WEBVTT - Why (almost) everyone hates ESG right now 0:00:00.080 --> 0:00:02.160 Welcome to Zero. I am Akshatrati. 0:00:02.520 --> 0:00:20.120 This week the ESG backlash. 0:00:20.160 --> 0:00:23.560 The world of ESG regulation and investing was already suffering 0:00:23.600 --> 0:00:27.080 a period of shaky confidence even before Donald Trump came 0:00:27.120 --> 0:00:30.639 back to the White House, and now Trump appears to 0:00:30.640 --> 0:00:34.440 be bringing in a new period of uncertainty about just 0:00:34.560 --> 0:00:37.919 how accountable companies will have to be to governments and 0:00:38.040 --> 0:00:42.920 investors when it comes to their environmental, social, and governance policies. 0:00:44.240 --> 0:00:46.760 So this week we're looking at the history of ESG 0:00:47.159 --> 0:00:51.120 and its future. Reporter Sagel Kishan, who has been watching 0:00:51.120 --> 0:00:53.920 these developments from New York, tells me how the US 0:00:54.240 --> 0:00:57.320 used to be a leader in ESG once upon a time, 0:00:57.960 --> 0:01:01.120 and we talk about why many companies today are still 0:01:01.200 --> 0:01:04.800 keeping their ESG plans in place but just not talking 0:01:04.840 --> 0:01:08.280 about it. But first I spoke with Copenhagen based reporter 0:01:08.319 --> 0:01:12.640 Francis Schotzkoff about how the ESG movement grew into its 0:01:12.640 --> 0:01:16.000 current form, why Europe is leading on it, and why 0:01:16.160 --> 0:01:34.800 major rollbacks appear imminent. Fran Welcome to the show. 0:01:35.480 --> 0:01:36.800 Thanks very much for inviting me. 0:01:37.560 --> 0:01:41.600 So ESG is at an inflection point both in Europe 0:01:41.600 --> 0:01:44.920 where you are based and around the world, most notably 0:01:44.959 --> 0:01:47.200 in the US. Can you take us a little bit 0:01:47.280 --> 0:01:51.320 back in time and tell us about the origins of ESG. 0:01:51.600 --> 0:01:54.080 Before we get to ESG, let's go further back in 0:01:54.120 --> 0:01:58.720 time too, after the Great Crash in the US. 0:01:58.760 --> 0:02:00.559 All the way back in nineteen ten twenty nine. 0:02:01.160 --> 0:02:03.400 Yep, that's right, all the way back then, there was 0:02:03.760 --> 0:02:07.400 very little regulation around how companies needed to report their earnings. 0:02:07.480 --> 0:02:10.919 That was triggered, as we know now from historians accounts 0:02:10.919 --> 0:02:16.800 of financial incongruities in many ways, and at the time, 0:02:16.840 --> 0:02:19.760 there were very few regulations around how companies had to 0:02:19.760 --> 0:02:22.839 report information, and as a consequence, there was a lot 0:02:22.880 --> 0:02:27.480 of yeah, shaky reporting, and that helped fuel the Great 0:02:27.520 --> 0:02:30.960 Depression and the Crash of nineteen twenty nine. After that 0:02:31.120 --> 0:02:35.200 happened in the US, in particular, financial reporting began to 0:02:35.200 --> 0:02:38.560 be standardized. It took, as we know, decades, and the 0:02:38.600 --> 0:02:41.880 ifrs and the GAP rules in the US are still 0:02:42.200 --> 0:02:45.000 changing to accommodate the changing economy. 0:02:45.960 --> 0:02:49.720 These gap rules there sort of got this weird acronym 0:02:50.080 --> 0:02:53.320 generally acceptable accounting practices. Is that right? 0:02:53.760 --> 0:02:58.320 Yeah? Man, It's a fabulously banal description of exactly what 0:02:58.400 --> 0:03:02.040 it is. They lay out how companies are supposed to 0:03:02.040 --> 0:03:06.040 talk about their finances in terms that are standardized, so 0:03:06.080 --> 0:03:10.400 that an investor can look across different companies and say, oh, 0:03:10.520 --> 0:03:13.160 you know, this match is that they're doing well here 0:03:13.240 --> 0:03:16.200 and not well there without having to worry that a 0:03:16.240 --> 0:03:20.120 company is somehow fudging the figures. 0:03:21.200 --> 0:03:24.560 And so these environmental social governance factors as we know 0:03:24.639 --> 0:03:29.480 them as ESG. Today they are known as non financial metrics, 0:03:29.480 --> 0:03:32.120 which is not just about how much money did you 0:03:32.280 --> 0:03:35.000 make in profits, how much revenue did you raise as 0:03:35.040 --> 0:03:38.600 a company, but going beyond that. So when did that 0:03:38.720 --> 0:03:39.920 come into the picture? 