Trillions.
I'm Joe Webber and I'm Eric Balchunas.
There are three letters that I know Eric Balcunis obsesses about ETF. There's three others that have come up on trillions before that are not your favorite, and those three letters are ESG. Yeah.
Look, I get tagged with being anti ESG, but I'm not anti ESG. I'm anti nasty surprise. And as analysts, our job is to make sure you know, investors find the right products. And to me, ESG was active management wrapped up in this moralistic face and sold is like how you're going to do good and do well, and it's not clear if you're going to do either.
There's a lot to unpacked there.
And I think again, if it was sold as a new way to be active and pay more, I'd be like, all right, well, at least the marketing is honest. So look the data. I think it's going to stay. This
is data that will help anybody analyzing a stock. What I've been skeptical about, and we're going to debate on this show, is ESG sort of taking over your portfolio in the form of funds or ETFs, and you basically staking your kid's education and your retirement on this sort of ESG vision, which again is making active bets and can underperform. So this is the thing that I think
many people just need to understand before going in. But then there's also multiple layers of inconsistencies and things that sort of offset each other that make it very confusing. And now over the years, esg's gotten so much baggage, so there's this sort of reputational issue that ESG has. So I think ESG is at a major inflection point right now. Some people have declared it dead. I won't go that far, but I do think it's at a crossroads and it may have to go on without actually
using the phrase ESG. Mike Drop, you like that, well, let's I may have just like stolen my own thunder. I think that's well.
Now we really get together, Okay, So joining us for this episode two colleagues in Bloomberg Intelligence who are also the co hosts of a new podcast called ESG Currents. That's robbed Boff, he's the senior ESG analyst in Bloomberg Intelligence, as well as Shahem Contractor, who's the senior ESG strategist this time on trillions is ESG Dead Rob Shaheen, Welcome to Atrillians. Thank you too, thanks for having us Shaheen. You're you've been on before, Yes, well, good to have
you back. We love having returning guests. Okay, so Eric's kind of a hater as he's laid out, but we're gonna have you, uh do some Mortal Kombat with him and we'll see who wins. What's happening in ESG. Now, we've had this moment where there was a ton of buzz that felt like all of the financial industry went there, and then it was like the culture wars happened and there was a ton of pushback. Where do things stand now?
So second chime into this. So I think you know, as Eric mentioned, ESG is as at a bit of an inflection point. We saw a lot of flows into ESG atfs maybe till about twenty twenty one, and we're seeing that unravel a little bit. So yes, she ETF flows at least in the US for about a negative two billion the first half of this year. Now, if we get into the y, we can get into it. I think it's concentration and all that fun stuff rather
than the backlash. But we'll get into it. I know erics throwing his hands up in the air.
Let me get I got to jump in here. So here's my take on it. Okay, ESG tends to be a little overweight tech and underweight Energy. Tends to be right because this doesn't want to own the bad I just put my hands in quotes. The bad company is like Exon, which we all use every day anyway. It doesn't want to own those companies. So when Energy had the huge rally in twenty twenty two and values stocks did very well and growth and tech were like bad,
then ESG underperformed. And what really happened is Blackrock pulled ESGU, which is the biggest ESG ETF in the world, out of its own model. That's how bad it got. Its clients must have complained, and so really what I think happened was it underperformed, which again was our whole thing to begin with. Was hey easy, The marketing is so rosy and shiny on this, But this could underperform for long stretches of time because it's making active bets.
You don't agree with that, I agree, but so I will say that are definitely falls with the ESG funds. This overweight deck, underwear energy. I completely think is I wouldn't say not valid, but not necessary. I think the reason why Black Croc pulled out it could be ESG. It could not be ESG. I don't think we have a definite evice, at least that's my view. I think if we see the money come back buck, we know it was not ESG. If the money stays out, maybe
it was ESG. I think we'll just have to wait and watch.
Well, if the money comes out, I mean it's because it was underperforming, because it was lagging the S and P. Whether it's overweight tech, I mean I know that one is overweight tech little underweight energy, and it lagged, and so I think Blackrock pulled it out and went into the quality ETF, which was quality stocks, and that was the trade Blackrock decided. I'm sure it hurt them because they were the biggest cheerleaders so to see, and that was eight nine billion dollars. I mean, this is not
a little bit of money. They knew people would notice, and so it was that bad.
