WEBVTT - What's in a Name? ESG and Greenwashing 0:00:00.080 --> 0:00:02.480 This is Dana Perkins and you're listening to Switched on 0:00:02.720 --> 0:00:05.720 the BNEF podcast. The ESG label is a term you've 0:00:05.840 --> 0:00:08.720 likely heard used before, and it's one that's designed to 0:00:08.840 --> 0:00:13.440 easily identify investments and companies that prioritize good environmental, social, 0:00:13.560 --> 0:00:18.040 and governance practices. However, recently, ESG investment strategies have come 0:00:18.120 --> 0:00:20.200 under fire from the right and the left of the 0:00:20.239 --> 0:00:23.680 political spectrum. On one side, some US states have started 0:00:23.720 --> 0:00:28.120 passing anti ESG legislation citing fudiciary duty is the reason, 0:00:28.320 --> 0:00:31.040 and on the left there have been concerns over greenwashing. 0:00:31.280 --> 0:00:34.320 So do we need to rethink ESG the term because 0:00:34.320 --> 0:00:38.479 it's being used so ubiquitously and perhaps erroneously well. Senior 0:00:38.520 --> 0:00:42.600 associate on BNF's Sustainable Finance Team, Maya Godomer returned to 0:00:42.640 --> 0:00:45.800 the podcast today to dig into the ESG investment space 0:00:45.960 --> 0:00:48.880 and assess the claims levels at it. Together, we discuss 0:00:48.880 --> 0:00:51.360 a range of topics. At the beginning, we go through 0:00:51.360 --> 0:00:53.680 some of the terminology for those new in the space. 0:00:53.840 --> 0:00:56.240 Then we go into the history of ESG, where it's 0:00:56.240 --> 0:00:58.840 come from, and then where it is now. What ESG 0:00:58.960 --> 0:01:02.400 means for different investment strategies and the green washing risks, 0:01:02.600 --> 0:01:05.800 followed by looking at these anti ESG bills and where 0:01:05.800 --> 0:01:09.480 they sit within the turbulent political landscape in the United States. 0:01:09.800 --> 0:01:12.080 As always, if you like this podcast, make sure you 0:01:12.120 --> 0:01:15.360 subscribe to receive updates on future episodes on your device, 0:01:15.480 --> 0:01:17.639 and if you'd like, provide us a review on Apple 0:01:17.640 --> 0:01:20.520 Podcasts or Spotify. If you're on Twitter, subscribe to the 0:01:20.520 --> 0:01:23.680 handle at podcasts to find out about new episodes of 0:01:23.720 --> 0:01:26.680 Switched On and other Bloomberg podcasts. Now note that B 0:01:26.840 --> 0:01:29.440 and EF does not provide investment or strategy advice, and 0:01:29.520 --> 0:01:31.600 we have a more complete disclaimer that can be found 0:01:31.600 --> 0:01:33.400 at the very end of the show. But now let's 0:01:33.400 --> 0:01:36.119 hear from Maya and let's talk about ESG. 0:01:47.000 --> 0:01:47.160 Hi. 0:01:47.200 --> 0:01:50.480 Maya, Hi, Dana, thank you for joining the show again today. 0:01:50.760 --> 0:01:53.120 I'm ready to have you to be back on today's show. 0:01:53.120 --> 0:01:55.920 We're going to get into a bit around greenwashing and 0:01:56.240 --> 0:01:58.720 also a better around policy. So where there has been 0:01:58.760 --> 0:02:01.280 a bit of a backlash in terms of greenwashing, I 0:02:01.320 --> 0:02:03.800 think many of us would often actually associate that term 0:02:03.840 --> 0:02:06.080 with consumer goods, So you think about green washing and 0:02:06.120 --> 0:02:08.800 marketing and things that aren't actually that environmentally friendly. But 0:02:08.880 --> 0:02:12.400 this most certainly applies to the financial services industry, and 0:02:12.480 --> 0:02:14.760 so we have a lot to discuss today. So again, 0:02:14.960 --> 0:02:17.320 maybe not everybody's gone through our back catalog and heard 0:02:17.320 --> 0:02:19.760 every show you've done with me. So let's start on 0:02:20.280 --> 0:02:23.880 ESG and defining really what it is in terms of 0:02:24.000 --> 0:02:28.000 who's actually thinking about it, because ESG can take many 0:02:28.040 --> 0:02:31.280 forms and is being used as a term synonymously in 0:02:31.280 --> 0:02:35.200 some circumstances with corporate sustainability or in other circumstances with 0:02:35.240 --> 0:02:38.480 certain types of funds. So Maya, as the expert, please 0:02:38.520 --> 0:02:40.000 define ESG for us. 0:02:40.240 --> 0:02:42.800 Thanks for this question, because it's a question we don't 0:02:42.840 --> 0:02:45.240 ask anymore. We just take it for granted and it's 0:02:45.360 --> 0:02:48.680 used everywhere. It's used as a word, and that's maybe 0:02:48.720 --> 0:02:52.720 my literature background, but it's three adjectives put together, so 0:02:52.840 --> 0:02:55.639 it's not a word. ESG is not a thing. ESG 0:02:55.840 --> 0:02:59.360 basically means unvironmental, social and governance, as you just said, 0:02:59.560 --> 0:03:02.800 but environmental social and governance what you know, like it 0:03:02.840 --> 0:03:07.560 can be used as ESG investing, ESG factors, ESG strategy 0:03:07.800 --> 0:03:10.239 when we talk about a company. So it's really important 0:03:10.240 --> 0:03:12.120 to take a step back, and I think actually it's 0:03:12.160 --> 0:03:15.520 what the financial community is doing right now. So ESG 0:03:16.000 --> 0:03:19.880 is effectively these three words, and it usually was used 0:03:19.919 --> 0:03:24.840 to say ESG factors, So any kind of indicators that 0:03:24.919 --> 0:03:27.400 would when you look at a company, you're trying to 0:03:27.520 --> 0:03:32.280 assess their environmental, social, and governance practices. And then more recently, 0:03:32.320 --> 0:03:35.520 I would say, I mean it was a longer time ago, 0:03:35.680 --> 0:03:40.520 but when it comes to investment practices, ESG investing really 0:03:40.760 --> 0:03:45.160 dates back from early nineteen hundreds, but it's been really 0:03:45.200 --> 0:03:48.520 booming ESG investing in the second half of the century, 0:03:48.680 --> 0:03:51.600 and more recently we've seen ESG investing really grow. And 0:03:51.640 --> 0:03:54.040 what does it mean. It means for asset managers to 0:03:54.200 --> 0:03:58.440 take into account these environmental, social, and governance factor when 0:03:58.480 --> 0:04:03.160 they assess companies or any financial instrument in their investment process. 0:04:03.280 --> 0:04:06.640 So it means instead of looking just at the financial 0:04:06.680 --> 0:04:10.480 performance of a bond, of a loan, of any kind 0:04:10.520 --> 0:04:14.320 of investment they have, they also take into account environmental, social, 0:04:14.360 --> 0:04:18.920 and governance factors. Then ESG I think took a different 0:04:19.160 --> 0:04:21.760 meaning whether you're a retail investor, So what is a 0:04:21.800 --> 0:04:24.400 retail investor? For my mom in the background, a retail 0:04:24.440 --> 0:04:28.000 investor is just someone that has a part of money 0:04:28.279 --> 0:04:30.719 like you and me, because we're putting money aside for 0:04:30.800 --> 0:04:33.960 our pensions or for our first mortgage and decide to 0:04:33.960 --> 0:04:36.400 put that money into a fund. And I think for 0:04:36.560 --> 0:04:39.920 retail investors, so it means people with that money, ESG 0:04:40.080 --> 0:04:42.880 meant Okay, I'm going to put my money into a 0:04:42.960 --> 0:04:46.960 fund where I'm going to maximize my positive impact on 0:04:47.000 --> 0:04:49.760 the planet, on the society, or on the way a 0:04:49.839 --> 0:04:52.320 company is run, which is the governance issue, like I 0:04:52.360 --> 0:04:55.160 want more women in the company I invest in, like 0:04:55.680 --> 0:04:57.479 on the board of the companies. But I think for 0:04:57.560 --> 0:05:00.560 asset managers it means actually something different. Black Rock is 0:05:00.560 --> 0:05:02.800 one of the largest asset manager in the world, and 0:05:02.880 --> 0:05:06.400 since they've started talking about ESG, it really boomed almost 0:05:06.400 --> 0:05:08.880 because if the first asset manager in the world dedicates 0:05:08.920 --> 0:05:11.520 part of its strategies to ESG, what does it mean. Well, 0:05:11.560 --> 0:05:14.760 for them, it meant Okay, when I'm gonna do ESG investing, 0:05:15.080 --> 0:05:18.960 I'm gonna look on top now of the pure financial 0:05:19.080 --> 0:05:22.279 risk of a company, I'm also gonna look at mitigating 0:05:22.600 --> 0:05:26.839 and reducing my exposure to unvironmental, social, and governance risk. 0:05:27.120 --> 0:05:30.039 That's where the big difference is. It means that I'm 0:05:30.040 --> 0:05:33.839 not trying to maximize my positive impact on the world. 