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Speaker 1: You're listening to Bloomberg Business Week with Carol Masser and

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Speaker 1: Jason Kelly on Bloomberg Radio. All right, we're really happy

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Speaker 1: to kick off the last hour of the show today

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Speaker 1: with Jay Letman back with his co founder President of

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Speaker 1: Ethic joins us on the phone from New York City

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Speaker 1: and back in June, we talked about what was going

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Speaker 1: on in the world as it related to a reckoning

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Speaker 1: that we hope is still ongoing in a very meaningful way.

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Speaker 1: We're talking about equality a lot today with our Equality

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Speaker 1: Summit in terms of racial injustice and institutionalized racism. We're

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Speaker 1: also talking a lot over the past couple of weeks

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Speaker 1: and continuing to engage our efforts around the climate. So

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Speaker 1: we want to focus on that today with Jay. It's

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Speaker 1: really nice to have you back with us. It's a

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Speaker 1: touch to be back. Thanks having me. So Jay talk

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Speaker 1: to us about climate here, because you know, this is

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Speaker 1: something we spent a lot of time actually with our

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Speaker 1: Green Festival last week here at Bloomberg and and we

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Speaker 1: dug into a lot of the investment aspects of this.

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Speaker 1: But I wonder what your take on it is, because

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Speaker 1: this is at the core of what you're doing with

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Speaker 1: ethic right, tell us your approach of course, of course,

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Speaker 1: and I think that you know the way that we

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Speaker 1: are seeing investors consider the climate conversation. The climate crisis

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Speaker 1: right now is really a topic of risk, right, and

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Speaker 1: the kinds of risks that investors can actually proactively mitigate

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Speaker 1: from their portfolio if they know what to look for

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Speaker 1: with regards to certain information data that is out there

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Speaker 1: about companies. And we can break that down into two

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Speaker 1: primary risks, you know, whether that is physical risks or

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Speaker 1: transition risks. I'm happy to go into more detail about well,

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Speaker 1: talk to us a little bit about that in terms

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Speaker 1: of how because I'm always curious when we talk about this,

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Speaker 1: how do you look at a company Like we did

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Speaker 1: a story earlier about how Amazon doesn't have a plan

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Speaker 1: to solve emissions. The company gave itself about two decades

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Speaker 1: to reach zero emissions, you know, but it's like, can

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Speaker 1: it do what its customers and want it to do?

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Speaker 1: And also put the climate first? Can put both constituents

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Speaker 1: of you home first? And I do wonder when you

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Speaker 1: look at a company, how do you decide whether or

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Speaker 1: not they are hurting or helping or or taking the

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Speaker 1: initiatives to be better when it comes to the climate.

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Speaker 1: How do you how do you make an investment ruling

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Speaker 1: on something like an Amazon is It's a fantastic question.

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Speaker 1: What you're talking about specifically, is what you would consider

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Speaker 1: to be a transition risk, right, which is this risk

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Speaker 1: associated with the change in economic incentives um as they

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Speaker 1: transition to a low carbon economy and as you know,

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Speaker 1: increasing consumer sentiment shifts towards a desire to have more

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Speaker 1: sustainable companies they're buying from. And as companies recognize that,

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Speaker 1: you know, potential regulatory changes in the future may actually

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Speaker 1: you know, put a price on carbon. They're recognizing that

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Speaker 1: they have an incentive boat to keep their consumers happy

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Speaker 1: as well as keeping an eye on what their bottom

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Speaker 1: line is going to be, because you know, if these

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Speaker 1: regulatory changes do happen, if a price to carbon does occur,

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Speaker 1: which we believe to be an inevitability at a certain point,

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Speaker 1: you know, they are they want to be ahead of

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Speaker 1: the curve and they don't want to be caught incurring

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Speaker 1: those increased costs when a price is put on you

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Speaker 1: know what it is that they're ultimately releasing in the

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Speaker 1: form of emissions in cobbon through what you're discussing. So Jay,

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Speaker 1: you you brought up a really important point, which I

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Speaker 1: think is consumer behavior. And you know, we've been talking

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Speaker 1: about this also in the context of equality, and in fact,

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Speaker 1: part of the conversation we're gonna hear later in the

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Speaker 1: hour which John Winkle Reed and Ursula Burns addresses this,

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Speaker 1: this notion of where the economic pressure is ultimately coming from.