But maybe they just wanted to move from sort of things that resemble a cost strategy, which ESGU does in a way. It's very sort of light in ESG to a quality fund. I don't know. I'm just saying that we don't know if it was allocated fort ESG rob.
What is the conversation around ESG missing.
Yes, well, I was just going to say, you know, Shehen has talked about the greed, I'm going to talk
about the fear, the anti ESG pushback. So we've seen a lot of politicians, you know, it tends to be red state, blue state, but really it's more along the lines of energy producers versus energy consumers, you know, really pushing back on this notion about allocating capital away from some of these high emitting sectors or you know, part of it is also feeding into the cultural wars to let's be honest, get themselves elected.
You know, we do see a lot of noise being made.
Now, whether that's impacting ESG, I don't think that's the case. I think the reasons you guys have talked about performance and some of the nuts and bolts of the financials are really what's driving it. But there is definitely a lot of noise out there that maybe hasn't affected how ESG funds are run, but definitely how they market themselves and how they talk about it. So, for example, you know, black Rock barely uses the phrase ESG anymore, and it's reports.
They'll talk about the actual issues, they'll talk about the carbon transition, they'll talk about diversity, but you know they won't actually use the phrase ESG.
Well, what's interesting to me about the black Rock thing, I guess is, obviously I think it was a huge priority. They got attacked hard. How much of this of them not using the phrase ESG anymore has to do with that versus them just moving on and prioritizing new Yeah, so I think.
They're connected but disconnected. I think the returns are why they pulled money out of ESGU in their own portfolio. My guess is they I think Blackrock put ESGU in the core when tech was doing a little better and it was like it didn't disturb anything. But when it started in performing, my guess is their advisor clients were like, heit, wait a second, why.
Is ESU in here?
I didn't ask for it, and it's underperforming, it's dragging. And they thought, also, this trade isn't working, and they went to something that's working. I see this do this other funds all the time. It's not like anything personal. That's my whole point. The returns aren't personal. And the case of Larry Fink and ESG them coming out with ESG putting in the portfolio was all part of that big push about four years ago cheerleading ESG. The political
blowback I think was more than he thought. I think he was like overwhelmed and probably thought to himself, I thought I was saying good things here. But you have to understand that's a whole thing about Larry Fink, the leader of Blackrock, who controls ten trillion dollars and a lot of that is voting shares of US stocks. Not all of the millions of investors in Blackrock feel exactly
the way he does. So as an asset manager, you're almost like a president, where you're always going to piss off like half the people.
And so I think that's what happened.
He didn't realize this was completely political to a lot of people, and he kind of stepped into that political realm, which asset managers are not used to doing. And I think it was a little too much. I think they got some pensions and institutional investors down South pulled money out, and I think that's when it started to become like real and they took a few steps back, only to get hit harder from the left. And I think they get hit from both sides regularly and you can't win.
And so Vanguard is really I think probably set the better model of just day and the hell out of that. And they're out in Malvern, so protesters can't go there because the schoogle's a pain to get to. But Black Rock gets protesters at their office all the time, although now they move to Chelsea Peers where it's much harder
to get to, so probably less. It's not it's such all, but yeah, but if you're like a I don't know, twenty four year old protester, you probably it's it's just not some like fifty second Street's right off the subway. You get out protests and you can make like your sushi dinner or whatever. But going to Chelsea Peers that's a pain. That's a whole day activity. Go into vout Malvern, that's like a I mean, they might not even make it.
You can you can do some bowling afterwards.
Though, let's be that's true. It's a good place to go. I like it out there, just say it's it's not easy. It's like five long blocks.
Okay, stream, what's the future of ESG having had this thing happen the cultural war? Is there an investing pisis there that works and that we're gonna hear more of Because ultimately this comes down to data. And if people look in the data and find stuff they value, aren't they going to double down? Yeah?
