Everything Is ESG Now

and conflicting pieces of information and a little hypocrisy. And I were going to dive into it today and try to get further than than we did in the last one. And it's not your personality that we're talking about. We're talking about e s G. It's pretty good, like you're on today, Environmental Social Government Governance. Uh. E s G

assets where are they? Uh, they're underwhelming at least in e t f S maybe about twenty billion two billion, that's about point five percent of the assets compared to the press they get. That's not a lot because it gets a lot of press. It does get a lot of press. And but there's well we want to do is breakdown into two levels today, just two things. First is looking at the high level black Rock and Vanguard

have a lot of voting power. Larry Fink came out talking about wants to get more green with things, So we'll talk about Yeah, that's a huge announcement. Yeah, they're the two biggest uh for almost every SMP five under company, they're the two biggest voters. Uh. There's some stuff to unpack with that. That's like the macro level. Then we'll shift to the micro level, which is, Okay, there's all these E S G tfs, how do you make sense

of them? What are the pros and cons? And we'll sort of try to go through, uh, you know, how to do due diligence on those. And to help us do that, we've got any Masa from Bloomberg News regular Graham Sinclair who's on Twitter as at E S G Architect he's been on the on the show before and the first time, or a Shahem contractor who's an analyst

with Bloomberg Intelligence. This is also a big week at Bloomberg and a perfect one for this episode because we've launched a new vertical called Bloomberg Green Go to Bloomberg dot Com slash Green, which is going to be the new go to destination for all kinds of great stories about climate change, all back by data. There's some amazing stories already and the tools are just going to be sensational.

You can follow us on Twitter also there at climate this time on Trilliance, everything is E S. G. Annie. How big of a deal was this black Rock announcement or what was it? What was your joke? I called it the pr coup. It definitely drew a lot more attention, even a lot more attention than usual. What was the announcement? So the announcement that happened was Larry Fink came out with his annual Letters to See letter to CEOs, and he generally uses this as a way to come up

with some big message for the year. In the past, he said you should pursue purpose and profits at the same time. This year he decided to go big with this message on climate change, and he told CEOs that every single business is going to be affected by climate change and they should all be really thinking about that theme. And alongside that message, he put out this note to clients that laid out exactly how black Rock will address climate change in its own business, and that includes both

active and passive products. Let's break this down real quick. What really is going on here? Of course there's a nice letter, he cares he's been under pressure a little bit. But what are they actually doing that will is real. So they laid out a couple of things that they will do that our concrete in their active funds they will, oh,

they will divest from thermal coal producers for example. So that's one step on the passive side, though, it's where it gets a lot more tricky, really tricky because as an index provider and player like, they basically have to do what the index tells them to do. Yeah, and this has always been black Rocks kind of push back on M E. S G themes. They've said, well, we can only do so much because we're a provider of passive products. We don't dictate what's in an index. And

we're a fiduciary. So when a client tells us to, you know, put a certain amount of money in an S and P five hundred tracking fund, we have to do that. We can't play around with, uh, what's in that index. So so this is a company that has two thirds of its au M in passive products, it does have some ideas for what to do on the passive product side when it comes to E S G. So they're going to double their lineup of M E S G E T F s for example, to A

D and fifty products. The question is will the investor money follow? And that's really what we're gonna hit in the second is there's now going to be hundreds of E S G T F s. Um Let's go to the active divestment and I want to bring in Shaheen. Shaheen talked about you analyze the coal companies like Peabody, there's a couple of them that black Rock is going to pull out of in their active mutual funds. Can you talk about exactly what we're talking about here in

terms of their ownership, what percentage that is active? Of course, so this message that black Rock puts across, first of all, is a strong message, but it has very limited impact because at the end of the day, as you mentioned,

black Rock is a large passive investor. So about if you actually look at the data about of black Rock's holdings and coal companies are passively hell, so these will remain untouched just in ninety just you know, eat for mutual fund data, so not it's inceditional money that could change things, but still largely undoutched Graham E s g is your whole world? What did you think of Larry

