Perry Traquina:
Well, hello, everyone. My name is Perry Traquina. I am a Brandeis alum, Class of 1978 and the retired Chairman of Wellington Management Company, a large investment firm headquartered in Boston. I'm also a member of the university's Investment Committee and the Chair of the International Business School's Asset Management Council. I want to thank you all for joining us today for our sixth and final webinar for the current academic year on Trends in the Asset Management Industry. Today's session is also serving as the kickoff to the International Business School's second annual Business of Climate Change Program, which will run throughout this week and into next week.
Perry Traquina:
We have a terrific discussion for you today on the timely topic of environmental investing. We'll be hearing insights and perspectives about sustainable investing, the impacts of climate change and most importantly, the critical response from investors from four investment pioneers across the public and private markets. Today's event is co sponsored by the Asset Management Council and the Rosenberg Institute for Global Finance at Brandeis International Business School.
Perry Traquina:
I spent my entire investment career in the investment business over 40 years. In my mind, there has rarely been an issue as important to investing as climate change is and will be going forward. Virtually every company will be affected by what we will be discussing in the next hour. In my opinion, soon companies will be required to assess and disclose the impact of climate change on their businesses. They will need to pivot strategies and resource allocations because of climate change. There will be wealth destruction, and there will be huge success stories. I look forward to hearing from our thought leading panelists today about their experiences and their outlooks on these critical issues and their impact on the economy and on society.
Perry Traquina:
Now to introduce today's moderator, Rob Brown is a graduate of Brandeis University and was a member of the first class of the International Business School's founding Lemberg Program, where he earned a master's degree in International Economics. I've had the pleasure of serving alongside Rob on the Business School of Asset Management Council and the university's investment committee and I want to thank Rob for his service to the university. Rob is the Co-Founder and senior partner of Atlas Impact Partners and Investment Firm, managing a long short equity strategy focused solely on impact investments, which solve many of the world's most pressing challenges.
Perry Traquina:
Prior to founding Atlas impact, Rob was the head of research at Just Capital and previously served in leadership roles at Alliance Bernstein, Nomura Securities and Morgan Stanley. It's now my pleasure to turn the program over to Rob.
Robert Brown:
Greetings, everyone. Thank you, Perry, for that kind introduction. I appreciate it very much. As Perry noted, I've been an investor. I've been an economist and a research director for close to 35 years now. I've never been as excited about an issue, I've never been as motivated by an issue, and I've certainly never seen as much investment opportunity as I really do today in the world of impact investing broadly and certainly in the world of environmental investing. I'm thrilled to be able to host this panel today with three thought leaders in the world of environmental and sustainable investing. I'm going to allow the speakers to each tell you a little bit more about their journey. But it's worth noting that we have the foremost of investment professionals with us today.
Robert Brown:
Dimple Sahni is the Head of Impact Investing at Anthos Fund and Investment Management. They are largely a family office for a family 100 years old in Europe, one of the largest and most prominent investment offices there. Dimple has been really a proponent of impact investing probably before it was called impact investing. She's worked at such places as the Omidyar Network. She's been at Unilever, which is an organization I think everyone knows is on the cutting edge of some of the issues that we're going to be addressing today. She's really been a proponent and an advocate for issues of social gender equity throughout the world. We should all thank her for that work.
Robert Brown:
Tim Dunn is the founder of Terra Alpha Investment. He's also the Chief Investment Officer there. Tim has a very accomplished career as a stock investor. He has at moments in time, most of his career I should say, at the Capital Group. He was the Lead Portfolio Manager in the Growth Fund for America. He was involved in the Capital World's Growth and Income Fund. Overall, Tim had responsibility for $26 billion worth of equity investments, and I should say, did so remarkably well.
Robert Brown:
Aniket Shah, our final speaker this afternoon, is currently a fellow at the Columbia University Sustainable Investing Institute, excuse me, Senior Fellow. Aniket really has a remarkable career spanning both the public and the private sectors. He's been a program leader of the financing for Sustainable Development Initiative at the United Nations. He's was formerly the Chair of the Board of Directors of Amnesty International. He has worked at various financial institutions, including UBS and Oppenheimer. We're thrilled to have everyone here.
Robert Brown:
So thank you all for participating, really looking forward to our discussion. Let me turn it over quickly to all of you and ask you to just please give us a few minutes on your journey. What is it that resonates with you personally about the mission that you've each decided to take on? How do you bring your experiences as investors to the table as you're pursuing, specifically, environmental investments, but also more broadly, sustainable investing as a practice? Dimple, let me start with you. Thank you.
Dimple Sahni:
Great, thanks, Rob. I'm glad ladies first still works. Hello, everyone. Thank you so much for joining us today. For me, this journey is extremely personal because of how I grew up. I'm originally from India, I was raised in the US, and now I live in Europe. So I've experienced what social impact sustainability means across three different countries certainly. I think growing up between the US and India, I saw how my life was diverging from that of my cousins, and especially my female cousins, and how we were living a different quality of life. We were making different choices because of things like access to education, access to clean energy, and more progressive social norms.
