45,360 --> 00:29:48,080
Speaker 1: a long list of these E s G branded E

580
00:29:48,200 --> 00:29:51,040
Speaker 1: t fs that no longer no longer live. There's a

581
00:29:51,080 --> 00:29:54,080
Speaker 1: graveyard for in Jerry flavors. Oh you gotta come, yeah,

582
00:29:54,440 --> 00:29:58,080
Speaker 1: but what does that look like? Oh, it's just you know.

583
00:29:58,240 --> 00:29:59,880
Speaker 1: First they'll talk about it, then they'll take you. But

584
00:30:00,040 --> 00:30:05,720
Speaker 1: let's there's all. I'll show you up there, zero tell

585
00:30:05,840 --> 00:30:08,280
Speaker 1: pipe permissions. We'll get you up there on a given day.

586
00:30:08,400 --> 00:30:10,480
Speaker 1: There's also a great interview. He drove a tesla and

587
00:30:10,480 --> 00:30:12,320
Speaker 1: took a train, so he went full Gretta to get

588
00:30:12,320 --> 00:30:18,280
Speaker 1: here and I appreciate that. No planes and um, but

589
00:30:18,480 --> 00:30:20,960
Speaker 1: Alec Boland does this great interview on here's the thing

590
00:30:21,000 --> 00:30:23,040
Speaker 1: with Ben and Jerry's where they explain some of how

591
00:30:23,080 --> 00:30:25,560
Speaker 1: that came to be. It's a great episode. I'm always

592
00:30:25,560 --> 00:30:28,400
Speaker 1: here for the E t F grade. Um, let's just

593
00:30:28,400 --> 00:30:31,160
Speaker 1: talk about this. There's she in two camps of E

594
00:30:31,320 --> 00:30:33,320
Speaker 1: S G. There's one where they just try to carve

595
00:30:33,320 --> 00:30:35,520
Speaker 1: out a little bit and keep you close to the

596
00:30:35,600 --> 00:30:37,880
Speaker 1: S and P, which I think is probably better if

597
00:30:37,880 --> 00:30:40,239
Speaker 1: you're looking to clean up your portfolio sleep at night

598
00:30:40,280 --> 00:30:42,440
Speaker 1: kind of deal because it won't deviate too much. But

599
00:30:42,480 --> 00:30:44,240
Speaker 1: then there's one that aggressively go after E. S. G.

600
00:30:44,680 --> 00:30:46,680
Speaker 1: It is kind of hard sometimes to tell the difference

601
00:30:46,680 --> 00:30:50,000
Speaker 1: based on the name. Can you talk about this and uh,

602
00:30:50,000 --> 00:30:51,760
Speaker 1: you know the idea that you're supposed to like replace

603
00:30:51,760 --> 00:30:54,880
Speaker 1: your whole equity position with one of these products, which

604
00:30:54,880 --> 00:30:57,360
Speaker 1: is why I really stressed due diligence, because if you're

605
00:30:57,360 --> 00:31:00,000
Speaker 1: thinking of selling your Vanguard five hundred to buy one

606
00:31:00,000 --> 00:31:02,200
Speaker 1: of these, man, you better know what you're doing and

607
00:31:02,240 --> 00:31:04,720
Speaker 1: really look through the holdings. Yeah. So so that's an

608
00:31:04,760 --> 00:31:06,560
Speaker 1: interesting point. So there are two sort of schools of

609
00:31:06,600 --> 00:31:09,320
Speaker 1: thoughts with investors, one who just want tracking, who just

610
00:31:09,400 --> 00:31:12,800
Speaker 1: want minimal tracking error. And that's where different kind of

611
00:31:12,840 --> 00:31:16,400
Speaker 1: strategies come in. Just so, for example, a low carbon

612
00:31:16,480 --> 00:31:20,920
Speaker 1: index is literally almost going to replicate your main parent index. Actually,

613
00:31:21,360 --> 00:31:25,000
Speaker 1: the government pension the chief investment officer said, okay, low

614
00:31:25,040 --> 00:31:27,400
Speaker 1: tracking error. I can stomach that. I don't mind moving

