Speaker 0:
Hello and welcome to the Sustainability Edge on Asset TV. I'm your host, Rory Palmer. We've got a lot to get through today. We're gonna be breaking down the ESG. We'll be looking at the ESG ratings gap and perception of what people think it is and what it measures and with less than a month ago, so cop, we're gonna be looking at that

Speaker 0:
and looking at decarbonisation. But with me here in the studio, we have Jake Moer, senior investment consultant at Square Mi Investment Consulting and research, Catalina Se Global Head of Client Relations for Morning Star Analytics and Edward Bateman, Deputy portfolio manager at FE Investments.

Speaker 0:
Let's have a look at ESG. Let's break it down is the term too politically charged. We've had it for a long time now. This term. What do you think? Yeah, I think it is politically charged. Um I don't necessarily see

Speaker 0:
politicization is a bad thing. Um, you know, one thing worse than being talked about and that is not being talked about A, as E SS G became more popular. It's inevitable that it becomes politicized. And I think the popularity uh that reflects its popularity. Um as a word as an acronym. I think it's clumsy. I think it, we probably need to think of things in other ways. Um

Speaker 0:
You know, ESNG is something that fund managers have been doing for a long time. It's part of governance as part of stewardship. Um But it's become a catch all phrase for sustainability and a proxy for that. And I think that's where the problem starts. So, uh I don't think it's dead. Um I think it's been commandeered and I think we need to rethink about how we use the words to express what we mean in relation to sustainability and responsible investing. What do you think k we need to rethink?

Speaker 1:
Um I partly agree with Jake. I don't think that um I don't think the term is um outdated but I think it means lots of things for lots of people. Um And, and it, you know, the history, I think it developed from, from an institutional space primarily used by, you know, asset managers that were very, that they were using as an acronym to better reflect the types of data that they were looking to integrate as part of their processes. It is certainly not a terminology that resonates very well with an individual saver and investor.

Speaker 1:
So I think that says there is an opportunity to be able to use terminology that resonates and it's easier understood by the audience that, that uses it because I think it is, it is too broad. But I, I just, I would not change it just because it has some politicization connotations. Uh Just because I think the politicization of ESG or sustainability exists regardless of the terminology that we use. But I would, I would say that for sure, there is

Speaker 1:
an ability to be able to use terms that are better understood by a wider audience. Um especially as, as I think kind of everyday consumers and investors are starting to become more aware of the concepts that this term refers to whether it is climate change. And I think, you know, climate change has developed from this very abstract concept to something that we now all feel as a result of um

Speaker 1:
uh fires uh and and just kind of really extreme weather patterns. So um certainly an ability to kind of um yeah, democratize the term a bit more perhaps.

Speaker 0:
And as Kathleen said, it means a lot of different things to a lot of different people and as an umbrella term like ESG it's going to be difficult to satisfy every little bit that's needed.

Speaker 0:
Yeah, absolutely. And I think it's really important to, to recognize it as that umbrella term or any term that comes to replace it because beneath it, there's a whole range of different strategies that can, that can be encompassed by it. So you can have impact, you can have disruptors, you can have leaders, you can have improvers and then you also have to consider the issues that each individual investor considers to be important, the ones that they seek to address with their investments.

Speaker 0:
And so the key thing is, is going to that level below to make sure that the strategy that's being picked for them or that they're picking is one that

Speaker 0:
achieves the ends they had in mind on the issues that they find are important. Jake, let's look at investor understanding. How do we make things more clear because I had said there's lots of different layers to this, but it's about understanding their key goals and then finding something that suits that.

