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Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg Radio.

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Speaker 1: This week on the podcast, I have an extra special guest.

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Speaker 1: His name is Brian D's. He is head of sustainable

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Speaker 1: Investing at black Rock, which now manages somewhat over seven

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Speaker 1: trillion dollars. Brian has a fascinating background both in the

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Speaker 1: White House and Washington, d C. Where he helped draft

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Speaker 1: the Paris Climate Accord, as well as worked on the

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Speaker 1: bailout of GM and Chrysler for the Obama administration and

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Speaker 1: now working in black Rock. Uh, this is really a

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Speaker 1: fascinating conversation about what is driving sustainable investing, how we

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Speaker 1: can think about climate change and e s G investing

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Speaker 1: not so much as a value play but as a

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Speaker 1: form of risk analysis. Uh. It really just this conversation

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Speaker 1: went to places you probably wouldn't expect it would and

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Speaker 1: I found it to be absolutely fascinating and I think

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Speaker 1: you will too. So, with no further ado, my conversation

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Speaker 1: with Black Rocks Brian Diese. This is Masters in Business

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Speaker 1: with Barry Ridholtz on Boomberg Radio. My special guest this

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Speaker 1: week is Brian Diese. He is the global head of

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Speaker 1: sustainable Investing at black Rock, where he focuses on identifying

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Speaker 1: drivers of long term returns associated with E s G issues. Previously,

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Speaker 1: he was President Obama's Senior Advisor for Climate and Energy Policy,

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Speaker 1: where he helped to work on the Paris Climate Accord.

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Speaker 1: He also was one of the key architects of the

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Speaker 1: resurgence of the auto industry, participating in the design of

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Speaker 1: the bailout of General Motors and Chrysler. He has been

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Speaker 1: Deputy Director at the National Economic Council as well as

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Speaker 1: at the Office of Management and Budget. Brian Diese, Welcome

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Speaker 1: to Bloomberg. Thank you, happy beer. So Brian, let's jump

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Speaker 1: right in. I'm kind of intrigued by your background. Your

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Speaker 1: j d is from Yale. How does a legal background

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Speaker 1: help someone in the field of sustainable investing. Well, you know,

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Speaker 1: the joke about people who work in policy is if

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Speaker 1: you don't have the attention span to go get a PhD,

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Speaker 1: then you get a law school. That's fair, but well, look,

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Speaker 1: I I might most of my background professional focus has

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Speaker 1: been on economics and economic policy. Uh, the legal training

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Speaker 1: and the law degree have been extremely helpful for me

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Speaker 1: in helping have a framework to how to think about

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Speaker 1: issues and break them. Down and put them back together.

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Speaker 1: But I am one of those people who's got a

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Speaker 1: law degree but is not deploying it directly in the

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Speaker 1: practice of law. I want to say the stats, so

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Speaker 1: I too have a law degree that I do not deploy,

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Speaker 1: But I want to say, it's after seven years, it's

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Speaker 1: something like fifty of us are not practicing laws something

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Speaker 1: like that. Pretty pretty realistic number. So let's talk a

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Speaker 1: little bit about the Obama White House. You were Senior

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Speaker 1: adviser for Climate and Energy policy. What's it like working

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Speaker 1: on those issues in the White House. Well, it's um complicated, scary, thrilling, fun, frustrating,

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Speaker 1: all of those things. Everything you would amend. I worked

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Speaker 1: all eight years in the during the Obama administration. Most

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Speaker 1: of that time I was part of his economic team

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Speaker 1: in a variety of different roles and really came at issues.

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Speaker 1: So worked in the post crisis era, worked on housing, finance,

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Speaker 1: the Dot Frank, and the restructuring after the financial crisis,

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Speaker 1: and through it all I had a focus on energy

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Speaker 1: and climate issues, but from an economic perspective. The last

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Speaker 1: couple of years, the President came and said, I really

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Speaker 1: want to make this a central focus on my second term.

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Speaker 1: We're not moving fast enough. How do we bring all

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Speaker 1: of the different agencies of government together to try to

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Speaker 1: orient internationally and also domestically to do as much as

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Speaker 1: we can. That was my role. Involved a lot of coordination,

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Speaker 1: lot of work internationally and a lot of work with

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Speaker 1: regulated industries domestically as well, to try to chart a

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Speaker 1: path forward given the tools that we had. So before

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Speaker 1: we delve deeper into sustainable investing and climate change, I

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Speaker 1: have to roll back and ask about the bailouts of

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Speaker 1: GM and Chrysler sort of antithetical in some ways to

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Speaker 1: sustainable investing or maybe not. What did you do in

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Speaker 1: that space? And how insane were those years posts oh nine?

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Speaker 1: It had to be crazy. Yeah, it was a pretty

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Speaker 1: insane period. I was helping to run then candidate Obama's

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Speaker 1: economic policy during the campaign and around end of August

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Speaker 1: early September two eight, what went from economic policy in

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Speaker 1: a campaign context got devastatingly serious, very quickly, with the

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Speaker 1: cascading failures of a g and putting Famion Fedding conservatorship,

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Speaker 1: and then you know, the the escalating series of failures

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Speaker 1: over the course of the fall and when we came

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Speaker 1: in even during the transition. This question of what to

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Speaker 1: do about the auto industry generally and GM and Chrysler

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Speaker 1: that we're quickly running out of cash was front and center.

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Speaker 1: So I was part of a small team that was

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Speaker 1: tasked with trying to figure out what to do. Number one,

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Speaker 1: did we have a way to step in and back

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Speaker 1: stop them? Should we? And three? If the answer to

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Speaker 1: both of those was yes, then how could we actually

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Speaker 1: execute and get this done? So I have a pet

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Speaker 1: theory that if the UM Treasury Secretary is an industrialist,

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Speaker 1: they're very happy to bail out industry and let finance

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Speaker 1: banks and stuff go the restructuring route and vice versa.

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Speaker 1: There a financi air, then the industries can go through bankruptcy,

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Speaker 1: but they bail out banks as too big to fail.

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Speaker 1: So you guys ended up inheriting the Bush bailouts of

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Speaker 1: the banks and then doing your own industrial policy bailout

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Speaker 1: ten years later. How did it turn out? Well, there's

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Speaker 1: actually surprising consistency between the end of the Bush administration

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Speaker 1: our view on they need to do something to backstop

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Speaker 1: these companies because of the second and third order effects.

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Speaker 1: I think the you know, the conservative estimates were a

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Speaker 1: million plus jobs on the line, because it wasn't really

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Speaker 1: about the specific direct employees of GM and CHRISTI, although

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Speaker 1: there were tens of thousands of them, but the suppliers,

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Speaker 1: the dealers that the the auto industry touches UM a

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Speaker 1: lot of communities and a lot of jobs. So we

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Speaker 1: were pretty focused in the depth of such a economic downturn,

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Speaker 1: if we could do something that was targeted UH and

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Speaker 1: effective and that did require sacrifice from all different stakeholders.

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Speaker 1: The stakes were pretty high, and so we should give

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Speaker 1: it a shot. And that was the sort of the

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Speaker 1: core animating these is behind it. But we did ultimately

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Speaker 1: decide that the way to actually get the level of

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Speaker 1: um sacrifice necessary, that the level of changes in these

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Speaker 1: companies was going to require them going through bankruptcy, and

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Speaker 1: so both companies ended up going through bankruptcy. It was

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Speaker 1: a harrowing and lots of respects, but in hindsight, I

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Speaker 1: believe it's one of the most effective economic policy interventions

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Speaker 1: at the height of our recession, and I think we

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Speaker 1: saved more than a million jobs. At the end of

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Speaker 1: the day, we got back more money than the obadministration invested,

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Speaker 1: and as a whole, in the government, UH, the entire

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Speaker 1: effort cost about ten billion dollars, and so if you

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Speaker 1: look at the jobs in the economic impact that we

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Speaker 1: were able to protect and solve, I feel like it

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Speaker 1: was a an effective and reasonable use of tax payer resources.

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Speaker 1: So then you transition from a government employee effectively even

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Speaker 1: though you're on the policy side of it, to one

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Speaker 1: of the biggest investment firms in the world. What is

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Speaker 1: that transition like? Well, you know, in some ways, uh

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Speaker 1: both large complicated organizations that have a global reach and

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Speaker 1: that uh so in some ways less difference than you

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Speaker 1: might think between the complexity of the executive branch and

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Speaker 1: the complexity of a big, uh complicated organization. But on

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Speaker 1: the other hand, you know, very different in the sense

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Speaker 1: that the same set of issues that I was thinking

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Speaker 1: about and we were working on from the policy side

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Speaker 1: around how do we create the right conditions for private

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Speaker 1: capital to move into lower carbon solutions and accelerate the

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Speaker 1: transition of low carbon economy. There's what we think about

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Speaker 1: at black Rock, but with a very different lens, the

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Speaker 1: lens being how do we actually deliver for our clients,

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Speaker 1: for our the end h end investors, most of whom

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Speaker 1: are uh you know, our our our pensioners and who

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Speaker 1: have a long term orientation and are trying to save

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Speaker 1: for long term goals. So, you know, similarities, but really

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Speaker 1: a different focus on how do you bring the lens

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Speaker 1: of sustainability and sustainable investing to that ultimate goal of

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Speaker 1: delivering financial return. Ultimately quite fascinating. Let's talk a little

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Speaker 1: bit about climate change and what we're doing in response

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Speaker 1: to it. You helped to actually draft the Paris Climate Agreement.

