WEBVTT - Brian Deese on What’s Driving ESG Investing 0:00:02.200 --> 0:00:06.800 This is Masters in Business with Barry Ridholts on Bloomberg Radio. 0:00:07.480 --> 0:00:10.240 This week on the podcast, I have an extra special guest. 0:00:10.680 --> 0:00:13.440 His name is Brian D's. He is head of sustainable 0:00:13.440 --> 0:00:18.160 Investing at black Rock, which now manages somewhat over seven 0:00:18.280 --> 0:00:22.360 trillion dollars. Brian has a fascinating background both in the 0:00:22.400 --> 0:00:27.000 White House and Washington, d C. Where he helped draft 0:00:27.160 --> 0:00:30.360 the Paris Climate Accord, as well as worked on the 0:00:30.400 --> 0:00:35.239 bailout of GM and Chrysler for the Obama administration and 0:00:35.280 --> 0:00:38.919 now working in black Rock. Uh, this is really a 0:00:39.040 --> 0:00:44.280 fascinating conversation about what is driving sustainable investing, how we 0:00:44.520 --> 0:00:47.560 can think about climate change and e s G investing 0:00:48.440 --> 0:00:51.839 not so much as a value play but as a 0:00:51.880 --> 0:00:56.600 form of risk analysis. Uh. It really just this conversation 0:00:56.640 --> 0:01:00.080 went to places you probably wouldn't expect it would and 0:01:00.160 --> 0:01:03.200 I found it to be absolutely fascinating and I think 0:01:03.200 --> 0:01:06.360 you will too. So, with no further ado, my conversation 0:01:06.440 --> 0:01:12.840 with Black Rocks Brian Diese. This is Masters in Business 0:01:13.080 --> 0:01:17.760 with Barry Ridholtz on Boomberg Radio. My special guest this 0:01:17.800 --> 0:01:20.720 week is Brian Diese. He is the global head of 0:01:20.760 --> 0:01:25.480 sustainable Investing at black Rock, where he focuses on identifying 0:01:25.600 --> 0:01:32.360 drivers of long term returns associated with E s G issues. Previously, 0:01:32.440 --> 0:01:37.000 he was President Obama's Senior Advisor for Climate and Energy Policy, 0:01:37.040 --> 0:01:40.640 where he helped to work on the Paris Climate Accord. 0:01:41.040 --> 0:01:43.920 He also was one of the key architects of the 0:01:44.000 --> 0:01:48.120 resurgence of the auto industry, participating in the design of 0:01:48.120 --> 0:01:51.880 the bailout of General Motors and Chrysler. He has been 0:01:51.960 --> 0:01:56.000 Deputy Director at the National Economic Council as well as 0:01:56.080 --> 0:02:00.440 at the Office of Management and Budget. Brian Diese, Welcome 0:02:00.480 --> 0:02:04.200 to Bloomberg. Thank you, happy beer. So Brian, let's jump 0:02:04.360 --> 0:02:07.600 right in. I'm kind of intrigued by your background. Your 0:02:07.680 --> 0:02:10.560 j d is from Yale. How does a legal background 0:02:10.560 --> 0:02:14.480 help someone in the field of sustainable investing. Well, you know, 0:02:14.520 --> 0:02:18.640 the joke about people who work in policy is if 0:02:18.639 --> 0:02:20.600 you don't have the attention span to go get a PhD, 0:02:20.639 --> 0:02:24.000 then you get a law school. That's fair, but well, look, 0:02:24.040 --> 0:02:26.960 I I might most of my background professional focus has 0:02:27.000 --> 0:02:31.880 been on economics and economic policy. Uh, the legal training 0:02:31.880 --> 0:02:34.600 and the law degree have been extremely helpful for me 0:02:34.720 --> 0:02:37.680 in helping have a framework to how to think about 0:02:37.800 --> 0:02:40.960 issues and break them. Down and put them back together. 0:02:41.400 --> 0:02:43.760 But I am one of those people who's got a 0:02:43.800 --> 0:02:46.800 law degree but is not deploying it directly in the 0:02:46.800 --> 0:02:48.840 practice of law. I want to say the stats, so 0:02:48.880 --> 0:02:51.280 I too have a law degree that I do not deploy, 0:02:51.320 --> 0:02:53.840 But I want to say, it's after seven years, it's 0:02:53.840 --> 0:02:56.960 something like fifty of us are not practicing laws something 0:02:57.040 --> 0:03:00.480 like that. Pretty pretty realistic number. So let's talk a 0:03:00.480 --> 0:03:03.800 little bit about the Obama White House. You were Senior 0:03:03.840 --> 0:03:08.360 adviser for Climate and Energy policy. What's it like working 0:03:08.360 --> 0:03:15.320 on those issues in the White House. Well, it's um complicated, scary, thrilling, fun, frustrating, 0:03:15.560 --> 0:03:18.560 all of those things. Everything you would amend. I worked 0:03:18.919 --> 0:03:23.000 all eight years in the during the Obama administration. Most 0:03:23.040 --> 0:03:25.320 of that time I was part of his economic team 0:03:25.360 --> 0:03:28.320 in a variety of different roles and really came at issues. 