615
00:31:27,440 --> 00:31:29,600
Speaker 1: a bunch of my money into that. But then you

616
00:31:29,640 --> 00:31:32,120
Speaker 1: have the flip side, people who actually truly believe that

617
00:31:32,480 --> 00:31:34,680
Speaker 1: she is going to outperform. They don't want that minimal

618
00:31:34,720 --> 00:31:37,480
Speaker 1: tracking at it. They actually want that tracking error. So

619
00:31:37,560 --> 00:31:39,840
Speaker 1: it depends on the strategy, the school of thought, all

620
00:31:39,840 --> 00:31:42,360
Speaker 1: these different things. But what we see lower tracking arrow

621
00:31:42,800 --> 00:31:46,520
Speaker 1: typically it is cheaper, So potentially money is going to

622
00:31:46,520 --> 00:31:49,760
Speaker 1: flow into these cheaper things. Of the potential audience for this,

623
00:31:49,800 --> 00:31:51,280
Speaker 1: where do you see more of it the people who

624
00:31:51,280 --> 00:31:53,680
Speaker 1: want to just clean up their portfolio and track the

625
00:31:53,720 --> 00:31:56,120
Speaker 1: market pretty much, just maybe carve out some of the

626
00:31:56,120 --> 00:31:59,760
Speaker 1: carbon and whatnot, or do you see people really putting

627
00:31:59,760 --> 00:32:01,520
Speaker 1: more money in because they think, really, this is gonna

628
00:32:01,520 --> 00:32:03,320
Speaker 1: be the way to outperform. I think in the short

629
00:32:03,400 --> 00:32:05,400
Speaker 1: term you're gonna get a lot of people moving from

630
00:32:05,400 --> 00:32:08,600
Speaker 1: a dB they want to go to the less brown versions.

631
00:32:09,040 --> 00:32:11,840
Speaker 1: I also think there's a huge untapped demand almost Model

632
00:32:11,880 --> 00:32:15,160
Speaker 1: three style four K reservations within a week. There's a

633
00:32:15,240 --> 00:32:19,480
Speaker 1: huge untapped demand for investors who can investment houses who

634
00:32:19,480 --> 00:32:21,920
Speaker 1: can say I've got this new widget and it's heading

635
00:32:21,920 --> 00:32:24,120
Speaker 1: in this whole new direction, and we've set it up

636
00:32:24,320 --> 00:32:26,000
Speaker 1: and here's the entry point, and you don't need a

637
00:32:26,080 --> 00:32:28,400
Speaker 1: huge ticket size. We've kept cost low. I think this

638
00:32:28,680 --> 00:32:33,520
Speaker 1: huge unmet demand for any investment houses who can figure

639
00:32:33,560 --> 00:32:35,480
Speaker 1: that all the way down frankly to a little piece

640
00:32:35,520 --> 00:32:39,160
Speaker 1: of an impact fund in in some way, more people

641
00:32:39,640 --> 00:32:42,920
Speaker 1: want urgent answers. It's a question of speed and the

642
00:32:43,000 --> 00:32:45,600
Speaker 1: reframing of what's happening in the climate space. For example,

643
00:32:45,880 --> 00:32:48,720
Speaker 1: it's not is it real? Everyone knows it's real. Check

644
00:32:48,760 --> 00:32:51,000
Speaker 1: the science. If you can't read, it's not my fault.

645
00:32:51,360 --> 00:32:53,640
Speaker 1: It's a question of speed. Either going to be slow

646
00:32:53,760 --> 00:32:55,800
Speaker 1: and then we'll still miss it, or you're gonna be fast.

647
00:32:55,800 --> 00:32:57,720
Speaker 1: We're gonna hurry up and get there and we're gonna

648
00:32:57,720 --> 00:33:00,320
Speaker 1: have to hustle because we're already late and behind agile.

649
00:33:00,520 --> 00:33:03,360
Speaker 1: So there's more, there's more need, and there's more opportunity.