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Speaker 1: What was your reaction to seeing the current administration withdraw

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Speaker 1: from that and how dangerous is it for the United

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Speaker 1: States to not be a part of that. Well, look,

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Speaker 1: I think it's in the the economic and national security

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Speaker 1: interest of every country to be finding a coordinate solution

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Speaker 1: to this issue. You know, I think the impacts both

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Speaker 1: the physical impacts that we're seeing that you know, we

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Speaker 1: were seeing with our own eyes. Californians are seeing at

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Speaker 1: people in the Midwestern seeing Australia and you know, up

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Speaker 1: and down the East coast of the United States. Uh,

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Speaker 1: we're seeing that everywhere. And we're also seeing the risks

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Speaker 1: from a financial perspective of what it means to actually

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Speaker 1: move toward a low carbon economy. Pressure on fossil intensive

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Speaker 1: business models, more economic opportunity for low carbon solutions, and

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Speaker 1: I think that's the piece that is is missing from

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Speaker 1: this conversation. Sometimes you think about Paris and you think

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Speaker 1: about a global effort. What Paris really did was climate

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Speaker 1: change internationally used to be this big debate between two teams.

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Speaker 1: It was like a soccer match, developed countries on the

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Speaker 1: one hand, developing countries and the others fighting about who

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Speaker 1: was in charge of having to solve this problem. What

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Speaker 1: Paris did was changed that from head to head fight

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Speaker 1: into a race. We're all working together, and now the

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Speaker 1: question is which countries can actually get ahead in being

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Speaker 1: the clean energy superpowers of the twenty one century. Who's

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Speaker 1: going to actually capture the economic opportunity, the enormous economic

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Speaker 1: opportunity that's going to colm from this transition in these

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Speaker 1: new industries. And so at the end of the day,

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Speaker 1: every country should want to be part of that race

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Speaker 1: because of the economic dividends that it creates. So I

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Speaker 1: saw a chart yesterday from Torsten Slock of Deutsche Bank

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Speaker 1: basically showing the US gets only about ten percent of

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Speaker 1: our energy supply from renewables, and I remember that more

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Speaker 1: or less correctly, that's from wind and solar. If you

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Speaker 1: look at zero carbon including nuclear and hydro, the number

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Speaker 1: is the numbers closer before you, right, But oh, really

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Speaker 1: that much because we've had pretty robust nuclear and hydro,

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Speaker 1: not as much as France has on the nuclear side

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Speaker 1: or hydro, so dependent on the local geology. But we've

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Speaker 1: had that for decades. And so what has been the

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Speaker 1: marginal increase in low carbon or zero carbon energy sources

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Speaker 1: over the past decade or so? Well, So, the two

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Speaker 1: big things that you've seen happen in the U S

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Speaker 1: energy mix are one, the rapid increase of renewables bringing

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Speaker 1: onto the grid and the the rate of change and

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Speaker 1: adoption of renewables is very fast, even though we're still

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Speaker 1: you know, we're still moving up at a relatively low base.

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Speaker 1: And the second is the adoption of and build out

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Speaker 1: of natural gas as a baseload, cheaper baseload energy source

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Speaker 1: to coal, which is primarily manifesting itself in the transition

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Speaker 1: of the big electrical generation plans that used to be

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Speaker 1: mostly coal fired and now have seemed to dramatically move

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Speaker 1: towards gas. Is that fair correct? So those are the

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Speaker 1: two the two big dynamics is gas driving coal out

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Speaker 1: of the energy mix and renewables coming onto the grid rapidly.

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Speaker 1: That's that's the story of the last decade. I think

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Speaker 1: the story of the next decade is really going to

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Speaker 1: be about what happens not the future of utilities, but

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Speaker 1: the utilities of the future, because we're gonna move increasingly

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Speaker 1: toward a scenario where we are electrifying everything, and so

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Speaker 1: the grid and the grid applications are going to become

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Speaker 1: less straightforward of you have a point source where you

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Speaker 1: generate a bunch of electrons and then you figure out

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Speaker 1: a transmission and distribution system. We're going to have increasingly

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Speaker 1: distributed generation. You're gonna have sources, you know, sources of

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Speaker 1: power and sources of storage that are plugging into the

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Speaker 1: grid in different ways, which will create new stresses, but

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Speaker 1: also a bunch of new opportunities different That will be

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Speaker 1: one of the things that make the next decade different

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Speaker 1: from the last. So we converted to natural gas about

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Speaker 1: two or three years ago. Not only do we do that,

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Speaker 1: I ran a backup generator on top of that, and

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Speaker 1: I noticed, not only am I not burning home heating

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Speaker 1: oil on burning gas, the price is a fraction of

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Speaker 1: what it was. And if you live anywhere north of

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Speaker 1: the Mason Dixon line and want to heat a pool,

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Speaker 1: Oh my god. I used to get thousand dollar oil deliveries,

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Speaker 1: it seemed every other day, And now it costs me

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Speaker 1: two bucks to keep the pool at eighty six degrees

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Speaker 1: into November. It's so incredibly cheap. Why hasn't this transition

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Speaker 1: taken place faster or are we going as fast as

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Speaker 1: we can? Well, the good news is that the transition

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Speaker 1: has both economics and physics on its side, and so

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Speaker 1: the reason why you're seeing that and the reason why

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Speaker 1: zero carbon renewable energy is increasingly the lowest cost source

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Speaker 1: of generation to add into the grid in places around

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Speaker 1: the world from India to Chile, where new solar beats

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Speaker 1: on a levelized cost the build out of new coral

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Speaker 1: or other sources. That's amazing. So the market is driving that.

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Speaker 1: But also the zero carbon energy sources are technology, and

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Speaker 1: so part of the reason why is you've seen this

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Speaker 1: rapid reduction in the cost of wind and solar and

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Speaker 1: battery storage because the technology is just advancing very rapidly,

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Speaker 1: and so the zero carbon energy sources have technology at

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Speaker 1: their back as well. That's the good news. The bad

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Speaker 1: news is that even though this transition, it's not moving

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Speaker 1: nearly fast enough to put us on a trajectory that

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Speaker 1: would keep the increase in global temperatures to the rate

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Speaker 1: that we identified in the Paris Agreement, or to the

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Speaker 1: rate of even a more ambitious set of targets that

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Speaker 1: are what the global body of science is telling us,

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Speaker 1: you need to avoid the worst impacts. So what aren't

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Speaker 1: we doing that we should be doing? And what I

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Speaker 1: mean by that is not just hey, everybody go by

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Speaker 1: a tesla or a GM vault, but what is the

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Speaker 1: government not doing to provide incentives to accelerate what's already

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Speaker 1: taking place on an economic and market driven set of functions. Right, Ultimately,

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Speaker 1: what's going to drive the speed of the transition is

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Speaker 1: government policies that provide long term stability in prioritizing more

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Speaker 1: sustainable source of energy and more sustainable sources of economic activity.

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Speaker 1: And you know, around the world we're seeing less than

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Speaker 1: a coherent global coordination policy, and so we're a long

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Speaker 1: way from that being the case. But the other thing

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Speaker 1: that's gonna help accelerating it gets to the work we're

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Speaker 1: really doing. A black rock is a greater understanding and

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Speaker 1: a greater clarity within financial markets about the magnitude that

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Speaker 1: of the risk that actually already exists or is coming.

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Speaker 1: And our view is as that becomes clearer, we're going

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Speaker 1: to see a big reallocation of capital based on risk

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Speaker 1: and based on financial markets fully reflecting those risks in

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Speaker 1: the market. So let's focus on that for a moment.

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Speaker 1: We've seen in the insurance space more than anywhere else,

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Speaker 1: big increase in rates, big set of changes as to

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Speaker 1: who insures will cover, and I'm not just talking about

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Speaker 1: residential waterfront property across the board. And then the reinsures

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Speaker 1: also showing a giant uptick in their premiums. So while

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Speaker 1: a big chunk of the marketplace maybe dawdling or not

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Speaker 1: paying attention to it, it's clear in the insurance sector

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Speaker 1: they are clearly well aware of the risks that are

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Speaker 1: taking place and have already acted on that. How long

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Speaker 1: do you expect it to take to transition from insurance

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Speaker 1: as a frontline recipient of the impact and costs of

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Speaker 1: climate change to the rest of the sectors in the marketplace. Well, look,

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Speaker 1: I would say you're starting to see that insurance, but

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Speaker 1: I think we're going to see it accelerate much more

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Speaker 1: significantly as well. Most of the financial models and the

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Speaker 1: financial approaches that we've taken are either backward looking or

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Speaker 1: they rely on this assumption of climactic stability, that the

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Speaker 1: basic stability we've seen around physical impacts and threats will

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Speaker 1: accelerate the way it has in the past. And that's

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Speaker 1: no longer a viable option, which is going to require

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Speaker 1: us to rethink a lot of basic questions about finance.

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Speaker 1: So you raised the question of mortgages and waterfront property. Well,

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Speaker 1: you know, an important year in lots of respects, but

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Speaker 1: one think about the thirty year mortgage. It's kind of

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Speaker 1: the you know, one of the centerpieces of our modern

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Speaker 1: financial system is the first year where if you're issuing

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Speaker 1: a thirty year mortgage, that's going to touch which we've

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Speaker 1: always thought of as a sort of long out, long

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Speaker 1: term area mile marker for impacts of climate change. Well,

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Speaker 1: today we a thirty year, you know, a thirty year

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Speaker 1: fixed touches that. What are the implications of that? You're right,

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Speaker 1: we're starting to see it in insurance, But what are

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Speaker 1: the implications when there are big areas of the country

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Speaker 1: where even if you can get a thirty year mortgage.