0:03:28.360 --> 0:03:32.200 So worked in the post crisis era, worked on housing, finance, 0:03:32.320 --> 0:03:36.320 the Dot Frank, and the restructuring after the financial crisis, 0:03:36.680 --> 0:03:39.320 and through it all I had a focus on energy 0:03:39.320 --> 0:03:42.520 and climate issues, but from an economic perspective. The last 0:03:42.520 --> 0:03:45.200 couple of years, the President came and said, I really 0:03:45.200 --> 0:03:48.000 want to make this a central focus on my second term. 0:03:48.080 --> 0:03:50.520 We're not moving fast enough. How do we bring all 0:03:50.560 --> 0:03:53.080 of the different agencies of government together to try to 0:03:53.120 --> 0:03:56.480 orient internationally and also domestically to do as much as 0:03:56.520 --> 0:03:59.760 we can. That was my role. Involved a lot of coordination, 0:04:00.080 --> 0:04:02.320 lot of work internationally and a lot of work with 0:04:02.560 --> 0:04:05.200 regulated industries domestically as well, to try to chart a 0:04:05.200 --> 0:04:07.600 path forward given the tools that we had. So before 0:04:07.640 --> 0:04:12.040 we delve deeper into sustainable investing and climate change, I 0:04:12.120 --> 0:04:14.720 have to roll back and ask about the bailouts of 0:04:14.760 --> 0:04:18.280 GM and Chrysler sort of antithetical in some ways to 0:04:18.720 --> 0:04:21.600 sustainable investing or maybe not. What did you do in 0:04:21.640 --> 0:04:26.840 that space? And how insane were those years posts oh nine? 0:04:26.880 --> 0:04:28.640 It had to be crazy. Yeah, it was a pretty 0:04:28.640 --> 0:04:32.280 insane period. I was helping to run then candidate Obama's 0:04:32.279 --> 0:04:35.359 economic policy during the campaign and around end of August 0:04:35.400 --> 0:04:38.599 early September two eight, what went from economic policy in 0:04:38.600 --> 0:04:42.479 a campaign context got devastatingly serious, very quickly, with the 0:04:42.520 --> 0:04:46.120 cascading failures of a g and putting Famion Fedding conservatorship, 0:04:46.120 --> 0:04:48.880 and then you know, the the escalating series of failures 0:04:49.600 --> 0:04:51.800 over the course of the fall and when we came 0:04:51.839 --> 0:04:55.000 in even during the transition. This question of what to 0:04:55.080 --> 0:04:58.360 do about the auto industry generally and GM and Chrysler 0:04:58.440 --> 0:05:01.840 that we're quickly running out of cash was front and center. 0:05:01.920 --> 0:05:04.640 So I was part of a small team that was 0:05:04.680 --> 0:05:07.680 tasked with trying to figure out what to do. Number one, 0:05:08.160 --> 0:05:10.160 did we have a way to step in and back 0:05:10.200 --> 0:05:13.040 stop them? Should we? And three? If the answer to 0:05:13.080 --> 0:05:15.520 both of those was yes, then how could we actually 0:05:15.560 --> 0:05:17.960 execute and get this done? So I have a pet 0:05:18.040 --> 0:05:23.000 theory that if the UM Treasury Secretary is an industrialist, 0:05:23.200 --> 0:05:26.040 they're very happy to bail out industry and let finance 0:05:26.160 --> 0:05:29.880 banks and stuff go the restructuring route and vice versa. 0:05:30.080 --> 0:05:34.680 There a financi air, then the industries can go through bankruptcy, 0:05:34.800 --> 0:05:37.799 but they bail out banks as too big to fail. 0:05:38.320 --> 0:05:42.120 So you guys ended up inheriting the Bush bailouts of 0:05:42.160 --> 0:05:45.880 the banks and then doing your own industrial policy bailout 0:05:46.440 --> 0:05:49.960 ten years later. How did it turn out? Well, there's 0:05:49.960 --> 0:05:52.799 actually surprising consistency between the end of the Bush administration 0:05:52.920 --> 0:05:56.159 our view on they need to do something to backstop 0:05:56.240 --> 0:05:59.640 these companies because of the second and third order effects. 