650
00:33:03,360 --> 00:33:06,000
Speaker 1: I would say this unmit demand for new and aggressive

651
00:33:06,040 --> 00:33:08,480
Speaker 1: green strategies. So I want to bring that back to

652
00:33:08,640 --> 00:33:10,960
Speaker 1: a thing that you brought up the last time we

653
00:33:11,000 --> 00:33:14,280
Speaker 1: had you on, which was the amount of alpha that

654
00:33:14,360 --> 00:33:17,840
Speaker 1: might be trapped in these strategies and the potential for

655
00:33:17,880 --> 00:33:21,480
Speaker 1: investors to get on that. Talk about how an investor

656
00:33:21,840 --> 00:33:25,560
Speaker 1: might approach alpha through the E s G lens Alpha

657
00:33:25,640 --> 00:33:28,479
Speaker 1: through their E s C lens. The first appreciation of

658
00:33:28,480 --> 00:33:32,640
Speaker 1: that is understanding you're comparing apples and oranges always and

659
00:33:32,720 --> 00:33:35,240
Speaker 1: from the beginning, because you're adding a new factor, third

660
00:33:35,240 --> 00:33:37,920
Speaker 1: dimension risk return. Now we're looking at impact. So we're

661
00:33:37,920 --> 00:33:40,720
Speaker 1: adding a third dimension to how you look at investments.

662
00:33:41,000 --> 00:33:44,240
Speaker 1: So even before you start your due diligence and lead

663
00:33:44,280 --> 00:33:47,440
Speaker 1: yourself down to executing on whatever fund technology you're looking

664
00:33:47,480 --> 00:33:51,520
Speaker 1: to do, you're looking at things differently, which means if

665
00:33:51,520 --> 00:33:55,360
Speaker 1: there is a conventional index out there, your answer, your

666
00:33:55,440 --> 00:33:59,280
Speaker 1: number may be wrong over time. So for example, UM

667
00:33:59,800 --> 00:34:05,440
Speaker 1: the I shares KLD ticket that changed in seventeen, that

668
00:34:05,440 --> 00:34:12,600
Speaker 1: that Eric s USA, Yes as yours that that changed

669
00:34:12,640 --> 00:34:16,279
Speaker 1: in seventeen. That actually began as this experiment on Way

670
00:34:16,560 --> 00:34:21,200
Speaker 1: one May, Cambridge, mass where there was a shop that said, hey,

671
00:34:21,239 --> 00:34:23,719
Speaker 1: what if we tracked a different group of companies and

672
00:34:23,719 --> 00:34:25,320
Speaker 1: how would we do it? They took the five hundred

673
00:34:25,360 --> 00:34:29,279
Speaker 1: cutter to two fifty, UM rolled it up to four

674
00:34:29,360 --> 00:34:32,680
Speaker 1: hundred total companies. And that's why some of the companies

675
00:34:32,680 --> 00:34:36,520
Speaker 1: the constituents are so different because they make active index

676
00:34:36,560 --> 00:34:40,120
Speaker 1: selection decisions on this company less better than this company,

677
00:34:40,160 --> 00:34:43,400
Speaker 1: therefore you out. So so we had an index that

678
00:34:43,480 --> 00:34:46,719
Speaker 1: tracked over time. Now, in some periods that outperformed the

679
00:34:46,920 --> 00:34:50,560
Speaker 1: five hundred and some periods that underperformed. There was immediately

680
00:34:50,600 --> 00:34:53,920
Speaker 1: a mismatch because there's four hundred companies place five hundred. Yeah,

681
00:34:54,080 --> 00:34:57,520
Speaker 1: So fundamentally, when it comes to E s G LPHA,

682
00:34:57,719 --> 00:35:00,959
Speaker 1: there's going to be periods of outperformance and underperformance. Any

683
00:35:00,880 --> 00:35:02,680
Speaker 1: E s G product last year that did not have

684
00:35:02,719 --> 00:35:05,880
Speaker 1: excellmobile looks fantastic. If it had some of the solar

685
00:35:05,920 --> 00:35:09,560
Speaker 1: and wind assets, they look fantastic last year. I'm not

686
00:35:09,600 --> 00:35:13,880
Speaker 1: gonna predict what happens going forward, So I like to

687
00:35:14,120 --> 00:35:16,640
Speaker 1: shatter the myth you're gonna underperform because of E s G.