Fink's message? I'd start very quickly by getting back a year and a fantastic interview at Davos, where Larry Fink was kind of grilled when he came out with his purpose letter, and remembering too, for your audience, he had already done three years before that where you focus along on a lot on long term investing. So I just saw that as the next logical step, although given some of his comments from January at all surprised on haw far it come. Subsequently, yesterday there was a great interviewer

on Bloomberg Live. We unpacked some of his reasoning. You went fishing in Alaska and a whole bunch of stuff happened in December. For me, very quickly, I need to drill down to the footnotes and look at the details. I'm checking the receipts. Yeah. First of all, it's the distinction between the passive and active sides of their business. No, don't get me wrong. According to their self reporting a hundred billion and active last year, they've got a decent

sized business. An you wanted to love that business, but it's still the smaller part of what black Rock is famous for. Um sercondly, if you look at the line items, it's thermal coal, but it's or more in revenue. So there's enough wiggle room there for businesses that are kind of changing the shape of their business. For me, the bigger part of what they're saying, including comments by their vice chairman and and other people who are representing them,

is that these words around finance has fundamentally changed. Climate risk is on a par with every other thematic sick and concept that we're going to be looking at. So I think philosophically, as a house to be sending those messages is almost more important than saying them will call it or ten or eighty or what have you. And Annie, let's talk about if you are holding a shares or Vanguard Passive fund. You're going to hold Exxon, but you're gonna hold Apple, You're gonna hold all of it. Right.

You wrote something before the black Rock article about Vanguard and black Rock and voting. They are going to have some some power in their voting, and can you talk a little bit about any plans they have to change how they vote on some of these issues that come up with these companies. That's right. We wrote in our story last year that the scrutiny around the voting practices of black Rock and Vanguard has really stepped up in

the past couple of years. And you see nonprofits like Majority Action running analyzes showing that UM they tend to vote relative to their asset management peers. They tend to vote more in line with management at UM. Fossil fuel companies, for instance, tend to vote against shareholder proposals that are around UM climate change type issues. So the big question, while the activist community has been happy that you have this symbolic message coming from Larry think, the big question

is will they change their voting practices accordingly. And we'll have to wait for the next proxy season to really see how it will affect their voting practices. And what about the investor reaction, because that's obviously going to be, you know, the one that they're you know, black Rock is gonna really be listening to Yeah, and not everybody lives in Manhattan and agrees on all these issues, right,

take guns for example, yet or Berkeley. UM. There's a couple of little hot spots there, phone places to go, but not everybody lives there. Their investors are all over. They get investors in Texas, Alabama. That's a really good point, right Like you, if you're black Rock, you basically are trying to create like this massive vanilla product that every but he can use you like the president in a way, you have to take in all these constituents, a certain president,

a certain type of president. But so how does it That's true? Black Rock has just by virtue of being black Rock, it has so many different kinds of clients. And you're absolutely right, not every type of client is going to be happy with this message that Think is even sending or even changes behavior accordingly. So that comes back to the idea that there's only so much black Rock can do, especially when it comes to index products. They can offer all kinds of index products that have E.

S G values. The question will be whether investors respond to that. And um, you know, Think has said that they did this, they came up with this, these changes related to climate change as a result of client interest. But we still have to see to what extend the assets follow That was really interested in the comments when he did the blue book, Clive interview from Davos. He said maybe ten maybe of his investor base, and he

mentioned clearly global investor base. We're asking these questions. So this clearly demand, you know, when one in five clients are saying, hey, what do we do? And to be clear, they didn't say you must do a B or C. They said this is a big ticket item. You know, in my view, climate change is overshadows all other business

strategies for the foreseeable future. But these investors were saying, you're black Rock, You're the experts and an investment especially you've been telling us about long term investment and corporate governance and purpose and so on. We've got this big ticket item. We need help. You're on go to vendor.