0:05:59.720 --> 0:06:02.200 I think the you know, the conservative estimates were a 0:06:02.240 --> 0:06:05.360 million plus jobs on the line, because it wasn't really 0:06:05.400 --> 0:06:09.440 about the specific direct employees of GM and CHRISTI, although 0:06:09.480 --> 0:06:12.560 there were tens of thousands of them, but the suppliers, 0:06:12.680 --> 0:06:16.599 the dealers that the the auto industry touches UM a 0:06:16.640 --> 0:06:19.640 lot of communities and a lot of jobs. So we 0:06:19.640 --> 0:06:23.040 were pretty focused in the depth of such a economic downturn, 0:06:23.480 --> 0:06:26.960 if we could do something that was targeted UH and 0:06:27.000 --> 0:06:31.599 effective and that did require sacrifice from all different stakeholders. 0:06:31.839 --> 0:06:33.920 The stakes were pretty high, and so we should give 0:06:33.960 --> 0:06:36.159 it a shot. And that was the sort of the 0:06:36.240 --> 0:06:39.640 core animating these is behind it. But we did ultimately 0:06:39.680 --> 0:06:43.040 decide that the way to actually get the level of 0:06:43.360 --> 0:06:46.440 um sacrifice necessary, that the level of changes in these 0:06:46.480 --> 0:06:49.680 companies was going to require them going through bankruptcy, and 0:06:49.720 --> 0:06:51.760 so both companies ended up going through bankruptcy. It was 0:06:51.800 --> 0:06:55.360 a harrowing and lots of respects, but in hindsight, I 0:06:55.360 --> 0:06:58.400 believe it's one of the most effective economic policy interventions 0:06:58.920 --> 0:07:00.480 at the height of our recession, and I think we 0:07:00.520 --> 0:07:02.320 saved more than a million jobs. At the end of 0:07:02.320 --> 0:07:06.760 the day, we got back more money than the obadministration invested, 0:07:06.760 --> 0:07:09.400 and as a whole, in the government, UH, the entire 0:07:09.560 --> 0:07:11.640 effort cost about ten billion dollars, and so if you 0:07:11.640 --> 0:07:13.880 look at the jobs in the economic impact that we 0:07:13.880 --> 0:07:16.720 were able to protect and solve, I feel like it 0:07:16.800 --> 0:07:20.800 was a an effective and reasonable use of tax payer resources. 0:07:20.800 --> 0:07:24.880 So then you transition from a government employee effectively even 0:07:24.880 --> 0:07:27.120 though you're on the policy side of it, to one 0:07:27.200 --> 0:07:30.640 of the biggest investment firms in the world. What is 0:07:30.640 --> 0:07:36.560 that transition like? Well, you know, in some ways, uh 0:07:36.960 --> 0:07:41.000 both large complicated organizations that have a global reach and 0:07:41.200 --> 0:07:44.440 that uh so in some ways less difference than you 0:07:44.520 --> 0:07:47.440 might think between the complexity of the executive branch and 0:07:47.480 --> 0:07:51.600 the complexity of a big, uh complicated organization. But on 0:07:51.640 --> 0:07:53.960 the other hand, you know, very different in the sense 0:07:54.000 --> 0:07:57.040 that the same set of issues that I was thinking 0:07:57.080 --> 0:07:59.239 about and we were working on from the policy side 0:07:59.320 --> 0:08:02.240 around how do we create the right conditions for private 0:08:02.280 --> 0:08:05.960 capital to move into lower carbon solutions and accelerate the 0:08:06.000 --> 0:08:08.840 transition of low carbon economy. There's what we think about 0:08:09.440 --> 0:08:12.080 at black Rock, but with a very different lens, the 0:08:12.160 --> 0:08:15.280 lens being how do we actually deliver for our clients, 0:08:15.320 --> 0:08:19.280 for our the end h end investors, most of whom 0:08:19.320 --> 0:08:23.360 are uh you know, our our our pensioners and who 0:08:23.400 --> 0:08:25.720 have a long term orientation and are trying to save 0:08:25.840 --> 0:08:30.160 for long term goals. So, you know, similarities, but really 0:08:30.200 --> 0:08:34.439 a different focus on how do you bring the lens 0:08:34.440 --> 0:08:38.520 of sustainability and sustainable investing to that ultimate goal of 0:08:38.840 --> 0:08:42.800 delivering financial return. Ultimately quite fascinating. Let's talk a little 0:08:42.800 --> 0:08:46.000 bit about climate change and what we're doing in response 0:08:46.040 --> 0:08:50.480 to it. You helped to actually draft the Paris Climate Agreement. 