0:05:33.960 --> 0:05:38.200 I'm just gonna try to minimize the potential environmental, social, 0:05:38.240 --> 0:05:40.240 and governance risk of my investments. 0:05:40.480 --> 0:05:43.560 So you brought up some of this history of the 0:05:43.760 --> 0:05:45.560 ESG space and the fact that it's been with us 0:05:45.600 --> 0:05:48.159 for quite some time now. At the turn of the century, 0:05:48.200 --> 0:05:51.120 there was less emphasis on climate change, and so I 0:05:51.120 --> 0:05:55.800 imagined that that wasn't fully integrated into anyone's ESG strategy, 0:05:55.800 --> 0:05:58.000 but actually quite a bit of emphasis on the social part, 0:05:58.080 --> 0:06:00.680 so that the s in ESG, what would you say, 0:06:00.680 --> 0:06:05.080 the focuses now? And does one seem to show up 0:06:05.160 --> 0:06:08.960 more often in an asset manager's investment strategy than some 0:06:09.000 --> 0:06:09.600 of the others. 0:06:09.920 --> 0:06:13.039 So asset managers have customers, so they had to be 0:06:13.080 --> 0:06:16.560 aligned with effectively the customer's demand. At the beginning of 0:06:16.600 --> 0:06:19.800 the twentieth century, the focus was really on the social 0:06:19.880 --> 0:06:23.839 component of ESG when you're talking about customers. It started 0:06:23.880 --> 0:06:27.479 with the religious movement putting money in funds where you 0:06:27.560 --> 0:06:30.840 had no exposure to gambling, no exposure to tobacco. Then 0:06:30.880 --> 0:06:33.599 in the nineteen sixties there was a whole movement about 0:06:33.640 --> 0:06:39.320 having non exposure to companies that were involving the apparthaid 0:06:39.520 --> 0:06:42.279 in South Africa. So there were all this vision that 0:06:42.520 --> 0:06:45.640 stayed in some of the ESG funds today, which is 0:06:45.680 --> 0:06:48.520 like a basic ESG funds will just have an exclusionary 0:06:48.600 --> 0:06:54.000 list of like gambling, tobacco, alcohol. Sometimes another topic that 0:06:54.160 --> 0:06:57.520 came up is also porn, like reducing exposure to these 0:06:57.560 --> 0:06:59.880 kind of companies, So that was the social element to it, 0:07:00.040 --> 0:07:04.360 and then progressively again from their retail investors' communities, so 0:07:04.839 --> 0:07:07.599 us the vision was to be like, okay, actually I 0:07:07.760 --> 0:07:11.880 also don't want to invest in companies that have a 0:07:12.040 --> 0:07:15.600 big role to play in climate change, and that came 0:07:15.640 --> 0:07:17.840 with the two thousands. It was saying I don't want 0:07:17.840 --> 0:07:20.160 to invest in the big island gas companies, or I 0:07:20.200 --> 0:07:23.440 want at least to mitigate my exposures to this company. 0:07:23.480 --> 0:07:26.720 That's from the retail investor side. From the asset manager side, 0:07:26.800 --> 0:07:28.760 they're and good at the end of the day is 0:07:28.800 --> 0:07:32.560 to keep their clients happy, so ensure that these components 0:07:32.560 --> 0:07:35.480 are taken into account, but also maximize the profit for 0:07:35.640 --> 0:07:38.960 their retail investors. And to maximize this profit, they were 0:07:38.960 --> 0:07:42.360 also like, you know what, actually social and environmental and 0:07:42.440 --> 0:07:47.000 governance matters actually represent a risk to our financial performance. 0:07:47.280 --> 0:07:51.120 Some investors are convinced that actually, if they want to 0:07:51.440 --> 0:07:54.920 respect their return duty that we call the fiduciary duty 0:07:55.040 --> 0:07:57.600 towards their end investors, they need to make sure that 0:07:57.600 --> 0:08:01.760 they're not investing in companies or any kind of investments 0:08:01.800 --> 0:08:04.400 that bear too much climate risk. That means that in 0:08:04.480 --> 0:08:07.200 ten years time they won't return as much, or they're 0:08:07.240 --> 0:08:09.680 facing too much physical risk and stuff like that. So 0:08:09.880 --> 0:08:14.000 the social risk is tougher to prove. Governance risk is 0:08:14.000 --> 0:08:16.280 actually not that tough. Like when you hear all the 0:08:16.320 --> 0:08:19.520 story about Tesla or Nissan with Carlos