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Speaker 1: You can't get mortgage insurance that that that resets annually.

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Speaker 1: What are the implications for municipal finance If risks that

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Speaker 1: felt like they were long term twenty thirty years, I'll

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Speaker 1: start to get pulled forward. And our you know, our

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Speaker 1: our sense having looked at this, is that we're gonna see.

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Speaker 1: One thing the financial markets are good at is pulling

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Speaker 1: forward risk once they can identify and measure it. And

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Speaker 1: so what you're starting to see in isolated areas in

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Speaker 1: insurance and otherwise is likely to move much more quickly

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Speaker 1: as bigger, you know, bigger elements of the financial market

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Speaker 1: starts to recognize and identify these risks as real, and

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Speaker 1: even if they are fifteen years forward, that's going to

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Speaker 1: affect duration quite fascinating. Let's talk a little bit about

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Speaker 1: sustainable investing. Your boss, Larry Fink made a pretty big

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Speaker 1: splash with his annual letter on sustainability. What does Blackrock

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Speaker 1: want to accomplish with that sort of communication. What was

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Speaker 1: Larry trying to say, Well, we wanted to communicate our

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Speaker 1: view as a fiduciary, as an entity that our principal

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Speaker 1: goal is to try to think forward on behalf of

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Speaker 1: our clients to what will be important to delivering them

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Speaker 1: their long term financial goals. And in that context, we

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Speaker 1: wanted to communicate two things. One, our view that climate

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Speaker 1: risk is investment risk, and that's going to have big

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Speaker 1: implications on how we think about a lot of these

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Speaker 1: core questions of how we think about duration assets, how

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Speaker 1: we think about risk going forward. And the second is

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Speaker 1: that there is a larger societal shift right now toward

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Speaker 1: a focus on sustainability and changing expectations of companies that

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Speaker 1: we believe will escalate that their structural drivers behind that

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Speaker 1: that will escalate across time. And therefore companies that are

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Speaker 1: not thinking forward to what that means for their business

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Speaker 1: model and trying to get ahead of that are going

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Speaker 1: to struggle to deliver long term profitability because this is

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Speaker 1: going to become an increasingly important part of the financial conversation.

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Speaker 1: So this seems to be an evolution and thought at

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Speaker 1: black Rock. I think has written a number of different

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Speaker 1: letters over the years. He's talked about this as an issue.

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Speaker 1: He sent letters out to various CEOs and other things,

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Speaker 1: but it seems that this year is really a tipping point.

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Speaker 1: The content and the tone of his letter is urgent

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Speaker 1: the right word and much more emphatic. In the past

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Speaker 1: it was almost mentioned as part of it. This time

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Speaker 1: it was front and center, and I think that reflects

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Speaker 1: that there were a lot of things in twenty nineteen

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Speaker 1: that we saw escalating come together to really enforce the

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Speaker 1: conviction in this view and the urgency of the view one.

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Speaker 1: You saw, you know, an escalation in the physical impacts.

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Speaker 1: We talked about un worlds on fire. To this idea

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Speaker 1: about where regulatory body is going to really step in

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Speaker 1: went from the future tense maybe they will in the

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Speaker 1: future to the present tense. You saw the Bank of

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Speaker 1: England begin to actually regulate financial entities, requiring stress tests.

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Speaker 1: You see pension regulation across the globe. Obviously in the

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Speaker 1: United States as an outlier in that respect, but if

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Speaker 1: you're a global company and you're operating Europe, for example,

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Speaker 1: integration of these types of issues into your disclosure and

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Speaker 1: your investment process will become in a sort of required reading.

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Speaker 1: That changed in twenty and we saw these sets of

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Speaker 1: issues culminate and spill over into the global geopolitical scale.

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Speaker 1: At the g twenty you saw a citizen movement of

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Speaker 1: six million in a student's grassroots um walking out in

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Speaker 1: demanding action. There's an escalation and focus on this that

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Speaker 1: we assess again from an investment perspective, as being durable

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Speaker 1: and and actually this being the front of something that

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Speaker 1: is going to be a significant shift in investor preferences

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Speaker 1: over time. So let's talk about another shift. Sustainable investing

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Speaker 1: used to be pitched as, hey, here's how to align

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Speaker 1: your capital investments with your morals, your ethical beliefs, your values.

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Speaker 1: Now it's really being contextualized as look at how well

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Speaker 1: E s G funds have done over the past few years.

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Speaker 1: This is a source of alpha, This is a source

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Speaker 1: of market beating performance. How do you see this being

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Speaker 1: talked about by Black Rocks investors. I think one of

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Speaker 1: the most significant things we communicated in the set of

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Speaker 1: communications earlier this year was this view as a fiducier,

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Speaker 1: as a view of looking at the long term financial

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Speaker 1: interests of our clients first and foremost, that we believe

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Speaker 1: that sustainability and integrating sustainability is likely to be the

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Speaker 1: best way to position you for long term finitial return.

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Speaker 1: And you're right, that is different. That's different than the

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Speaker 1: traditional conversation which always came with an implicit assumption that

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Speaker 1: you were trading value for values. Our view is that

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Speaker 1: that's in the rear view mirror. Now the question of

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Speaker 1: how you integrate sustainability and how you do that in

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Speaker 1: ways that actually capture material insights and and not noise.

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Speaker 1: It's hard, it's complicated like any other area of investing.

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Speaker 1: But our view increasingly is that you can build a

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Speaker 1: portfolio integrate sustainability and at least do as well and

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Speaker 1: likely position yourself to do better over the long term

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Speaker 1: because of all the structural elements we're talking about, and

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Speaker 1: that underlies the conviction of everything we're doing across risk

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Speaker 1: and integration products and services were offering. Is that underlying

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Speaker 1: core view? So here's the pushback. I've read not my view,

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Speaker 1: but I've read, Hey, you know, e s G has

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Speaker 1: been out performing because really it's a closet technology index

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Speaker 1: and if you own a lot of Apple and Google

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Speaker 1: and Microsoft and Netflix, hey, of course your portfolio is

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Speaker 1: killing it. What's the response to that claim? First, our

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Speaker 1: conviction around the materiality these issues is not based principally

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Speaker 1: or solely on limited period of performance over over a

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Speaker 1: limited period of time. It's based on thinking about what

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Speaker 1: are the underlying drivers of these changes, climate change, the

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Speaker 1: physical and the technological risks, the change and investor sentiment

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Speaker 1: that is connected to you know, the largest transfer of

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Speaker 1: wealth and human history from the Baby boom to the

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Speaker 1: millennial generation, and so we don't principally pin it on that.

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Speaker 1: The second, more specifically though, is you know, there's been

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Speaker 1: a lot of talk about is it sort of a

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Speaker 1: closet tech play, is it just a momentum play, that

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Speaker 1: there's a sort of an E S G momentum trade

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Speaker 1: on and the like. And I think our view on

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Speaker 1: this is that elements of that may all be true

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Speaker 1: in the market today, but we believe that those structural

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Speaker 1: factors are going to actually sustain this shift for some

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Speaker 1: significant period of time. And so the true sational view

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Speaker 1: that says, look, um uh, these you know, uh, if

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Speaker 1: these if these, if these assets, are these stocks actually

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Speaker 1: are getting greater demand than you'll actually have a sin

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Speaker 1: strock premium and maybe you'll see some bounce back. What

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Speaker 1: that misses is if we're on the front end of

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Speaker 1: a long term structural trend. If you believe that structural

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Speaker 1: trend is fully priced into the market today, then of

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Speaker 1: course um uh, then of course you wouldn't see these

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Speaker 1: relative changes in value. There's a lot of reasons to believe,

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Speaker 1: including from financial literature around other long term structural trends

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Speaker 1: like demographics, that this is that the transition itself will

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Speaker 1: be a period where you'll see this sort of lack

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Speaker 1: of a tradeoff persist for some significant period. That is

435
00:24:42,880 --> 00:24:46,359
Speaker 1: absolutely fascinating. Let's talk about a quote that I really

436
00:24:46,400 --> 00:24:50,679
Speaker 1: like from your team. Quote the sustainable Investing team is

437
00:24:50,680 --> 00:24:56,320
Speaker 1: focused on identifying drivers of long term return associated with environmental,

438
00:24:56,440 --> 00:25:01,080
Speaker 1: social and governance issues, integrating them through out Black Rocks

439
00:25:01,119 --> 00:25:05,840
Speaker 1: investment processes, and creating solutions for a clients to achieve

440
00:25:06,560 --> 00:25:11,360
Speaker 1: sustainable investment return. What I'm reading between the lines there,

441
00:25:11,440 --> 00:25:14,800
Speaker 1: or maybe it's more explicit, this isn't just about the

442
00:25:15,040 --> 00:25:18,320
Speaker 1: s G portfolios. You are looking at E s G

443
00:25:18,480 --> 00:25:23,800
Speaker 1: as a potential risk factor across the full portfolio, whether

444
00:25:23,840 --> 00:25:26,280
Speaker 1: it's E s G or not. Well, I was a mouthful,

445
00:25:26,280 --> 00:25:27,760
Speaker 1: but I'm glad you picked up on that, because that's

446
00:25:27,800 --> 00:25:32,600
Speaker 1: exactly how we are thinking about it. Fundamentally, we if

447
00:25:32,600 --> 00:25:36,000
Speaker 1: we come at this from the perspective of risk, then

448
00:25:36,119 --> 00:25:39,720
Speaker 1: our view is we need to integrate this in our

449
00:25:39,760 --> 00:25:42,480
Speaker 1: core risk processes the same way that we think about