0:03:40.240 --> 0:03:44.160 Corporate sustainability or corporate social responsibility has been around for 0:03:44.360 --> 0:03:48.480 several decades. It grew out of many different kinds of 0:03:48.840 --> 0:03:54.160 bad news events, companies being caught in various polluting or 0:03:54.200 --> 0:03:58.680 mistreating their workers. And the perspective over time has changed, 0:03:58.720 --> 0:04:02.640 so it's a company not just beholden to its shareholders 0:04:02.680 --> 0:04:07.200 but also to society. That solidified in the EU around 0:04:07.240 --> 0:04:10.680 a piece of legislation called the Non Financial Reporting Directive, 0:04:11.360 --> 0:04:16.160 and that emerged actually after the financial crisis around twenty 0:04:16.320 --> 0:04:17.920 twelve twenty thirteen. 0:04:17.680 --> 0:04:21.000 So about a decade ago is when you really started 0:04:21.000 --> 0:04:25.360 doing rule making around these non financial metrics. Before that, 0:04:25.400 --> 0:04:29.640 it was just companies using those metrics as a voluntary 0:04:30.120 --> 0:04:33.560 disclosure to investors that, look, we care about the environment, 0:04:33.600 --> 0:04:36.040 here's what we're doing about it. We care about society, 0:04:36.040 --> 0:04:39.400 as we are doing about gender diversity in our workforce 0:04:39.480 --> 0:04:39.880 or something. 0:04:40.560 --> 0:04:43.760 Yeah. At first, companies reported on their own, and then 0:04:43.839 --> 0:04:48.200 the EU in the last decade after the financial crisis 0:04:48.400 --> 0:04:51.840 saw the need for companies to be mandated more or 0:04:51.920 --> 0:04:54.960 less to report on these kinds of factors, and they 0:04:55.000 --> 0:04:58.680 created what's called the Non Financial Reporting Directive. But even 0:04:58.760 --> 0:05:03.440 that failed to provide investors and the wider world with 0:05:03.480 --> 0:05:07.440 the kind of information people felt would tell them about 0:05:07.440 --> 0:05:11.680 what companies were doing. The information was not standardized. For example, 0:05:11.920 --> 0:05:14.800 for example, on human rights, a company might say, well, 0:05:14.839 --> 0:05:19.640 we adhere to UN policies around human rights, and that 0:05:19.720 --> 0:05:23.279 would conceivably be the end of it, and without explaining 0:05:23.320 --> 0:05:26.680 what they actually do, explaining where the risks are, explaining 0:05:27.160 --> 0:05:30.440 what efforts they make to actually identify possible human rights 0:05:30.560 --> 0:05:33.320 violations in their supply chains and in their operations. 0:05:33.520 --> 0:05:36.640 And so the EU starts making rules, they're still a 0:05:36.680 --> 0:05:41.000 bit vague. They're not quite helping investors to use non 0:05:41.040 --> 0:05:44.960 financial metrics to make decisions. But then comes what non 0:05:45.000 --> 0:05:49.040 governmental organizations called the Golden age of ESG rule making, 0:05:49.360 --> 0:05:52.760 starting in twenty nineteen. Why was it called the Golden age? 0:05:52.920 --> 0:05:55.919 That's right. In twenty nineteen, you begin with the creation 0:05:56.000 --> 0:05:59.279 of what's called the Taxonomy Regulation. The idea there on 0:05:59.400 --> 0:06:03.760 the EUS was to create a list of business activities 0:06:03.760 --> 0:06:07.480 business operations that are considered to be in the beginning 0:06:07.640 --> 0:06:12.520 environmentally sustainable. Eventually, they had hoped to create a taxonomy 0:06:12.600 --> 0:06:16.159 or list of activities that would also be socially sustainable. 0:06:16.880 --> 0:06:19.240 And the idea there was to help companies that to 0:06:19.279 --> 0:06:23.159 help investors to identify our right, is this business sustainable 0:06:23.240 --> 0:06:25.880 or not? Can we anticipate this would exist and help 0:06:25.920 --> 0:06:28.719 the world help people implant it. In twenty thirty forty 0:06:28.800 --> 0:06:32.080 years after that, they started creating a whole bunch of 0:06:32.120 --> 0:06:36.360 disclosure requirements around that and around the finance industry. The 0:06:36.400 --> 0:06:42.080 next step was called the Sustainable Finance Disclosure Regulation, which 0:06:42.520 --> 0:06:46.320 mandated that banks and insurers and other organizations report on 0:06:46.360 --> 0:06:48.119 some of these factors. 