Dimple Sahni:
So I knew early on that I would do something that would help level the playing field. At that time, I didn't know impact investing was going to be it. I'm a quant. So going into finance was very natural for me. After working at Goldman Sachs, I decided to become a social entrepreneur myself and tackle ed tech and education. So I thought, why not learn as an operator? After selling that company to Accenture, I went to business school with the idea that I wanted to be on the other side of the negotiating table and investing the money instead of asking for the money. But I really wanted to focus on sectors which also had a social impact and really focus on the global markets, particularly emerging markets.
Dimple Sahni:
All of that came together when I graduated from Business School in 2005 from Wharton, it was the year of micro finance. People realize that you could make money and have a social impact by lending money to these women, typically microfinance entrepreneurs that have repayment rates of 99%, all the way through 2008. So then impact investing became more formalized in 2007. I committed to this space, it felt very natural and very personal. Six years ago, I made the decision that I wanted to work for a platform and for a steward for whom it was also personal.
Dimple Sahni:
So I actively sought to really work at a family. Luckily for me, through networking unearthed this family here in the Netherlands, who have been doing work around impact investing for certainly decades, but have had a commitment to things like negative screens and ESG long before that. So it's really a privilege to be here for you all. I think I'm excited to learn what you all have to say as well. Thank you.
Tim Dunn:
I guess I should go next. I think that was the order we're in. Anyway, Dimple, it was great hearing more about you. You obviously talked a little bit in the beginning, the planning, but it's great to hear more of perspective. So my journey is very different. But we all are at the same place now. Which is I started out in what is pretty classical. I think for Rob and many of us where we had a dualistic life. We were in a professional career doing our job as well as we could my case is investment manager as an analyst, and then portfolio manager at a large investment firm, and I was an environmentalist in my personal time and in my philanthropic world.
Tim Dunn:
I was probably a pretty well informed environmentalist, to be honest with you, because for 36 years, I've been married to a planetary geologist. On our second date, she started telling me exciting things about the greenhouse gas effect, runaway greenhouse gas effect on the planet Venus. So climate change was the topic 36 years ago, just most people weren't focusing on it except for the science community, and I was living with someone who was.
Tim Dunn:
Over a period of time, especially as I was traveling around the world, into places, Europe, China, Japan, India as an investor, and just seeing the change that was happening, seeing how the economy was affecting the environment, you couldn't help when you went to places in India or China, where you'd see the impact or I lived in LA, I saw it there too, the impact of pollution on health and human health and on the environment itself. It came to a point in the late 2000s, the late 0's, I realized that I couldn't continue to be a an investment professional who was an active participant in a system that was actually leading to our long term demise as society anymore. I needed to step away and do something more meaningful that I could help to try to change that trajectory around the business as usual trajectory.
Tim Dunn:
So I spent five years working for a number of environmental organizations, the most powerful of which was a year in London with the Carbon Disclosure Project, helping them think about how to more actively work with investors. Coming out of that experience I realized that, wow, actually there is more information, this information exists. You can actually build into an investment process and analysis to help you deliver better outcomes for your investors, both by environmental outcomes, but also financial outcomes because the world was changing. We needed the information sets to help not only to address those changes, but hopefully to change those, the path we were on.
Tim Dunn:
So I started Terra Alpha six years ago to do that, and we'll talk later about exactly how we do that. I'm very happy to be where I am today, because as Rob said, it's not only a great opportunity, it's frankly an obligation we have as a society to address these issues that we created and we can solve.
Aniket Shah:
Thanks so much, Rob, if I may, and maybe I'll go just for very briefly. First of all, thank you all so much for having me. It's a real pleasure to be here and to be with such great fellow colleagues and leaders in the industry and people I've long looked up to and enjoyed their work in this space. My journey actually started with an observation when I started my career and graduated from college in 2009. That the two worlds that I was interested in, the financial and economic space, and the climate and sustainability space, both of them were in utter shambles.
Aniket Shah:
The financial side had just gone through a terrible global financial crisis, one where there was so much irresponsibility in every part of the system, frankly. We were right at the precipice in 2008 as we'll all remember of the world going into a very, very dark place. Then in December of 2009, you had this big failure in Copenhagen, at the Copenhagen Conference of the Parties Around Climate Change. I was working with Professor Sachs at the earth Institute at the time. It was just this amazing thing to observe that both of these worlds were in utter shambles.
Aniket Shah:
At the same time, it was so clear that the only way coming out of this mess both, for the financial industry as well as for climate, is if the two worlds work together, because we needed a lot more investment, the climate people needed a lot more capital. Frankly, the financial people needed another raison d'etre because the simple profit maximization, I'm just in this to make as much money for myself and so on, that perhaps had reached some limits.