So I think what I'm hearing right now at least, and I'll speak to the short term view first, and the US is people are continuing to do what they do, but they're not expressing it as loudly as they were. That's what I'm hearing from massive managers. Europe is a whole different ballgame. People continue to do what they do, they're probably expressing it even more. So That's that's sort of the short term view. I think the long term view really depends on this political pushback.
I got to jump in this whole. Everybody always brings up Europe. Okay, we got to address the europe issues.
You know, your Erican thoughts.
Yeah, I always hear this.
They're like, oh yeah, it's kind of petered out in the US, but Europe they love it, you know, and I agree two things on Europe though. A when you invest in a fund in Europe and they carve out a stock or two, it's less dangerous because here in the US we have so much innovation and you can't miss out on a Tesla or an Amazon, or your returns are going to be a lot lower. There are no companies like that over in Europe. Pretty much, it's
less dangerous to do it. Second, there's a lot of people who has the retirement already covered, so they don't really.
Care that much about their end results.
Yeah it's here, We're like, we don't think so securities can be there, so our retirement is major. So at the end of the day, I think returns will trump that whole ESG thing for ninety five percent of people.
So I think the reason why Europe is doubling down is actually because of its pension funds. Right, Like you may say like they don't miss out on things and all that stuff, but their pension funds have been doing it for a long time and they just shove it down people's throats whether they like it or not, and just one point on the return. So you know, even if Blackrock pulled the SEO out because of performance. Even if right, it's not like an ESG ETF world by
seeing mass outflows from other funds. It's a very concentrated outflow, so it's not like there's a mass uprising. I think that's that's my point.
I'll give you it's one example.
The flows are out of ESGU, which is good news for you.
But when the media jumped on this train two years ago, most of the inflows for ESGU correct.
So that's a separate problem orchestrated all this, to be honest.
That's a separate problem of concentration risk, which I know you've mentioned before. So positive flows have slowed, but it's not like negative flows are increasing at a pace that signals some kind of exodus.
I just said that, but the shoving it down your throat, I agree. That's why I think Europe and US are different, and US is more of a meritocracy, consumer oriented market, and I think more of a natural place to judge if ESG sentiment is real versus a pension who has to do because the government. I feel like I was at an SEC conference in DCA, which I went over two months ago, and a Virginia professor said something very interesting.
She said, the demand for change, especially on climate is is so big that the supply of regulation is so small, and so that demand just is finding wants to be satisfied somewhere, and so it should be satisfied on the regulatory front, but it's not. So it goes to the asset management world, where you could argue this is not the right place for it, whereas the regulatory front is
the way to move forward on many of these issues. So, in other words, regulation in the US that tells you how much you can pollute or emissions and a lot of harder standards is the way to solve this problem. Not oh, I own a little less Exxon than the S and P. I'm going to change the world.
Yeah, now that's an interesting question. I think certainly there's a lot more politics in it in the States, whereas in Europe kind of most of the continent is on board with the fact that climate change is an issue that needs a whole of government approach, and that includes both regulating energy policy as well as regulating the funds industry.
But in the States it's a bit more.
There's a lot more of a lively debate on what can be done Interestingly enough, plug here, we did have the co head of the Congressional Sustainable Investing Caucus on our podcast ESG Currents who discussed this very issue, and basically it was that there's a lot of it's a lot more difficult to get, particularly in our divide of Congress, to get the sticks in there than it is the carrot.
So that's why you saw legislation like the Inflation Reduction Act which really incentivize going green and carbon reduction policies. But again, I would say part of what's behind ESG investing is to take advantage of that to find the businesses that will make money in the long term in
a world. So I'm not disagreeing with you that you know, it really takes government action to do most of the change, But I would say that as an investor, you kind of want to pay attention to these government actions and see, you know, how how can I make money off of this?
I think I would agree. So, Eric, your point is that they should fall on the regulators to push it through and not asset managers in a way.
And really speaking, yes, I feel like your role as a voter and as a consumer are way stronger in this climate issue than whether you sell s and P five hundred and buy something that has almost the same stocks but like one percent x on instead of two percent, right, So that just seems so pointless to me.
So I would say that you know, there are facets of climate change that don't wait for regulation, right, Like say you have physical risk of a mind has a risk of flooding, like that is not in fact by regulation if regulators come, and what are they gonna ask acid managers to incorporate? So I think that that is where, like Rob said, people are seeking opportunities, are trying to mitigate risk using these things like floods don't wait for regulation.
