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ESG Challenge: Chad Spitler, Third Economy Interview — Transcript

by Alliance for Responsible Capitalism · 3,048 words · 484 segments · language en · Watch on YouTube

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0:00okay so could you please introduce
0:02yourself and your
0:03company hi I'm Chad spitler I'm the
0:06founder and CEO of third economy we are
0:10an advisory research and Technology firm
0:14and we operate in three areas we work
0:17with institutional investors to help
0:19them Implement sustainable Finance
0:23throughout their investment portfolios
0:26we work with companies to help them
0:29deploy sustainability to help them
0:31access capital from institutional
0:34investors as well as to think about how
0:37they can innovate in their products and
0:40services to create more sustainable
0:43service offerings to sell to their
0:45customers and our third area of business
0:48is we have a technology platform that
0:50connects investors and companies through
0:55the tools of sustainable finance and uh
0:58sustainable product and revenue
1:01generation wow that's awesome as you
1:04said thank you for integrating finance
1:07and sustainability so your work includes
1:09both sustainability Consulting and
1:11sustainable investment
1:12advisory what does what draws each
1:15client to decide the
1:18business well part of our theory of
1:21change is that to
1:26align sustainability with Revenue
1:29generation
1:30so if we really want to engage people
1:34that don't necessarily care about
1:36sustainability in the field we need to
1:39align with Revenue generation and access
1:42to Capital so that theory applies to
1:45both institutional investors as well as
1:48companies so if you think about the role
1:50of an Institutional Investor their their
1:53job is to make money for their clients
1:56and if you think about the role of a
1:58company they job is to make money
2:01selling their products or services so
2:04what we do is we help them think about
2:06how they can make money in sustainable
2:11ways okay so companies are facing an
2:15increasingly complex set of disclosure
2:18requirements I understand your firm is
2:19tracking 63 regulations tied to
2:22regulatory disclosure so what are the
2:24opportunities and risks of this
2:25increased focus on
2:28disclosure well the opportunity and the
2:30reason why disclosure is important is
2:33that it helps investors understand the
2:37ways in which the assets that they're
2:41investing in may or may not be
2:43sustainable so disclosure in alignment
2:48with standards or Frameworks really
2:51empowers the investor to make better
2:54investment decisions so that's the value
2:57in disclosure the the challenge or the
3:01risk that we're facing right now is too
3:05much focus on disclosure taking away the
3:11focus
3:12on actually making things more
3:15sustainable so the concern that I have
3:18about where we're at is that the The
3:20increased regulation is having an
3:23unintended consequence if you think
3:26about the difference between a voluntary
3:29disclosure and a regulated disclosure
3:32regulated
3:34disclosure has a much higher level of
3:36legal review and it has a much more
3:40conservative approach to what you say
3:44because it's it's regulated you can get
3:47in more trouble for it so the unintended
3:50consequences now is that as
3:52sustainability information is starting
3:54to become more regulated which in the
3:57big picture is a positive thing right we
3:59want to make sure that that information
4:00is of good quality so it's a good
4:03goal but the unint consequence of that
4:06goal right now is what I would say is
4:09having a chilling effect on Innovation
4:13at least the disclosure of that
4:15Innovation because companies no longer
4:18want to put forward things that might be
4:21a little risky that might be a little
4:24forward looking and Innovation by nature
4:28is risky and for Forward Thinking so my
4:31concern is that the increased regulation
4:35is having an effect on sustainability
4:37professionals backing down from talking
4:40about Innovation and really going into
4:43more conservative um safer areas so we
4:47need to make sure that we don't allow
4:49the increased regulation to have a
4:51chilling effect on
4:53Innovation that's so true um you're kind
4:56of speaking on the next question a
4:57little bit more so we're going to dive
4:59deeper into that how how would you like
5:01to see the regulatory landscape evolve
5:03on disclosure requirements and what
5:05roles do you see for companies in
5:07helping influences steel
5:09outcome well I think one of
5:13the best things that Global Regulators
5:16could do is
5:18to look at each other's Regulatory
5:21regimes and to try to be
5:24consistent we operate in such a global
5:27world that a lot of the challenges for
5:29our corporate clients are