Aniket Shah:
So that started my journey over the last 12 years of trying to piece together both intellectually and in the policy world as well as in the financial and investment world how do these two worlds come together. What I've come to realize is that that requires a transformation, the likes of which the world has never seen. It requires a transformation not just in the physical world, but perhaps even before that in our own understanding of the world, and many of the ways that we think about economics and finance and investments, and climate and so on. So I've been spending the last 12 years trying to piece all of that together for myself, and perhaps for a few other people too. So really great to be here and looking forward to this discussion. You're on mute, Rob.
Robert Brown:
Thank you, Aniket, for those comments and for telling me I'm on mute. I appreciate it. Those are really remarkably personal comments from all of you. Thank you. I think it does speak to the personal nature of this problem. But there's also a much broader context for this problem, what some people might call a carbon problem. Aniket, you've done an enormous amount of work, both in the public and in the private sector. Can you just help frame out for us before we even start this discussion, what is the problem? Why is it so important, not just to each of us as a as a value, if you will, Rob, but for the world, for the economy and for companies?
Aniket Shah:
Yeah, no, I'm very happy to. So let me just put it very simply, we are truly living in an unprecedented period in human history and planetary history. I'll explain that in a second. But I want everyone to understand that what we are doing right now as a species is something we've never done before. We've never had this many people on the planet with this much economic activity and this much ecological destruction, and certainly over such a short time horizon. So the challenge is basically one should think about it in the following way, very simple. We have roughly 7.7 billion people in the world today. Okay, that number was only 1 billion people 200 years ago.
Aniket Shah:
So we've gone from 1 billion to roughly 8 billion in 200 years, which is a split second in planetary history. For the long history of humans being on Earth, we hovered at sub a billion people. So we went from 1 billion to 8 billion. We have roughly a $80 trillion global economy, meaning the economic output of the world is around $80 trillion a year. Even if you have a massive pandemic like we had in 2020, that number only goes down by two, three, maybe 4%. But we have a lot of people who are doing a lot of things.
Aniket Shah:
To do all those things, the world emits around 35 billion tons of carbon dioxide a year. If you include the carbon dioxide and their equivalents, things like methane, for example, CH4, you get to roughly 50 billion tons a year, a number that has been going up and up and up and up, just almost perfectly correlated with population and perfectly correlated with the economic growth. Okay? It's one of these almost cardinal rules that as the population grows, the economy grows globally, emission grow.
Aniket Shah:
Now, that wouldn't be a problem. If it wasn't for the fact that when we emit CO2 in the air, it basically warms the atmosphere. In doing so, it creates all of these environmental challenges for how the earth system works. So what we need to do, again, is something has never been done before is go from 8 billion people to roughly 10 billion people, $80 trillion economy growing at two to 3% a year in real terms. To do that while going taking our missions from 35 billion tons to zero in roughly 30 years. It is nothing short of rebuilding the entire energy infrastructure of the world, rebuilding the entire transportation infrastructure of the world, rebuilding the entire agricultural infrastructure of the world and doing that in live time.
Aniket Shah:
It's like running a marathon and doing a heart transplant while you're running a marathon. To do that, it requires in unbelievable coordination of investors, of businesses, of government, of technology, of civil society, of academia, and that is what we are all embarking on. Everyone on this panel, that is what they are thinking about every day.
Aniket Shah:
For those of you who are students, I can tell you there's nothing more exciting. There's no more exciting question perhaps out there to solve. Just like my colleagues have said, for investors, for people who are forward looking, there likely is no bigger investment opportunity because we have to do this, and it's very hard. But we have the means to and then the question is how. So that is the basic challenge of sustainable development, a growing population, growing wealth, but ensuring that that continues in a world that basically changes its entire energy infrastructure and more in 30 years.
Robert Brown:
Thanks very much, Aniket. That's a sobering bunch of comments. Dimple, as you think about your role as someone who's got a fiduciary responsibility for what you might characterize as an infinite time horizon portfolio, certainly a multi generational portfolio of assets, how do you think about these issues affecting your decision, both from an allocation perspective, and then think about them as you consider specific investments underneath that allocation?
Dimple Sahni:
Yeah, thanks, Rob. So I think Aniket is right, it's an unprecedented time. 15 years ago, when we started doing impact investing in which sustainability is a theme, people didn't take the field very seriously. They said, "Are there enough deals? Can you really invest this way and make money?" I think 15 years later, we've seen enough proof points to show that the area's really growing. There's so many more people coming under the tent, other family offices, every investment bank, a lot of asset management firms, and everywhere in traditional banks where you manage your money. So I think 2020 was also unprecedented in that people realize the interconnectedness of everything global health to climate change to racial and social injustice.