0:06:47.880 --> 0:06:50.040 You know, in one way even to get to the 0:06:50.160 --> 0:06:53.279 very metrics that we take for granted now, which is 0:06:53.400 --> 0:06:57.920 profits and revenues it took decades, whereas with ESG rules 0:06:58.000 --> 0:07:01.479 it's only really been ten years in the making. Why 0:07:01.560 --> 0:07:05.000 is it so complicated to get those rules to be 0:07:05.760 --> 0:07:09.320 good enough for investors to actually make decisions or good 0:07:09.440 --> 0:07:13.520 enough for companies to feel they are not spending far 0:07:13.600 --> 0:07:14.960 too much time reporting on them. 0:07:15.680 --> 0:07:20.440 The first reason both that companies give and banks and 0:07:20.800 --> 0:07:25.800 asset managers give is data, data, data, data. These are 0:07:26.000 --> 0:07:29.560 things that people haven't measured. They've never thought really about 0:07:29.560 --> 0:07:32.040 how much water they use beyond paying their water bill. 0:07:32.760 --> 0:07:36.920 They've never thought about how much carbon is encapsulated in 0:07:36.960 --> 0:07:40.360 the buildings they occupy. Although gender has been around for 0:07:40.440 --> 0:07:43.400 a longer period of time, they've not dug deep into that. 0:07:43.600 --> 0:07:46.720 And then you also have more controversial issues like labor 0:07:46.800 --> 0:07:50.880 union participation. The second thing after data is just the 0:07:50.920 --> 0:07:54.160 cost involved in getting all that together and the methodology 0:07:54.280 --> 0:07:57.640 and definitions. These are all things that are completely new. 0:07:58.040 --> 0:08:00.840 So currently, with all this rule making peered in the 0:08:00.840 --> 0:08:05.440 Golden era, what is actually being enforced in the EU 0:08:05.880 --> 0:08:07.760 and how are companies responding to it? 0:08:09.000 --> 0:08:14.400 So far, there's been more saber rattling than financial penalties. 0:08:14.920 --> 0:08:17.000 One of the reasons is most of these pieces of 0:08:17.040 --> 0:08:22.480 regulation are being phased in over time. The Sustainable Finest 0:08:22.520 --> 0:08:26.080 Disclosure Regulation, for example, that was implemented in March of 0:08:26.160 --> 0:08:29.200 twenty twenty one, and the first two three years were 0:08:29.680 --> 0:08:34.280 in many asset managers and bankers' minds pretty chaotic. That 0:08:34.400 --> 0:08:37.559 piece of legislation is still going is now under review 0:08:38.280 --> 0:08:42.000 and one of the expectations on the part of the 0:08:42.040 --> 0:08:45.520 regulators is that you comply as best you can. But 0:08:45.600 --> 0:08:49.120 they recognize that with these rules in flux, it's a 0:08:49.160 --> 0:08:52.360 little problematic to being people on the head for a 0:08:52.440 --> 0:08:55.520 rule that's changing or that's not completely understood. 0:08:56.000 --> 0:08:59.600 Beyond SFDR, there are other rules that have been created, right, 0:09:00.120 --> 0:09:04.200 come with new acronyms csrdcst PD. What are those and 0:09:04.320 --> 0:09:05.760 when do they come into force? 0:09:06.200 --> 0:09:10.640 That's right. The first set that I just referred to 0:09:10.679 --> 0:09:14.680 the Sustainable Finance package that was targeted at the finance industry. 0:09:15.000 --> 0:09:18.800 The idea was to leverage the finance industry to push 0:09:19.280 --> 0:09:22.760 the rest of the economy to begin the disclosure process. 