5:32managing multiple regulatory regimes so
5:36to the extent that different regions
5:39Europe Asia Americas can collaborate and
5:45use back to Frameworks and standards
5:49consistently that's going to both help
5:51the consumer of those disclosures the
5:53investors because investors need to
5:56compare across companies um so so that
6:01consistency gives them that
6:03comparability and um it also reduces the
6:06regulatory burden on the on the company
6:08side because they can you know it's sort
6:11of the I don't love this um old adage
6:15that kill two birds with one stone I
6:18wish there was like a more positive
6:19reframe of that concept but it's the
6:23that's essentially what it is right is
6:25that wouldn't it be great if you could
6:26have one disclosure that applied to
6:29multiple regulatory regimes um so that's
6:32going to both serve the investor and the
6:35company and I'm sorry there was a second
6:37part to your question uh could you
6:39repeat that of course what role do you
6:41see for companies in helping the
6:42influence in this ideal
6:45outcome I think that the role for
6:47companies is to in uh is to engage
6:50policy makers and I would say not just
6:53companies but investors as well and the
6:56The Regulators or the policy makers need
6:59to take industry input into account and
7:03um so if we can increase the dialogue
7:06between investors companies and
7:09regulators and align on global standards
7:13for disclosure that I think would be a
7:15winning
7:16solution yeah I agree um so like turning
7:20into like the investor advisory side of
7:22the business could you share how you use
7:24ESG data to assess and manage climate
7:28risk in investment portfolios
7:31yes so when we think about client risk
7:34in
7:35portfolios we assess it from multiple
7:40Dimensions one of those Dimensions is
7:43what I would call values
7:45based so that Dimension is really moral
7:50and ethical and so there are reasons why
7:55certain investors may not wish to invest
7:59in certain types of Securities this is
8:01the Legacy field of socially responsible
8:03investing and it really originates from
8:05the faith-based community that would use
8:08the tools of negative screening or
8:10divestment to avoid investing in things
8:13that are not aligned with the moral
8:16ethical belief system so values-based
8:18investing as it relates to climate take
8:21for example an environmental
8:23organization it might not make sense for
8:25an environmental organization to be
8:29derived ding investment return from
8:33environmental activities that work
8:35against their mission right so
8:38values-based alignment is one way in
8:41which we work with our
8:42clients another aspect of thinking about
8:46climate from an investment perspective
8:49is the impact so every investment has an
8:53impact the question is can you measure
8:55what that impact is this is impact
8:57investing and in these ways what we do
9:01is we help our institutional investors
9:04understand the consequences of the
9:05Investments that they're making on the
9:07environment in this case or it might be
9:09more broad to societal implications Etc
9:13uh but how do we measure that and
9:14generally for climate you're going to
9:15measure that through understanding the
9:18greenhouse gas emissions of your
9:20portfolio and then setting targets to
9:23try to reduce those emissions so that
9:25would be the impact
9:27orientation the Third Way that we work
9:29with our clients around climate is what
9:32I would call Revenue opportunities is
9:35how do we align your portfolio with
9:38macroeconomic Trends so that you can
9:40take advantage of the energy Revolution
9:43so as companies are making shifts as
9:47Regulators are facilitating those shifts
9:50how do you adapt your investment
9:52decision making to make money off of
9:55those shifts that's really what ESG is
9:58and its Pur sense it's about how do we
10:00align environmental social and
10:02governance factors with risk in return
10:04so that's the Third Way the fourth way
10:07that we work with our clients in
10:10thinking about climate on the investor
10:12side is how does it relate to your
10:17engagement your proxy voting uh this is
10:20starting to be known more as stewardship
10:23investment stewardship is kind of the
10:24buzzword around this right now uh but
10:27it's it's essentially the tools of
10:28Engagement in voting and it goes back to
10:30the earlier point that we talked about
10:31about Investors engaging with policy
10:33makers or investors uh engaging with the
10:36companies that they invest in or voting
10:38your proxies in ways that are aligned
10:40with trying to facilitate um your goals
10:45around climate and then the the fifth
10:49way that I would say that we work with
10:50our investors around climate is around
10:52disclosure and Reporting and how do we
10:56get them credit for all of the work that
10:58they're doing so it could be creating