Dimple Sahni:
In feeling helpless, people said, "What can I do? What can I do?" Money is a tool to be able to affect that kind of change. If you have a long term perspective like the family I work for, I think there was no better time to step up than 2020. I think the family has a wide array of assets, including real estate, private equity, their own personal wealth, they actually have an operating company, which is a pollutant to the environment in apparel. So they thought, "Well, if we're one of the worst actors in the space, what can we do to mitigate that?" I think this family is using all of its entities and the tools and its toolkit to be able to up end this change. In terms of allocating to assets, we invest and responsibly across every asset class. So we do public equities, public fixed income, global real estate, we do hedge funds.
Dimple Sahni:
In fact, I think we've made an allocation to Atlas Capital, who's also looking to further climate change. Certainly, we even try and do it through our cash management. We have an ESG screen for how we manage our cash. So it's really with that transparency that this family is trying to affect change. They've made some longer term bets in things like renewable infrastructure, which is creating power and recycling materials, like in circular economy, in the apparel industry, to looking at things like green bonds, which is sponsored by governments or by private issuers that address climate change and have metrics.
Dimple Sahni:
So when we set out to look at investments, we not only look at which tool are we going to use, equity versus debt, public versus private? But what's the intentionality? What problem are they trying to solve? I think with sustainability, because it permeates everything you do and virtually everywhere you live, it's really easy to have a gold like we want to get to net zero by 2040.
Dimple Sahni:
It's easy to set the target, it's hard to get to the target. Then you have to align your resources, that's people, your investment portfolios to be able to do that. But I also want to distill it down to individuals, the students who are on this call, the faculty members, because not all of us have the breadth and depth of capital as this particular platform that I work at. I know in my own personal portfolio, I'm trying to make a difference, in my fidelity accounts, in ,y Charles Schwab accounts, my brokerage accounts, there are ESG screens and filters so that I can have a look through into how I'm investing in my own public markets, in my retirement fund accounts.
Dimple Sahni:
Of course, we've seen the emergence of SPACs as you know, in 2020, and there's ESG flavored SPACs. I wouldn't want to necessarily endorse that people get into SPACs, but it is $10 a share. So it's a way to really democratize how you can buy access to companies that are looking to address climate change. So it doesn't have to be an overwhelming problem. I think Aniket's contextualization is really ominous. But I think his point is, it's a big problem, but everyone can do what they can, regardless of what size investments they're making, what tool they want to use in their toolkit. Just get started and tell your investment advisors, talk to your family members, talk to your partners, and start small. Then just build into it. It can be water, it can be land, forestry, but climate is so ubiquitous that it really affects everything that we do, regardless of the industry you're in.
Robert Brown:
Thanks very much, Dimple. Appreciate that personal perspective too. I would add to that, by the way that those of us who are dedicated, wholly 100% to these initiatives, whether it's environmental investing, sustainable investing, impact investing, often set a standard that is intimidating to to investors who don't have the resources available to them that we do. So your comments I think are really important. Do what you can. I would add, do it in an authentic way.
Robert Brown:
Make sure you understand as an investor where you're allocating your capital, and don't be judged by others. If a value is important to you and you want to express that in your portfolio, it is certainly up to you to prove it to yourself, to do your due diligence on that investment, and then to make the decision yourself and you should be comfortable with that. Let me pass it over to Tim here.
Robert Brown:
Because, Tim, I know that you are an accomplished investor, as a fundamental bottoms-up equity guy who has spent most of your career trying to figure out how do specific issues impact valuations, firm value, and ultimately, embedding those bits of information into your investment process. Can you walk us through maybe how you think about environmental issues affecting your portfolio decisions/ Then if you could give us maybe an example of a thought process you went through to ultimately get to a decision, that would be really wonderful.
Tim Dunn:
Sure, listen, there's a lot in that, and let me try to tackle it in a couple of ways. One I want to just emphasize and highlight what Dimple said that this is really a systemic problem that permeates everything to everything everyone does positively as a benefit, right? So whether it's investing or whether it's how you operate in your classroom, whether you operate in your work environment or in your personal life, your practices, and you're talking about these issues and raising them, really make a difference because it's still an issue, even though it feels like in the news every day now up until a year ago was not front of front of mind for most people.
Tim Dunn:
Keeping in mind in the 2016 election cycle, climate change did not come up once in any of the phase. I mean, that's how much it's changed the last four years. So with that precursor, let me talked about how we think about investing in this environment. Again, it is systemic. So the fortunate thing is that there is more and more information that can be used to assess companies. The way we approached was, if you're starting from scratch, and you're building an investment process that's trying to generate long term financial benefits to your investors as well as to be part of the conversation how to change how our economy is working, you would do certain things like build into a fundamental research process, a way to look at a company's use and impact of natural resources, as a core thing that you can bring into the conversation because there was information available to do that. It was going to be clearly impactful for any business in the 21st century.