0:09:23.360 --> 0:09:25.720 Next in line, then you have what's called the Corporate 0:09:25.760 --> 0:09:30.880 Sustainability Reporting Directive and get ready for the next acronym, 0:09:31.040 --> 0:09:38.319 the ESRs, the European Sustainability Reporting standards. These are much 0:09:39.240 --> 0:09:43.559 appreciated and much loathed set of standards on what companies, 0:09:43.720 --> 0:09:47.040 both financial and non financial have to report. The idea 0:09:47.120 --> 0:09:49.480 is you begin with the finance industry and you push 0:09:49.559 --> 0:09:52.480 the rest of the industry, and that's what CSRD does. 0:09:52.880 --> 0:09:57.160 It requires companies to upwards of fifty thousand when it 0:09:57.240 --> 0:10:02.280 first was conceived to report on all these various ESG factors. 0:10:02.600 --> 0:10:07.000 And then after that comes CS triple D, which is 0:10:07.040 --> 0:10:12.400 supposed to create punishments if the companies get it wrong. 0:10:12.480 --> 0:10:14.280 Is that right and what is CS trip D? 0:10:14.640 --> 0:10:17.920 That's right, and that stands for the Corporate Sustainability Due 0:10:17.920 --> 0:10:23.600 Diligence Directive. The idea there is that CSRD and even 0:10:23.679 --> 0:10:28.360 SFDR are really largely about disclosure. It's about telling people 0:10:28.400 --> 0:10:31.559 what you're doing and what you're not doing, telling people 0:10:31.800 --> 0:10:34.240 what the problem is, telling people how they're going to 0:10:34.280 --> 0:10:39.000 fix it. But disclosure doesn't necessarily mean companies are going 0:10:39.040 --> 0:10:42.120 to change their behavior. And that's where CS triple D 0:10:42.280 --> 0:10:45.280 comes in because the argument is that you kind of 0:10:45.320 --> 0:10:49.480 need a stick. We've seen bad things happen in the past, 0:10:50.600 --> 0:10:53.640 and the idea behind CS triple D is that that 0:10:53.840 --> 0:10:57.640 is the stick that prompts companies to actually take action. 0:10:57.960 --> 0:11:01.040 It includes a civiliability risk for the companies that are 0:11:01.080 --> 0:11:04.400 in scope, and it also mandates transition plans for the 0:11:04.480 --> 0:11:07.800 largest companies. Bad things have happened in the past. In fact, 0:11:07.880 --> 0:11:10.880 one of the events that triggered the creation of the 0:11:10.960 --> 0:11:14.520 Due Diligence Director was the twenty thirteen collapse of the 0:11:14.600 --> 0:11:19.280 Rana Plaza in Bangladesh, when hundreds of women died, hundreds 0:11:19.320 --> 0:11:21.880 of women who were so enclosed for the Western world, 0:11:22.400 --> 0:11:26.640 and the repercussions were felt throughout the garment industry, but 0:11:26.760 --> 0:11:30.520 hardly anybody was held responsible for that, and as a consequence, 0:11:31.280 --> 0:11:35.680 the European lawmakers, led by a Dutch parliament member named 0:11:35.760 --> 0:11:40.560 Laura Walters, designed this piece of legislation to hold companies 0:11:40.559 --> 0:11:45.160 responsible for actions in their supply chain. The argument is 0:11:45.600 --> 0:11:50.080 you can't push responsibility away by saying it was not 0:11:50.200 --> 0:11:51.400 my fault, I didn't know. 0:11:52.200 --> 0:11:55.240 And that's why there is also transition plans within the 0:11:55.360 --> 0:11:58.160 Due Diligence Director because it's a way of saying, look, 0:11:58.800 --> 0:12:01.480 you company have an imp on the world and that 0:12:01.559 --> 0:12:05.240 climate change can cause impacts for your company, and say 0:12:05.280 --> 0:12:09.480 physical asset risks, maybe your particular asset in the ocean 0:12:09.720 --> 0:12:12.599 is now more vulnerable to sea level rise as a 0:12:12.640 --> 0:12:14.760 result of climate change, and thus you need to have 0:12:15.080 --> 0:12:18.559 a plan. And so that is also the reason why 0:12:18.640 --> 0:12:22.160 the transition plans are part of the due Diligence Directive 0:12:22.280 --> 0:12:25.360 because they ask companies to both look at what they 0:12:25.360 --> 0:12:28.520 are doing to tackle climate change, but also what are 0:12:28.559 --> 0:12:31.440 they doing to manage the risks that will come from 0:12:31.480 --> 0:12:34.920 climate change, because if they are managing the risks, then 0:12:35.000 --> 0:12:38.400 the shareholders in those companies are more assured that this 0:12:38.480 --> 0:12:41.120 company has a longer future, right, that's correct. 