gone, you can 0:08:19.600 --> 0:08:23.360 see that bad governance actually lead to lower profits. But 0:08:23.400 --> 0:08:25.720 for the social side it became more okay, we're going 0:08:25.800 --> 0:08:28.600 to have the gambling aspect, the weapon aspect, you know, 0:08:28.640 --> 0:08:30.880 like all these kinds of things. But effectively it's more 0:08:30.920 --> 0:08:34.880 the environmental side now there is distilled because the demand 0:08:34.960 --> 0:08:38.959 from the retail investor and the driver of investment from 0:08:39.000 --> 0:08:42.480 the investor community are actually like meeting and are becoming 0:08:42.520 --> 0:08:48.079 compatible reducing exposure to environmental risk and lowering the exposure 0:08:48.200 --> 0:08:51.960 to heavier meeting sectors or like companies that have a 0:08:51.960 --> 0:08:53.560 big role to play in climate change. 0:08:53.880 --> 0:08:55.880 Reducing exposure seems to be at the center of it 0:08:55.920 --> 0:08:59.560 because earlier on you made the definition between any SG 0:09:00.040 --> 0:09:03.280 screening process as opposed to impact investing, and one more 0:09:03.320 --> 0:09:07.520 definition really comes down to debt versus equities. So how 0:09:07.840 --> 0:09:11.640 does ESG investing strategies, how do they take different shape 0:09:11.679 --> 0:09:14.280 in both of those and also where is there the 0:09:14.280 --> 0:09:16.840 most tension as we get into the screenwashing part. 0:09:17.160 --> 0:09:20.600 So I think the dead versus equity discussion is really 0:09:20.600 --> 0:09:25.080 interesting because you have two vision. You either have well 0:09:25.160 --> 0:09:30.679 a company that basically is bearing additional environmental risk and 0:09:30.880 --> 0:09:35.079 social risk or has a positive unronmental impact or social 0:09:35.120 --> 0:09:38.200 impact that's going to be analyzed at the equity level 0:09:38.240 --> 0:09:41.960 at the company level. So that's something that's going to 0:09:42.000 --> 0:09:44.320 be done by ESG analysts the same way that we 0:09:44.440 --> 0:09:47.320 used to have like financial analyst. They go instead of 0:09:47.320 --> 0:09:50.280 looking at the cash flow and the debt to equity ratio, 0:09:50.280 --> 0:09:53.079 they're also going to look at like how many environmental 0:09:53.120 --> 0:09:56.800 controversies are they facing, how many of their plants are 0:09:57.000 --> 0:10:00.560 on areas of the world that are of high flood 0:10:00.640 --> 0:10:03.920 risk or extreme weather risk. So that's the company level. 0:10:04.080 --> 0:10:07.280 The equitticide is totally related to the debt side, because 0:10:07.320 --> 0:10:09.680 the same way when you invest in a certain bond, 0:10:09.760 --> 0:10:11.960 you want to look at the debt to equity ratio 0:10:12.000 --> 0:10:14.400 of a company, how much cash flow they have available 0:10:14.559 --> 0:10:17.880 to do their payment. That's going to impact I would 0:10:17.920 --> 0:10:21.439 say the plane venuelea debt market, So any kind of bond, 0:10:21.600 --> 0:10:25.199 any kind of loan will also be in an ideal 0:10:25.280 --> 0:10:29.920 world analyzed through that lens of unvironmental, social, and governance issues. 0:10:30.080 --> 0:10:32.439 Then there is a second part, which is a sustainable 0:10:32.480 --> 0:10:34.959 debt market, which is something we talked about in the 0:10:35.000 --> 0:10:37.800 past podcast, So if anyone wants to listen, there's going 0:10:37.840 --> 0:10:40.680 to be past podcast about that. But it's basically saying, okay, 0:10:40.800 --> 0:10:43.840 what if we were creating a market that signals that 0:10:43.960 --> 0:10:46.840 actually these funds are going to social projects green project 0:10:46.920 --> 0:10:49.600 Like as an investor, I know that my money is 0:10:49.640 --> 0:10:54.400 going to go toward actually financing the solution that's going 0:10:54.480 --> 0:10:58.960 to mitigate climate change or mitigate social inequalities. And that's 0:10:59.000 --> 0:11:02.160 just sustainable debt mark, which we refer to as like 0:11:02.360 --> 0:11:05.200 labeled debt. And that's the second part. You still have 0:11:05.280 --> 0:11:09.080 that company and owsis hovering