What's the plan here? Are you going to do for us? Exactly? Well, I mean, let's just how much does this really matter black Rock whether they buy the stock of this peabody or sell it isn't really what what's going to get changes consumers demanding or changing their ways and not demanding oil based products or coal and or regulation. Aren't those

really the way things? Because let's say you don't, let's say black Rock divest from Peabody isn't another investor going to maybe make out on that because now the stocks undervalued because of this artificial reason they're selling. Look, they'll definitely be pricing pressures. There's some commentations already appointed to the diversions between oil price and the price of the energy sector as the first inklings of the long term

amount of money out there. There's institutional money out there. They're not so keen to hear the story about hey, they'll be oil forever and we're the best producer. We'll find you another field and executed most efficiently. So there's already you know, at the margin. Yes, it will matter when a significant investor says, we've got all these opportunities, you're over here. You've got too many complications, you've got too much baggage and too many issues. I'm going to

put overweight in this sector. Yeah, but again that just makes the price the stock go down. They can still make a ton of money because people can still keep demanding oil flying all over the place, Like, isn't that the route? Isn't if we're gonna do a root canal here, don't we need to get to demand? Oh? Absolutely, but don't divorce investor demand from consumer demand. There's all these pieces,

these all stakeholders in the community. So when the regulators say, well, you can no longer pollute here, then that's going to change the cost of doing business. When you've got consumers are saying I don't like this product and it's got too much sugar, and it's got too much salt, and it's got too much hydrocarbons in it. Change your product mix, then they'll change it. But the voice of the investor

is a very significant, long term strategic voice. So one comment at a board meeting from an investor is worth I don't know how many thousands of consumer investors, but it does remind me of a question I asked in two thousand four, two thousand five of Hannah Jones, who's sending up sustainability at Nike. I know one of your favorite sustainability topics, Eric, and I asked that fundamental question, are you more afraid of the activist consumer or the

activist investor? And the answer was, I'm going to say investor. No. Unfortunately, the activist consumer who triggers all the other parts of the puzzle. Right, So the so, for example, as you're that set up, I almost debate. Yeah, you're very good. We've done that before. They're talking about table stakes. I'm here to play. It's a land worth. We spoke about NGOs and the influence they have right as you saw. Awesome, small little ngo out on the West coast, San Francisco, underpaid.

They do a ton of research. They tracked proxy voting. They've been tracking Vanguard and Black Rock of the proxy season. February the report will come out. They've basically called those big fund houses outliers and being so poor at voting

their proxies. Now, some people will argue, yeah, we have conversations behind the curtain and we have cups of tea over here, but it doesn't really matter what the no. It matters at the end of the day, a vote goes through and if Vanguard or State Street or black one of the huge houses, especially in the passive side, aren't voting those proxies to deal with in this case, they're looking at executive pay, which is way out of whack, and then then we've got a big problem systemically to

land with. In Davos. Of course, it's going to be awkward. You have Larry Fink speaking and his colleagues and so on. He's probably gonna be shaking hands with the cfs a hundred biggest companies in the world. It's gonna be a little awkward. And he says about that pay package last year, you know, we really need to dial that down. But that's the role of the investor. And you know, I don't know if you disagree on executive pay, but it's

clearly out of kilter without companies. That's been one of the other things that has been, uh you know, a talking point about how passive let society down. I guess right, well, let me rip off of this with what Droll said, because as somebody who has tried been tracking passive and is so sensitive to how brutal investors are about driving their cost down. Everybody wants all their investments for like three or four basis points now, I mean, and now they want all this on top of it, the media

is dumping on them. I kind of feel a little for them because how much And they build out a corporate governance team that could look through all these statements and vote in certain meticulous ways that are aligned with their investor when they're being squeezed to compete with Vanguard or vanguard itself at two three basis points. I mean, there's just not that much money. Yeah, there's not a

lot of wiggle room there. And black Rock really does promote its stewardship team as part of its whole effort to like engage with companies. They say behind the scenes, they say, this is the biggest stewardship team anywhere. It's forty five people for you know, thousands of companies worldwide. So that's where you get critics that say, how can you possibly meaningfully tackle these issues behind the scenes with so many companies to cover, um, you know, even with

a team that big. So that's something that they've come under fire with on the activist side. But back on the pr side, I would really say that Fink has been followed around by activists and and there's been this increasing drumbeat of adgetation. So I think that as far as this message goes that he sent it will at least help, uh, you know, offer an olive branch to those kinds of protesters who are you know, are showing

