Speaker 1: You're listening to Bloomberg Business Week with Carol Masser and
Speaker 1: Jason Kelly on Bloomberg Radio. All right, we're really happy
Speaker 1: to kick off the last hour of the show today
Speaker 1: with Jay Letman back with his co founder President of
Speaker 1: Ethic joins us on the phone from New York City
Speaker 1: and back in June, we talked about what was going
Speaker 1: on in the world as it related to a reckoning
Speaker 1: that we hope is still ongoing in a very meaningful way.
Speaker 1: We're talking about equality a lot today with our Equality
Speaker 1: Summit in terms of racial injustice and institutionalized racism. We're
Speaker 1: also talking a lot over the past couple of weeks
Speaker 1: and continuing to engage our efforts around the climate. So
Speaker 1: we want to focus on that today with Jay. It's
Speaker 1: really nice to have you back with us. It's a
Speaker 1: touch to be back. Thanks having me. So Jay talk
Speaker 1: to us about climate here, because you know, this is
Speaker 1: something we spent a lot of time actually with our
Speaker 1: Green Festival last week here at Bloomberg and and we
Speaker 1: dug into a lot of the investment aspects of this.
Speaker 1: But I wonder what your take on it is, because
Speaker 1: this is at the core of what you're doing with
Speaker 1: ethic right, tell us your approach of course, of course,
Speaker 1: and I think that you know the way that we
Speaker 1: are seeing investors consider the climate conversation. The climate crisis
Speaker 1: right now is really a topic of risk, right, and
Speaker 1: the kinds of risks that investors can actually proactively mitigate
Speaker 1: from their portfolio if they know what to look for
Speaker 1: with regards to certain information data that is out there
Speaker 1: about companies. And we can break that down into two
Speaker 1: primary risks, you know, whether that is physical risks or
Speaker 1: transition risks. I'm happy to go into more detail about well,
Speaker 1: talk to us a little bit about that in terms
Speaker 1: of how because I'm always curious when we talk about this,
Speaker 1: how do you look at a company Like we did
Speaker 1: a story earlier about how Amazon doesn't have a plan
Speaker 1: to solve emissions. The company gave itself about two decades
Speaker 1: to reach zero emissions, you know, but it's like, can
Speaker 1: it do what its customers and want it to do?
Speaker 1: And also put the climate first? Can put both constituents
Speaker 1: of you home first? And I do wonder when you
Speaker 1: look at a company, how do you decide whether or
Speaker 1: not they are hurting or helping or or taking the
Speaker 1: initiatives to be better when it comes to the climate.
Speaker 1: How do you how do you make an investment ruling
Speaker 1: on something like an Amazon is It's a fantastic question.
Speaker 1: What you're talking about specifically, is what you would consider
Speaker 1: to be a transition risk, right, which is this risk
Speaker 1: associated with the change in economic incentives um as they
Speaker 1: transition to a low carbon economy and as you know,
Speaker 1: increasing consumer sentiment shifts towards a desire to have more
Speaker 1: sustainable companies they're buying from. And as companies recognize that,
Speaker 1: you know, potential regulatory changes in the future may actually
Speaker 1: you know, put a price on carbon. They're recognizing that
Speaker 1: they have an incentive boat to keep their consumers happy
Speaker 1: as well as keeping an eye on what their bottom
Speaker 1: line is going to be, because you know, if these
Speaker 1: regulatory changes do happen, if a price to carbon does occur,
Speaker 1: which we believe to be an inevitability at a certain point,
Speaker 1: you know, they are they want to be ahead of
Speaker 1: the curve and they don't want to be caught incurring
Speaker 1: those increased costs when a price is put on you
Speaker 1: know what it is that they're ultimately releasing in the
Speaker 1: form of emissions in cobbon through what you're discussing. So Jay,
Speaker 1: you you brought up a really important point, which I
Speaker 1: think is consumer behavior. And you know, we've been talking
Speaker 1: about this also in the context of equality, and in fact,
Speaker 1: part of the conversation we're gonna hear later in the
Speaker 1: hour which John Winkle Reed and Ursula Burns addresses this,
Speaker 1: this notion of where the economic pressure is ultimately coming from.