everything, but you also have 0:11:09.160 --> 0:11:11.760 the vision of what we call green bones social bondes, 0:11:11.840 --> 0:11:14.480 green loans, social loans that are going to go and 0:11:14.720 --> 0:11:19.800 finance specific social or green projects like solar power capacity 0:11:20.080 --> 0:11:24.200 or hydro power capacity for instance. Greenwashing is everywhere there. Like, 0:11:24.240 --> 0:11:27.160 I mean, I've studied in business school not so long ago, 0:11:27.240 --> 0:11:30.280 we're talking seven eight years ago. I was never taught ESG, 0:11:30.720 --> 0:11:33.800 like how do you assess the environmental or social performance 0:11:33.880 --> 0:11:36.800 of an investment of an instrument? Like I wasn't told 0:11:36.920 --> 0:11:38.000 environmental studies. 0:11:38.360 --> 0:11:39.240 What are you studying? 0:11:39.360 --> 0:11:43.400 I studied my undergrad in philosophy and my master's in finance. 0:11:43.640 --> 0:11:46.200 So you're studying masters in finance. You would expect that 0:11:46.200 --> 0:11:47.520 it would start coming up now. 0:11:47.480 --> 0:11:50.560 Yeah, exactly. But I think it's just the new generation 0:11:50.720 --> 0:11:56.320 that is effectively educated in understanding those risks, assessing those risks, 0:11:56.320 --> 0:11:59.600 and it's two worlds meeting, right. It's like the science world. 0:12:00.000 --> 0:12:01.920 That's why I work for BNF because I can turn 0:12:01.960 --> 0:12:04.760 around and ask my colleague, what is a fuel cell technology? 0:12:04.760 --> 0:12:06.680 What is the added value in the transition? You know, 0:12:06.720 --> 0:12:08.400 like these kind of background that you need to have 0:12:08.480 --> 0:12:12.080 from an engineer. But I studied finance. I was never 0:12:12.200 --> 0:12:15.400 taught what a good metals and mining strategy is. So 0:12:15.760 --> 0:12:19.000 when you have an investments product, you now need to 0:12:19.120 --> 0:12:23.280 add this second layer, which is the environmental and social 0:12:23.360 --> 0:12:28.480 and governance analysis of a given company. Governance's taught because 0:12:28.480 --> 0:12:31.560 I think the way a company is led has always 0:12:31.600 --> 0:12:34.800 been a matter for the financial community, but the social 0:12:34.880 --> 0:12:38.280 and environmental aspect, it's really hard to pinpoint what is 0:12:38.320 --> 0:12:41.160 actually material to the risk of a certain company. 0:12:41.440 --> 0:12:44.280 Well, so then let's get into this definition of greenwashing. 0:12:44.400 --> 0:12:47.840 You've written a research note that's titled to stop greenwashing. 0:12:47.880 --> 0:12:49.959 We first need to agree on what it is and 0:12:50.080 --> 0:12:53.120 spoiler alert everyone, we don't end up defining it by 0:12:53.160 --> 0:12:55.840 the end of the research note because there isn't a 0:12:55.880 --> 0:12:58.560 definition right now, but you do highlight a number of 0:12:58.559 --> 0:13:02.080 the different areas where this friction does exist and where 0:13:02.120 --> 0:13:05.040 there are attempts to make definitions. So let's say the 0:13:05.200 --> 0:13:08.199 taxonomy here in the you where they're actually trying to 0:13:08.200 --> 0:13:09.920 figure out, you know, what is in, what is out, 0:13:10.040 --> 0:13:12.760 and give it some borders. Let's start with what is 0:13:12.800 --> 0:13:16.000 your definition of greenwashing, and then let's go into what 0:13:16.280 --> 0:13:20.240 different organizations, multinational organizations and countries are looking at in 0:13:20.320 --> 0:13:21.000 their definition. 0:13:21.240 --> 0:13:24.640 So basically, you're telling me that I didn't define grain 0:13:24.840 --> 0:13:27.240 washing in the note and you're now forcing me, putting 0:13:27.240 --> 0:13:29.559 me on the spot in a podcast to give a definition. 0:13:29.840 --> 0:13:32.280 Okay, maybe that's not fair, so it's. 0:13:32.160 --> 0:13:34.480 Okay, I can I can give it a temp. I 0:13:34.520 --> 0:13:39.720 think the definition around grainwashing is like polymorphic, it has 0:13:39.760 --> 0:13:43.880 like multifaceted. I think it can be. Also, the very 0:13:43.920 --> 0:13:47.560 important thing is that some companies and some asset managers 0:13:47.559 --> 0:13:52.680 and bank can actively greenwash, so pretend that something has 0:13:52.920 --> 0:13:58.200 like better environmental and social attribute than what they actually have, 0:13:58.440 --> 0:14:01.040 but they can also have like is it green washing. 