up outside is speaking engagements outside Black Rock offices. And I think that by sending this message, black Rock is at least trying to say hey, like, we're trying to be on your side, and that feels to me more like activist consumers than activist investors. Right, So Graham, maybe maybe you're ouno upthing there. Okay, So another place that pressure could come down is on the index providers. Any

what about that? That's right? One other piece of the passive um plan that think laid out for climate change is to pressure the index providers. Those are like the m s c I s of the world to create

black Rock basically basically almost licenses. Yes, there are a customer of m s c I s. They use those M s c I indexes for their index products, and and this is where they said they'll they'll start to apply more pressure to the index ers to create more sustainable UM indexes, which would allow them to make more sustainable products. Does that also mean that there might be more self indexing, because that's another place that black Rock could say, Hey, we can just do this ourselves, we

don't even need you. That will be really interesting to watch. They've always raised like there could be problems with self indexing. We don't. We don't want to go too far down that road necessarily, but it will be an interesting pope to watch, yeah, exactly like it will. It will be really interesting to see if if they decided to pursue that more if the index providers don't fall in line. Well, you know, M s c I, S and P. They have a whole suite of different types of E s

G indexes. That's not really the issue. The issue is the main indexes, like the SMP five hundred. Do you ever change that because that's beta and I think a lot of people probably won't don't want that changed, but

they're good news is there are options. You could just use something that's a little like barely um it's like the SMP with a little less fall so fuel, and then you keep going into waves till you're down to maybe something that's really aggressively E s G. But I mean, one thing that's really interesting is back when M S C I and the index providers were trying to come down and exclude UM dual class shares UH share companies with dual class shares from indexes, black Rock actually came

out and said, it's not on the index providers to say what the investable universe should be. And so this seems like a bit of a reversal in that way. So just one point to add on sort of investorsis consumer demand is don't underestimate the impact that an investor has on a company's cost of capital. I mean, that's what's happened to Cool. It's this mix of demand pressure but also investors in short as saying they're not going

to underte such assets. You guys, I'd like to pick up on what Annie was speaking about around the black Rock announcement. There's much to be admired about it. It's signaling it's important. They're going to make internal changes. That's great. They've got forty five heads. Larry actually promised to think I promised in January last year, there'll be seventy one.

They're still hiring, you know, throw your resume there. But on I think the comment around the indexes, uh, that's a bit soft because, as Eric pointed out earlier, indexes will build you whatever you want. That's my business. I mean, st architect, someone walks through the door, they say, build me an index. The shape of the strategy that looks like this, I'm going to figure it out right now.

I'm working at Harvard on an Arctic strategy. How we're going to build an Arctic strategy using five sectors in the geography. So the comment on the indexes index construction vendors, I don't really buy that, but it is very, very significant that a major player is saying this is core to what we're doing and it's going to affect what we're doing across the house. Now, how do we check that?

As any suggested at the end of the proxy season, don't you worry every NGO that's tracking this and any cynic like some of the people in the room here again and be saying so what so how did it play out? And then there's also going to be the aspect of what happens in the marketplace. I don't know if you saw the news about a quick spike and the E t F inflows the day after the day of the announcement, I don't know if it was time. If there's a partner going in with money, well, I

know what happened there. Yeah, this wasn't a bunch of millennials who got excited about Larry Fink's letter and all bought into E s G because they were excited. Was the balance sheet money? Well, black Rock has E t F models and they just put E S G E t F s into the emerging markets and the U S slug and that right, there was billion dollars. So that's black Rocks doing it still counts, but that's not different.