688
00:35:16,840 --> 00:35:19,680
Speaker 1: You may outperform, you may underperform. There's a whole lot

689
00:35:19,680 --> 00:35:22,200
Speaker 1: of factors that go into that performance argument, but the

690
00:35:22,239 --> 00:35:25,520
Speaker 1: thing that definitely shatters look at s G factors, including

691
00:35:25,560 --> 00:35:27,759
Speaker 1: that in your investment decision, developing the strategy is going

692
00:35:27,840 --> 00:35:29,960
Speaker 1: to lead to underperformance. That was a myth. You need

693
00:35:30,000 --> 00:35:32,920
Speaker 1: to shadow that. So I'll just add to that level

694
00:35:32,960 --> 00:35:36,040
Speaker 1: of nuance that is that it's not about outperforming under

695
00:35:36,440 --> 00:35:39,400
Speaker 1: In fact, we do see that E SG tends to

696
00:35:40,120 --> 00:35:43,520
Speaker 1: outperform during market downtourn So it's got this risk mitigation

697
00:35:43,719 --> 00:35:47,480
Speaker 1: angle to it, but it underperforms during a bullmarket. So

698
00:35:47,640 --> 00:35:50,080
Speaker 1: to your point, Rik on Amazon and all the sound

699
00:35:50,080 --> 00:35:53,960
Speaker 1: of performance, it's not the opportunity side. Although when it

700
00:35:53,960 --> 00:35:56,160
Speaker 1: comes to clean energy and things, we are moving towards that,

701
00:35:56,320 --> 00:35:59,480
Speaker 1: but traditionally it's been more of a risk mitigation. Yeah.

702
00:35:59,520 --> 00:36:02,080
Speaker 1: And that um, in s USA's case, the ball was

703
00:36:02,120 --> 00:36:04,400
Speaker 1: about the same, but that was only a hundred stocks.

704
00:36:04,440 --> 00:36:07,080
Speaker 1: But yeah, I mean I've heard that, and we try

705
00:36:07,080 --> 00:36:09,040
Speaker 1: to track the Stannard deviation. That's another field you can

706
00:36:09,080 --> 00:36:11,080
Speaker 1: look at if you're looking at one of these things.

707
00:36:11,120 --> 00:36:13,200
Speaker 1: But one other thing I have and and this is

708
00:36:13,239 --> 00:36:15,319
Speaker 1: just brings up some of my tweets about Davos and

709
00:36:15,320 --> 00:36:18,000
Speaker 1: the private jets and all this is, you know, if

710
00:36:18,000 --> 00:36:21,280
Speaker 1: you don't I pulled people. Um, you know, some people

711
00:36:21,280 --> 00:36:23,640
Speaker 1: are are okay not owning an Amazon. They're like it's

712
00:36:23,680 --> 00:36:26,840
Speaker 1: worth it. But then of the people who weren't okay,

713
00:36:27,000 --> 00:36:29,799
Speaker 1: who were who are okay not owning Amazon, only a

714
00:36:29,840 --> 00:36:32,520
Speaker 1: fifth of them were willing not to shop there. Four

715
00:36:32,560 --> 00:36:34,919
Speaker 1: fifths we're going to not own it and yet shop there.

716
00:36:35,560 --> 00:36:38,160
Speaker 1: Help me with the hypocrisy, because there's that then there's

717
00:36:38,200 --> 00:36:40,080
Speaker 1: just you still drive your car. You you're not going

718
00:36:40,120 --> 00:36:43,200
Speaker 1: to stop your vacations the Disney World. Um, how much

719
00:36:43,239 --> 00:36:46,520
Speaker 1: of this is just like the organic avocado that you

720
00:36:46,560 --> 00:36:48,239
Speaker 1: pay double for a Whole Foods. It's really just to

721
00:36:48,320 --> 00:36:50,960
Speaker 1: feel good without having to do much, which is frequently

722
00:36:50,960 --> 00:36:58,359
Speaker 1: called slacktivism. Am I the bad guys? I'm sorry, it's