0:12:41.200 --> 0:12:44.320 Yeah, The argument is that the larger companies need to 0:12:44.360 --> 0:12:47.679 be prayered for climate change. There are deniers out there, 0:12:47.720 --> 0:12:50.240 of course, we know that, but the vast majority of 0:12:50.280 --> 0:12:53.520 the large global companies acknowledge that the climate change exists 0:12:53.559 --> 0:12:56.720 and something needs to be done about it, and investors 0:12:56.760 --> 0:12:59.680 and other stakeholders want to know what these companies are doing. 0:13:00.240 --> 0:13:02.480 So now we've got a little bit of an understanding 0:13:02.520 --> 0:13:06.160 of how the rulemaking began, where there's been pushed back 0:13:06.160 --> 0:13:08.560 and back and forth with industry, which has to happen 0:13:08.600 --> 0:13:11.600 in any sort of rulemaking, But there has been pushback, 0:13:11.600 --> 0:13:14.320 and this pushback is starting to build up into this 0:13:14.559 --> 0:13:18.679 omnibus legislation, So by the time listeners hear this episode, 0:13:19.800 --> 0:13:23.480 the EU might have already put out the legislation and 0:13:23.800 --> 0:13:27.320 told the world what within those ESG rules it is 0:13:27.720 --> 0:13:30.960 going to either step back on or make it easier 0:13:30.960 --> 0:13:33.000 for companies. Right, what does it entail? 0:13:33.280 --> 0:13:36.280 There's been building over the last couple of years significant 0:13:36.320 --> 0:13:40.880 pushback against some of the regulations. The concern here is 0:13:41.040 --> 0:13:46.040 largely that the demands are too great, particularly for medium 0:13:46.040 --> 0:13:50.760 sized and smaller companies. They simply don't have the capacity 0:13:50.840 --> 0:13:54.600 at this moment in time, the resources, the knowledge to 0:13:54.800 --> 0:13:57.600 deliver the kind of information that's being required of them. 0:13:57.720 --> 0:14:01.600 Unlike in the US, there is general agreement that this 0:14:01.679 --> 0:14:04.960 kind of information is needed. So it's not a question 0:14:05.000 --> 0:14:08.200 of saying, let's pull the plug on all of it. 0:14:08.200 --> 0:14:12.640 It's more a question of pairing it down to the essentials. 0:14:13.120 --> 0:14:17.040 What are those essentials? Europe has one idea about how 0:14:17.080 --> 0:14:20.080 these rules need to be changed. There are indications that 0:14:20.120 --> 0:14:23.480 they are going to probably significantly pair back some of 0:14:23.520 --> 0:14:28.320 the reporting requirements. We do know that they do want 0:14:28.360 --> 0:14:31.880 to ease the burden on companies to provide all the 0:14:31.960 --> 0:14:35.200 data that these standards now require and there are more 0:14:35.240 --> 0:14:36.080 standards coming. 0:14:36.680 --> 0:14:39.320 And so another wrench that's been thrown in the ESG 0:14:39.440 --> 0:14:42.400 machine and the EU is what the US wants to do. 0:14:42.880 --> 0:14:46.560 You've done reporting that the Commerce Secretary, Howard Lutnik is 0:14:46.680 --> 0:14:51.200 interested in using US trade tools to try and influence 0:14:51.720 --> 0:14:55.960 ESG rulemaking that is domestic to the European Union. How 0:14:56.000 --> 0:14:57.040 exactly would that work? 0:14:58.440 --> 0:15:01.440 Yeah. One of the concerns on the U side is 0:15:01.480 --> 0:15:06.840 that the EU rules are engaging in what's called extra territoriality. 0:15:07.440 --> 0:15:11.080 That means they're governing the behavior of businesses that are 0:15:11.120 --> 0:15:15.480 not headquartered in the EU as they have operations outside 0:15:15.520 --> 0:15:17.840 of the EU. Now, the intention of the EU was 0:15:17.920 --> 0:15:23.000 to control the production of goods and services that end 0:15:23.080 --> 0:15:25.880 up in the EU, but some, as we know, the 0:15:26.000 --> 0:15:28.640 vast majority of those are going to be made somewhere 0:15:28.640 --> 0:15:32.800 else and imported into the BLOCK. The US feels that 0:15:32.920 --> 0:15:37.240 this is an overreach, a regulatory overreach on the EU's part. 0:15:37.520 --> 0:15:40.840 It also brings up the question of competitiveness and a 0:15:40.920 --> 0:15:44.560 level playing field. The US is concerned that its companies 0:15:44.880 --> 0:15:48.240 will be at a competitive disadvantage. This is somewhat ironic 0:15:48.400 --> 0:15:51.280 because one of the reasons that the EU has for 0:15:51.440 --> 0:15:55.320 rolling back some of its own ESG disclosures is because 0:15:55.320 --> 0:15:59.760 it's concerned that the regulations will in fact hurt its 0:15:59.800 --> 0:16:04.280 companies in the global market if the regulatory playing field 0:16:04.320 --> 0:16:05.000 isn't level. 