So I think also behind your question is really one of the biggest issues getting to the heart of this debate is that ESG is not one single strategy. There's kind of two different phases of it. As I like to call three three, there actually are three. So one is an inclusion which is the.
Church not the.
Like it.
There are three are three SG one two three.
But there's also three types of strategy. There's the exclusionary strategy, which is really where sustainable investing started from the old church pension funds. It said don't invest in gambling, don't invest in tobacco, et cetera. And then you have what's called ESG impact, which is, you know, let's invest in Tesla,
let's really divest from Exxon to drive capital. And then there's really the heart of what we consider ESG integration, which is not so much how how am I going to change the world with my investments, but the world's changing. How can I shape my investment investments to to benefit.
All of that?
So those are really two different things.
One let me come back to you on that.
So this idea of like, oh, I have the S and P five hundred, but I don't want to miss out on regulation that could hurt some companies or something that could benefit But that's sort of the point of an index fund, right, active will sort that out. Active managers will and I always said ESG data here to stay Active management using ESG data here to stay active will be like, well, this company is a massive risk
with this new regulation. They'll sell it, the price will go down, and it will fall as a waiting in the SMP. My point is, as an index fund investor, I'm kind of getting that ESG injection. If active deems it the thing to do, and I think that's sort of why it's difficult for esgtfs to dislodge. The core is a the core is cheaper, and most passive investors,
I think, understand that you're getting active's. Active is driving the car you're following, and ESG decisions will go into active management's decisions, and so a company that has a huge risk will probably get trickled down and get kicked out of the SMP at some point.
I would agree with that in a way. It's I do think passive the word of bass when it comes to ESG. You know things like lowcubin where it's like a very index base you just take out the highest carbon. Emto is that it's a little easier. But when it comes to these complicated things, I agree.
You just talked about a company like the Exxon, and I would call those suppliers of things that are bad or whatever. But what about the user? So I look at a company like Apple. It's in like every ESG ETF. But we all know Apple has the phones made in China and then all those parts and the phones get shipped all over the world. I mean, they have to be one of the biggest users or consumers of what Exon makes, yet they're in the fund. In fact, you start looking at the whole SMP, the whole thing runs
on fossil fuels. Like, I just feel like the demand the supply side these oil companies kind of get a bad rap. It's almost like the movie Traffic where you're just blaming the people running the drugs in for Mexico, but like the kid's daughter is using them, she's in the demand side, and it's like, well, hey, why don't we focus on the demand and the supply should take care of itself.
Just fact check apple huge commitment to renewables.
By the way, so al add that Apple is in many ESG funds, but is on average underweight in all these ESG funds, at least in the ones you've analyzed. Sorry, would not answering your question.
I would I would wait in here, You're you're talking about kind of to geek out here. Something that's called scope one versus scope two versus scope three. Emission Scope one is basically you know everything you burn from the engine in your car. Scope two is basically what you're outsourcing to the public utility. So the emissions from the power plant. And then scope three is every product I make or every supplier, what's their emission, so up and
down the supply chain. So you're really talking about Apple scope three or sorry, Exxon scope three emissions are being Apple. And I don't disagree with you that there is a lot of emphasis on getting Apple to cut or Exxon.
I keep mixing the two up, getting Exxon to cut their Scope three emissions, when really a lot more responsibility should probably fall on the consumers to reduce their missions by investing, as Joel said, in renewables, or maybe reducing the plastic content everyone buying a Tesla, things like that. So that said, there are certain things that Exon can control. They can make you know the Exon I used to cover Exon as in equity analysts. You know, they do
have a very large chemicals business. They can innovate, they can make the same fuel with less emissions. So it's kind of a mix of both that Exon can do.
Okay, I want to just bring these back to companies. There are a couple companies that have come up already and we should just like talk about how they fit into the ESG puzzle. I think let's start with Tesla is Tesla ESG.
Ooh, if you want to make I already see the smoke come out of their ears. I was go say, if you want to make smoke come out of an ESG analyst years, ask them that question, and you.