That's different. That said, we did look, there was about twenty E S G T F that have taken in money this month. So there's the grassroots is there. It's just tiny little piece of grass. Black Rock moving in that kind of money is Mortalizer, Intertalizer. So here's why strategic. It's a whole new field. Frankly, more than that is because one of the promises about a hundred and fifteen a t S is that basically cloning you want it? Do you want it green or brown? So that is

a big deal. When you go and buy your cherios. How many types of cherios are there? I'm a parent, I know you are. How many types of cherios? Only one? That's idea like dor coal position with Bloomberg, we need to be more in minded. I think coke is a better. There's diet coke, zero coke, cherry coke. Yeah, and so these are all good. They're gonna be all these versions of the SMP. Excuse me, there are twenty flavors of cherios, and there's one type of cheer thank you, especially because

General General Mills back the Beast. Remember do you remember the cheerios box? Yeah, because that was an important social missage. That's why landing with there'll be clones of everything that's that's awesome. But then what happens next, that's what we're watching and who cares? Like, are people gonna uh migrate from the SMP to the SMP fossil fuel? So far, not too much. And I think that brings us to

our second part of the conversation. And just on that, I've already heard whispers from Hana worth Side who's saying he's seen some of the black Rock models that he's got clients in have already flipped over that was the money that you're So as those play out, as everyone does their quickly updates, that's going to be very interesting

to watch. Okay, So we started by saying that there's relatively little assets center management in this space, Graham, how many more products do you think we're about to see enter the field and what's that going to do from an a N standpoint? So, last time I was visiting with you, gentleman I said, any shop is trying to launch E T F strategy that it's probably the asset gathering for will continue to be maybe even because of this announcement, they're going to rampant and push it forward.

So any shop is looking to roll E T S if they've got any inkling of the marketing nows and timing, they will figure the trend and map two. We need the E S T version of whatever we're going to roll out before E M growth. What have you choose your thematic? So your phone's ring so exactly um um. I'd just like to remind the team though again E s G. Environment Social Governance. There's environmental, social and governance factors in every investment decision. And bring it all back

to this is what they put on the label. That's a marketing decision. Every investment on planet Earth relying on humans and the rule of the law has e s G in it. What Black Rock has done and helps realize and from the front page and have us talking about today is they're just reminding people that it's in there and now we're going to take it seriously. The more interesting question is, especially if you're having a grumpy afternoons. Hey, guys,

what did you do do for the last twenty years? Lord Stearn did his paper in two thousand and seven about the cost of climate change and how we're going to adapt for that. If you any kind of long term investor, you've been watching this play out and Larry Frank talks about were institutional investors. We're trying to pull forward risk and deal with it now so we can mitigate through it. Many questions have to be asked, is it well we

saw this coming ten fifte years ago. So the solution is there's all these alternatives for people who want to do it right. So we've got if you want to numbers here, it's about hundred number s gts with black Rock. There could be one fifty by the end of the year. All but with the hundred there's only about twenty billion assets. That's two million per e t F. Just to give

an idea of how low that is. The average is about one point one billion for all ets, but categories like growth value like growth there's four billion per e t F. So two dred million tells you there's too much product for the assets now and now there's gonna be more product there's gonna be more products, so she why don't you talk about um all the product out there? Part of sheen and my job is to sort of sift through them. What's your take on just how good

of a job these products do? Sure? So that that's a that's a great question on sort of these assets being very small, and I guess the E T F would when it comes to E S. She is getting divided into two things. One is these large as that managers like black Rock One is these small thematic niche strategies. And that's where it gets interesting, because what's interesting is

this sergeant assets. So it's it's the delta. Now assets have doubled, but with that are going to come it's challenges like you mentioned, it's going to be more liquidation, more sort of the big expansive guys crowding out these small ones like you mentioned. So we saw that last year and we think we're going to see it continue.

I will say that one thing that's helped E S. G s's double last year was a lot of them got cheap vangarded black Rock Wall coming under twenty basis points like the magic number UM and that almost all the money goes to those because I do think to Graham's point is like, if you put a green product and a brown product next to each other and you play up what's in it? I do think that the consumer is gonna say, it's pretty easy for me to take the green, especially when cost is flat. Okay, let

me challenge this. This is my big thing. I've been on this like a dog on a bone for the last three months. What's in it? What isn't in it? Okay? Okay. So we looked at s U s A. This is the M s c I E s G Social Index that this one has been around fifteen years. So it's the only s G t F one of a couple that have been around a long time. It's trailed the SMP by about thirty five percentage points. Why, well, it