0:16:05.480 --> 0:16:08.160 But isn't it hypocritical on the US side too, because 0:16:08.520 --> 0:16:13.520 the US does do rulemaking that has extra territorial impact 0:16:13.640 --> 0:16:17.600 all the time. Sanctions are a very good case in point. Right, 0:16:17.640 --> 0:16:21.000 they can go after Russia or Iran and leay sanctions 0:16:21.000 --> 0:16:23.880 on them and stop their companies from doing whatever the 0:16:24.000 --> 0:16:26.920 US wants. So how is it that the US can 0:16:26.960 --> 0:16:29.840 then turn around and tell the EU, well, your rules 0:16:29.840 --> 0:16:33.840 are having an extra territorial impact and so please shut them. 0:16:33.920 --> 0:16:36.240 Yeah, that's exactly right. That's one of the arguments here 0:16:36.240 --> 0:16:38.560 in the EU is that the that the US does 0:16:38.560 --> 0:16:41.960 in fact have several pieces of legislation money anti money 0:16:42.000 --> 0:16:46.160 laundering for example, among them, that have extra territorial reach. 0:16:46.600 --> 0:16:49.280 It's hard to say how that that battle over extra 0:16:49.360 --> 0:16:51.320 territoriality will. 0:16:51.000 --> 0:17:00.520 End after the break. New York based reporters see Kushion 0:17:00.600 --> 0:17:04.680 tells me about esg's American history and why with Trump 0:17:04.800 --> 0:17:08.359 back in office, companies are keeping quiet about their environmental 0:17:08.440 --> 0:17:12.280 and sustainability commitments. By the way, if you've been enjoying 0:17:12.280 --> 0:17:14.639 this episode, please take a moment to rate and review 0:17:14.680 --> 0:17:17.760 the show on Apple Podcasts and Spotify. It helps other 0:17:17.880 --> 0:17:28.920 listeners find the show. Sagel, Welcome to the show. 0:17:29.280 --> 0:17:29.960 Good to be here. 0:17:30.400 --> 0:17:32.720 So I just spoke with Fran about the history of 0:17:33.000 --> 0:17:36.040 ESG in Europe and we talked about how governments saw 0:17:36.359 --> 0:17:41.200 standardizing initially financial disclosures and then in the later half 0:17:41.200 --> 0:17:44.320 of the twentieth century applying the same lens to non 0:17:44.359 --> 0:17:48.719 financial disclosures. In the twenty first century, we've seen that 0:17:48.800 --> 0:17:52.879 Europe has become a leader in rulemaking on ESG. But 0:17:53.000 --> 0:17:56.760 within this broad idea of investing with purpose, the US 0:17:56.880 --> 0:17:59.320 has a longer history, right could you talk us through it? 0:18:00.119 --> 0:18:04.440 That's right. Actually, sort of investing with a purpose traces 0:18:04.280 --> 0:18:08.280 its routes back to religious investors who were shunning things 0:18:08.400 --> 0:18:12.840 like alcohol and gambling from their investments. That then later 0:18:12.920 --> 0:18:16.040 morphed into sort of this more corporate activism. It was 0:18:16.080 --> 0:18:19.840 at the time of anti Vietnam protests, the divestment movement 0:18:20.040 --> 0:18:23.840 in South Africa, which was under apartheids. So this pushed 0:18:23.880 --> 0:18:27.399 a bunch of investors mainly actually in the Boston area 0:18:27.920 --> 0:18:32.280 to use their shoholder clout to push companies to start 0:18:32.280 --> 0:18:33.080 doing good. 0:18:33.320 --> 0:18:36.600 And that had some success, right because we know that 0:18:36.880 --> 0:18:41.840 apartheid era investors did have an impact on the government there. 