450
00:25:42,520 --> 00:25:45,040
Speaker 1: any other core element of financial risks. So what that

451
00:25:45,119 --> 00:25:50,680
Speaker 1: means is if we identify that, for example, the physical

452
00:25:50,840 --> 00:25:53,320
Speaker 1: risks of climate change that you can pinpoint to an

453
00:25:53,320 --> 00:25:56,280
Speaker 1: asset or you can pinpoint to a company based on

454
00:25:56,320 --> 00:26:01,120
Speaker 1: the geographic footprint, are measurable and real. We want to

455
00:26:01,160 --> 00:26:04,680
Speaker 1: integrate that into how all of our active investors are

456
00:26:04,720 --> 00:26:08,320
Speaker 1: thinking about building their portfolios. Which doesn't mean that the

457
00:26:08,400 --> 00:26:12,480
Speaker 1: end output of a particular strategy has a dedicated sustainable focus,

458
00:26:12,520 --> 00:26:14,600
Speaker 1: but it does mean that this is risk and so

459
00:26:14,680 --> 00:26:17,440
Speaker 1: like any other element of risk. So let me give

460
00:26:17,440 --> 00:26:21,439
Speaker 1: you a concrete example. We built a tool internally that

461
00:26:21,520 --> 00:26:24,320
Speaker 1: allows us to stress test all of our portfolios for

462
00:26:24,440 --> 00:26:27,879
Speaker 1: different carbon price scenarios. What happens in the future if

463
00:26:27,920 --> 00:26:31,240
Speaker 1: you see a carbon price imposed at certain different levels.

464
00:26:31,720 --> 00:26:34,720
Speaker 1: We run those stress test scenarios on all of our portfolios.

465
00:26:35,240 --> 00:26:37,680
Speaker 1: Not because all of our portfolios have us dedicated sustainable

466
00:26:37,680 --> 00:26:40,600
Speaker 1: injective objective, but because that's a risk factor that all

467
00:26:40,600 --> 00:26:43,359
Speaker 1: of our portfolio managers should think about and have the

468
00:26:43,359 --> 00:26:45,800
Speaker 1: tools in data in front of them to know is

469
00:26:45,840 --> 00:26:48,160
Speaker 1: there risk in my portfolio that I might not see

470
00:26:48,240 --> 00:26:50,600
Speaker 1: if I'm not using this lens. So we're focusing a

471
00:26:50,600 --> 00:26:53,320
Speaker 1: lot on the E. Let's let's move forward and talk

472
00:26:53,359 --> 00:26:55,600
Speaker 1: about the S and the G for a moment. I've

473
00:26:55,680 --> 00:26:58,959
Speaker 1: had people who are not sustainable investors. I've had portfolio

474
00:26:59,040 --> 00:27:01,960
Speaker 1: managers who were not E s G investors tell me

475
00:27:02,400 --> 00:27:06,680
Speaker 1: they still focus on the governance aspect because, according to them,

476
00:27:06,800 --> 00:27:09,880
Speaker 1: it's a risk factor. If you have a diverse board

477
00:27:09,920 --> 00:27:13,760
Speaker 1: of directors and uh pretty close to gender parity both

478
00:27:13,800 --> 00:27:17,919
Speaker 1: in pay and executive hiring, you're much less likely to

479
00:27:17,960 --> 00:27:21,880
Speaker 1: have a me too scenario or any other governance risk

480
00:27:22,040 --> 00:27:25,760
Speaker 1: that seems to have affected a number of companies, both

481
00:27:25,800 --> 00:27:30,600
Speaker 1: tech startups and and more season traditional companies. Yeah. Look,

482
00:27:30,760 --> 00:27:32,320
Speaker 1: part of the way I think about this is I

483
00:27:32,359 --> 00:27:34,760
Speaker 1: don't start a D S G. We start at risk,

484
00:27:35,119 --> 00:27:39,040
Speaker 1: and we start at where can we develop confection that

485
00:27:39,200 --> 00:27:42,960
Speaker 1: sustainability related factors are material? And if you do that,

486
00:27:43,400 --> 00:27:45,639
Speaker 1: then you can build out. And by the way I

487
00:27:45,640 --> 00:27:47,119
Speaker 1: think about E S G, it's just a way of

488
00:27:47,160 --> 00:27:51,360
Speaker 1: bucketing those risks. So um, the conversations that I think

489
00:27:51,359 --> 00:27:53,879
Speaker 1: are actually the least helpful are, well, is that a

490
00:27:53,920 --> 00:27:56,360
Speaker 1: G risk or any risk right? If you're if your

491
00:27:56,440 --> 00:28:01,200
Speaker 1: board has effective management, risk management practic is that include climate?

492
00:28:01,640 --> 00:28:03,720
Speaker 1: Was that a G or any doesn't matter if it's

493
00:28:03,840 --> 00:28:06,280
Speaker 1: risk and you believe it's material. You want to understand

494
00:28:06,280 --> 00:28:09,000
Speaker 1: if a company is thinking about that. Similar to your example,

495
00:28:09,200 --> 00:28:13,080
Speaker 1: if we know that diverse groups of people make better

496
00:28:13,119 --> 00:28:15,280
Speaker 1: decisions across time, they may take a little longer to

497
00:28:15,280 --> 00:28:17,560
Speaker 1: make them, but they make better decisions across time. We

498
00:28:17,600 --> 00:28:20,240
Speaker 1: want to understand how a company is structured in terms

499
00:28:20,280 --> 00:28:22,600
Speaker 1: of their governance and in terms of their employment practices

500
00:28:23,080 --> 00:28:27,400
Speaker 1: to actually encourage more diversity of thought across their their

501
00:28:27,440 --> 00:28:29,800
Speaker 1: company and management. We come at it and say that

502
00:28:29,880 --> 00:28:32,840
Speaker 1: sustainability of related risk and then ultimately you know E,

503
00:28:33,000 --> 00:28:35,199
Speaker 1: S G is In some ways, it's a kind of

504
00:28:35,400 --> 00:28:38,400
Speaker 1: a naming convention to try to identify these and bucket

505
00:28:38,440 --> 00:28:40,640
Speaker 1: them in ways that you know helps people understand. So

506
00:28:40,640 --> 00:28:43,040
Speaker 1: so let's talk about that naming convention. One of the

507
00:28:43,040 --> 00:28:46,360
Speaker 1: pushbacks I've heard is who gets to decide what the

508
00:28:46,360 --> 00:28:48,120
Speaker 1: E and the S and the G is. They all

509
00:28:48,120 --> 00:28:52,640
Speaker 1: mean different things two different people. How do you operate

510
00:28:52,720 --> 00:28:56,200
Speaker 1: in that sort of nebulous area? What definitions matter? What

511
00:28:56,240 --> 00:28:58,680
Speaker 1: are you looking at when you're looking at let's say

512
00:28:59,040 --> 00:29:02,120
Speaker 1: S for social or G for governance. Sure, it's definitely

513
00:29:02,160 --> 00:29:05,400
Speaker 1: the case that there are too many frameworks out there

514
00:29:05,400 --> 00:29:09,680
Speaker 1: and we will all benefit from bringing greater coordination consolidation

515
00:29:09,760 --> 00:29:13,400
Speaker 1: into as we get better at measuring and identifying these issues.

516
00:29:14,200 --> 00:29:17,760
Speaker 1: On the other hand, I think that it's also important

517
00:29:17,880 --> 00:29:19,920
Speaker 1: to to put in perspective. You know, it took eighty

518
00:29:20,000 --> 00:29:23,120
Speaker 1: years to get GAP to be like you know, completely right,

519
00:29:23,560 --> 00:29:26,240
Speaker 1: and we can't let the enemy the perfect be the

520
00:29:26,320 --> 00:29:29,160
Speaker 1: enemy of the good. With the disclosure that is out

521
00:29:29,160 --> 00:29:31,720
Speaker 1: there and the data that is out there, we can

522
00:29:31,800 --> 00:29:35,960
Speaker 1: measure a lot about how companies are managing material sustainability risks,

523
00:29:36,440 --> 00:29:38,920
Speaker 1: and that as a as a as a finuciary and

524
00:29:39,000 --> 00:29:41,880
Speaker 1: an investor, that's our responsibility. So you know, when we

525
00:29:41,880 --> 00:29:43,760
Speaker 1: think about these issues, we talked a lot about EVE,

526
00:29:43,800 --> 00:29:45,840
Speaker 1: when we talk about S, you know, a lot of

527
00:29:45,880 --> 00:29:48,880
Speaker 1: this really is about effective management of what we think

528
00:29:48,920 --> 00:29:51,760
Speaker 1: about effective management of your internal stakeholders, your external stakeholds.