Speaker 0:
Yeah. Um Eesg is, is something farm managers do and it's, it's an input into their process and it's the same as, you know, valuation methodology or some esoteric thing that an investor is probably not going to really understand. Um I think um you can explain sustainability in very plain English terms and when I look through offer documents with funds now, and you can see in the objectives very clearly stated, you know, whether it's a low carbon fund or if it's a,

Speaker 0:
a biotech fund or if it's a, a some sort of um uh uh circular economy bias. There are all these themes that have come out of uh sustainability. Um

Speaker 0:
I'll say

Speaker 0:
the, the nature of, of,

Speaker 0:
of what a fund manager is trying to do can be explained. So, you know, if it's a stewardship fund, explain what the objectives are of, of what it is you're trying to achieve by engaging with companies. So we can dispense, I think we can dispense with a lot of the fancy terms and, and the, the Esoura uh and just say what a fund does and explain it in plain English. Um, there's a lot of opportunities to do that because it's interesting. Right. Everything to do with ESG I think is of some interest. Um,

Speaker 0:
Yeah, fund managers are, are the ones that I speak to, are getting a lot better at explaining things easily. You know, some of the, some of the themes are really interesting to talk about.

Speaker 0:
We say less technology, more plain English,

Speaker 1:
I would say in full agreement with that. I do think that the challenges that I still see and there's been some recent surveys done in the UK to indicate that is, is that there continues to be quite a significant gap in knowledge of the individual saver and investor as it pertains to ESG or sustainable investment and you know, um

Speaker 1:
who is best positioned to provide that um education and, and really explain to the end investor, whether it is their financial advisors or whether they're looking at a platform via those platforms. So in, in some ways, whilst I am really agnostic, what terminology we use and whether we use a catch all phrase like he is your sustainable investing in others, I I do think that

Speaker 1:
one big issue still remains. And that is that individual investors don't yet by and large, have a good understanding of what this means. Uh Whether sustainable investment is aligned with their investment objectives, should they care? Uh is, is that uh is, is looking at sustainable investment objectives, create any sort of penalty on financial return?

Speaker 1:
Um So yeah, we can search, I would almost say um focusing on how to create better awareness and education at the end, investor is, is extremely helpful and certainly something that I think the Financial Conduct Authority is trying to do right now. Um So hopefully that will enable and investors to make. Um I would say better informed investment decisions as it pertains to what ESG and sustainable investing means to them and how that can be reflected in the type of investments they make.

Speaker 1:
What do you think it?

Speaker 0:
So II I agree and I think it's um it's a great opportunity as well to, to provide that information and that sort of educational service to, to highlight some of the wider issues that are coming into play. So climate obviously gets a huge amount of attention, but then you have biodiversity and land use, toxic pollution, water stress. These are huge issues that

Speaker 0:
make sense in Aes G portfolio, but they don't get enough attention. So it's a great space for product providers to offer more information, education, to highlight some of these issues which may come sort of to the fore later on in a few years time,

Speaker 0:
Jay going back to the term, unfortunately, ESG got almost played out conferences were all about ESG that the word was everywhere. And now in the US, unfortunately, it's fueled a bit of a culture war with um woke as well, going next to it, unintended consequence. But then by that means do we then have to scrap it and almost start again?

Speaker 0:
Yeah, I, yeah, the, the, the point about politicization we referred to before uh is very real. But I, as I said, you know, you, you have ecoterrorists and then you have climate deniers, right? So, you know, the left and the right always exist. Um and they appropriate terms and, and politicize them and weaponize them.

Speaker 0:
Um It doesn't change the fact that ES and G stand for something and, and represent different components of a fun methodology or, or, or a um AAA company's methodology. Um I don't think we need to,

Speaker 0:
you know, it's not dead but

Speaker 0:
I think it's, it's, it, it, if it becomes provocative, is that a bad thing?

Speaker 0:
I don't think it is. Um you know,

Speaker 0:
there's a circle of politics and words sort of mean different things at different times and when they're set with different emphasis. So, uh I, I don't think we need to read too much in, into that necessarily also the, this is more of a US problem, as opposed to say here in Europe.

Speaker 1:
Um Yes, but I don't think that we are immune to it in the UK or in Europe. Uh II, I do think that kind of as an industry um there is still a lot more that can be done to create a lot more transparency of what TSG means or what actually, what are the approaches, the objectives and results that some of the funds that integrate these types of data sets we have.