11:01sustainability reports it could be
11:03creating stewardship
11:06reports uh responding to surveys and
11:09questionnaires like the principles for
11:12responsible investment or CDP the carbon
11:14disclosure project Etc um so those are
11:17the top five ways in which I would say
11:20we work with our institutional investors
11:21on
11:23climate So within that work how have you
11:26seen the anti backlash affecting your
11:28work and your clients and how do you
11:31advise your clients to navigate The
11:33increased scrutiny on ESG investing
11:35practices well I think
11:38the positive and I'm always an optimist
11:41I think the positive of the increased
11:43scrutiny around
11:45ESG is investors need to be more precise
11:49in their use of the
11:51terminology so investors sort of brought
11:55this problem onto themselves because you
11:59would go to one investor website and
12:01they would be talking about ESG like it
12:03was
12:04impact and you would go to another
12:06investor website and they would be
12:08talking about ESG like it was a moral or
12:11ethical Dimension and as I mentioned
12:14before in my view ESG is really about
12:17aligning those three concepts with risk
12:20and return how do we maximize our
12:22revenue and avoid losing money so this
12:27difference in how
12:30institutional managers have approached
12:32these different concepts I see them as
12:34different tools of sustainable Finance
12:37really has been why it's been so easy to
12:40criticize the field of ESG one of the
12:43things I have my students do in my
12:45graduate course in sustainable finances
12:48I have them read an oped from Mike Pence
12:50in the Wall Street Journal and I have
12:53them read an oped from a New York Times
12:55Professor or from a an NYU professor in
12:57the New York Times and they have to do a
13:00comparative analysis of the two and the
13:03result of that exercise the punchline
13:06both of them are wrong both both of them
13:09are confusing the concepts of values
13:12based investing impact investing in ESG
13:15so the opportunity is to really clarify
13:19these terms this is to the benefit of
13:21all of us because if you think about a a
13:24can of soup or a box of cereal the
13:27ingredients on their there are standards
13:31that you use to be able to compare the
13:34sugar the calories
13:37Etc that's the next step for the
13:40Institutional Investor space is we need
13:43to be using a a similar formula to how
13:46we disclose the ways in which we're
13:48deploying these
13:51tools I agree I might have to take up
13:53the assignment and tell you my findings
13:55as well I would love to hear what you
13:58have to say about it
13:59um so how do you engage companies on the
14:02governance of their political influence
14:04especially related to
14:06climate an interesting one um I think
14:11here's part of the challenge for
14:15companies as it relates specifically in
14:18in um political candidates it's a little
14:22bit easier I think on
14:24particular resolutions so if for example
14:28there's a um in California we get to
14:32vote on different kinds of
14:35um policy decisions and I feel like
14:39those are a little bit less risky for
14:41companies to get involved with because
14:43they
14:44can align that policy with the strategy
14:49of their company so take affordable
14:51housing so if you're a real estate
14:53developer and there is a a ballot
14:56initiative that is going to
14:59give you a business opportunity to build
15:01more housing with the objective of
15:04creating a more affordable housing stock
15:07it's easy for you to get behind that
15:10ballot initiative and say hey we're in
15:12favor of ballot initiative a because
15:17it's going to align with us growing our
15:20business and it's going to align with us
15:23um having a positive impact on the world
15:26it's a little bit harder with political
15:28candidates
15:30people because they may have a policy
15:34perspective that's aligned with your
15:36organization in some ways but not in
15:40others so what we advise is caution
15:44around any sort of uh commitment to a
15:48particular candidate and transparency
15:52and what about that candidate's policy
15:55views align with your business straty to
16:00avoid the risk that they have other
16:03policy views that do not
16:05align so if you think about a candidate
16:08you know they're going to have policy
16:10views on a wide spectrum of
16:15things and if you're donating to that
16:18campaign because of one specific thing
16:21but you don't agree with the others then
16:24Our advice is to disclose that so that
16:26there's no misunderstanding about
16:29uh what I would call a
16:31misalignment sometimes companies get
16:34accused of take for example LGBT rights
16:40so they might have uh an employee
16:43Resource Group that is uh there to
16:46support their lgbtq employees but they