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Speaker 1: It's coming from consumers who are ultimately demanding more of

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Speaker 1: the companies that they buy from, but it's also needs

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Speaker 1: to come many would argue, I would be among them,

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Speaker 1: that it has to come from the institutional investors, is

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Speaker 1: as well? Are we seeing pressure from both sides? And

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Speaker 1: is it equal or how would you describe it? Well,

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Speaker 1: I think that you are seeing, you know, a two

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Speaker 1: prompt approach, because you know, it's it's impossible now to

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Speaker 1: ignore what is going on in the climate spective. We've

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Speaker 1: got fires on the West coast, we've got a historic hurricane,

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Speaker 1: sees and performing in the Gulf, and you know, the

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Speaker 1: conversation about whether this is a topic that needs to

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Speaker 1: be addressed is now over right. It's now a conversation

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Speaker 1: of how do we address this and the consumer sentiment

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Speaker 1: around that has shifted towards people recognizing that their purchasers

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Speaker 1: do make a difference. And that's why you're seeing certain

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Speaker 1: companies coming out and getting ahead of it. Right. You

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Speaker 1: had Microsoft come out talking about going carbon negative. You

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Speaker 1: are Delta coming out saying they were going to be

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Speaker 1: the first carbon neutral airline, and those first movers, we

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Speaker 1: believe are going to benefit from being you know, proactive

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Speaker 1: in this sense. But from an institutional investment perspective, you

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Speaker 1: are seeing, you know, not billions of dollars flow into

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Speaker 1: more sustainable investments. You're seeing trillions of dollars as investors

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Speaker 1: that are investing for you know, they're not investing for

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Speaker 1: ten twenty thirty years. These are investment portfolios that are

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Speaker 1: looking at the true long term fifty years, you know,

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Speaker 1: the generational investments that are saying we don't want to

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Speaker 1: be overly exposed to companies that are not being considerate

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Speaker 1: of a changing climate and the risks that you know

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Speaker 1: essentially come with that. So if I can follow in

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Speaker 1: that and that excuse me? What turned that institutional spigot on,

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Speaker 1: as it were? Was there a catalytic moment? Was it

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Speaker 1: the kind of accumulation of a lot of the things

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Speaker 1: that you've been alluding to where you just can't ignore

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Speaker 1: it anymore, or was it they needed to see performance

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Speaker 1: like what happened? Well, the you know, the performat performance

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Speaker 1: question is so interesting because if you do look at

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Speaker 1: this as a risk mitigation strategy, and as these kinds

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Speaker 1: of risks become more pertinent, with companies having their supply

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Speaker 1: chains disrupted, having their you know, physical assets to put

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Speaker 1: at risk, having an increased risk of stranded assets as

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Speaker 1: a result of a changing climate, you're actually going to

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Speaker 1: see these companies that are not taking climate change seriously

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Speaker 1: get affected and as a result, they are not going

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Speaker 1: to be great investments when you know, they are overly

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Speaker 1: susceptible to drought or their supply chains start to fail.

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Speaker 1: And so I think institutional investors are really recognizing that,

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Speaker 1: you know, they want to invest in a more sustainable

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Speaker 1: way to achieve the goals of you know, driving a

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Speaker 1: more sustainable future, but they also need to protect that

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Speaker 1: capital and they need to be thinking as long term

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Speaker 1: investors and in doing so recognizing that by mitigating risk,

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Speaker 1: you're probably insulating the portfolio from you know, the kind

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Speaker 1: of climate. I think events that we're seeing globally, Jay,

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Speaker 1: what about the other problems, big issues that face us

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Speaker 1: And it's something we've talked about with you before, but

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Speaker 1: you know, the racial inequalities um that are out there

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Speaker 1: in our society. How do you think about that. I'm

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Speaker 1: curious what you're hearing from investors about how they are

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Speaker 1: applying that too and thinking about that when they make investments,

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Speaker 1: of course, and it's you know, it remains a huge

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Speaker 1: priority for so many of our clients. And one of

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Speaker 1: the interesting things, you know, in this conversation about climate

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Speaker 1: as well, is seeing the interconnectivity between these issues, right,

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Speaker 1: and you're seeing on the West coast now with these

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Speaker 1: obviously these unprecedented fires. You know, one of the mediate

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Speaker 1: side effects that everyone is talking about is the immediate

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Speaker 1: climate migration that is going to be a factor as

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Speaker 1: people lose their homes at kind of unprecedented numbers. And

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Speaker 1: one of the natural effects of that is that, you know,

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Speaker 1: it is the most vulnerable in society that are going

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Speaker 1: to be most disproportionately affected by that if they cannot

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Speaker 1: afford to relocate their lives, if they cannot afford to

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Speaker 1: rebuild their lives, and if they are essentially forced you

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Speaker 1: into unprecedented times for themselves and that does disportionate affect

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Speaker 1: people of color as a result, and so um, you know,

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Speaker 1: as as our investors think more about racial justice investing,

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Speaker 1: I think that the entire climate conversation does factor into

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Speaker 1: so many elements of it, as well as other factors

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Speaker 1: like criminal justice reform and where their companies are profiting

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Speaker 1: from a systemically unjust and racist criminal justice system, which

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Speaker 1: companies are positioned to, you know, honestly benefit from that system,

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Speaker 1: as well as certain industries like predatory lending that disproportionately

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Speaker 1: predate upon or affect people of color in the country

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Speaker 1: right now. Yeah, And it's interesting, you know, on the

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Speaker 1: on the climate point, in the climate exacerbating inequality point.