0:08:51.120 --> 0:08:54.920 What was your reaction to seeing the current administration withdraw 0:08:55.080 --> 0:08:58.559 from that and how dangerous is it for the United 0:08:58.600 --> 0:09:01.640 States to not be a part of that. Well, look, 0:09:01.679 --> 0:09:04.400 I think it's in the the economic and national security 0:09:04.440 --> 0:09:07.840 interest of every country to be finding a coordinate solution 0:09:07.920 --> 0:09:10.600 to this issue. You know, I think the impacts both 0:09:10.600 --> 0:09:13.839 the physical impacts that we're seeing that you know, we 0:09:13.840 --> 0:09:16.720 were seeing with our own eyes. Californians are seeing at 0:09:16.720 --> 0:09:20.120 people in the Midwestern seeing Australia and you know, up 0:09:20.120 --> 0:09:22.600 and down the East coast of the United States. Uh, 0:09:22.640 --> 0:09:25.880 we're seeing that everywhere. And we're also seeing the risks 0:09:26.040 --> 0:09:29.160 from a financial perspective of what it means to actually 0:09:29.160 --> 0:09:32.760 move toward a low carbon economy. Pressure on fossil intensive 0:09:32.760 --> 0:09:37.200 business models, more economic opportunity for low carbon solutions, and 0:09:37.240 --> 0:09:39.320 I think that's the piece that is is missing from 0:09:39.320 --> 0:09:41.880 this conversation. Sometimes you think about Paris and you think 0:09:41.920 --> 0:09:46.320 about a global effort. What Paris really did was climate 0:09:46.400 --> 0:09:49.679 change internationally used to be this big debate between two teams. 0:09:49.760 --> 0:09:52.160 It was like a soccer match, developed countries on the 0:09:52.200 --> 0:09:55.240 one hand, developing countries and the others fighting about who 0:09:55.280 --> 0:09:58.240 was in charge of having to solve this problem. What 0:09:58.320 --> 0:10:01.160 Paris did was changed that from head to head fight 0:10:01.240 --> 0:10:04.280 into a race. We're all working together, and now the 0:10:04.360 --> 0:10:08.680 question is which countries can actually get ahead in being 0:10:08.840 --> 0:10:11.720 the clean energy superpowers of the twenty one century. Who's 0:10:11.720 --> 0:10:14.600 going to actually capture the economic opportunity, the enormous economic 0:10:14.640 --> 0:10:17.559 opportunity that's going to colm from this transition in these 0:10:17.559 --> 0:10:20.080 new industries. And so at the end of the day, 0:10:20.120 --> 0:10:22.560 every country should want to be part of that race 0:10:22.600 --> 0:10:25.160 because of the economic dividends that it creates. So I 0:10:25.200 --> 0:10:28.600 saw a chart yesterday from Torsten Slock of Deutsche Bank 0:10:29.320 --> 0:10:33.000 basically showing the US gets only about ten percent of 0:10:33.040 --> 0:10:36.600 our energy supply from renewables, and I remember that more 0:10:36.679 --> 0:10:39.400 or less correctly, that's from wind and solar. If you 0:10:39.440 --> 0:10:42.960 look at zero carbon including nuclear and hydro, the number 0:10:43.000 --> 0:10:45.760 is the numbers closer before you, right, But oh, really 0:10:45.800 --> 0:10:49.079 that much because we've had pretty robust nuclear and hydro, 0:10:49.679 --> 0:10:52.240 not as much as France has on the nuclear side 0:10:52.280 --> 0:10:56.360 or hydro, so dependent on the local geology. But we've 0:10:56.360 --> 0:10:59.280 had that for decades. And so what has been the 0:10:59.320 --> 0:11:04.040 marginal increase in low carbon or zero carbon energy sources 0:11:04.040 --> 0:11:05.920 over the past decade or so? Well, So, the two 0:11:05.960 --> 0:11:07.679 big things that you've seen happen in the U S 0:11:07.800 --> 0:11:12.280 energy mix are one, the rapid increase of renewables bringing 0:11:12.280 --> 0:11:15.199 onto the grid and the the rate of change and 0:11:15.280 --> 0:11:18.040 adoption of renewables is very fast, even though we're still 0:11:18.080 --> 0:11:20.320 you know, we're still moving up at a relatively low base. 0:11:20.640 --> 0:11:23.800 And the second is the adoption of and build out 0:11:23.800 --> 0:11:28.000 of natural gas as a baseload, cheaper baseload energy source 0:11:28.080 --> 0:11:33.400 to coal, which is primarily manifesting itself in the transition 0:11:33.559 --> 0:11:36.840 of the big electrical generation plans that used to be 0:11:37.160 --> 0:11:40.520 mostly coal fired and now have seemed to dramatically move 0:11:40.600 --> 0:11:43.400 towards gas. Is that fair correct? So those are the 0:11:43.400 --> 0:11:46.920 two the two big dynamics is gas driving coal out 0:11:46.920 --> 0:11:50.720 of the energy mix and renewables coming onto the grid rapidly. 