Speaker 1: It's coming from consumers who are ultimately demanding more of
Speaker 1: the companies that they buy from, but it's also needs
Speaker 1: to come many would argue, I would be among them,
Speaker 1: that it has to come from the institutional investors, is
Speaker 1: as well? Are we seeing pressure from both sides? And
Speaker 1: is it equal or how would you describe it? Well,
Speaker 1: I think that you are seeing, you know, a two
Speaker 1: prompt approach, because you know, it's it's impossible now to
Speaker 1: ignore what is going on in the climate spective. We've
Speaker 1: got fires on the West coast, we've got a historic hurricane,
Speaker 1: sees and performing in the Gulf, and you know, the
Speaker 1: conversation about whether this is a topic that needs to
Speaker 1: be addressed is now over right. It's now a conversation
Speaker 1: of how do we address this and the consumer sentiment
Speaker 1: around that has shifted towards people recognizing that their purchasers
Speaker 1: do make a difference. And that's why you're seeing certain
Speaker 1: companies coming out and getting ahead of it. Right. You
Speaker 1: had Microsoft come out talking about going carbon negative. You
Speaker 1: are Delta coming out saying they were going to be
Speaker 1: the first carbon neutral airline, and those first movers, we
Speaker 1: believe are going to benefit from being you know, proactive
Speaker 1: in this sense. But from an institutional investment perspective, you
Speaker 1: are seeing, you know, not billions of dollars flow into
Speaker 1: more sustainable investments. You're seeing trillions of dollars as investors
Speaker 1: that are investing for you know, they're not investing for
Speaker 1: ten twenty thirty years. These are investment portfolios that are
Speaker 1: looking at the true long term fifty years, you know,
Speaker 1: the generational investments that are saying we don't want to
Speaker 1: be overly exposed to companies that are not being considerate
Speaker 1: of a changing climate and the risks that you know
Speaker 1: essentially come with that. So if I can follow in
Speaker 1: that and that excuse me? What turned that institutional spigot on,
Speaker 1: as it were? Was there a catalytic moment? Was it
Speaker 1: the kind of accumulation of a lot of the things
Speaker 1: that you've been alluding to where you just can't ignore
Speaker 1: it anymore, or was it they needed to see performance
Speaker 1: like what happened? Well, the you know, the performat performance
Speaker 1: question is so interesting because if you do look at
Speaker 1: this as a risk mitigation strategy, and as these kinds
Speaker 1: of risks become more pertinent, with companies having their supply
Speaker 1: chains disrupted, having their you know, physical assets to put
Speaker 1: at risk, having an increased risk of stranded assets as
Speaker 1: a result of a changing climate, you're actually going to
Speaker 1: see these companies that are not taking climate change seriously
Speaker 1: get affected and as a result, they are not going
Speaker 1: to be great investments when you know, they are overly
Speaker 1: susceptible to drought or their supply chains start to fail.
Speaker 1: And so I think institutional investors are really recognizing that,
Speaker 1: you know, they want to invest in a more sustainable
Speaker 1: way to achieve the goals of you know, driving a
Speaker 1: more sustainable future, but they also need to protect that
Speaker 1: capital and they need to be thinking as long term
Speaker 1: investors and in doing so recognizing that by mitigating risk,
Speaker 1: you're probably insulating the portfolio from you know, the kind
Speaker 1: of climate. I think events that we're seeing globally, Jay,
Speaker 1: what about the other problems, big issues that face us
Speaker 1: And it's something we've talked about with you before, but
Speaker 1: you know, the racial inequalities um that are out there
Speaker 1: in our society. How do you think about that. I'm
Speaker 1: curious what you're hearing from investors about how they are
Speaker 1: applying that too and thinking about that when they make investments,
Speaker 1: of course, and it's you know, it remains a huge
Speaker 1: priority for so many of our clients. And one of
Speaker 1: the interesting things, you know, in this conversation about climate
Speaker 1: as well, is seeing the interconnectivity between these issues, right,
Speaker 1: and you're seeing on the West coast now with these
Speaker 1: obviously these unprecedented fires. You know, one of the mediate
Speaker 1: side effects that everyone is talking about is the immediate
Speaker 1: climate migration that is going to be a factor as
Speaker 1: people lose their homes at kind of unprecedented numbers. And
Speaker 1: one of the natural effects of that is that, you know,
Speaker 1: it is the most vulnerable in society that are going
Speaker 1: to be most disproportionately affected by that if they cannot
Speaker 1: afford to relocate their lives, if they cannot afford to
Speaker 1: rebuild their lives, and if they are essentially forced you
Speaker 1: into unprecedented times for themselves and that does disportionate affect
Speaker 1: people of color as a result, and so um, you know,
Speaker 1: as as our investors think more about racial justice investing,
Speaker 1: I think that the entire climate conversation does factor into
Speaker 1: so many elements of it, as well as other factors
Speaker 1: like criminal justice reform and where their companies are profiting
Speaker 1: from a systemically unjust and racist criminal justice system, which
Speaker 1: companies are positioned to, you know, honestly benefit from that system,
Speaker 1: as well as certain industries like predatory lending that disproportionately
Speaker 1: predate upon or affect people of color in the country
Speaker 1: right now. Yeah, And it's interesting, you know, on the
Speaker 1: on the climate point, in the climate exacerbating inequality point.