529
00:29:51,760 --> 00:29:56,640
Speaker 1: Who are your internal stakeholds, mostly your employees, So diversity inclusion, pay,

530
00:29:57,000 --> 00:30:00,520
Speaker 1: flexible workplace practices, those are places where we know that

531
00:30:00,880 --> 00:30:04,360
Speaker 1: contributes to employee retention, employee engagement. Those are connected to

532
00:30:04,480 --> 00:30:07,920
Speaker 1: drivers of return. External stakeholders, about the communities you operate in,

533
00:30:08,280 --> 00:30:12,560
Speaker 1: and about the stakeholders that who are your customers, right UM,

534
00:30:12,640 --> 00:30:15,120
Speaker 1: and that that is principally about how you manage your

535
00:30:15,120 --> 00:30:17,959
Speaker 1: supply chain and how you manage the impact of your

536
00:30:18,000 --> 00:30:21,280
Speaker 1: operations in communities. So that's really how we think about

537
00:30:21,280 --> 00:30:24,920
Speaker 1: the s distilled down. Obviously, there's very specific metrics under

538
00:30:24,960 --> 00:30:29,000
Speaker 1: each of US. So technology obviously pays a big role

539
00:30:29,280 --> 00:30:35,040
Speaker 1: in UM, clean air, clean water, dealing with recyclables as UH,

540
00:30:35,080 --> 00:30:38,680
Speaker 1: and of course energy. As an investor, how do you

541
00:30:38,800 --> 00:30:44,000
Speaker 1: look at the role of tech impacting sustainable investment. Well,

542
00:30:44,360 --> 00:30:48,320
Speaker 1: one of the most interesting things about UH, the the

543
00:30:48,400 --> 00:30:51,640
Speaker 1: issue of the decarbonization the economy is that when you

544
00:30:51,640 --> 00:30:53,960
Speaker 1: when you talk about that issue in the energy transition,

545
00:30:54,440 --> 00:31:00,320
Speaker 1: people's minds principally go to windmills, solar panels, electric electrical ours.

546
00:31:00,480 --> 00:31:03,400
Speaker 1: But also you know a lot about UM energy production,

547
00:31:03,440 --> 00:31:07,480
Speaker 1: the energy production system. The actually the lowest cost and

548
00:31:07,640 --> 00:31:11,480
Speaker 1: most significant opportunities for decarbonization today operate in the broad

549
00:31:11,520 --> 00:31:15,840
Speaker 1: space of efficiency and in efficiency. It's technology place that

550
00:31:15,920 --> 00:31:18,720
Speaker 1: have the greatest opportunity for scale. So think about how

551
00:31:18,760 --> 00:31:21,160
Speaker 1: do we make the buildings we live and work in

552
00:31:21,520 --> 00:31:25,200
Speaker 1: more energy efficient. How do we reduce the the efficiency

553
00:31:25,320 --> 00:31:28,200
Speaker 1: of the materials we use, whether it's an industrial processes

554
00:31:28,240 --> 00:31:31,200
Speaker 1: or consumer processes. Literally, there was a giant article I

555
00:31:31,240 --> 00:31:32,640
Speaker 1: want to say it was out of U. C. L

556
00:31:32,680 --> 00:31:36,280
Speaker 1: A about cement production is a huge producer of of

557
00:31:36,400 --> 00:31:40,080
Speaker 1: CEO two and a new technology came up with a

558
00:31:40,120 --> 00:31:44,800
Speaker 1: way to turn cement into a carbon sink. And that

559
00:31:44,880 --> 00:31:47,120
Speaker 1: sort of stuff is kind of fascinating. We don't think

560
00:31:47,160 --> 00:31:50,720
Speaker 1: about cements the concrete you walk on on the sidewalk

561
00:31:51,040 --> 00:31:52,440
Speaker 1: as oh, it took a lot of CEO to to

562
00:31:52,480 --> 00:31:54,600
Speaker 1: produce this. Right, So, if you think about technology and

563
00:31:54,640 --> 00:31:58,600
Speaker 1: efficiency coming together and the opportunities both for UM emissions

564
00:31:58,600 --> 00:32:03,800
Speaker 1: reductions but also UM breakthroughs that can improve the improve

565
00:32:03,920 --> 00:32:08,040
Speaker 1: the efficiency of industrial processes, make you money, that can

566
00:32:08,080 --> 00:32:10,959
Speaker 1: reduce the energy consumption of a business, which is an

567
00:32:10,960 --> 00:32:13,160
Speaker 1: input cost in a number of businesses, that is a

568
00:32:13,200 --> 00:32:17,600
Speaker 1: meaningful UM the balance sheet, right UM. The ways in

569
00:32:17,640 --> 00:32:21,960
Speaker 1: which technology can be disruptive UM are really are really exciting.

570
00:32:22,160 --> 00:32:26,040
Speaker 1: And that's also why this question of how the economy

571
00:32:26,080 --> 00:32:32,440
Speaker 1: moves toward more carbon efficient activity touches every element of

572
00:32:32,440 --> 00:32:35,880
Speaker 1: of our economy. This is not just about oil companies

573
00:32:35,880 --> 00:32:38,840
Speaker 1: and utilities. This is about you know, if you if

574
00:32:38,880 --> 00:32:41,959
Speaker 1: you run a business like like Bloomberg, right, and uh,

575
00:32:42,040 --> 00:32:45,160
Speaker 1: how are you thinking about how technology can help make

576
00:32:45,200 --> 00:32:48,800
Speaker 1: your business more efficient, make you operate with lower carbon footprint,

577
00:32:49,440 --> 00:32:52,240
Speaker 1: help you save money, help you you know, help you

578
00:32:52,280 --> 00:32:55,640
Speaker 1: engage your employees. Those are all things that every business

579
00:32:55,880 --> 00:32:58,719
Speaker 1: should be thinking. It seems pretty pretty universal. Let let

580
00:32:58,760 --> 00:33:01,200
Speaker 1: me uh, let me switch up on you a little bit.

581
00:33:01,600 --> 00:33:06,360
Speaker 1: You've been lecturing at the Kennedy School um about sustainable investing,

582
00:33:06,400 --> 00:33:10,880
Speaker 1: and you've been providing advice to institutions. When you're speaking

583
00:33:10,920 --> 00:33:14,520
Speaker 1: to an institution or you're speaking to a bunch of young,

584
00:33:14,680 --> 00:33:18,200
Speaker 1: fresh scrub grad students, do you get the same questions?

585
00:33:18,240 --> 00:33:21,400
Speaker 1: You get the same pushback? How do those two wildly

586
00:33:21,480 --> 00:33:24,760
Speaker 1: disparate groups look similar and how are they so different?

587
00:33:26,440 --> 00:33:30,360
Speaker 1: That's interesting. So look, um, a lot of the conversations

588
00:33:30,480 --> 00:33:34,360
Speaker 1: in kind of trag in more traditional financial circles among

589
00:33:34,520 --> 00:33:40,760
Speaker 1: our clients and otherwise do start from a presumption of

590
00:33:40,760 --> 00:33:45,000
Speaker 1: of skepticism because there has been this dominant overhang in

591
00:33:45,040 --> 00:33:47,239
Speaker 1: finance that has assumed that as soon as you hear

592
00:33:47,280 --> 00:33:50,240
Speaker 1: the word sustainability, we're talking about that trade off that

593
00:33:50,240 --> 00:33:52,480
Speaker 1: that trade off between value and values. I think a

594
00:33:52,520 --> 00:33:55,360
Speaker 1: lot of that skepticism is healthy because it forces this

595
00:33:55,560 --> 00:33:58,160
Speaker 1: space to be very rigorous about where do you actually

596
00:33:58,240 --> 00:34:02,320
Speaker 1: see UM, real meaningful material impact as opposed to just noise.

597
00:34:02,600 --> 00:34:06,640
Speaker 1: But that skepticism is often kind of UM overhangs a

598
00:34:06,640 --> 00:34:09,759
Speaker 1: lot of conversations in those types of UM UH. For

599
00:34:09,960 --> 00:34:13,440
Speaker 1: a you know, among among younger people and students, I

600
00:34:13,480 --> 00:34:15,839
Speaker 1: think that they're you what you you know you hear

601
00:34:16,200 --> 00:34:22,040
Speaker 1: is UM a degree of urgency and bordering on panic

602
00:34:22,160 --> 00:34:25,480
Speaker 1: on this set of issues that is forcing, that forces

603
00:34:25,520 --> 00:34:28,000
Speaker 1: a kind of questioning of a lot of basic assumptions

604
00:34:28,360 --> 00:34:31,560
Speaker 1: of how finance works, about how institutions work. And I

605
00:34:31,600 --> 00:34:35,080
Speaker 1: think that that's UM. It's a different perspective UM, but

606
00:34:35,120 --> 00:34:38,160
Speaker 1: it's also relevant to this conversation because UM, you know,

607
00:34:38,200 --> 00:34:40,680
Speaker 1: society tends to shape institutions as opposed to the other

608
00:34:40,719 --> 00:34:43,040
Speaker 1: way around. And so I think we all would do

609
00:34:43,080 --> 00:34:45,920
Speaker 1: well to pay attention to that UM and that impulse

610
00:34:45,920 --> 00:34:48,719
Speaker 1: because it's likely to get louder rather than UH than software.

611
00:34:48,800 --> 00:34:51,880
Speaker 1: Quite fascinating. We have been speaking with Brian des He

612
00:34:52,040 --> 00:34:55,480
Speaker 1: is the head of UH Sustainable Investing at black Rock.

613
00:34:56,080 --> 00:34:58,359
Speaker 1: If you enjoy this conversation. We'll be trying to stick

614
00:34:58,400 --> 00:35:00,560
Speaker 1: around for the podcast extras, where we keep the tape

615
00:35:00,640 --> 00:35:04,560
Speaker 1: rolling and continue discussing all things E. S. G. Related.

616
00:35:04,880 --> 00:35:08,480
Speaker 1: You can find that at iTunes, Google Podcasts, at your Spotify,

617
00:35:08,760 --> 00:35:12,080
Speaker 1: wherever your final podcasts are found. We love your comments,

618
00:35:12,080 --> 00:35:15,960
Speaker 1: feedback and suggestions right to us at m IB podcast

619
00:35:16,000 --> 00:35:19,000
Speaker 1: at Bloomberg dot net. Check out my weekly column on

620
00:35:19,040 --> 00:35:21,800
Speaker 1: Bloomberg dot com. Follow me on Twitter at rit Halts.