0:11:50.800 --> 0:11:53.480 That's that's the story of the last decade. I think 0:11:53.520 --> 0:11:55.920 the story of the next decade is really going to 0:11:56.000 --> 0:11:59.800 be about what happens not the future of utilities, but 0:12:00.160 --> 0:12:03.760 the utilities of the future, because we're gonna move increasingly 0:12:03.840 --> 0:12:07.280 toward a scenario where we are electrifying everything, and so 0:12:07.440 --> 0:12:09.760 the grid and the grid applications are going to become 0:12:09.840 --> 0:12:12.560 less straightforward of you have a point source where you 0:12:12.600 --> 0:12:14.839 generate a bunch of electrons and then you figure out 0:12:14.840 --> 0:12:18.400 a transmission and distribution system. We're going to have increasingly 0:12:18.920 --> 0:12:23.560 distributed generation. You're gonna have sources, you know, sources of 0:12:23.600 --> 0:12:25.720 power and sources of storage that are plugging into the 0:12:25.720 --> 0:12:28.080 grid in different ways, which will create new stresses, but 0:12:28.160 --> 0:12:31.040 also a bunch of new opportunities different That will be 0:12:31.040 --> 0:12:32.760 one of the things that make the next decade different 0:12:32.760 --> 0:12:35.880 from the last. So we converted to natural gas about 0:12:35.880 --> 0:12:39.040 two or three years ago. Not only do we do that, 0:12:39.120 --> 0:12:43.320 I ran a backup generator on top of that, and 0:12:43.400 --> 0:12:47.240 I noticed, not only am I not burning home heating 0:12:47.280 --> 0:12:51.280 oil on burning gas, the price is a fraction of 0:12:51.320 --> 0:12:54.200 what it was. And if you live anywhere north of 0:12:54.200 --> 0:12:56.400 the Mason Dixon line and want to heat a pool, 0:12:57.000 --> 0:12:59.560 Oh my god. I used to get thousand dollar oil deliveries, 0:12:59.600 --> 0:13:02.200 it seemed every other day, And now it costs me 0:13:02.360 --> 0:13:05.120 two bucks to keep the pool at eighty six degrees 0:13:05.559 --> 0:13:09.640 into November. It's so incredibly cheap. Why hasn't this transition 0:13:09.679 --> 0:13:12.600 taken place faster or are we going as fast as 0:13:12.640 --> 0:13:15.520 we can? Well, the good news is that the transition 0:13:15.559 --> 0:13:18.360 has both economics and physics on its side, and so 0:13:18.400 --> 0:13:21.040 the reason why you're seeing that and the reason why 0:13:21.280 --> 0:13:26.000 zero carbon renewable energy is increasingly the lowest cost source 0:13:26.040 --> 0:13:28.559 of generation to add into the grid in places around 0:13:28.600 --> 0:13:32.720 the world from India to Chile, where new solar beats 0:13:32.720 --> 0:13:35.280 on a levelized cost the build out of new coral 0:13:35.400 --> 0:13:38.320 or other sources. That's amazing. So the market is driving that. 0:13:38.440 --> 0:13:42.920 But also the zero carbon energy sources are technology, and 0:13:43.000 --> 0:13:45.160 so part of the reason why is you've seen this 0:13:45.280 --> 0:13:48.040 rapid reduction in the cost of wind and solar and 0:13:48.040 --> 0:13:51.480 battery storage because the technology is just advancing very rapidly, 0:13:51.559 --> 0:13:55.439 and so the zero carbon energy sources have technology at 0:13:55.440 --> 0:13:57.520 their back as well. That's the good news. The bad 0:13:57.559 --> 0:14:01.360 news is that even though this transition, it's not moving 0:14:01.559 --> 0:14:04.160 nearly fast enough to put us on a trajectory that 0:14:04.200 --> 0:14:08.480 would keep the increase in global temperatures to the rate 0:14:08.600 --> 0:14:12.120 that we identified in the Paris Agreement, or to the 0:14:12.240 --> 0:14:14.480 rate of even a more ambitious set of targets that 0:14:14.520 --> 0:14:17.040 are what the global body of