Speaker 1:
Um ultimately, you can think about is your or sustainable investing as an investor preference, the extent to which you can exert a preference to be able to um you know, invest in funds or, or in companies that um are looking after their employees or uh when they have operations in, in countries that um have human rights allegation, choosing those companies that have very high standards um as it pertains to, to local communities. So,

Speaker 1:
excuse me, for me, it is ultimately about investor preference. I think the challenge with the um involvement in politics and some of this is that it, whilst I think regulation has an important role to play in raising standards for disclosure and transparency.

Speaker 1:
Um I think it's problematic when there are views that make it prohibitive for certain um individual investors or institutional investors to be able to exert their preference in alignment with, with fiduciary duties. I I think the the

Speaker 1:
that I'm trying to make is that I see the role of regulators as really creating transparency. So enabling, ensuring that they protect and enable the end investors to make the right decisions that align with their values as it pertains to ESG and sustainable investing. What at times involvement, politics in this field can lead to um is is an inability for the end investor to make an informed decision because the focus tends to be on what

Speaker 1:
potentially uh as the

Speaker 1:
what potentially a certain regulator may view as appropriate for the end investor rather than creating a high level of transparency for the investor, for the end investor to make the right decision by themselves.

Speaker 0:
Sounds good. And, and again, despite me playing devil's advocate, is there a sense of throwing the baby out with the bath water to here, it's not the best in the world, but it covers a lot of good areas and it's the best we've got.

Speaker 0:
I I definitely agree that it covers a lot of good areas. And if you go through the, the underlying topics that have come up, I think most investors would have some affinity with at least several of them. And so if you,

Speaker 0:
if you consider the whole term defunct and everything that sits underneath it as a, as a political object that some people stay away from then, as you say, they're really narrowing the decisions that are available to those investors, whether, whether you encourage it or discourage it, you're restricting people's choices which should rightfully be theirs.

Speaker 0:
So, moving on, we're gonna be looking at ratings and the perceptions of perhaps what they perceive and, and how they're measured. I'm gonna go down the line and ask all of our panelists for their individual inputs and then we'll talk about the area more broadly. So, jake from a square mile perspective, what do you look for when you're looking at these metrics and how do you qualify them all? Well, we do our own so we, we try to get to the source of um under understanding of a fun portfolio. Um

Speaker 0:
I like external ratings. Don't get me wrong. Um We have a colleague representing one here. Um And I secretly use them quite a lot as an indicator of, you know, what I should be expecting. Um So I, I do like third party ratings. Um but we do our own and we send out questionnaires. Uh We look at portfolios and what they're invested in. Uh and then we, we create an ordinal ranking from that. So it's fairly qualitative in nature.

Speaker 0:
Um We try and quantify different um aspects and we try and tie things back to revenues where we can to, you know, tighten, tighten the ratings up. Um But uh you know, we are making a value judgment at the end of the day. So there's a lot of qualitative interpretation. Uh I think we've got a reasonably skilled uh um set of folk at square mile that are doing that.

Speaker 0:
So, um again, it it's taking some data externally uh and, and checking it and, and making sure that it, it prompts our opinions and sets the debate for, for us, they can see the sus analytics approach what goes into it.

Speaker 1:
So, um we um ultimately look at companies, environmental, social and corporate governance performance and reflect that in a few different set of ratings which are really designed to be able to give our end clients more choice as they think about what it

Speaker 1:
the angle that is most most appropriate to them. So we're looking at it from an ESG risk perspective. So is the company managing the risk that it has, which can come from the sector in which they're doing business, the country they're operating, it can be things like climate, it can be things like bribery and corruption.

Speaker 1:
But one lens is to be able to provide it to look at things from a risk perspective um that we have a set of data and ratings that look very much at values alignment, so to speak. So um is a company doing business or driving revenues from certain sectors

Speaker 1:
that can be perceived by controversial um in certain sectors, whether it is, you know, tobacco or controversial weapons. So um ultimately given our clients the ability to look at it through a values alignment piece.