621
00:35:22,120 --> 00:35:25,560
Speaker 1: I'm Barry Riholts. You're listening to Masters and Business on

622
00:35:25,600 --> 00:35:41,000
Speaker 1: Bloomberg Radio. Welcome to the podcast, Brian, Thank you so

623
00:35:41,080 --> 00:35:43,120
Speaker 1: much for doing this. I've been looking forward to this

624
00:35:43,200 --> 00:35:46,640
Speaker 1: conversation for a while, and I was saying off, Mike,

625
00:35:47,520 --> 00:35:51,000
Speaker 1: I thought, a decade ago we should have done a

626
00:35:51,200 --> 00:35:57,720
Speaker 1: Manhattan Project like approach to the fundamental sciences of alternative energy.

627
00:35:58,400 --> 00:36:01,239
Speaker 1: How do we make solar panels more efficient? How do

628
00:36:01,280 --> 00:36:04,920
Speaker 1: we make battery storage more effective? We're doing these really

629
00:36:04,960 --> 00:36:08,759
Speaker 1: incremental improvements, and the ironic thing about that is a

630
00:36:08,800 --> 00:36:12,279
Speaker 1: decade later, hey, one percent here, two percent, they are

631
00:36:12,440 --> 00:36:16,040
Speaker 1: do that for fifteen twenty years. It really compounds and

632
00:36:16,080 --> 00:36:20,880
Speaker 1: becomes a significant change, and you already see it in

633
00:36:20,920 --> 00:36:24,800
Speaker 1: the cost of solar, like you could put solar panels

634
00:36:24,920 --> 00:36:28,279
Speaker 1: on a roof and have them be very cash flow

635
00:36:28,320 --> 00:36:31,480
Speaker 1: positive in most of the country. I mean, if you're

636
00:36:31,520 --> 00:36:35,439
Speaker 1: in the northernmost parts, it may or may not pay

637
00:36:35,480 --> 00:36:39,359
Speaker 1: for itself quickly. But most of the country it's now

638
00:36:39,560 --> 00:36:42,799
Speaker 1: pretty reasonable, isn't it. Well. I would say two things.

639
00:36:42,800 --> 00:36:46,080
Speaker 1: The first is part of the reason why solar and

640
00:36:46,160 --> 00:36:49,759
Speaker 1: wind have gotten so cheap. As we did a version

641
00:36:49,760 --> 00:36:51,760
Speaker 1: of what you said coming out of the financial crisis

642
00:36:52,360 --> 00:36:55,120
Speaker 1: in two the US, with the U S and the lead,

643
00:36:55,480 --> 00:37:00,319
Speaker 1: we made an extraordinary almost ninety billion dollar investment in

644
00:37:00,320 --> 00:37:03,280
Speaker 1: in basic and applied R and D into clean energy sources.

645
00:37:03,600 --> 00:37:06,160
Speaker 1: The biggest, you know, the biggest mistake because we did

646
00:37:06,160 --> 00:37:08,040
Speaker 1: it once and we didn't we had didn't sustain it

647
00:37:08,440 --> 00:37:10,920
Speaker 1: over over over, over a decade or more. But we

648
00:37:11,080 --> 00:37:16,560
Speaker 1: know that actually effectively allocating dollars into the basic R

649
00:37:16,560 --> 00:37:19,440
Speaker 1: and D space in this area does pay dividends. You

650
00:37:19,440 --> 00:37:22,280
Speaker 1: can draw a line between those types of basic uh

651
00:37:22,520 --> 00:37:28,160
Speaker 1: UM research efforts and innovations that then flow through and

652
00:37:28,440 --> 00:37:31,920
Speaker 1: you know, we're gonna it's gonna take continuing to to

653
00:37:32,480 --> 00:37:34,319
Speaker 1: to double down and double down on that because one

654
00:37:34,320 --> 00:37:37,880
Speaker 1: of the points that you're making is as as the

655
00:37:37,920 --> 00:37:43,040
Speaker 1: installed solar gets cheaper, as you get more intermittent UM

656
00:37:43,239 --> 00:37:45,640
Speaker 1: sources of power on the grid, we're gonna need more

657
00:37:45,640 --> 00:37:50,440
Speaker 1: and more innovation in storage and in distributed structures of

658
00:37:50,560 --> 00:37:54,319
Speaker 1: energy delivery to get over that UM. And we're gonna

659
00:37:54,320 --> 00:37:56,280
Speaker 1: have to come down the cost curve sort of again

660
00:37:56,280 --> 00:37:58,800
Speaker 1: and again to get that right. So let's talk about

661
00:37:58,840 --> 00:38:05,080
Speaker 1: automotive and aviation and trucking UM. Clearly companies. I know

662
00:38:05,120 --> 00:38:08,319
Speaker 1: you don't want to talk about specific companies, but when

663
00:38:08,400 --> 00:38:12,160
Speaker 1: I look at the space, it's not just Tesla, it's

664
00:38:12,239 --> 00:38:17,040
Speaker 1: just about every manufacturer either has a hybrid or an

665
00:38:17,040 --> 00:38:22,640
Speaker 1: all electric today or plans for it. By is this

666
00:38:23,120 --> 00:38:27,840
Speaker 1: argument about electrical cars over We're going to be electrified

667
00:38:27,880 --> 00:38:32,520
Speaker 1: and there isn't a whole lot of UM lifespan left

668
00:38:32,640 --> 00:38:37,239
Speaker 1: in the internal combustion engine, or am I overstating that? Well? Look,

669
00:38:37,280 --> 00:38:39,759
Speaker 1: I think the I think that the I think that

670
00:38:39,800 --> 00:38:44,160
Speaker 1: the that the direction of travel is clear toward electrifying everything.

671
00:38:44,480 --> 00:38:47,200
Speaker 1: The question of that the pace of that is gonna

672
00:38:47,280 --> 00:38:52,520
Speaker 1: be an intersection between technology and the innovation that comes

673
00:38:52,520 --> 00:38:57,000
Speaker 1: out of companies and also policy, including for example, you know,

674
00:38:57,160 --> 00:39:00,640
Speaker 1: the how much foresight, is there into austing forward in

675
00:39:00,640 --> 00:39:05,399
Speaker 1: the infrastructure to enable electric vehicles to become more ubiquitous.

676
00:39:05,600 --> 00:39:07,400
Speaker 1: One thing I'll say that we're not thinking enough about

677
00:39:07,760 --> 00:39:09,479
Speaker 1: and that we didn't you know, when I was back

678
00:39:09,520 --> 00:39:12,560
Speaker 1: in UH in policy in the middle of the tens,

679
00:39:13,360 --> 00:39:15,880
Speaker 1: we didn't think about the policymakers in theies we'll have

680
00:39:15,880 --> 00:39:19,839
Speaker 1: to think about is the intersection of electrification and autonomy. Yeah,

681
00:39:19,840 --> 00:39:21,600
Speaker 1: that's that's pretty obvious. Is I knew you're going to

682
00:39:21,680 --> 00:39:25,160
Speaker 1: go there? Because you have these self driving cars relying

683
00:39:25,320 --> 00:39:28,759
Speaker 1: on you know, signs and paint. Why aren't there RF

684
00:39:28,920 --> 00:39:33,360
Speaker 1: devices implanted across all the highways United States? Think about

685
00:39:33,360 --> 00:39:36,560
Speaker 1: how much more efficient we're going to be if autonomous

686
00:39:36,600 --> 00:39:40,480
Speaker 1: driving cars can can safely follow two feet behind and

687
00:39:40,520 --> 00:39:43,279
Speaker 1: put a bunch of people in a larger vehicle and

688
00:39:43,320 --> 00:39:46,719
Speaker 1: move it more efficiently, and if and look, there's there's

689
00:39:46,719 --> 00:39:49,799
Speaker 1: an infrastructure element and the complexity of autonomy. You know,

690
00:39:49,920 --> 00:39:54,360
Speaker 1: I wouldn't I wouldn't. I wouldn't understate that. But in particular,

691
00:39:54,400 --> 00:39:57,640
Speaker 1: when when what happens when you bring electrification and autonomy

692
00:39:57,640 --> 00:40:03,800
Speaker 1: together is you can drum ramatically reduce the giobradically increase

693
00:40:03,840 --> 00:40:07,400
Speaker 1: the competitiveness of an electric vehicle, because an electric autonomous

694
00:40:07,480 --> 00:40:12,520
Speaker 1: vehicle is a multiple uh more cost effective than electric

695
00:40:12,600 --> 00:40:16,200
Speaker 1: vehicle compared to a to a conventional powered vehicle. And

696
00:40:16,239 --> 00:40:20,360
Speaker 1: so my my, my sense is that the path towards

697
00:40:20,760 --> 00:40:24,400
Speaker 1: towards electrification in the transport sector is not going to

698
00:40:24,480 --> 00:40:27,239
Speaker 1: be straight. There. We're going to see some discontinuities when

699
00:40:27,280 --> 00:40:31,040
Speaker 1: you see those types of technologies come together and you know,

700
00:40:31,040 --> 00:40:35,200
Speaker 1: potentially disrupt the traditional modes of transport in a more

701
00:40:35,200 --> 00:40:38,759
Speaker 1: fundamental way. So we're seeing trucking move towards both electric

702
00:40:38,880 --> 00:40:43,440
Speaker 1: and autonomy. What about aviation, there have been some small

703
00:40:44,360 --> 00:40:48,000
Speaker 1: um money they almost look like big drones or small