0:14:01.160 --> 0:14:05.120 There can also be something where there is a miscommunication 0:14:05.600 --> 0:14:08.839 about what are the actual attribute of a certain instruments, 0:14:09.120 --> 0:14:12.439 so we actually need to build that definition of green washing. 0:14:12.520 --> 0:14:16.600 There is the mislabeling of certain instruments pretending that a 0:14:16.640 --> 0:14:19.400 bond is green while actually it's going to find like 0:14:19.600 --> 0:14:22.960 natural gas, but effectively, depending on the region you're in, 0:14:23.200 --> 0:14:28.560 natural gas is actually a green alternative to heavy emitting. 0:14:28.200 --> 0:14:31.960 Power and facilitates the transition to clean energy or maybe 0:14:31.960 --> 0:14:34.520 considered more of a transition bond. So there's a degree 0:14:34.560 --> 0:14:38.680 of perhaps that language around this space hasn't caught up 0:14:38.720 --> 0:14:41.760 to how many different layers of nuance that we ultimately 0:14:41.800 --> 0:14:43.960 really need and that we need more terms. And I 0:14:44.000 --> 0:14:47.240 know that complexity is something we are not lacking within 0:14:47.440 --> 0:14:50.520 financial services or an ESG. So I am not suggesting that, 0:14:50.560 --> 0:14:53.200 but I am suggesting perhaps that putting the name on 0:14:53.240 --> 0:14:55.720 the tin as the term would say maybe is where 0:14:55.720 --> 0:14:56.640 we're falling down here. 0:14:56.920 --> 0:14:58.880 I think so, and I think there is a problem 0:14:58.880 --> 0:15:02.400 of education. I think there is mislabeling and misleading around 0:15:02.480 --> 0:15:08.120 sustainability claims and sustainability risk. There is misunderstanding about Okay, 0:15:08.160 --> 0:15:10.640 if you invest in natural gas, these are the pros 0:15:10.680 --> 0:15:13.640 and cons of it. This is what your investment has 0:15:13.680 --> 0:15:16.800 in terms of environmental attribute. It allowed to move away 0:15:16.800 --> 0:15:20.240 from cold, but it's still not renewable, but it's also okay. 0:15:20.240 --> 0:15:22.480 There is then the risk of maybe your stranded assets, 0:15:22.520 --> 0:15:25.960 like the financial community has not been completely transparent. I 0:15:26.040 --> 0:15:28.000 think there are two needs. There is a need for 0:15:28.120 --> 0:15:32.200 education both at the institutional investor level, the bank level 0:15:32.400 --> 0:15:35.120 as well so the fincial community level, but also the 0:15:35.160 --> 0:15:38.360 retail investor level. It means that when we're choosing our pension, 0:15:38.520 --> 0:15:41.400 we should get access to all that data, all that 0:15:41.480 --> 0:15:44.480 information the same way we get access to the level 0:15:44.560 --> 0:15:48.680 of risk that we are exposing ourselves to when we're 0:15:48.760 --> 0:15:51.920 choosing one investment over another, we should have that level 0:15:51.960 --> 0:15:56.480 of transparency when it comes to the environmental attributes and 0:15:56.560 --> 0:15:59.080 social attributes of a given investment. So it means when 0:15:59.120 --> 0:16:01.800 I choose my pension, I need to know, okay, what 0:16:01.960 --> 0:16:05.840 level of greenness is effectively my asset manager choosing for me. 0:16:06.000 --> 0:16:08.880 Are we going for dark green funds where we invest 0:16:09.000 --> 0:16:11.960 only in renewable energy projects or are we going to 0:16:12.480 --> 0:16:15.320 a fund that is actually betting on the transition? And 0:16:15.360 --> 0:16:18.320 it's up to then the final investor to get access 0:16:18.320 --> 0:16:20.480 to that transparency which we didn't have in the past. 0:16:20.800 --> 0:16:23.520 It's getting there now, but for a very long time 0:16:23.640 --> 0:16:26.360 investors because there is also that mismatch that we talked 0:16:26.400 --> 0:16:29.280 at the beginning, you know about what the retail investor 0:16:29.400 --> 0:16:32.560 is expecting and what their institutional investor are giving them 0:16:32.680 --> 0:16:35.480 or asset manager or giving them. There was no transparency, 0:16:35.520 --> 0:16:36.480 But we're getting there. 