Guys, I just did it.
They're like, oh, it's like looking at the devil name.
Why is it right? Well, environmental obviously is electric, so reduces Okay, you don't know, No, no, I do know.
I have I have a.
Role.
But on the also, like you know, on the S and the G side, let's talk about those things.
So I would say Tesla because if its governance issues, which ROUB can talk to more social I don't think it fits in an ESG fund. I think it maybe fits more into like an impact or an environmental theme. Eric, you put this really well. A company's products don't make you ESG right that way. I can say every clean energy stock is an ESG stock, but I would I'd have to say it has to fit the theme and not a huge point.
And where ESG analysts like you guys. I will always tell you, guys, you got to get out and educate, because most people do. You just think of Tesla and they think clean energy evs, or they think pepsi and they think sugary drinks bad. But pepsi is in a lot of ESG funds. What they make has nothing to do with the ESG scores. In other words, a company could cure cancer with a pill, but yet they had they could be not in any ESGTF.
Yeah, and I've heard this a lot lately that you know, with the war in Ukraine, people are saying, oh, well, weapons manufacturers are now alsodden ESG, when that's not really true. You can no one said they weren't ESG. You know, there's certain steps they can take in their process that make them better at ESG or worse than ESG. But you can't just say all weapons manufacturers are not ESG, right, just like you can't say all ev manufacturers are ESG.
It's it's really more about process than it is outcomes. So you know you're a Philly guy. I trust the process, right, nice?
Try No, that's right, Okay, I get it.
But Tesla on the government side, this button not up? Why does it look a little suspect in that?
Well, you know you've seen anytime you have your CEO tweeting on a public platform, thinking of taking the company public or private at four twenty funding secured when it is not in fact secure. That's really not good governance when you have you know, your CEO kind of committing what was basically a securities law violation.
Similarly, you know it was generated.
Well, hold on though, now, but how does that make it into the data?
Like when you go in to G That was.
What I was gonna ask. Yeah, so it looks bad. Yeah, like how do you as an analyst classify that? Well?
I think certainly finds data. There was a fine Ironically, one of the things that the sec made him do was step away from the CEO chair and so now having a joint CEO or having a separate CEO and chairman is actually positive for ESG. So there's some positive outcomes from that, but there's other things. Relations on the board. His brother's on the board. That's usually not common among public companies. You know, basically, the data will show you that Elon Musk as the CEO and chairman, has a
very large amount of power of control this company. You, as a fundamental analyst, the need to say, all right, what's he doing with this power? Is he a good leader. Is he a bad leader? I mean, he's done a lot of good things to you know, improve the value of Tesla over the years, but then he also get his foot in his mouth and you know, maybe being on the board of four other companies or chairman of four other companies, maybe that's pulling his attention away to
too many spots. So there's it's a mix of fundamental and quantitative data you can use to determine you know, hey, their governance is not great.
Eric, what's your next favorite company to talk about?
Easily?
Berkshire Hathaway, which is in none like ESG hates Warren Buffett. And I think the reason that comes up. And by the way, you guys are sports for dealing with all my stuff here. And I remember when I wrote a piece about this and Shaheen I worked with her for so many years, and she puts up with me. The piece was about Berkshire, and she was like, yeah, so what he all these violations?
He's not in it.
But I'm like, Shaheen, to a normal person, I know you're in the ESG world, but a normal person, this is a shocker. Warren Buffett's going to donate more money than any person probably in the history of the world, and how many people is he going to help? And Berkshire people don't necessarily think about. I know they have a couple of coal plants, but what he gets dinged on is not reporting. And also the board is like, not independent, it's mostly Warren Buffett. But most people are like,
I'm happy to have Warren Buffett run that company. So this is a shocker. And Warren Buffett the greatest active manager probably ever to live, according to almost everybody, and you're not getting his active management if you buy an ESGT. Again, I think not having Exxon probably people get. But there's shockers in there. And I think Berkshire is a great example.