723
00:36:58,360 --> 00:37:01,959
Speaker 1: just it's my observation. Go Eric, Eric is the number

724
00:37:02,000 --> 00:37:08,040
Speaker 1: one guy. I wanted a cocktail party. Here's my date,

725
00:37:08,120 --> 00:37:10,840
Speaker 1: throw me out the window. Yeah, that's fine. So I

726
00:37:10,880 --> 00:37:13,960
Speaker 1: think that that is some amount of sort of what

727
00:37:14,000 --> 00:37:16,279
Speaker 1: do you what? What do you feel good effect? Feel

728
00:37:16,280 --> 00:37:19,560
Speaker 1: good effect about ativism? Fa activism? Okay, but there are

729
00:37:19,560 --> 00:37:22,520
Speaker 1: those two schools of thoughts. At one school who thinks that, yes,

730
00:37:22,600 --> 00:37:25,280
Speaker 1: she is just a better investment. It's a resmit against

731
00:37:25,320 --> 00:37:27,799
Speaker 1: So they don't care about their personal life or what

732
00:37:27,840 --> 00:37:30,000
Speaker 1: they do. They just see it as an investment objective.

733
00:37:30,000 --> 00:37:32,239
Speaker 1: It's like saying, as a value investor, would you only

734
00:37:32,239 --> 00:37:35,480
Speaker 1: shop discounted items. It's it's like that in that case

735
00:37:35,480 --> 00:37:37,760
Speaker 1: I made. It's more for the people who were supposed

736
00:37:37,800 --> 00:37:41,680
Speaker 1: to be cleaning up, like the you know, sleeping at

737
00:37:41,719 --> 00:37:45,040
Speaker 1: night kind of thing. Tune. Pickens was pitching wind energy

738
00:37:45,200 --> 00:37:48,320
Speaker 1: for accident. Texas is the biggest wind energy state in

739
00:37:48,360 --> 00:37:51,120
Speaker 1: the US. I mean, there's so many opportunities, there's so

740
00:37:51,200 --> 00:37:56,520
Speaker 1: much work we have to do around climate and sustainability. Yes. Absolutely,

741
00:37:56,760 --> 00:37:59,480
Speaker 1: humans make a terrible mess of this one planet we

742
00:37:59,520 --> 00:38:02,120
Speaker 1: live on. I would love to see them aligning better

743
00:38:02,280 --> 00:38:04,200
Speaker 1: what they say with what they do. I want what

744
00:38:04,239 --> 00:38:07,279
Speaker 1: they do to be less brown, more green. I want

745
00:38:07,320 --> 00:38:10,880
Speaker 1: fewer suv s, more bicycles, all those things heading in

746
00:38:10,880 --> 00:38:13,600
Speaker 1: a direction. Please be at my cocktail parties and ask

747
00:38:13,719 --> 00:38:16,600
Speaker 1: us all good questions, because I agree with Eric. You know,

748
00:38:16,640 --> 00:38:18,839
Speaker 1: if you go to the car park, someone will walk

749
00:38:18,880 --> 00:38:22,080
Speaker 1: in and they'll buy the organic groceries out to the suv,

750
00:38:22,239 --> 00:38:24,560
Speaker 1: which by the way, was idling because they wanted to

751
00:38:24,600 --> 00:38:26,200
Speaker 1: be warm when they came in. That's a feature that

752
00:38:26,239 --> 00:38:31,200
Speaker 1: mates will handle by. And and so where tom Yorke

753
00:38:31,280 --> 00:38:33,799
Speaker 1: going on like world tours with all the equipment they

754
00:38:33,800 --> 00:38:36,040
Speaker 1: got a log around. Okay, no, but in fairness Chris

755
00:38:36,040 --> 00:38:39,239
Speaker 1: Martin said, we're not touring this album. I like that.