tracks the hundred best scoring E s G stocks. That's fine, right, But it doesn't have Amazon, doesn't have uh Netflix MasterCard. So there's a lot of hot hot shot. Those of all returned over a thousand percent in the past ten years. So and this is something I find through and through um take something, and there's many other examples. You'll look. You'll be like, why is Nike right in the top ten. Yet Berkshire Hathaway is in literally none um or why is Facebook in here? Um? But then you have a

company like um, I don't know that you might. Netflix isn't and there's a lot of questions on what gets in and what gets out? Graham, I mean, what do you think of this? I mean, is this going to be baffling to people? Because you have to recognize most people have images of companies. I don't argue Apple's image isn't that great, but that's in all that makes it into most of them. Also as an investor, like I don't want to miss out in a thousand percent returns

as part of an Indian who doesn't want Amazon. But Amazon is like bad, like they have their are in the dirty dozen, right Gene, So they get excluded from a lot. So, uh, there's no easy answer. It's complex. So picture graphic equalizer. Yeah, your music, guys, that's why I listen to trillions, It's for the music references. So it's it's complicated like an equalizer. Even song are you thinking about right now? How soon as now? As soon as we'll take awesome guitar intro? You hear that at

any club? Anywhere around the world. You know what's coming, It's it's coming. Um So, so E s G in itself is a simplification so we can put a handle on this complexity of sustainability. Why is why is it complex? Because the world is complex? Ione just calm down, Okay, any investment decision, you're just trying to make a simplification by hold cell decision based on the complexity of many things you can put your money into, yeah, including your

kid's career. So so when it comes to environment social governance factors, there's always going to be complexity in the same way that your motive vehicle is complex. For example, all your iPhone is I bet their features on your iPhone you haven't even found yet. Yeah, so does it do what you needed to do? Is going to be one of the fundamental questions that are asked. This is why we love E t S as a methodology. Big fan. I'm a big fan of E t S as a technology.

They help they roll things back to the acid allocator level where you can make some of these investment decisions and then implement them at lowest cost, with greatest diversity and great transparency, which is a core tarrant of anything around s G. You said that better than Erica. It's pretty good. Yeah, but not, I mean, thank you. I'm the South African clone. You know something happened over the Atlantic. I'm not clear. It was very well eloquently put. Thank you.

We'll try so. So, when we think of a motor vehicle, some people just want something to get you from A to B. Okay, I want to get from A to B with zero tail pipe emissions, so I'm able to get in a different direction. I want automated. I want the best software on the and it I have that unable to buy that particular vehicle. So there's gonna be some humans who just and their advisors, frankly, because the first sale is to the advisor, who are just going

to say, you want global exposure. Great. I know this is important to you have a childhood special needs what have you? Or your dad was treated poorly at the factor, what have you. It's very important to hear about fair wages or you know, a childhood education so on. You know that there's a tilt for that, and the tilter is blah blah, particularly E t F. So I think that I think of it there in terms of the

opportunities that are available. And one of my favorite things that I know Eric is looking to track and maybe it will be a future episode for you, is the E t F Graveyard like the Ben and Jerry's grave food graveyard up in Vermont, And there's going to be a long list of these E s G branded E t fs that no longer no longer live. There's a graveyard for in Jerry flavors. Oh you gotta come, yeah, but what does that look like? Oh, it's just you know.

First they'll talk about it, then they'll take you. But let's there's all. I'll show you up there, zero tell pipe permissions. We'll get you up there on a given day. There's also a great interview. He drove a tesla and took a train, so he went full Gretta to get here and I appreciate that. No planes and um, but Alec Boland does this great interview on here's the thing with Ben and Jerry's where they explain some of how that came to be. It's a great episode. I'm always

here for the E t F grade. Um, let's just talk about this. There's she in two camps of E S G. There's one where they just try to carve out a little bit and keep you close to the S and P, which I think is probably better if you're looking to clean up your portfolio sleep at night kind of deal because it won't deviate too much. But then there's one that aggressively go after E. S. G. It is kind of hard sometimes to tell the difference