I mean, going back to the prior example, I mean, bad governance in and of itself shouldn't be a deal breaker. It just should raise more red flag. So you're putting an an order amount of trust in the leader of this company. Now, do you trust Warren Buffett? Most people would say yes. In terms of the disclosure, I think it's definitely. You know, you can't manage what you can't measure,
and I think that's what throws some people off. Now the excuse Berkshire always gives is that you know, we own a lot of disparate businesses, so you know, we want to let them do their own thing. We don't want to have to then aggregate this into a company report. But it does cause a lot of issues. So you know, for example, if I were to ask you what do most Berkshire I wouldn't call them employees.
Most Berkshire workers do. What's the biggest unit in terms of number of workers by far at Berkshire Dairy Queen.
I would never have guessed that. That's a good question.
Yeah, And you know, if you look at Dairy Queen from an employer, it's I mean, you think of Berkshire Hathaway as this fancy name Warren Buffett, big money guy. There's a lot of people working under the Berkshire Hathaway and Bulla that are not really making a living wage. So that's definitely something that's worth asking questions about. And you can't really see that without the data.
See, I think you guys should go on an educational tour or webinars and take one or two companies and just explain why they are or not ESG. Here's the e, here's the metrics, here's the s and the G. I think it'd be wonderful. Most people don't any of.
This, Okay, So I asked about teslaing on Berkshire.
Yeah, so, Eric, your point on Berkshire and philanthropy. So I mean I've told you this. I would separate philanthropy and ESG. So I would ask you the question, does one buffet's philanthropic nature? Do you think it impacts there risen opportunities when evaluating Berkshire had Toway.
So this is where ESG is trying to make something subjective objective. Most people have a subjective feeling about that. Same with Elon Musk, and they would say, if his evs will actually save the world, I'm willing to overlook everything else because the e should be hyped up big time.
But that's in someone's brain.
You as a quantitative es J analyist, of course, the answer is no, but it should be separated.
I'm trying to separate the impact on world thing like if Berkshire's philanche Brey doesn't impact theresent opportunities of the company, then I would say it shouldn't matter when considering it.
For you, I get your point.
I get your point, but this.
Is where you and I when we first had that conversation like five years ago. I'm like the normal people, they just have an image and what you guys are trying to do is something that most of the times differs from that image.
Therefore there's a educational gap.
Yeah, and I mean Tesla also is very consumer facing. There's a lot of people that have been turned off by Elin Musk's antics that say, I'll never buy a Tesla. I'll wait to see what the other manufacturers have with the EV. Now maybe they're just kidding themselves and they don't really want a Tesla to begin with, but you're
hearing that more and more. Whereas something like Berkshire Hathaway other than as I just mentioned, Dairy Queen, I don't think anyone's walking into Dairy Queen thinking what's Warren Buffett doing? And am I gonna buy my Blizzard.
Off of this?
But you know, it can have that feedback loop with the consumer facing business where you do have someone who's very big in philanthropy and who's known as either a very good person or a very bad person, you know, and that can impact a consumer's decision.
Absolutely.
This brings up another a huge problem with ESG funds again not ESG concept. Maybe that context. There's the baby and there's the bath water, right you know that phrase I do. Don't throw the baby out with the bathwater. A lot of times you have to throw them both out together or keep them both in ESG. You can't unbundle a stock. You can't keep the E for TESLA and then throw out the S ANDNG And this is
again another unfortunate problem. If you could slice up the company, I think ESG would be sharper and better, but you can't. Same with PEPSI look what they make and they're in like the S and PHT, SGTF, and most people is just stunned by that.
Okay, for you two in the ESG space, blow our minds with an ESG inside about a different company that we haven't talked about yet.
I can go. So I covered the resource intensive sector sectors AGI says, thinks, steal cement, et cetera. And most of these just get excluded from ESG funds just because they carbon intensive. So I like companies like as I say, B there is steel manufacturer based in Europe and they have one of the most ambitious carbon reduction goals and I think the cost angle comes in with the EU emission shading scheme, which is the carbon markets, which actually
puts a cost in a company. So I think that dynamic of carbon costs versus how much you mitigate is interesting.
I have one that will kind of blow your mind in that it's considered very It's considered favorably by some ISG raiders, but for the wrong reasons. I would say British American tobacco is always considered among UK stocks. It's very highly rated on ISG. But part of that is because they're shoehorning it. They're not, as you say, slicing up the E from the S and the G. They're trying to shoehorn it, which in my opinion is ESG not done right, and that trying to look at an environment.