Tim Dunn:
So that's how we think about it. We're looking at companies that we think are helping to profitably transition to a truly sustainable economy. So each company we look at that's the first question we ask is, how are they positioned to thrive in the world that needs to happen Five and 10 years IF from now we're going to develop a sustainable economy? How are they positioned around decarbonization, around electrification of everything which is happening at the same time? How are they positioned around changing food systems? Then looking at that, and how are they positioned to actually succeed as a business? Because ultimately delivering only impact without financial return does not work for most fiduciaries. They need to actually generate future income and returns for their underlying clients are for themselves. We think that's perfectly possible in today's environment if you are very selective about how you invest.
Tim Dunn:
So our process looks at companies through two frameworks. One is what we call the enduring business model framework, which looks at all aspects of the business including material ESG factors. Then we have a secondary lens, which is our environmental productivities framework, which really understands the companies, the opportunities and risks the company's going to face around natural resource use and impact. Those two frameworks give us an understanding of the business. So as an example, yes, we own Microsoft, Novesta, and Unilever's because they're good businesses that are actually delivering good products for customers. They're working hard to change how they operate in many ways.
Tim Dunn:
But we also look at companies that are probably not so naturally part of the conversation like the Norwegian company called Tomra. They make reverse vending machines where you go to a retail store and you put in your glass bottles, your cans and you get your money back. I think a Coinstar for glass bottles and packaging. They also make sorting machines for industrial recycling facilities. They are a part of helping to create more circularity, yes, we use the product. It's the last part of that column of efforts around circularity, but it is an important thing because we have to recapture that material and reuse it rather than mining new materials.
Tim Dunn:
So that's an example of a company we would invested in or a company like Trane Technologies, which is an air conditioning company. Well, we know the world's going to get hotter and more humid. More people are living in cities, they're going to need more air conditioning. Air conditioning generates a huge amount of the greenhouse gases that are affecting the planet and the power demand of those machines. So a company that's a leader in that area that's going to be happening anyway is really important because they're setting an example. They're driving down higher efficiencies, and they're going to gain share in a business that's going to keep growing.
Tim Dunn:
It's aligned with our long term interests as the economy for companies like trained to be supported and reinvesting and go faster into higher efficiency equipment. So those are just two examples to kind of give you a framework of how we think about it. Yes, there's nubile power. Yes, there's all those things, but you have a lot of blocking and tackling work that companies, big companies are going have to be part of in order to drive this change in the economy.
Robert Brown:
Thanks, Tim. Let's stick with you for a minute here. We had a question from one of the students. That was essentially, how do these sustainable issues affect the companies themselves? You touched on this in your remarks a bit. But how, in your opinion, are the strategic leaders of many of these companies looking at ESG issues and looking at tackling them from the perspective of their workforce, their environmental output, what you would generally characterize as ESG?
Tim Dunn:
So I'll think about talking about two examples. One is these guys on the social side, they've been a leader in terms of how they treat their employees, but they still have lots of room they can improve on, right. I mean, they've provided some funding for college education, in terms of pay. But the combination of what their customers demand of them and what their employees requires in for them to keep them working, and highly trained employees that they don't want to have high turnover, they have to be increasingly better at how they do. They treat their customers and their employees to put their long term viability to their business model. So it is nice that they are considered good stewards in terms of how they treat their employees and they treat their customers but it's good business practice, and it makes them more profitable. So everyone wins in that.
Tim Dunn:
On the flip side, I'll use an example more in the environmental side. It's a company that many people own, Taiwan Semiconductor Manufacturing Company, TSMC. Guess what? They have two really big problems environmentally. One, they use a lot of power. Two, they use a lot of water in the semiconductor manufacturing process. Guess what? Taiwan doesn't have a lot of water. Unless they have the normal typhoon cycle.
Tim Dunn:
TMSC has recently announced that they're going to go through and move into 100% renewable power. They're working with Worstead. That was driven by Apple Computer, which is their major customer to align their supply chain be more net zero, get to net zero. But they still are struggling with the waterside. We're working with them and others are working with them to figure out how they figure out a sustainable way to have high demand for water in producing semiconductors. It's inherently part of the cleaning process. They do more and more recycled water. But still has its issues in the community. So these challenges are very real business challenges for companies around the world. Many of them are doing a lot of work that is not appreciated to really tackle them, but many are not yet doing the work.
Robert Brown:
Thanks, Tim, appreciate that very much. Dimple, we had another question come in along the lines of I guess skepticism. Why aren't more entrepreneurs doing things to help advance these issues? I would guess you have a pretty, pretty good answer to that. That might be a little insightful. So go ahead.
Dimple Sahni:
Thanks, Rob. Actually, I think there are more and more social entrepreneurs every day. But they don't get the spotlight as much. I mean, the companies that are the the investor darlings are the ones that are really on trend. The social media companies, with WhatsApp and SnapChat had billion dollar valuations. I think young people are going for things that are often in the zeitgeist at the moment. But there is a whole crop of social entrepreneurs, particularly from the global south, who live in countries where they don't have clean water, and they don't have renewable energy.