science is telling us, 0:14:17.040 --> 0:14:19.920 you need to avoid the worst impacts. So what aren't 0:14:19.960 --> 0:14:22.520 we doing that we should be doing? And what I 0:14:22.520 --> 0:14:25.120 mean by that is not just hey, everybody go by 0:14:25.120 --> 0:14:29.000 a tesla or a GM vault, but what is the 0:14:29.080 --> 0:14:34.080 government not doing to provide incentives to accelerate what's already 0:14:34.080 --> 0:14:39.920 taking place on an economic and market driven set of functions. Right, Ultimately, 0:14:39.920 --> 0:14:42.680 what's going to drive the speed of the transition is 0:14:43.040 --> 0:14:49.880 government policies that provide long term stability in prioritizing more 0:14:49.920 --> 0:14:54.360 sustainable source of energy and more sustainable sources of economic activity. 0:14:54.480 --> 0:14:57.560 And you know, around the world we're seeing less than 0:14:58.080 --> 0:15:01.320 a coherent global coordination policy, and so we're a long 0:15:01.400 --> 0:15:03.720 way from that being the case. But the other thing 0:15:03.760 --> 0:15:06.160 that's gonna help accelerating it gets to the work we're 0:15:06.160 --> 0:15:10.680 really doing. A black rock is a greater understanding and 0:15:10.680 --> 0:15:15.400 a greater clarity within financial markets about the magnitude that 0:15:15.840 --> 0:15:19.680 of the risk that actually already exists or is coming. 0:15:20.360 --> 0:15:24.360 And our view is as that becomes clearer, we're going 0:15:24.440 --> 0:15:27.760 to see a big reallocation of capital based on risk 0:15:27.960 --> 0:15:32.520 and based on financial markets fully reflecting those risks in 0:15:32.560 --> 0:15:34.920 the market. So let's focus on that for a moment. 0:15:35.160 --> 0:15:39.080 We've seen in the insurance space more than anywhere else, 0:15:39.760 --> 0:15:42.800 big increase in rates, big set of changes as to 0:15:43.520 --> 0:15:46.080 who insures will cover, and I'm not just talking about 0:15:46.120 --> 0:15:51.000 residential waterfront property across the board. And then the reinsures 0:15:51.160 --> 0:15:55.080 also showing a giant uptick in their premiums. So while 0:15:55.720 --> 0:15:59.240 a big chunk of the marketplace maybe dawdling or not 0:15:59.280 --> 0:16:02.600 paying attention to it, it's clear in the insurance sector 0:16:02.880 --> 0:16:05.600 they are clearly well aware of the risks that are 0:16:05.640 --> 0:16:09.760 taking place and have already acted on that. How long 0:16:09.800 --> 0:16:13.520 do you expect it to take to transition from insurance 0:16:13.720 --> 0:16:17.120 as a frontline recipient of the impact and costs of 0:16:17.160 --> 0:16:21.760 climate change to the rest of the sectors in the marketplace. Well, look, 0:16:21.760 --> 0:16:24.120 I would say you're starting to see that insurance, but 0:16:24.160 --> 0:16:25.880 I think we're going to see it accelerate much more 0:16:25.920 --> 0:16:30.000 significantly as well. Most of the financial models and the 0:16:30.000 --> 0:16:35.920 financial approaches that we've taken are either backward looking or 0:16:35.960 --> 0:16:39.840 they rely on this assumption of climactic stability, that the 0:16:39.840 --> 0:16:44.920 basic stability we've seen around physical impacts and threats will 0:16:45.200 --> 0:16:48.240 accelerate the way it has in the past. And that's 0:16:48.280 --> 0:16:50.320 no longer a viable option, which is going to require 0:16:50.360 --> 0:16:53.160 us to rethink a lot of basic questions about finance. 0:16:53.320 --> 0:16:57.120 So you raised the question of mortgages and waterfront property. Well, 0:16:57.440 --> 0:17:01.680 you know, an important year in lots of respects, but 0:17:01.800 --> 0:17:04.320 one think about the thirty year mortgage. It's kind of 0:17:04.320 --> 0:17:06.720 the you know, one of the centerpieces of our modern 0:17:06.760 --> 0:17:09.920 financial system is the first year where if you're issuing 0:17:09.920 --> 0:17:12.880 a thirty year mortgage, that's going to touch which we've 0:17:12.880 --> 0:17:15.720 always thought of as a sort of long out, long 0:17:15.920 --> 0:17:19.520 term area mile marker for impacts of climate change. Well, 0:17:19.560 --> 0:17:22.520 today we a thirty year, you know, a thirty year 0:17:22.760 --> 0:17:26.640 fixed touches that. What are the implications of that? You're right, 0:17:26.640 --> 0:17:29.119 we're starting to see it in insurance, But what are 0:17:29.119 --> 0:17:33.080 the implications when there are big areas of the country 0:17:33.080 --> 0:17:35.400 where even if you can get a thirty year mortgage. 