704
00:40:48,080 --> 00:40:52,359
Speaker 1: personal craft that have been playing with electrification. Is it

705
00:40:52,440 --> 00:40:55,839
Speaker 1: is the technology even imaginable that we can one day

706
00:40:55,840 --> 00:40:59,040
Speaker 1: fly across the Atlantic in an electric plane? Or is

707
00:40:59,080 --> 00:41:03,040
Speaker 1: the physics to imposing look that that technology is hard

708
00:41:03,040 --> 00:41:05,480
Speaker 1: And I think it's farther. It's it's farther afield, it

709
00:41:05,480 --> 00:41:08,800
Speaker 1: doesn't exist today. The point that I think is important

710
00:41:09,040 --> 00:41:15,719
Speaker 1: for context is that today globally, airline emissions represent two

711
00:41:15,760 --> 00:41:20,120
Speaker 1: percent of global emissions, so not a giant so uh technologically,

712
00:41:20,520 --> 00:41:23,520
Speaker 1: ultimately that's something that will need to be solved. Um,

713
00:41:23,520 --> 00:41:25,919
Speaker 1: it's not a it's it's it's not a near term

714
00:41:25,960 --> 00:41:29,520
Speaker 1: thing that the technology is pretty complicated. On the other hand,

715
00:41:29,880 --> 00:41:32,759
Speaker 1: in terms of looking at the big categories of emissions,

716
00:41:33,280 --> 00:41:35,880
Speaker 1: it's not it's not something that has to be at

717
00:41:35,880 --> 00:41:39,040
Speaker 1: the immediate or top of your list to really accelerate

718
00:41:39,160 --> 00:41:42,600
Speaker 1: the decarbonization. So so what's the top three on that list?

719
00:41:43,280 --> 00:41:49,239
Speaker 1: The top three are efficiency. You gotta massively reduce the

720
00:41:50,080 --> 00:41:53,920
Speaker 1: footprint of our built environment in ways that to the

721
00:41:53,920 --> 00:41:56,520
Speaker 1: point you're making earlier, are already in the money. You

722
00:41:56,600 --> 00:41:59,520
Speaker 1: just gotta figure out ways to overcome barriers. Second is

723
00:41:59,560 --> 00:42:03,160
Speaker 1: you've got to carbonized the electricity production system. Um, the

724
00:42:03,239 --> 00:42:05,799
Speaker 1: economics are already pushing in that direction, but it moves

725
00:42:05,800 --> 00:42:10,319
Speaker 1: more quickly. And Third, electrify everything in transport. Transport quite

726
00:42:10,360 --> 00:42:12,160
Speaker 1: quite fascinating. All right, I want to get to my

727
00:42:12,239 --> 00:42:15,120
Speaker 1: favorite questions before we have to wrap up. Um, we

728
00:42:15,200 --> 00:42:17,399
Speaker 1: ask these of all our guests and kind of think

729
00:42:17,440 --> 00:42:20,480
Speaker 1: of this as our speed round. That's revealing of who

730
00:42:20,520 --> 00:42:23,120
Speaker 1: you are. Uh, tell us what you're streaming these days?

731
00:42:23,160 --> 00:42:25,879
Speaker 1: What are you what are you listening to, either Netflix

732
00:42:26,040 --> 00:42:31,200
Speaker 1: or podcast or whatever? So I am I am catching

733
00:42:31,320 --> 00:42:35,239
Speaker 1: up um on Game of Thrones. I'm almost done. I

734
00:42:35,320 --> 00:42:37,319
Speaker 1: know that I'm I know I'm a little I'm way

735
00:42:37,320 --> 00:42:39,560
Speaker 1: behind you, So don't don't feel that I'm a little

736
00:42:39,560 --> 00:42:41,799
Speaker 1: behind the curve. I just finished breaking bad, so you

737
00:42:41,840 --> 00:42:43,799
Speaker 1: know that gives you a sense that I've sort of

738
00:42:44,000 --> 00:42:47,879
Speaker 1: my queue is a little dated, but I'm working through it. Um,

739
00:42:47,920 --> 00:42:50,960
Speaker 1: what tell us the most important thing people don't know about?

740
00:42:50,960 --> 00:42:55,880
Speaker 1: Brian D's uh that people don't know? Well? Uh uh

741
00:42:56,440 --> 00:42:58,640
Speaker 1: the most important, the most important thing in my life

742
00:42:59,400 --> 00:43:02,200
Speaker 1: is that I've got two kids. I've got a seven

743
00:43:02,239 --> 00:43:06,120
Speaker 1: year old uh and a a four year old and uh,

744
00:43:06,200 --> 00:43:09,279
Speaker 1: I can I can measure my kid's age by um

745
00:43:10,520 --> 00:43:15,120
Speaker 1: by milestones in policy my my my daughter was born

746
00:43:15,840 --> 00:43:18,360
Speaker 1: right after the reelect in twelve and my son was

747
00:43:18,440 --> 00:43:21,439
Speaker 1: born two weeks before we left for Paris to try

748
00:43:21,440 --> 00:43:24,560
Speaker 1: to negotiate the paras agram. That's pretty good. So who were, um,

749
00:43:24,600 --> 00:43:27,640
Speaker 1: some of your early mentors who influenced the course of

750
00:43:27,680 --> 00:43:31,480
Speaker 1: your career? Uh? Well, I was I was fortunate. I

751
00:43:31,520 --> 00:43:33,960
Speaker 1: had to have a great professors in college who really

752
00:43:34,440 --> 00:43:37,800
Speaker 1: brought out me and the way that I thought about things.

753
00:43:37,960 --> 00:43:41,120
Speaker 1: I UM, I had an early mentor, a woman named

754
00:43:41,160 --> 00:43:45,359
Speaker 1: Nancy Birdsall is a great economist who thinks about UM,

755
00:43:45,440 --> 00:43:50,280
Speaker 1: how developing economies fail and succeed in increasing human potential.

756
00:43:50,960 --> 00:43:54,000
Speaker 1: Who really helped me think in different ways. And I've

757
00:43:54,000 --> 00:43:57,640
Speaker 1: been I've been blessed across several people who have been

758
00:43:58,160 --> 00:44:02,000
Speaker 1: at the height of American economic policy, from UH Gene

759
00:44:02,040 --> 00:44:06,000
Speaker 1: Spurling to Larry Summers to UH near A Tandon and others.

760
00:44:06,040 --> 00:44:07,600
Speaker 1: I've I've I've had a I've had a string of

761
00:44:07,600 --> 00:44:11,240
Speaker 1: pretty great bosses. What about on the sustainable investing side,

762
00:44:11,280 --> 00:44:14,399
Speaker 1: what investors influenced how you look at the world through

763
00:44:14,440 --> 00:44:17,200
Speaker 1: the lens of E. S. G. Well, you know, for me,

764
00:44:17,680 --> 00:44:21,920
Speaker 1: coming to black Rock and the both the diversity of

765
00:44:22,000 --> 00:44:25,000
Speaker 1: thought and the diversity of investment approaches at black Rock

766
00:44:25,080 --> 00:44:28,840
Speaker 1: really is a kind of UM. A is a UM

767
00:44:29,160 --> 00:44:31,600
Speaker 1: unmatched privilege to actually just be able to work. You know,

768
00:44:31,680 --> 00:44:34,480
Speaker 1: if you think about black Rock is often thought of

769
00:44:34,520 --> 00:44:37,400
Speaker 1: for the scale, the seven trillion and and the large

770
00:44:37,719 --> 00:44:40,200
Speaker 1: index business, But we have one point eight trillion dollars

771
00:44:40,239 --> 00:44:44,800
Speaker 1: and active mandates across UH fixed income and equities alternatives

772
00:44:45,040 --> 00:44:50,080
Speaker 1: uh UM, almost every geography UM and almost every asset

773
00:44:50,120 --> 00:44:52,879
Speaker 1: class in investment style. So I have I have learned

774
00:44:52,880 --> 00:44:55,759
Speaker 1: an enormous amount in this period from just from the

775
00:44:55,760 --> 00:44:58,760
Speaker 1: the the the the the leaders and the innovators across

776
00:44:58,800 --> 00:45:00,840
Speaker 1: the board and inside the firm. What are some of

777
00:45:00,880 --> 00:45:03,239
Speaker 1: your favorite books? What do you like to read? Uh?

778
00:45:03,520 --> 00:45:08,239
Speaker 1: What are some of your favorite authors? So I I

779
00:45:08,280 --> 00:45:12,160
Speaker 1: tend to like I have. I have, up until somewhat recently,

780
00:45:12,760 --> 00:45:16,720
Speaker 1: been more of a nonfiction guy. Most of my guests

781
00:45:16,760 --> 00:45:20,640
Speaker 1: seem to say the same. I really like John McPhee. UM,

782
00:45:20,840 --> 00:45:23,640
Speaker 1: and he's a he's a sort of nature nature writer

783
00:45:23,680 --> 00:45:27,799
Speaker 1: who's written some incredible histories, including of Alaska and how

784
00:45:28,400 --> 00:45:32,600
Speaker 1: how transportation works in the US. UM. I'm reading right

785
00:45:32,640 --> 00:45:37,040
Speaker 1: now though, UM, a book called The Overstory by Richard Power,

786
00:45:37,600 --> 00:45:40,879
Speaker 1: which is a it's it's dense, but it's an incredible

787
00:45:41,160 --> 00:45:45,200
Speaker 1: it's a beautiful book. That's that's that's in the fiction category. UM.