Dimple Sahni:
I think there's a whole generation of social entrepreneurs that are studying to be more social and are integrating that more into their business models. I think the millennials, in particular, from an investment point of view, they're leading asset-light lives. They don't want to really own anything. They are also living amongst the environment, in the environment. They think about things, doing things in a very sustainable way, having an asset light life is one of those ways.
Dimple Sahni:
But I think the misnomer that there aren't enough social entrepreneurs, I think it's changing. I think it'll change more once we have more exits of social entrepreneurs to show the path to success, of scaling a company, you can be successful on your own right. But also having an IPO or a big lucrative sale, like a company like Patagonia, we need more of those, to show that you can start companies that will really influence and change your world, more Unilever's. But we're seeing a lot more companies around like the raw food movement, right? There's a whole movement around meatless companies and vegan companies. So I think you're seeing more and more, but a lot from the global south where the needs are deeper, I think.
Robert Brown:
Thank you. I would certainly agree with you that there is a lot of entrepreneurship in the world today addressing these issues. They're just not as well known as some of the bright line, big splashy companies that we hear about. But there's a lot of fantastic work going on to support these issues. Aniket, can we pivot to you for a second? Because we got a question in the chat room about the quality of the data that we see. I know you've done a lot of research, particularly in the financial world around these issues as they pertain to ESG and sustainability. Could you just give us your perspective on the quality of the data, and then how many companies are addressing those issues of data quality?
Aniket Shah:
I will get there, but I just need to make a comment on the earlier conversation for the audience.
Robert Brown:
Fire away.
Aniket Shah:
When one thinks about investment and sustainability, in my mind, you should think about two distinct avenues of change. Although related, you should think about them differently. The first is investing in companies or ideas, whether public or private, that are on the right side of these transitions, right, and putting your capital to work for a company that's innovating, creating a new product, etc., etc., a new way of doing things.
Aniket Shah:
The second is investing in companies and changing the way that they do things and using the voice that you have as a shareholder or as an investor, if it's a private company, in changing board composition around expertise or the way that they are planning for future decarbonization scenarios, and so on and so forth. Oftentimes in the sustainable investment space, my view is we spend a lot of time talking about the first part, which is the new, exciting, small startup or social entrepreneurship, all of it is very important.
Aniket Shah:
But one shouldn't forget that globally there are roughly 50,000 publicly listed companies. In the United States, there are 4000. Those companies are owned by individual investors through intermediaries most often, and you have a voice in that and you can help change those companies using that voice. When we talk about sustainable investing, we should think about it both in investing directly in companies that are making the solutions and also just the current capital stock and changing the way that they behave.
Aniket Shah:
Just a data point on that, a very good paper recently by Lauren Cohen at Harvard Business School shows that in the energy space, for example, most of the green patents are owned by companies that are not known as green in their credentials. So in a way, this is not to be an apologist for Big Oil. But it's a way of understanding the complexity of this world that, many of the companies that are not doing great things right now, and certainly haven't in the past, are oftentimes on the front foot of change. That is just a complexity of how the business and financial works. On company disclosures and ESG, I think there are two main things to understand. Tim has alluded to this very importantly in his remarks so far.
Aniket Shah:
The first is that there hasn't been standardized disclosure around ESG issues, although that is getting better and the world is coming to some type of consensus on what are the main issues that companies should disclose on. There are frameworks like SASB, the Sustainability Accounting Standards Board, and the TCFD, the Task Force on Climate-related Financial Disclosures. There are industry efforts that have helped solidify what companies should disclose on. We're not there yet in having one disclosure framework, but we are quickly moving in that direction. Companies are doing a better and better job just disclosing the most material issues, particularly in high income countries. So that's the first thing, there's sort of this disclosure.
Aniket Shah:
Then the second issue is around the veracity of that data. How good is it? How much can you trust that data? Here, I think the operative principle, and this is true for anyone who works in the financial industry is skepticism. One should be skeptical about everything that they see always because this area is ripe. The financial world and its efforts on sustainability is ripe right now for misleading statements, for big pronouncements. As Dimple very rightly said, it's very easy to make a target for 2040 or 2050 and say what you may do in the future.
Aniket Shah:
It's also very easy to say that you are doing net zero things right now, if you use a definition of avoided emissions as opposed to your actual emissions. You have to look under the cover. So I wouldn't question whether the data itself that companies are disclosing is true or accurate because a lot of that, for the most part is. The thing you have to question is how are you interpreting that and whether you have the analytical tools. For example, do you actually understand what net zero means? Do you actually understand what avoided emissions means versus negative emissions? Do you actually understand what carbon offset markets look like and the limits of the offset market to offset 35 billion tons of CO2 that are being emitted today? That is on you as an investor as opposed to the company. So again, I think more and more you can trust the data. But you can't trust the framing, that's sort of on you to understand what all of this is actually about.