16:49could be making donations to candidates
16:52that have
16:54anti-lgbtq policy views so it's
16:57important for them to disclose well
16:59hey we're not donating to that person
17:02because of that policy perspective but
17:05because of this other reason over here
17:06that their their their policy
17:08perspective over here is aligned with us
17:10growing our business and our
17:13strategy um we're kind of spilling into
17:15the next question that we touched on it
17:16in the past what do you see as a key
17:18barriers for accelerating the economy's
17:20transition into Net Zero and what is the
17:23role of investors and financial
17:24institutions in this
17:25acceleration and the role of policy
17:27makers of course as well
17:29yeah I think the
17:31biggest limiting factor right now is
17:34back to
17:36revenue that we cannot expect people to
17:41move money based on the goodness of
17:44their heart values or based on their
17:47desire to have a positive impact in the
17:48world it's where you and I started Eco
17:51economics right that really if we want
17:55people to move money then climate has to
18:01be a way to make money or to avoid
18:04losing money so that alignment doesn't
18:08necessarily exist and policy is a
18:13huge tool available to society whether
18:17it's through tax incentives subsidies
18:20Etc to change those economics so that's
18:24one of the things that we need policy
18:27makers to do is to help us change the
18:29economic Dynamic so that investors can
18:32shift into more sustainable Investments
18:36and ensure that they have a nice source
18:39of investment return now the capital
18:42markets has some ability to do this
18:45without necessarily being dependent on
18:48The Regulators but it really does
18:51require that trium good
18:54policy institutional investors that are
18:57engaged with policy makers and companies
18:59and companies willing to innovate and
19:01change in alignment with the engagement
19:04that they're having with the policy
19:05makers and the investors so that's
19:09that's the trium and part of the
19:13challenge in making this
19:15shift incentives
19:18so everybody's got to be incentivized to
19:21make the shift and I think right now one
19:23of the big hurdles is that there's so
19:26much easy money to be made by
19:28maintaining the status quo so the
19:31shortterm thinking about maximizing
19:34return is also another hurdle
19:38to making that Innovation making that
19:41shift in how companies like an oil and
19:44gas firm Are generating Revenue we need
19:47to incentivize them through both
19:49institutional investors policy makers
19:52and let's not forget
19:54consumers right like we all have an
19:57individual
19:59opportunity to help make this shift we
20:03can start buying electric cars we can
20:06start calling our utility companies and
20:09asking for them to Source renewable
20:10energy for us so we can power our
20:13electric cars with renewable energy
20:15we're all part of the solution here it's
20:18not just that trium but also consumers
20:21need to start to make sustainable
20:25choices are there any final points that
20:27you would like to add or M M that you
20:28would like to leave us with and also
20:30just from my own curiosity why
20:33sustainability
20:35well it's personal for me I grew up in
20:39Michigan and I had two Patriarchs in my
20:44family that
20:45were motivators and leaders and set
20:49standards for how I wanted to live my
20:52own life my one grandfather was an an
20:56environmentalist
20:59and my other grandfather was an investor
21:01and so between the two I really like we
21:05talked about at the beginning Roa I
21:08connected those two things right as I
21:09was like hey I really care about the
21:12environment and I really am interested
21:14in
21:15investing but these things seem
21:19disconnected from each other because it
21:20seems like so much of what we invest in
21:22is hurting the environment so I grew a
21:26natural
21:28um interest as a result of my two
21:31grandfathers in trying to understand how
21:33can we connect those two things and um I
21:37guess just in closing if there was
21:39anything that I would say is is that we
21:43all have a role to play in building a
21:46more sustainable economy and that means
21:50whether it's your purchasing decisions
21:52whether it's who you conduct business
21:54with or the ways in which you conduct
21:56business how you invest we all have a
21:59responsibility to think about how those
22:02decisions are impacting us as a society
22:06and our environment and so it's not
22:10somebody else's problem it's not
22:13something that somebody else has to do
22:15it's something that all of us need to do
22:17it's something that we need to embed
22:19into our culture into our moral and
22:21ethical belief systems it's how we all
22:24survive and thrive together as a society

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