0:18:42.000 --> 0:18:44.199 And so how did it build up into what we 0:18:44.359 --> 0:18:47.680 now call ESG today. So we saw in. 0:18:47.720 --> 0:18:50.679 Two thousand and four, two thousand and five officials at 0:18:50.680 --> 0:18:55.840 the UN and they coined this label ESG. They wanted 0:18:55.880 --> 0:19:01.159 to actually pivot away from do gooding investing in moral investing, 0:19:01.640 --> 0:19:05.119 and they want to basically use the language of Wall Street, 0:19:05.280 --> 0:19:09.400 which is risks and opportunities. Socially responsible investing actually kind 0:19:09.440 --> 0:19:13.360 of was criticized by mainstream finance for being too sort 0:19:13.400 --> 0:19:16.760 of granola and crunchy, so to speak. So talking about 0:19:16.800 --> 0:19:21.679 risks and opportunities was squarely in the language of bankers 0:19:21.800 --> 0:19:26.240 and traders and other investors. So yeah, the whole idea 0:19:26.440 --> 0:19:30.040 was for investors and finances to when they're doing they're 0:19:30.760 --> 0:19:34.280 making decisions on whether to lend or finance or invest, 0:19:34.640 --> 0:19:38.760 they would also take into account environmental and social issues 0:19:39.000 --> 0:19:40.200 into that decision making. 0:19:40.400 --> 0:19:43.680 And so now within this big broad tent of ESG, 0:19:43.880 --> 0:19:47.920 factors which are even today ill defined in the aggregate. 0:19:48.240 --> 0:19:50.280 You know, Europe is trying to make some progress, but 0:19:50.400 --> 0:19:53.000 in the US, where there's no rule making really happening, 0:19:53.480 --> 0:19:55.560 it's whatever you kind of want to make of it. 0:19:56.000 --> 0:19:58.040 So if you just take the e part, which is 0:19:58.040 --> 0:20:01.399 probably more clearly defined than our where you have clear 0:20:01.680 --> 0:20:06.080 goals set on emissions, on reaching climate targets, could you 0:20:06.119 --> 0:20:08.760 just talk us through what the backlash in the US 0:20:08.840 --> 0:20:12.960 has been, which began well before trump second term began. 0:20:13.640 --> 0:20:16.359 Yeah, that's right. You could trace its early routes to 0:20:16.400 --> 0:20:19.680 twenty twenty one, and it was around the time when 0:20:20.000 --> 0:20:24.800 Texas passed through a state bill basically restricting business with 0:20:24.920 --> 0:20:29.480 companies that it claimed to be shunning fossil fuels. It passed, 0:20:29.600 --> 0:20:32.280 and yeah, it was pretty low key, under the radar. 0:20:32.760 --> 0:20:36.000 But towards the end of twenty twenty one, Ronda Santis, 0:20:36.040 --> 0:20:40.160 then Florida governor who was eyeing a run for president, 0:20:40.680 --> 0:20:43.920 he took on this attack on ESG and started attacking 0:20:43.960 --> 0:20:47.200 Black Rock, whose CEO I think has been a big 0:20:47.280 --> 0:20:52.840 champion of ESG. Then twenty twenty two, Elon Musk, Peter Thiel, 0:20:53.440 --> 0:20:57.040 and even former Vice President Mike Prince all piled in 0:20:57.400 --> 0:21:01.959 and started characterizing ESG as well capitalism and something created 0:21:02.000 --> 0:21:05.439 by the radical left that would be a threat to 0:21:05.600 --> 0:21:07.400 the American way of doing business. 0:21:07.760 --> 0:21:10.760 So if we were to take a Wall Street perspective, 0:21:11.800 --> 0:21:16.520 is there any way to know whether ESG factors, if 0:21:16.560 --> 0:21:19.080 they're looked at from the lens of risk and opportunity, 0:21:19.320 --> 0:21:22.840 if those factors have had any impact on company profits, 0:21:22.960 --> 0:21:24.640 And let's take it one by one. 0:21:25.280 --> 0:21:25.800 ES and G. 0:21:26.560 --> 0:21:30.119 Lately we've seen ESU risks and that's coming in the 0:21:30.119 --> 0:21:34.920 form of insurance. We've seen big insurance companies leave states 0:21:35.000 --> 0:21:39.199 like California, Yorkshire obviously prone to to extreme weather events 0:21:39.240 --> 0:21:43.280 like wildfires, so that's been been a big risk on 0:21:43.359 --> 0:21:47.280 the s. We've seen, perhatually more concrete examples of risk 0:21:47.320 --> 0:21:52.280 playing out in portfolios. We've seen companies like Fox having 0:21:52.280 --> 0:21:56.600 to dole out millions of dollars in sexual harassment claims 0:21:56.720 --> 0:22:00.600 or settlements. Tesla had to pay a large party to 0:22:01.320 --> 0:22:05.720 a former contractor who accused the company of racism. And 0:22:05.840 --> 0:22:08.639 just two years ago we saw the auto workers strikes 0:22:08.920 --> 0:22:11.800 that really impacted the like sort of like Forward and 0:22:12.359 --> 0:22:15.919 General Motors, and they had to put millions of dollars aside. 