Tim Dunn:
Rob.
Robert Brown:
Go ahead, Tim. Go ahead.
Tim Dunn:
I would echo what Aniket just said, except I would also add that investors need to do the same with financial information and all reporting companies. I think he alluded to that. But companies often reframe their financial outcomes in ways that fit their narrative. Hence, the growing trend towards companies reporting non gap earnings, earnings and non gap cash flow in their quarterly reporting. So this is part of as a long term investor, you have to be an optimist. But as a successful investor, you have to be a cynic. It's that balance, trust but verify. Really important in all aspects of investment. Right?
Robert Brown:
That's right, Tim. I think I would just add that I shared the gravitas that you both have expressed about owning your own data. We take these issues so seriously that, for us, we spend almost as much effort trying to figure out the impact that a company provides to the world and what the operational ESG footprint is that they have, which is to say environmental, social and governance issues. We spend almost as much time there as we do on the fundamental financial information because it's that important to us. Just by way of example, I wanted to offer one thought, which is, there's a large global extraction company, oil extraction that holds itself out as being on the forefront of the transition from carbon-based energy to green energy.
Robert Brown:
They have some very nice marketing materials, and they spent a lot of time talking about it. If you ask the question, "Well, how much of your global cap X do you spend on alternative energy?" The answer is, well, we spent more this year than we did last year. Then if you push them a little bit, what you'll find out is that last year, they spent about 3.5% of their global capex on alternative energy. This year, they spent roughly 75 basis points more than that, or four and a quarter.
Robert Brown:
So to us, that's an amusing anecdote, right? Because it's a company that holds themselves out as being responsible. Yet when you ask the question the right way, what you really find out is not so much, unfortunately. I believe we've got a ton of time left, I wanted to throw this question out there for everyone. Because another question came through the panel, which is, well, what can we do? How, as investors, can we be supported? This came from someone who said specifically, they're a clean tech investor. But what kind of support can we seek? Where can we get it? I would broaden that out to any kind of investor. But if you could offer some thoughts on how do you empower yourself to make these decisions?
Tim Dunn:
Aniket, I'll let you go ahead.
Aniket Shah:
Dimple, do you want to start? Then get your voice back in.
Dimple Sahni:
This is called passing the buck, everyone.
Tim Dunn:
That's a question from people. Go.
Dimple Sahni:
Bringing it back down to just a really simple basic principle, which is this is hard, right? I mean, when you're benchmarking for a financial return and the environmental or impact return, it's hard, and no one has figured it out here. We're all learning and we're all calibrating. So don't try and answer these questions on your own. Don't try to interpret on your own. Talk to people, mentors, your alumni at Brandeis who are in this space. I formed an investment club with my friends when I started investing, in my mid 20s, when I was working on Wall Street and got these big bonuses. I thought, "What do I do with all this money? How should I invest it?"
Dimple Sahni:
Start small and start with other people who also are passionate about the space. Together, you guys can look at the data and add complimentary views on what you're seeing. Find mentors in the space, people who have done it before or have seen an economic cycle. So I think you can demystify it, debunk it. There are so many white papers and research topics. Impact investing, does it have one definition? No. I think there are still industry trade associations that are trying to make it a lot more standardized.
Dimple Sahni:
But there's a general norming and conforming. Aniket talked about many of these organizations and tasks forces. But don't get overwhelmed by all of that as well because you're not necessarily doing it for a profession. But just start small and start with other people who are passionate about investing in the climate, and you'll do it together. Then through experience, as well as doing some desktop research, and looking at companies who have done well or transitioning, you'll be able to to figure out which is to separate the wheat from the chaff.
Dimple Sahni:
I think time will tell, when firms like BlackRock and Larry Fink make big manifesto statements like, "We're going to really take only sustainable businesses." But then again, as Rob said, if you press anyone at BlackRock and you say, "But are you going to turn down business from traditional fossil fuel companies or clients that want to do it?" So I think you can ask these very simple questions and get to the heart of the issue, but don't start alone. Start with people that you know and trust. Everyone is still calibrating on how to do this.
Robert Brown:
Larry Fink writes a great letter.
Dimple Sahni:
He sure does.
Aniket Shah:
Yeah, I think just to add to that, I couldn't agree more about simplicity and operating from first principles is probably just two good pieces of advice in general. If you can't explain something, simply, it means you don't understand it. If somebody can't explain something to you simply, they don't understand it. So the minute you hear jargon or someone needs to put up a fancy formula on a screen, it means that there needs to be more explanation. But I'll add one more sort of constructive piece of advice. I would say even before one gets deep on companies and the financial markets, take the time to learn about sustainable development, take the time to learn about climate change deeply. Take the time to learn about biodiversity deeply.