0:16:36.800 --> 0:16:39.240 This is ultimately a way of assessing companies. So how 0:16:39.280 --> 0:16:42.320 about the communication with the companies themselves who are ultimately 0:16:42.440 --> 0:16:45.360 putting together the reporting and trying to represent a lot 0:16:45.400 --> 0:16:47.440 of the things that they're doing in the best possible 0:16:47.520 --> 0:16:50.720 light as you would and the activities that they are 0:16:50.720 --> 0:16:53.960 involved in that are involved in the energy transition, let's say, 0:16:54.080 --> 0:16:57.640 or any sort of decarbonization or sustainability focused measure. Is 0:16:57.680 --> 0:17:01.120 that communication between the finance communit and how they are 0:17:01.160 --> 0:17:05.600 assessing these companies really translating into how the companies themselves 0:17:05.640 --> 0:17:08.240 are thinking about their strategy or is it really just 0:17:08.320 --> 0:17:10.840 their way of assessing. But it's not impacting business in 0:17:10.880 --> 0:17:11.840 a direct way. 0:17:11.880 --> 0:17:14.360 No, I think it's definitely having an impact on companies. 0:17:14.440 --> 0:17:17.320 I think that companies are much more aware that they 0:17:17.440 --> 0:17:23.199 need to communicate about their unvironmental and social performance on 0:17:23.280 --> 0:17:27.760 top of their financial performance. So through framework like TCFD, 0:17:27.960 --> 0:17:31.400 the Task Force on Climate Related Financial Disclosure or ISSB, 0:17:31.560 --> 0:17:35.680 the newly born ISSB which is the International Sustainability Standard Board, 0:17:35.760 --> 0:17:39.520 which comes from the IFORS Foundation. Like, it's really interesting 0:17:39.560 --> 0:17:43.200 to see that relationship. We go from an accounting standard, 0:17:43.560 --> 0:17:49.040 pure financial accounting standard, to then thinking should actually sustainability 0:17:49.160 --> 0:17:52.679 also should have its own framework and reporting framework that 0:17:52.760 --> 0:17:55.479 is global. So the companies are now driven by that 0:17:55.560 --> 0:17:58.720 and also regulations. So I have a good story actually 0:17:58.720 --> 0:18:02.959 of a company in France that the taxonomy, the green taxonomy, 0:18:03.080 --> 0:18:05.520 even before it was born. I reached out to that 0:18:05.600 --> 0:18:08.040 company that had done reporting and I was like, why 0:18:08.040 --> 0:18:11.880 are you doing a taxonomy reporting while it's not compulsory yet, 0:18:11.920 --> 0:18:14.439 And they were like, well, we think that actually the 0:18:14.520 --> 0:18:18.840 investor community and the financial community doesn't really understand our 0:18:18.920 --> 0:18:22.119 business model and they don't understand how green we are 0:18:22.400 --> 0:18:25.880 and actually what we do and our sustainability a tribute. 0:18:25.920 --> 0:18:28.480 So we were discussing with them and engaging with them 0:18:28.480 --> 0:18:30.479 about how we could report on that, how we can 0:18:30.640 --> 0:18:34.080 report on our sustainability performance. And then when they reach 0:18:34.160 --> 0:18:37.119 out to their investors in particular sort of impact investors, 0:18:37.160 --> 0:18:39.240 they were like, well, you could use your own but 0:18:39.320 --> 0:18:41.199 the problem is that then it's not going to be 0:18:41.240 --> 0:18:43.800 comparable with other companies. So the best way for you 0:18:43.880 --> 0:18:46.080 to do this is why don't you use that standard 0:18:46.320 --> 0:18:48.919 that's going to be used by thousands of company in 0:18:49.040 --> 0:18:51.919 Europe and potentially across the globe. And then for the 0:18:51.960 --> 0:18:54.840 investor community, it's going to be so much more transparent 0:18:54.960 --> 0:18:57.960 to see through your business model and to compare you 0:18:58.240 --> 0:19:01.800 against your peers. And even at the beginning, your taxonomy 0:19:01.800 --> 0:19:04.560 alignment is going to be quite poor, or it's not 0:19:04.600 --> 0:19:06.760 going to be as high as