756
00:38:39,239 --> 00:38:42,640
Speaker 1: That was That's why I like Greta. Greta took She sailed,

757
00:38:44,880 --> 00:38:47,200
Speaker 1: But like Larry Fink, doesn't have time for that. And

758
00:38:47,200 --> 00:38:49,560
Speaker 1: that's where I think some of the hypocrisy. It's tough

759
00:38:49,600 --> 00:38:51,279
Speaker 1: for me not to see it. I can't unsee that.

760
00:38:52,080 --> 00:38:54,239
Speaker 1: Eric at a cocktail party, what's the curving footprint of

761
00:38:54,239 --> 00:38:58,759
Speaker 1: this vodka? And in America, if they got a one

762
00:38:58,760 --> 00:39:00,880
Speaker 1: more cocktail party and they said of me in plastic

763
00:39:00,920 --> 00:39:04,319
Speaker 1: containers like I'm nineteen again, I'm just gonna throw his

764
00:39:04,360 --> 00:39:09,120
Speaker 1: sefort not just on the plastic factor. She he Graham.

765
00:39:09,320 --> 00:39:13,759
Speaker 1: How should consumers go about due diligence questions in this space? So?

766
00:39:14,000 --> 00:39:17,360
Speaker 1: I think there are so many different ways to do yesday,

767
00:39:17,400 --> 00:39:20,680
Speaker 1: it's it's hard to pick one certain way. I do

768
00:39:20,800 --> 00:39:24,120
Speaker 1: think the market is moving towards what one calls materiality,

769
00:39:24,160 --> 00:39:27,720
Speaker 1: which is actually looking at what esgu metrics are financially materials.

770
00:39:27,760 --> 00:39:30,279
Speaker 1: So that's how I would do it, if I were

771
00:39:30,360 --> 00:39:34,560
Speaker 1: to do it right now. Every consumer should check their

772
00:39:34,600 --> 00:39:38,799
Speaker 1: portfolio and say in what can you have access to?

773
00:39:39,120 --> 00:39:42,000
Speaker 1: You have so many more options and all of those options,

774
00:39:42,239 --> 00:39:44,120
Speaker 1: there's a green option where you don't just have to

775
00:39:44,200 --> 00:39:47,239
Speaker 1: choose the brown option, and all the way to what

776
00:39:47,320 --> 00:39:48,960
Speaker 1: have you aggressive? You want to do? You want to

777
00:39:48,960 --> 00:39:51,480
Speaker 1: sail across the Atlantic there's a company that's trying to

778
00:39:51,560 --> 00:39:54,640
Speaker 1: launch sailboats again. So all the way from less brown

779
00:39:54,960 --> 00:39:57,640
Speaker 1: to most green, there's opportunities. You need to speak to

780
00:39:57,640 --> 00:40:00,400
Speaker 1: your advisor because the other gap in us as the

781
00:40:00,400 --> 00:40:09,400
Speaker 1: intermediaries underinformed and they're behind the curve on what's actually available. Annie, Sheheen, Graham,

782
00:40:09,400 --> 00:40:17,760
Speaker 1: thanks for joining us and Tracks thanks thanks for listening

783
00:40:17,800 --> 00:40:19,680
Speaker 1: to Trillions until next time. You can find us on

784
00:40:19,680 --> 00:40:23,239
Speaker 1: the Bloomberg Terminal, Bloomberg dot com, Apple Podcasts, Spotify, and

785
00:40:23,280 --> 00:40:25,440
Speaker 1: wherever else you'd like to listen. We'd love to hear

786
00:40:25,440 --> 00:40:28,480
Speaker 1: from you. We're on Twitter, I'm at Joel Webber Show,

787
00:40:28,719 --> 00:40:31,359
Speaker 1: He's at Eric Call Tunas. You can find Annie at

788
00:40:31,360 --> 00:40:36,720
Speaker 1: Antonia b Massa, Shaheen at Shaheen Underscore c and Graham

789
00:40:36,880 --> 00:40:40,160
Speaker 1: at E S g Architect. This episode of Trillions was

790
00:40:40,160 --> 00:40:44,360
Speaker 1: produced by Magnus Hendrickson and edited by Gerald Dillard. Francesca

791
00:40:44,440 --> 00:40:47,120
Speaker 1: Levy is the head of Bloomberg Podcast Bye