0:17:35.440 --> 0:17:38.720 You can't get mortgage insurance that that that resets annually. 0:17:38.960 --> 0:17:42.919 What are the implications for municipal finance If risks that 0:17:43.000 --> 0:17:46.080 felt like they were long term twenty thirty years, I'll 0:17:46.119 --> 0:17:50.000 start to get pulled forward. And our you know, our 0:17:50.119 --> 0:17:53.479 our sense having looked at this, is that we're gonna see. 0:17:53.720 --> 0:17:55.680 One thing the financial markets are good at is pulling 0:17:55.720 --> 0:17:58.520 forward risk once they can identify and measure it. And 0:17:58.600 --> 0:18:01.000 so what you're starting to see in isolated areas in 0:18:01.000 --> 0:18:04.240 insurance and otherwise is likely to move much more quickly 0:18:04.920 --> 0:18:08.119 as bigger, you know, bigger elements of the financial market 0:18:08.160 --> 0:18:11.760 starts to recognize and identify these risks as real, and 0:18:11.800 --> 0:18:14.720 even if they are fifteen years forward, that's going to 0:18:14.800 --> 0:18:18.760 affect duration quite fascinating. Let's talk a little bit about 0:18:19.080 --> 0:18:23.160 sustainable investing. Your boss, Larry Fink made a pretty big 0:18:23.200 --> 0:18:28.200 splash with his annual letter on sustainability. What does Blackrock 0:18:28.400 --> 0:18:31.720 want to accomplish with that sort of communication. What was 0:18:31.800 --> 0:18:35.080 Larry trying to say, Well, we wanted to communicate our 0:18:35.160 --> 0:18:39.400 view as a fiduciary, as an entity that our principal 0:18:39.400 --> 0:18:41.840 goal is to try to think forward on behalf of 0:18:41.880 --> 0:18:44.760 our clients to what will be important to delivering them 0:18:44.800 --> 0:18:48.600 their long term financial goals. And in that context, we 0:18:48.720 --> 0:18:52.760 wanted to communicate two things. One, our view that climate 0:18:52.880 --> 0:18:55.680 risk is investment risk, and that's going to have big 0:18:55.720 --> 0:18:58.320 implications on how we think about a lot of these 0:18:58.600 --> 0:19:01.720 core questions of how we think about duration assets, how 0:19:01.720 --> 0:19:04.679 we think about risk going forward. And the second is 0:19:04.800 --> 0:19:09.760 that there is a larger societal shift right now toward 0:19:09.840 --> 0:19:13.520 a focus on sustainability and changing expectations of companies that 0:19:13.600 --> 0:19:17.440 we believe will escalate that their structural drivers behind that 0:19:17.440 --> 0:19:20.960 that will escalate across time. And therefore companies that are 0:19:21.040 --> 0:19:23.719 not thinking forward to what that means for their business 0:19:23.760 --> 0:19:26.680 model and trying to get ahead of that are going 0:19:26.760 --> 0:19:30.119 to struggle to deliver long term profitability because this is 0:19:30.119 --> 0:19:33.280 going to become an increasingly important part of the financial conversation. 0:19:33.720 --> 0:19:36.640 So this seems to be an evolution and thought at 0:19:36.680 --> 0:19:39.720 black Rock. I think has written a number of different 0:19:39.800 --> 0:19:44.119 letters over the years. He's talked about this as an issue. 0:19:44.320 --> 0:19:47.399 He sent letters out to various CEOs and other things, 0:19:48.240 --> 0:19:52.399 but it seems that this year is really a tipping point. 0:19:52.520 --> 0:19:55.760 The content and the tone of his letter is urgent 0:19:55.880 --> 0:19:59.119 the right word and much more emphatic. In the past 0:19:59.160 --> 0:20:02.720 it was almost mentioned as part of it. This time 0:20:02.760 --> 0:20:05.520 it was front and center, and I think that reflects 0:20:05.560 --> 0:20:07.359 that there were a lot of things in twenty nineteen 0:20:07.359 --> 0:20:10.600 that we saw escalating come together to really enforce the 0:20:11.400 --> 0:20:14.560 conviction in this view and the urgency of the view one. 0:20:14.640 --> 0:20:16.919 You saw, you know, an escalation in the physical impacts. 