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Speaker 1: You know, Jay, you mentioned earlier in the conversation the

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Speaker 1: hurricane season in the Gulf, and you know, it was

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Speaker 1: fifteen years ago, and I was involved in some of

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Speaker 1: the Bloombird's coverage around it. When Hurricane Katrina obviously came

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Speaker 1: on shore in Mississippi, it was a little less well covered,

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Speaker 1: but certainly when we saw what Hurricane Katrina and the

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Speaker 1: levies breaking ultimately did to New Orleans, the disproportionate effect

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Speaker 1: it had on poor black people in the lower ninth

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Speaker 1: ward and also the economic response to that, I think

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Speaker 1: is so interesting to think about as well, in terms

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Speaker 1: of what get really what gets rebuilt, and what doesn't

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Speaker 1: and who is able to essentially show any measure of resilience.

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Speaker 1: And I have to think that that's part of the

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Speaker 1: equation too, of course, of course, and you know, a

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Speaker 1: very sad part of all of the displacement that has

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Speaker 1: created either from the flooding either from fires, is that

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Speaker 1: you know, small business owners, people that are dependent on

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Speaker 1: the community element of you know, for their kind of

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Speaker 1: economic support and the economic sustenance you know, that's wiped

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Speaker 1: out as the entire community is pushed out, and you know,

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Speaker 1: does not necessarily have the financial resilience to return to

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Speaker 1: that area, and especially as you said, not to do

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Speaker 1: so quickly. So when you think about what we're increasingly

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Speaker 1: calling and we had the the creator of this concept

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Speaker 1: on our show yesterday, Peter Atwater, the economists that this

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Speaker 1: K shaped recovery. You know, I feel like investors are

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Speaker 1: sort of of of of many minds here that it

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Speaker 1: is maybe easy, as it were, to sort of invest

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Speaker 1: in in that upward part of the K in tech

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Speaker 1: and other companies, UM, and and maybe ignore some of

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Speaker 1: the the opportunity or maybe ignore some of the implications

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Speaker 1: of the other part of the k with this widening gap, Um,

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Speaker 1: how do you continue to sort of make sure that

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Speaker 1: you and and on behalf of your clients sort of

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Speaker 1: making the right sort of investments when some companies are

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Speaker 1: doing quite well A bit all this well, I think

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Speaker 1: that you know, one of the considerations we have to

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Speaker 1: make is, you know, there are obviously those larger companies

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Speaker 1: that are going to benefit from the displaces of the

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Speaker 1: market and from consolidation, and that will continue to grow

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Speaker 1: an accelerated rate through COVID and through the rebound. But

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Speaker 1: you've also got to look at the companies that are

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Speaker 1: kind of systemically positioned to benefit from you know, honestly

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Speaker 1: extracting from the communities in the country that are the

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Speaker 1: most vulnerable. Right, So as we look at industries like

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Speaker 1: predatory lending that benefit most when people are financially destitute

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Speaker 1: and are honestly in desperate need of financial support, that's

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Speaker 1: when they are strongest, right, because they're able to position

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Speaker 1: themselves as you know, a provider of financial services that

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Speaker 1: does exploit its clients right, and there's industries like that

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Speaker 1: that are going to make the situation honestly, dramatically worse

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Speaker 1: for those people that will not be part of the

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Speaker 1: economic uplift, especially if they are not you know, asset owners,

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Speaker 1: and if they're not holders in some of those companies

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Speaker 1: that are going to see the largest expansion in their

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Speaker 1: share price because they're not you know, honestly participating in

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Speaker 1: the kind of economic uplift because they don't have investment portfolios.

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Speaker 1: And so you will see that disparity grow even further,

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Speaker 1: either from that corporate activity or the fact that you

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Speaker 1: know a lot of people in the community don't actually

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Speaker 1: have ownership of equities that will grow from the benefits

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Speaker 1: of the Upland to a quick question, just kind about

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Speaker 1: a minute left here, how does your how do your

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Speaker 1: you know, algorithms, you know, how do they see Big

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Speaker 1: Wall Street pigs amid all of this. It's a great question.

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Speaker 1: I think that you know, it really depends on how

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Speaker 1: you actually judge the various practices. And I think that

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Speaker 1: you know, looking at things like carbon risk, carbon exposure, um,

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Speaker 1: you know, isn't going to be material when you're looking

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Speaker 1: at a financial institution, and so you know, deciding on

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Speaker 1: whether to invest in a company based on how much

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Speaker 1: carbon it emits is not going to be applicable to

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Speaker 1: an institution that doesn't create as part of its business activities.

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Speaker 1: And so you look at the various ways of that

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Speaker 1: bank kind of operates with regards to things like the

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Speaker 1: financial systems risk, whether or not they are participating in

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Speaker 1: or profiting from predatory lending, and look at the things

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Speaker 1: that are relevant to their honestly their business practices and

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Speaker 1: see how they connect to either you know, climate conversations,

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Speaker 1: whe justice conversations, or other things that are connected to

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Speaker 1: the factors that we consider. Well, it's so fascinating, um,

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Speaker 1: and I know hopefully you'll come back at another day

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Speaker 1: so we can just kind of continue this because it's

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Speaker 1: just kind of the investment world where it's important loading

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Speaker 1: these kinds of areas. J Littman, co founder, president of Ethic,

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Speaker 1: joining us on the phone from New York City,