Speaker 1:
Um And then we also look at what we call in a way positive impact. So our companies deriving revenues from creating products and services that have a demonstrable, positive um environmental or social impact. So, if they are a car manufacturer, do they have a green fleet fully already? Are they in process of, of getting there? Um So we looking at at companies um that are truly creating and producing a service that has a positive impact.

Speaker 1:
Um So, um this is kind of the the bread and butter of our work and, and we distill thousands and thousands of data points and we make both the underlying data and as well as kind of an overall rating at times, which provides an overall signals. And certainly we have clients that can look at the signal, but otherwise look at the contextualized analysis of, of the work that we produce and

Speaker 1:
typically across all of our ratings. It's a combination of looking at quant um indicators and analysis as well as a qualitative assessment um of some of these issues.

Speaker 0:
And I think qualitative is going to be the theme for this question. Is that the same that you have the investment?

Speaker 0:
Yes. So we do use third party ratings and they are fantastically useful. Uh but they're not a gatekeeper. So we have a team of analysts and they will use them when they're looking at a fund and the underlying constituents to, to inform the discussion that they're gonna have, but they're not beholden to them because it's important to give you that space to undertake the quality of analysis so that you can understand

Speaker 0:
uh maybe a company is slightly different from the rest of its industry. So not all the same key indicators are relevant, maybe they're of a smaller size. So not all the same policies are enact by them. So it has to be that the actions you expect that company to take have to be relevant to their position in their industry and their size. So you need to give yourself that space. But it's also a really useful tool for engagement because you have the, you have the headline signal, which is a really useful signal. But then underneath that, you have

Speaker 0:
pillars and themes and key indicators and component scores and then indicators for each one of them. And it's really useful to be able to drill down through those different layers of information so that you can highlight individual companies

Speaker 0:
that are falling short on a particular metric. So you can get a much better understanding of why they might be falling short. What plans are in place to tackle that if it's a relevant issue for that company in that industry. So it's a really really useful engagement tool as well after that first level uh analysis, even though that the ratings come from a lot of different providers, can it be difficult then to compare companies when a lot of the data can often say different things.

Speaker 0:
Well, that's one of the benefits of going down into the individual components, cos there are differences in how key issues for different industries are weighted between the different providers. So you get different top line scores. Once you get down into the nitty gritty of it, you glean some really, really useful insights when it comes to bringing those discussions forwards, Cathy, we spoke a lot about the end investor. Is it clear enough for the end investor? Is it transparent enough when they look across all these different ratings?

Speaker 1:
Um

Speaker 1:
I would I it's probably not sufficiently clear. Um And, and I think there is a huge opportunity to be able to kind of clarify. I I think

Speaker 1:
in order to be able to uh fully rate a set of issues that are, you know, complex. Um The work that we do goes into significant granularity, which I think is is useful and insightful for an end investor. But um I think at times does require guidance from a financial advisor or or professional investor to be able to kind of guide how

Speaker 1:
to best compare companies um against each other or, or even funds. Again, some of the proposals that are coming from the Financial Conduct Authority are really focused and enabling the investor to better understand different um investment propositions as it comes to sustainable investing. Um I would say that

Speaker 1:
with our clients transparency of the work that we do both in terms of where we collect our data as well as how we calculate and come to our conclusions is, is bread and butter, it's very well reflected as part of the analysis. Um But I, I do

Speaker 1:
uh realize that it's probably too much information at times for an investor.

Speaker 0:
It's difficult, isn't it? Because it's, it's a complex process that goes behind it because there's a lot of complex data in it. So trying to simplify that it's all that easy. So that's a very good point. Maurie, if I look at a company and it's seven

Speaker 0:
six out of 100 on its ESG consolidated score, what does that mean if I look at the company and it's in a, it's a large cap company. Um It's got 76 out of 100 and I look at a small cap company that doesn't have as much data provided, but it's 76 out of 100. Which one's better? I think the same.

Speaker 0:
Um I don't think, I don't think, well, it's very difficult to distill all of the thousands of metrics that data providers are collecting into one single metric. Uh It's an indicator that certainly. Um So you've got to use that in the way that I do by

Speaker 0:
what's the, what, what does it mean? Right. What does the 76 out of 100 represent and then go down the columns, go down the different routes and investigate what's contributing, what's not contributing and how you get into that final score. I don't think you could, you should be, you shouldn't be setting up an Excel spreadsheet that just pulls up any company that's got higher than 75 out of 100 or, or some such decision rule.