0:20:16.960 --> 0:20:22.959 We talked about un worlds on fire. To this idea 0:20:23.040 --> 0:20:25.600 about where regulatory body is going to really step in 0:20:25.680 --> 0:20:27.960 went from the future tense maybe they will in the 0:20:28.000 --> 0:20:29.679 future to the present tense. You saw the Bank of 0:20:29.680 --> 0:20:34.440 England begin to actually regulate financial entities, requiring stress tests. 0:20:34.560 --> 0:20:37.560 You see pension regulation across the globe. Obviously in the 0:20:37.640 --> 0:20:39.800 United States as an outlier in that respect, but if 0:20:39.840 --> 0:20:42.280 you're a global company and you're operating Europe, for example, 0:20:43.080 --> 0:20:47.439 integration of these types of issues into your disclosure and 0:20:47.440 --> 0:20:50.200 your investment process will become in a sort of required reading. 0:20:50.320 --> 0:20:53.280 That changed in twenty and we saw these sets of 0:20:53.320 --> 0:20:57.200 issues culminate and spill over into the global geopolitical scale. 0:20:57.400 --> 0:20:59.720 At the g twenty you saw a citizen movement of 0:20:59.760 --> 0:21:03.040 six million in a student's grassroots um walking out in 0:21:03.119 --> 0:21:06.000 demanding action. There's an escalation and focus on this that 0:21:06.040 --> 0:21:09.920 we assess again from an investment perspective, as being durable 0:21:10.080 --> 0:21:12.840 and and actually this being the front of something that 0:21:13.000 --> 0:21:16.360 is going to be a significant shift in investor preferences 0:21:16.400 --> 0:21:19.879 over time. So let's talk about another shift. Sustainable investing 0:21:20.119 --> 0:21:23.320 used to be pitched as, hey, here's how to align 0:21:23.440 --> 0:21:28.480 your capital investments with your morals, your ethical beliefs, your values. 0:21:29.080 --> 0:21:34.040 Now it's really being contextualized as look at how well 0:21:34.200 --> 0:21:36.520 E s G funds have done over the past few years. 0:21:37.040 --> 0:21:39.080 This is a source of alpha, This is a source 0:21:39.119 --> 0:21:42.440 of market beating performance. How do you see this being 0:21:42.480 --> 0:21:45.879 talked about by Black Rocks investors. I think one of 0:21:45.920 --> 0:21:48.080 the most significant things we communicated in the set of 0:21:48.119 --> 0:21:51.520 communications earlier this year was this view as a fiducier, 0:21:51.840 --> 0:21:55.200 as a view of looking at the long term financial 0:21:55.240 --> 0:21:58.040 interests of our clients first and foremost, that we believe 0:21:58.200 --> 0:22:03.080 that sustainability and integrating sustainability is likely to be the 0:22:03.119 --> 0:22:05.639 best way to position you for long term finitial return. 0:22:05.800 --> 0:22:07.960 And you're right, that is different. That's different than the 0:22:08.040 --> 0:22:13.159 traditional conversation which always came with an implicit assumption that 0:22:13.200 --> 0:22:17.000 you were trading value for values. Our view is that 0:22:17.000 --> 0:22:19.800 that's in the rear view mirror. Now the question of 0:22:20.040 --> 0:22:22.840 how you integrate sustainability and how you do that in 0:22:22.880 --> 0:22:26.960 ways that actually capture material insights and and not noise. 0:22:27.000 --> 0:22:29.440 It's hard, it's complicated like any other area of investing. 0:22:29.800 --> 0:22:32.680 But our view increasingly is that you can build a 0:22:32.720 --> 0:22:36.280 portfolio integrate sustainability and at least do as well and 0:22:36.320 --> 0:22:39.400 likely position yourself to do better over the long term 0:22:39.680 --> 0:22:42.080 because of all the structural elements we're talking about, and 0:22:42.119 --> 0:22:45.720 that underlies the conviction of everything we're doing across risk 0:22:45.760 --> 0:22:50.119 and integration products and services were offering. Is that underlying 0:22:50.160 --> 0:22:53.680 core view? So here's the pushback. I've read not my view, 0:22:53.720 --> 0:22:55.879 but I've read, Hey, you know, e s G has 0:22:55.880 --> 0:22:59.480