based on the name. Can you talk about this and uh, you know the idea that you're supposed to like replace your whole equity position with one of these products, which is why I really stressed due diligence, because if you're thinking of selling your Vanguard five hundred to buy one of these, man, you better know what you're doing and really look through the holdings. Yeah. So so that's an

interesting point. So there are two sort of schools of thoughts with investors, one who just want tracking, who just want minimal tracking error. And that's where different kind of strategies come in. Just so, for example, a low carbon index is literally almost going to replicate your main parent index. Actually, the government pension the chief investment officer said, okay, low tracking error. I can stomach that. I don't mind moving

a bunch of my money into that. But then you have the flip side, people who actually truly believe that she is going to outperform. They don't want that minimal tracking at it. They actually want that tracking error. So it depends on the strategy, the school of thought, all these different things. But what we see lower tracking arrow typically it is cheaper, So potentially money is going to

flow into these cheaper things. Of the potential audience for this, where do you see more of it the people who want to just clean up their portfolio and track the market pretty much, just maybe carve out some of the carbon and whatnot, or do you see people really putting more money in because they think, really, this is gonna be the way to outperform. I think in the short term you're gonna get a lot of people moving from a dB they want to go to the less brown versions.

I also think there's a huge untapped demand almost Model three style four K reservations within a week. There's a huge untapped demand for investors who can investment houses who can say I've got this new widget and it's heading in this whole new direction, and we've set it up and here's the entry point, and you don't need a

huge ticket size. We've kept cost low. I think this huge unmet demand for any investment houses who can figure that all the way down frankly to a little piece of an impact fund in in some way, more people want urgent answers. It's a question of speed and the reframing of what's happening in the climate space. For example, it's not is it real? Everyone knows it's real. Check the science. If you can't read, it's not my fault.

It's a question of speed. Either going to be slow and then we'll still miss it, or you're gonna be fast. We're gonna hurry up and get there and we're gonna have to hustle because we're already late and behind agile. So there's more, there's more need, and there's more opportunity. I would say this unmit demand for new and aggressive

green strategies. So I want to bring that back to a thing that you brought up the last time we had you on, which was the amount of alpha that might be trapped in these strategies and the potential for investors to get on that. Talk about how an investor might approach alpha through the E s G lens Alpha through their E s C lens. The first appreciation of that is understanding you're comparing apples and oranges always and from the beginning, because you're adding a new factor, third

dimension risk return. Now we're looking at impact. So we're adding a third dimension to how you look at investments. So even before you start your due diligence and lead yourself down to executing on whatever fund technology you're looking to do, you're looking at things differently, which means if there is a conventional index out there, your answer, your

number may be wrong over time. So for example, UM the I shares KLD ticket that changed in seventeen, that that Eric s USA, Yes as yours that that changed in seventeen. That actually began as this experiment on Way one May, Cambridge, mass where there was a shop that said, hey, what if we tracked a different group of companies and how would we do it? They took the five hundred cutter to two fifty, UM rolled it up to four

hundred total companies. And that's why some of the companies the constituents are so different because they make active index selection decisions on this company less better than this company, therefore you out. So so we had an index that tracked over time. Now, in some periods that outperformed the five hundred and some periods that underperformed. There was immediately a mismatch because there's four hundred companies place five hundred. Yeah, So fundamentally, when it comes to E s G LPHA,

there's going to be periods of outperformance and underperformance. Any E s G product last year that did not have excellmobile looks fantastic. If it had some of the solar and wind assets, they look fantastic last year. I'm not gonna predict what happens going forward, So I like to shatter the myth you're gonna underperform because of E s G.