788
00:45:45,320 --> 00:45:49,160
Speaker 1: Give us a John McPhee book, Uncommon Carriers. It's a

789
00:45:49,200 --> 00:45:54,319
Speaker 1: set of vignettes from him traveling across the country with

790
00:45:54,520 --> 00:45:58,400
Speaker 1: people who transport things from barges that go up and

791
00:45:58,440 --> 00:46:02,560
Speaker 1: down the Mississippi River to UH, chemical tanks, chemical tank

792
00:46:02,560 --> 00:46:07,399
Speaker 1: trucks that or coal trains. UH. Pretty weedy, but fascinating,

793
00:46:08,040 --> 00:46:10,440
Speaker 1: but quite interesting. What do you do for fun? What

794
00:46:10,480 --> 00:46:15,680
Speaker 1: do you do when you are not thinking about sustainable investing? Uh?

795
00:46:15,880 --> 00:46:19,080
Speaker 1: Mostly spent time with my family. Uh. And we like

796
00:46:19,160 --> 00:46:23,279
Speaker 1: to get outside. Uh get get to either to the

797
00:46:23,320 --> 00:46:27,279
Speaker 1: mountains or the ocean hik ski uh or otherwise does

798
00:46:27,360 --> 00:46:29,800
Speaker 1: sound like fun? Tell us about a time you failed

799
00:46:30,000 --> 00:46:35,520
Speaker 1: and what you learned from the experience. Uh. I failed

800
00:46:35,640 --> 00:46:38,960
Speaker 1: enough this morning to fill up the uh that uh

801
00:46:39,000 --> 00:46:42,759
Speaker 1: that category. One would imagine policy and politics is just

802
00:46:43,480 --> 00:46:46,080
Speaker 1: a constant battle of winning and losing. Yeah, you know.

803
00:46:46,120 --> 00:46:49,439
Speaker 1: I mean if you think about, um that for every

804
00:46:49,440 --> 00:46:52,880
Speaker 1: major achievement you know, we uh we had in you know,

805
00:46:53,120 --> 00:46:56,839
Speaker 1: uh we uh in the same year at the administration

806
00:46:56,880 --> 00:46:58,759
Speaker 1: past the Affordable Care Acts, something I thought was a

807
00:46:58,760 --> 00:47:00,560
Speaker 1: great achievement, and at the same time I failed to

808
00:47:00,600 --> 00:47:03,600
Speaker 1: get a climate and cap and trade legislation done. And

809
00:47:03,640 --> 00:47:06,879
Speaker 1: so you get used to this sort of this give

810
00:47:06,920 --> 00:47:09,760
Speaker 1: and take of trying to understand that there's a bigger picture.

811
00:47:09,840 --> 00:47:12,120
Speaker 1: You're not going to get everything. Uh. And one of

812
00:47:12,160 --> 00:47:15,839
Speaker 1: the things I learned there very directly is if you

813
00:47:15,920 --> 00:47:19,400
Speaker 1: can advance progress incrementally, and you can do it in

814
00:47:19,400 --> 00:47:22,440
Speaker 1: a way that doesn't violate the hippocratic oath. You should

815
00:47:22,440 --> 00:47:26,400
Speaker 1: grab that and take those opportunities, because ultimately, while you

816
00:47:26,440 --> 00:47:29,279
Speaker 1: have to have a big vision, the world moves in

817
00:47:29,480 --> 00:47:32,440
Speaker 1: you know, lots of incremental steps along the way. So

818
00:47:32,480 --> 00:47:36,240
Speaker 1: here's the most challenging philosophical question. What are you most

819
00:47:36,360 --> 00:47:40,800
Speaker 1: optimistic about today relative to climate change and sustainable investing

820
00:47:41,280 --> 00:47:46,759
Speaker 1: and what has you most pessimistic? So I would say,

821
00:47:46,840 --> 00:47:51,560
Speaker 1: you know what, what I'm optimistic about the fact that, UM,

822
00:47:51,600 --> 00:47:55,600
Speaker 1: if we if we look back a decade and we

823
00:47:55,640 --> 00:47:57,719
Speaker 1: had said, what do we think the rate of change

824
00:47:57,840 --> 00:48:01,000
Speaker 1: in technological innovation would be partly in these areas that

825
00:48:01,040 --> 00:48:05,279
Speaker 1: we've talked about that are driving UM carbon efficient solutions,

826
00:48:05,520 --> 00:48:09,000
Speaker 1: we would have consistently underestimated the degree to which human

827
00:48:09,000 --> 00:48:13,320
Speaker 1: innovation technological innovation can come together to change things. UM.

828
00:48:13,400 --> 00:48:18,000
Speaker 1: And I'm also optimistic frankly that UM, we're seeing a

829
00:48:18,120 --> 00:48:22,160
Speaker 1: degree of UM focus energy, including a lot of fear

830
00:48:22,200 --> 00:48:24,239
Speaker 1: and a lot of anger, but energy around this set

831
00:48:24,239 --> 00:48:26,920
Speaker 1: of issues where UM, I think that that's going to

832
00:48:27,040 --> 00:48:29,840
Speaker 1: drive in a durable way this to the front and

833
00:48:29,880 --> 00:48:34,359
Speaker 1: center of conversations and financial markets, in politics as well. UM.

834
00:48:34,400 --> 00:48:36,080
Speaker 1: The thing that I'm the most worried about, or the

835
00:48:36,120 --> 00:48:39,319
Speaker 1: most pestimistic is that we've got to you know, we

836
00:48:39,440 --> 00:48:41,960
Speaker 1: we have a we have a more fundamental or you know,

837
00:48:42,000 --> 00:48:46,680
Speaker 1: existential challenge right now around whether institutions, whether they be

838
00:48:47,080 --> 00:48:51,279
Speaker 1: institutions of in uh, in the private sector, or institutions

839
00:48:51,280 --> 00:48:55,960
Speaker 1: and particularly in government, can actually effectively drive change, particularly

840
00:48:55,960 --> 00:48:59,520
Speaker 1: in democracies. And we were facing some some real, you know,

841
00:48:59,560 --> 00:49:02,600
Speaker 1: existential challenges, not just in you know, not just in

842
00:49:02,640 --> 00:49:04,960
Speaker 1: any particular country. And I think that those have to

843
00:49:05,000 --> 00:49:08,839
Speaker 1: do with complicated social and global dynamics. But UM, we're

844
00:49:08,840 --> 00:49:11,640
Speaker 1: gonna have if we're going to actually get on the

845
00:49:11,719 --> 00:49:13,960
Speaker 1: right side of this issue. UM, we're gonna have to

846
00:49:14,000 --> 00:49:19,400
Speaker 1: have a degree of coordinated action with institutions actually working

847
00:49:19,440 --> 00:49:22,359
Speaker 1: together that Um, it's easy to get a little dark

848
00:49:22,400 --> 00:49:26,160
Speaker 1: about that. And our final questions, what sort of advice

849
00:49:26,200 --> 00:49:28,319
Speaker 1: would you give to a recent college grad who was

850
00:49:28,400 --> 00:49:34,879
Speaker 1: interested in sustainable investing. Uh, that's great, it's a growth area. Uh.

851
00:49:35,080 --> 00:49:38,120
Speaker 1: Study up um, uh and and and the and the

852
00:49:38,120 --> 00:49:40,279
Speaker 1: The advice I would say is study up with a

853
00:49:40,320 --> 00:49:42,840
Speaker 1: degree of skepticism and rigor around this set of issues,

854
00:49:42,920 --> 00:49:46,200
Speaker 1: because what we need is more people who are really invested,

855
00:49:46,280 --> 00:49:48,920
Speaker 1: really passionate, but also come at it with a dispassion

856
00:49:49,320 --> 00:49:51,680
Speaker 1: and our final question, what do you know about the

857
00:49:51,719 --> 00:49:55,600
Speaker 1: world of sustainable investing today that you might have wished

858
00:49:55,600 --> 00:50:04,040
Speaker 1: you knew ten fifteen years ago, that uh, that you

859
00:50:04,080 --> 00:50:09,399
Speaker 1: can you can unlock a lot of progress by just

860
00:50:10,080 --> 00:50:12,920
Speaker 1: uh putting facts in data out there and being clear

861
00:50:13,000 --> 00:50:17,000
Speaker 1: about the implications that that ultimately we're gonna need policy

862
00:50:17,080 --> 00:50:19,560
Speaker 1: solutions to get this done. But there's a lot uh

863
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Speaker 1: that finance can do by being clear about risk and

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Speaker 1: data and analytics. Quite fascinating. Thank you, Brian. This has

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Speaker 1: really been very, very interesting. We have been speaking with

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Speaker 1: Brian Deese. He is the global head of sustainable investing

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Speaker 1: at black Rock. If you enjoy this conversation, well, be

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Speaker 1: sure and look up an intro down an Inch on

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Speaker 1: Apple iTunes, where you can see any of our previous

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Speaker 1: three hundred such conversations we've held over the past five years.

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Speaker 1: We love your comments, feedback and suggestions right to us

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Speaker 1: at m IB podcast at Bloomberg dot net. Leave us

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Speaker 1: a review on Apple iTunes. Be sure and check out

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Speaker 1: my weekly column on Bloomberg dot com slash Opinion. Follow

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Speaker 1: me on Twitter at rid Halts. I would be remiss

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Speaker 1: if I did not thank the crack staff that helps

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Speaker 1: put this together with me each week. Michael Batnick is

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Speaker 1: my head of research. Sam Chivraj is our booker producer.

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Speaker 1: Nick Falco is our engineer. I'm Barry rid Halts. You're

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Speaker 1: listening to Masters in Business on Bloomberg Radio.