I mean, they're an agricultural company, right, they're growing tobacco. They take very good care of the land, but that's not really where the risk comes from. Like, no one's going to say, oh no, what is grown tobacco going to do for all this land? They're looking at what are the social risks of British American tobacco. So when it's not done right, you'll definitely see some surprises. You really need to focus on kind of what are the
most material risks. You know, just like any stock, you know, they have their pros and their cons, but what's really going to move the needle incrementally?
And do you think the acronym ESG should go away and you start to unbundle it slowly over time, or do you want to dig in and fight for ESG the acronym because obviously, again Larry Fink hasn't uttered the phrase in like a year and a lot of the there was one ETF that a pension fund was in where the one that said ESG they sold and they bought the one called Climate Transition. And again we haven't seen an ESG in the name ETF filed or launched
in a long time. It feels as though the industry is trying to phase out of the phrase, even if they are trying to provide some investment opportunities. Are you guys personally, do you think you should dig in and fight for ESG and defend it or move on and try to think of a new term or just not even a term at all.
I dig in and fight for it because I think it does. It does kind of highlight the data. There's environmental, social, and governance data, whereas I think other names that's gone by over history, socially responsible investing, corporate responsibility. You know, nothing gets me more worked up than when I read even Bloomberg stories that just conflate ESG with do good investing or you know, philanthropy with ESG. Right, I think it should be data driven and it needs to be
refocused on that. I think the problem is that it's very Also having the three acronyms in this day and age has been very easy to politicize, right, The three letters just it's very easy to pick on, and I think we need to move away from that and maybe focus on the data. But I don't think any other choices sustainable investing are as helpful.
Would I would agree. I think ESG is sort of the non financial indicator world environmental social incovenance. And I have to say, if you want to unbundle it, unbundled it, call yourself any fund, a nice fun of chief fund. If you want to focus on all three together, called yoursephony SG fund. I find all this argument about terminology just a waste of people's time.
Okay, looking forward the inflection point, here's my theory on what's going to happen.
You guys can basically both time in ESG. The phrase will slowly get phased out and it won't be uttered as much.
And what people are going to do is they're going to keep their SMP five hundred ETF in the core. They're not selling it for an exclusionary ESG fund. But what they are going to look to do is pepperon something like a clean energy ETF or a solar stock ETF or uranium minors. I call it hot sauce, but
it's a thematic play. It's thematic ESG. That way, you're getting a bunch of stocks that aren't connected to your S and P. You don't have to sell your cheap SMP, and you can give money to the stocks that are actually moving forward in this regard as opposed to penalizing stocks that you probably are a customer of. And there's all kinds of inconsistencies. It feels like we're going to move to that world where ESG is is more part of the hot sauce bucket than of the core thoughts.
I think people are going to do both. I mean ESG being part of hot source is more than traumatics, right, climate, gender, et cetera. I see people doing both. I think they're going to keep doing both. For example, see a foundation as one hundred percent sustainable investment objective across this board for you, it really doesn't have a choice to hold code, right, So I think depending on what your investor focuses, it depends.
And I would agree, I do think that kind of one of the things we need to see is an adjustment for the fee structure.
Right.
You guys talk about the rights of the bottom all the time. There's a lot of ESG funds out there that are let's call them ESG light or kind of just make small tweaks but charge a much higher management fee. If there's an actual mark to market of that where you know it's a small ESG tweak and maybe you know it'll add one basis point if that to that or it'll just be a standard US to business. You know, that's what how ESG can re enter the core and
that'll be normal. It's just you know, it's not worth it anymore to have a higher feed fund that's not really doing much for you, either performance wise or ESGIs of.
Course, if you're interested in any of this, please check out ESG Currents. Rob Saheen thanks for joining us on Trillions.
Thank you, thank you.
Thanks for listening to Trillions until next time. You can find us on the Bloomberg Terminal, Bloomberg dot com, Apple Podcasts, Spotify, or 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 Baulchuna's. This episode of Trillions was produced by Magnets Hendrickson. Bye