Speaker 1: You know, Jay, you mentioned earlier in the conversation the
Speaker 1: hurricane season in the Gulf, and you know, it was
Speaker 1: fifteen years ago, and I was involved in some of
Speaker 1: the Bloombird's coverage around it. When Hurricane Katrina obviously came
Speaker 1: on shore in Mississippi, it was a little less well covered,
Speaker 1: but certainly when we saw what Hurricane Katrina and the
Speaker 1: levies breaking ultimately did to New Orleans, the disproportionate effect
Speaker 1: it had on poor black people in the lower ninth
Speaker 1: ward and also the economic response to that, I think
Speaker 1: is so interesting to think about as well, in terms
Speaker 1: of what get really what gets rebuilt, and what doesn't
Speaker 1: and who is able to essentially show any measure of resilience.
Speaker 1: And I have to think that that's part of the
Speaker 1: equation too, of course, of course, and you know, a
Speaker 1: very sad part of all of the displacement that has
Speaker 1: created either from the flooding either from fires, is that
Speaker 1: you know, small business owners, people that are dependent on
Speaker 1: the community element of you know, for their kind of
Speaker 1: economic support and the economic sustenance you know, that's wiped
Speaker 1: out as the entire community is pushed out, and you know,
Speaker 1: does not necessarily have the financial resilience to return to
Speaker 1: that area, and especially as you said, not to do
Speaker 1: so quickly. So when you think about what we're increasingly
Speaker 1: calling and we had the the creator of this concept
Speaker 1: on our show yesterday, Peter Atwater, the economists that this
Speaker 1: K shaped recovery. You know, I feel like investors are
Speaker 1: sort of of of of many minds here that it
Speaker 1: is maybe easy, as it were, to sort of invest
Speaker 1: in in that upward part of the K in tech
Speaker 1: and other companies, UM, and and maybe ignore some of
Speaker 1: the the opportunity or maybe ignore some of the implications
Speaker 1: of the other part of the k with this widening gap, Um,
Speaker 1: how do you continue to sort of make sure that
Speaker 1: you and and on behalf of your clients sort of
Speaker 1: making the right sort of investments when some companies are
Speaker 1: doing quite well A bit all this well, I think
Speaker 1: that you know, one of the considerations we have to
Speaker 1: make is, you know, there are obviously those larger companies
Speaker 1: that are going to benefit from the displaces of the
Speaker 1: market and from consolidation, and that will continue to grow
Speaker 1: an accelerated rate through COVID and through the rebound. But
Speaker 1: you've also got to look at the companies that are
Speaker 1: kind of systemically positioned to benefit from you know, honestly
Speaker 1: extracting from the communities in the country that are the
Speaker 1: most vulnerable. Right, So as we look at industries like
Speaker 1: predatory lending that benefit most when people are financially destitute
Speaker 1: and are honestly in desperate need of financial support, that's
Speaker 1: when they are strongest, right, because they're able to position
Speaker 1: themselves as you know, a provider of financial services that
Speaker 1: does exploit its clients right, and there's industries like that
Speaker 1: that are going to make the situation honestly, dramatically worse
Speaker 1: for those people that will not be part of the
Speaker 1: economic uplift, especially if they are not you know, asset owners,
Speaker 1: and if they're not holders in some of those companies
Speaker 1: that are going to see the largest expansion in their
Speaker 1: share price because they're not you know, honestly participating in
Speaker 1: the kind of economic uplift because they don't have investment portfolios.
Speaker 1: And so you will see that disparity grow even further,
Speaker 1: either from that corporate activity or the fact that you
Speaker 1: know a lot of people in the community don't actually
Speaker 1: have ownership of equities that will grow from the benefits
Speaker 1: of the Upland to a quick question, just kind about
Speaker 1: a minute left here, how does your how do your
Speaker 1: you know, algorithms, you know, how do they see Big
Speaker 1: Wall Street pigs amid all of this. It's a great question.
Speaker 1: I think that you know, it really depends on how
Speaker 1: you actually judge the various practices. And I think that
Speaker 1: you know, looking at things like carbon risk, carbon exposure, um,
Speaker 1: you know, isn't going to be material when you're looking
Speaker 1: at a financial institution, and so you know, deciding on
Speaker 1: whether to invest in a company based on how much
Speaker 1: carbon it emits is not going to be applicable to
Speaker 1: an institution that doesn't create as part of its business activities.
Speaker 1: And so you look at the various ways of that
Speaker 1: bank kind of operates with regards to things like the
Speaker 1: financial systems risk, whether or not they are participating in
Speaker 1: or profiting from predatory lending, and look at the things
Speaker 1: that are relevant to their honestly their business practices and
Speaker 1: see how they connect to either you know, climate conversations,
Speaker 1: whe justice conversations, or other things that are connected to
Speaker 1: the factors that we consider. Well, it's so fascinating, um,
Speaker 1: and I know hopefully you'll come back at another day
Speaker 1: so we can just kind of continue this because it's
Speaker 1: just kind of the investment world where it's important loading
Speaker 1: these kinds of areas. J Littman, co founder, president of Ethic,
Speaker 1: joining us on the phone from New York City,