Aniket Shah:
This is not stuff that you can understand by just reading the Wall Street Journal or the Financial Times or reading a couple articles about something. These are some of the most complicated issues and they will be outside of your area of expertise. Because you'll have to understand a little bit of physics, you'll have to understand economics, you'll have to understand some chemistry. But look, humans are able to achieve many great things if they focus. So I would say learn about sustainability, learn about climate, and then use that as a launching pad to then think about how companies, what they're doing either corresponds or doesn't. I would be skeptical of people who are starting with investments and then trying to back into knowledge around climate because frankly, it just doesn't work like that, you'd just become an imposter, frankly. So that would be my advice.
Tim Dunn:
Yeah. The thing I would throw into there, whether you're an entrepreneur or you're an investor or just an individual, there's a lot of resources out there from really very strong organizations. Whether it's Project Drawdown, Rocky Mountain Institute, the Resources Institute, WRI, NRDC, they put out a lot of papers, a lot of information about the shape of what needs to happen over the next 10, 20 years to get to sustainable targets and economic basis.
Tim Dunn:
This is very credible, they have scientists, they have economists, and they've laid this out for all of us to try to think this through. We don't start from scratch, we use what's out there to build into our thinking and build into our own analysis and our portfolio construction. That's just a huge head start. Most of the investment community doesn't really pay much attention to that world. But there's great, very good information, including in academia as well, that's a big array of places to go to academia because there's so many different voices there. But some of these organizations or Columbia Returns Institute, for that matter, there's a number of great resource pools you can go to.
Robert Brown:
Thanks, Tim. Thank you all. I am sad to say, I think we're running out of time here. So I just want to say personally that these issues have been ones that have resonated with me for much of my whole life. Tim, like you said, it's been a personal journey for me, oftentimes walking through the woods thinking about these issues. But really what it comes down to is how you express your own personal values and how you empower yourself to make the investment decisions that you need to make, whether you're doing it in your personal life or your professional life. So thank you offer some really clear guidance and some fantastic thoughts.
Robert Brown:
If I can, I would just also like to say thank you to everyone at Brandeis University for pulling this all together. It's been a phenomenal opportunity to work with everyone here and to offer some really compelling ideas, hopefully for the students, for the investors online, and everyone else. Shane, I think we have unfortunately run out of time, but I need to pass it back over to you and introduce one of my favorite people at Brandeis. Dean Katy Graddy, who is Dean of the International Business School. Thank you.
Katy Graddy:
Thank you, Rob. Hello, everyone. My name is Katy Graddy. I'm the Dean of Brandeis International Business School and the Fred and Rita Richman Distinguished Professor in Economics. Thank you, everyone, for this important and enlightened discussion.
Katy Graddy:
What I took out from this discussion is that everything everyone does to personally highlight and address climate change, including watching your own portfolio, can make a difference. I'd also like to take a moment and thank Perry Traquina for his leadership on the Asset Management Council. To all the members of the council, thank you for promoting the field of finance at Brandeis University and the International Business School.
Katy Graddy:
As Perry mentioned at the beginning of today's program, this concludes the spring 2021 installment of our Trends and Asset Management Series. It's been a very successful and enlightening series of discussions, touching on the future of university endowments, the ongoing multinational effort to finance the pandemic recovery, and today's look at the world of sustainable investing. This spring series followed a successful series of three fall events that kicked off with a talk on value investing with Seth Klarman and Dan Jick, followed up by a timely discussion on diversity in asset management, and closed with the December event on global asset management.
Katy Graddy:
But we're also just starting. We're starting with our Business of Climate Change Program that will take place over the next couple of weeks, and I'm going to invite everyone here to attend the following events. So tomorrow that should go in the chat, our Business of Climate Change 2021. Tomorrow, we will release a report presenting new data on the companies and people leading climate innovation in New England and New York.
Katy Graddy:
We will also honor Michael Berchoff with the Brandeis Alumni Entrepreneurship Award and hear from a diverse panel of startup founders working to combat climate change in innovative ways. On Friday, founding Dean Peter Petrie will lead a discussion titled, "Global Climate Finance: Challenges Five Years into the Paris Agreement." This event will feature a panel of leading international experts including two Brandeis alumni and our former faculty colleague, Katherine Mann, currently Chief Economist at Citi. Finally, next Thursday, April 22, we will present the Asper Award for Global Entrepreneurship to former Massachusetts Governor Deval Patrick, who spearheaded innovations in healthcare, clean energy, biotechnology and international trade during his time in office. Governor Patrick will join Lisa Lynch, the Maurice B. Hexter Professor of Social and Economic Policy at the Heller school for a can't miss discussion about the future of capitalism.
Katy Graddy:
To everyone joining us today, thank you so much. You will soon receive an email asking what you thought about today's event. Please take the time to share your thoughts with us as we plan for the future. Thank you for supporting Brandeis. We hope to see all of you in person soon. Take care and have a great afternoon.