0:22:16.080 --> 0:22:19.000 Their share price is tanked and just to explain, like 0:22:19.200 --> 0:22:21.720 the worker strikes at the s in issue, it's about 0:22:21.760 --> 0:22:23.880 worker rights, labor issues and things like that. 0:22:24.440 --> 0:22:26.919 And the G which is sort of the forgotten factor 0:22:26.960 --> 0:22:29.160 in ESG, Where does that play a role. 0:22:29.680 --> 0:22:32.399 Yeah, I mean G it's I mean it's kind of 0:22:32.440 --> 0:22:35.640 mainstream finance. It's more of a process. It's not an 0:22:35.640 --> 0:22:39.199 investable idea like investing in E issues, like investing in 0:22:39.240 --> 0:22:42.280 a solar company for instance. But for the G issues, 0:22:42.359 --> 0:22:46.080 you know, boardroom diversity comes into that. And you know, 0:22:46.200 --> 0:22:49.000 after the George Floyd protests here in the US in 0:22:49.040 --> 0:22:53.040 twenty twenty, we've seen a lot of companies ramp up 0:22:53.520 --> 0:23:00.240 their board diversity initiatives which recently haven't actually been unwound. Yeah, 0:23:00.280 --> 0:23:02.640 it's mainly S and E, which is where you see 0:23:02.640 --> 0:23:05.120 the sort of the impacts on the bottom line. 0:23:05.240 --> 0:23:08.359 But if we take the Wall Street lens on ESG, 0:23:08.560 --> 0:23:13.399 which is these do provide certain risks, and they provide 0:23:13.880 --> 0:23:17.240 a signal to investors looking at the portfolio that they 0:23:17.280 --> 0:23:20.480 have in their company. They seem to say, there are 0:23:20.520 --> 0:23:23.199 some fundamental risks that we do need to account for 0:23:23.359 --> 0:23:28.600 as we invest. And so our ESG minded investors who 0:23:28.880 --> 0:23:32.520 understand these risks, who are sitting in the US welcoming 0:23:32.680 --> 0:23:36.119 of the Use approach which is actually doing the rulemaking, 0:23:36.320 --> 0:23:39.080 even if it is not the US that is taking 0:23:39.080 --> 0:23:39.440 the lead. 0:23:39.800 --> 0:23:41.560 I mean, it is really a mixed bag. I mean, 0:23:41.640 --> 0:23:45.920 obviously you'll see sustainable investors who welcome this and want 0:23:45.920 --> 0:23:48.320 to bring these rules on board, and to an extent, 0:23:48.359 --> 0:23:51.800 they're doing a lot of this voluntarily anyway. But we've 0:23:51.800 --> 0:23:55.880 got the likes of big groups, lobbyist groups who are 0:23:55.880 --> 0:23:58.760 pushing back on these rules and saying that it's going 0:23:58.800 --> 0:24:03.320 to be costly, weigh on small businesses, especially at a 0:24:03.359 --> 0:24:06.680 time where small businesses after the pandemic have struggled, and 0:24:06.800 --> 0:24:10.920 now that we have a president who's for deregulation, there's 0:24:11.040 --> 0:24:12.400 even more stronger pushback. 0:24:12.520 --> 0:24:15.040 It's only been a month since Trump has been in power. 0:24:15.680 --> 0:24:17.680 You know, there are four more years of this. How 0:24:17.680 --> 0:24:21.520 do you expect this to play out for ESG over 0:24:21.680 --> 0:24:22.720 the next four years? 0:24:23.040 --> 0:24:25.720 I mean, look, the pressure is going to continue. I 0:24:25.720 --> 0:24:28.879 mean we've seen even before Trump was elected, Wall Street 0:24:28.960 --> 0:24:33.719 pretty much go silent on climate change, talking about climate risks, 0:24:34.160 --> 0:24:39.440 leaving net zero groups and really shy away. They faced 0:24:39.560 --> 0:24:43.920 investigations some companies have been sued or faced legal action, 0:24:44.600 --> 0:24:47.320 and so a lot of companies are just like, hey, 0:24:47.359 --> 0:24:49.320 this has just been too much for us, more than 0:24:49.320 --> 0:24:51.639 what we bargained for. But having said that, they're not 0:24:51.680 --> 0:24:55.800 going completely silent because they still have Blue state clients, 0:24:55.960 --> 0:24:59.400 pension plans in California and New York, they have European 0:24:59.400 --> 0:25:01.679