you imagined what you 0:19:06.800 --> 0:19:10.440 will have made that step. You know, taxonomy forces you 0:19:10.760 --> 0:19:15.439 in basically splitting your revenue generation, your capex and up 0:19:15.520 --> 0:19:19.560 expending by business activities. So it allows you to go 0:19:19.640 --> 0:19:23.280 through your business and took the same language as your investors, 0:19:23.480 --> 0:19:26.440 the bank that are lending to you, the wider community, 0:19:26.560 --> 0:19:30.240 and it really helped them clarify what their business model 0:19:30.320 --> 0:19:34.000 is about, clarify what is their environmental value. You could 0:19:34.000 --> 0:19:35.720 do the same on the social side. It's a bit 0:19:35.760 --> 0:19:38.520 more complicated. We don't have as strong of a framework 0:19:38.720 --> 0:19:41.760 to talk about that. But I think companies are realizing 0:19:41.840 --> 0:19:45.399 that actually they need to communicate on that they need 0:19:45.440 --> 0:19:49.040 to communicate on a standardized manner because otherwise they won't 0:19:49.080 --> 0:19:52.359 be understood. I think we're pasted, at least in Europe 0:19:52.600 --> 0:19:56.680 and probably in Asia. We're past this decade or two 0:19:56.760 --> 0:20:03.040 decades of like this super fluffy dr corporate sustainability reporting 0:20:03.160 --> 0:20:06.199 framework is g reporting, you know, where you have like 0:20:06.200 --> 0:20:09.720 a thousand pictures and not much data and not much content. 0:20:10.000 --> 0:20:12.640 I think companies are really wanting to get it right. 0:20:12.720 --> 0:20:14.879 And I read a lot of reporting from companies and 0:20:14.920 --> 0:20:18.439 it's much more quantifiable. It's like, okay, maybe we're not 0:20:18.560 --> 0:20:21.760 doing this so right, but this is what we're doing, 0:20:22.000 --> 0:20:24.359 and these are the quantities about it, and this is 0:20:24.400 --> 0:20:26.720 how you can assess us. And that's actually really good 0:20:26.720 --> 0:20:30.080 to see because that's the beginning of then a trickle 0:20:30.160 --> 0:20:35.000 down effect to actually have more transparency when we invest, 0:20:35.320 --> 0:20:36.520 when we put our money. 0:20:36.880 --> 0:20:39.840 So of the players that are actually trying to create 0:20:39.880 --> 0:20:43.280 definitions and give companies and those in the financial community 0:20:43.480 --> 0:20:46.000 rules by which to play, what would you say are 0:20:46.359 --> 0:20:49.280 the largest ones? We've already referenced the EU taxonomy. You 0:20:49.359 --> 0:20:51.200 also referenced ISSB. 0:20:51.920 --> 0:20:56.000 Also can you taxonomy ISSBN, TCD Are there others? At 0:20:56.000 --> 0:20:59.439 the moment, we have so many frameworks it's almost complicated. 0:20:59.520 --> 0:21:02.480 We start like at the beginning with like there is TCFD, 0:21:02.760 --> 0:21:05.639 you have GRI, you have sas B, and bear with 0:21:05.680 --> 0:21:08.520 me because these are all abbreviation and I don't always 0:21:08.560 --> 0:21:12.920 remember what they mean, but these are all different reporting framework. 0:21:13.240 --> 0:21:18.520 You also have CDP the Climate Disclosure Program, So there 0:21:18.560 --> 0:21:22.720 are many reporting framework. I think what the market needs 0:21:22.800 --> 0:21:27.480 right now is consensus. We need overarching frameworks. So the 0:21:27.480 --> 0:21:31.359 EU Taxonomy was the first green taxonomy that was really 0:21:31.480 --> 0:21:36.240 launched and became a mandatory reporting framework. Right now, it's 0:21:36.359 --> 0:21:41.040 impacting about five thousand companies or ten thousand companies. It's 0:21:41.200 --> 0:21:44.680 quite small, and it's restrained to European companies. But there 0:21:44.760 --> 0:21:48.320 is a new regulation that we're awaiting called the Corporate 0:21:48.359 --> 0:21:52.679 Sustainability Reporting Directive in Europe, and that one will basically 0:21:52.720 --> 0:21:58.080 impact any company that has any listing in the European Union, 0:21:58.240 --> 0:22:01.119 whether you list a bond on a European exchange or 0:22:01.160 --> 0:22:04.160 in equity on the European Exchange, whether it's a primary 0:22:04.280 --> 0:22:07.080