You may outperform, you may underperform. There's a whole lot of factors that go into that performance argument, but the thing that definitely shatters look at s G factors, including that in your investment decision, developing the strategy is going to lead to underperformance. That was a myth. You need

to shadow that. So I'll just add to that level of nuance that is that it's not about outperforming under In fact, we do see that E SG tends to outperform during market downtourn So it's got this risk mitigation angle to it, but it underperforms during a bullmarket. So to your point, Rik on Amazon and all the sound of performance, it's not the opportunity side. Although when it comes to clean energy and things, we are moving towards that,

but traditionally it's been more of a risk mitigation. Yeah. And that um, in s USA's case, the ball was about the same, but that was only a hundred stocks. But yeah, I mean I've heard that, and we try to track the Stannard deviation. That's another field you can look at if you're looking at one of these things. But one other thing I have and and this is just brings up some of my tweets about Davos and the private jets and all this is, you know, if

you don't I pulled people. Um, you know, some people are are okay not owning an Amazon. They're like it's worth it. But then of the people who weren't okay, who were who are okay not owning Amazon, only a fifth of them were willing not to shop there. Four fifths we're going to not own it and yet shop there. Help me with the hypocrisy, because there's that then there's just you still drive your car. You you're not going

to stop your vacations the Disney World. Um, how much of this is just like the organic avocado that you pay double for a Whole Foods. It's really just to feel good without having to do much, which is frequently called slacktivism. Am I the bad guys? I'm sorry, it's just it's my observation. Go Eric, Eric is the number one guy. I wanted a cocktail party. Here's my date, throw me out the window. Yeah, that's fine. So I think that that is some amount of sort of what

do you what? What do you feel good effect? Feel good effect about ativism? Fa activism? Okay, but there are those two schools of thoughts. At one school who thinks that, yes, she is just a better investment. It's a resmit against So they don't care about their personal life or what they do. They just see it as an investment objective. It's like saying, as a value investor, would you only shop discounted items. It's it's like that in that case

I made. It's more for the people who were supposed to be cleaning up, like the you know, sleeping at night kind of thing. Tune. Pickens was pitching wind energy for accident. Texas is the biggest wind energy state in the US. I mean, there's so many opportunities, there's so much work we have to do around climate and sustainability. Yes. Absolutely, humans make a terrible mess of this one planet we live on. I would love to see them aligning better what they say with what they do. I want what

they do to be less brown, more green. I want fewer suv s, more bicycles, all those things heading in a direction. Please be at my cocktail parties and ask us all good questions, because I agree with Eric. You know, if you go to the car park, someone will walk in and they'll buy the organic groceries out to the suv, which by the way, was idling because they wanted to be warm when they came in. That's a feature that

mates will handle by. And and so where tom Yorke going on like world tours with all the equipment they got a log around. Okay, no, but in fairness Chris Martin said, we're not touring this album. I like that. That was That's why I like Greta. Greta took She sailed, But like Larry Fink, doesn't have time for that. And that's where I think some of the hypocrisy. It's tough for me not to see it. I can't unsee that. Eric at a cocktail party, what's the curving footprint of

this vodka? And in America, if they got a one more cocktail party and they said of me in plastic containers like I'm nineteen again, I'm just gonna throw his sefort not just on the plastic factor. She he Graham. How should consumers go about due diligence questions in this space? So? I think there are so many different ways to do yesday,

it's it's hard to pick one certain way. I do think the market is moving towards what one calls materiality, which is actually looking at what esgu metrics are financially materials. So that's how I would do it, if I were to do it right now. Every consumer should check their portfolio and say in what can you have access to? You have so many more options and all of those options, there's a green option where you don't just have to choose the brown option, and all the way to what

have you aggressive? You want to do? You want to sail across the Atlantic there's a company that's trying to launch sailboats again. So all the way from less brown to most green, there's opportunities. You need to speak to your advisor because the other gap in us as the intermediaries underinformed and they're behind the curve on what's actually available. Annie, Sheheen, Graham, thanks for joining us and Tracks thanks thanks for listening

to Trillions until next time. You can find us on the Bloomberg Terminal, Bloomberg dot com, Apple Podcasts, Spotify, and wherever else you'd like to listen. We'd love to hear from you. We're on Twitter, I'm at Joel Webber Show, He's at Eric Call Tunas. You can find Annie at Antonia b Massa, Shaheen at Shaheen Underscore c and Graham at E S g Architect. This episode of Trillions was produced by Magnus Hendrickson and edited by Gerald Dillard. Francesca Levy is the head of Bloomberg Podcast Bye