Speaker 0:
And you mentioned the FC A that what regulations coming down the pipeline, anything that we should be concerned about or should be watching.

Speaker 1:
Um So, uh the, the financial Conduct Authority has been putting forward a proposal of being able to um create clear categories for sustainable investing funds. Um And, and again, creating these categories in a way that are easily understood by

Speaker 1:
and investor and, and um much of the work that they're doing is really focused on prevent or better protecting the end investor against greenwashing allegations. So, so claims from companies and funds around having certain uh or meeting certain environmental social and corporate governance objectives, but actually, that's not fully supported by the

Speaker 1:
strategies deployed by the fund to get there. Um I think what's quite impressive by the work done by the FC A so far is that they have um surveyed over 20,000 individual consumers to really test their understanding about the terminology that is currently used as well as by the terminology that should be deployed in the future to enable an investor to better understand the ESG or sustainable investment options that are in front of them. Um

Speaker 1:
So I believe they will be uh putting forward their final recommendations around um sustainable investment to the market and um the last few months of, of this year. And, and again, it's really um at least from my perspective, I think there are two clear objectives. One is creating far more transparency uh for the end investor to enable them to um

Speaker 1:
to make better decisions or, or to be well informed as they think about um ESG and sustainable investing as part of their investments while at the same time protecting them by ensuring that those funds that um

Speaker 1:
do report under easy to understand labels for ESG and sustainable investing, truly deploy appropriate company selection strategies or stewardship strategies that enable them to reach their funds objectives as it pertains to ESG or sustainable investing, depending what terminology 11 uses.

Speaker 0:
And I say with regulation, how do you and the FAA regulation that's coming down the pipeline?

Speaker 0:
So with regards to that same regulation, um I think it's a great idea and I think it's a very, very important initiative. Um First, it's a little bit tricky because

Speaker 0:
as portfolio managers, we're combining funds. So what terminology you can use when you've combined different categories of funds is as yet unclear. So we'll have to see when the final regulations come out, what we are restricted to or allowed to, to combine into those portfolios and what labels we can use on the top hand. But overall, I think it's a really, it's a great initiative um and an important one, but

Speaker 0:
it will take some implementation on our side. And then with regards to, to regulations on the ESG ratings themselves,

Speaker 0:
I think it's quite a new industry, at least in the sense of the, the attention that it's getting nowadays and it is constantly evolving and you have different providers going down different routes and looking at different metrics in different ways. And I'd be concerned that too much regulation, too early on would stifle on that investment by being too restrictive in the directions that the different ratings can take.

Speaker 0:
Do you think that's a fair point stifle it quite, it's a new concept. The RS as that, as they've sort of been intimated that the S A is gonna come out with have stifled. I think some product development from fund managers, they, they probably don't want to launch something that is gonna fall foul of the ES or, you know, is, is misrepresented by label. Um, so, so III I think there is some urgency to, for the SE A to clarify exactly where, where that is for, for the fund providers.

Speaker 0:
Um, it's funny with the ESG ratings, isn't it? Because, um, we're gonna regulate you or let's form a voluntary code of conduct whilst we do that and then we, we'll regulate you after, whilst we think about, you know, I think we're going to get there right, because, um, if you look at things with respect to data and we, we accept that the ESG is a very complex data set. We get there in the end and we get there because the financial reporting is required and accounting standards

Speaker 0:
force people to disclose information in a standardized way we get there because templates are designed and disclosures are, are, are voluntarily adopted because it's in everyone's interest. It's a lot of work to provide zillions of data points. Let's let's try and standardize some of this. So it makes everyone's life easier. So I think we're gonna get there. Um,

Speaker 0:
you know, I, I, I'm more in the, in the light touch camp for, for regulation of data. Um You've gotta avoid, you've gotta make sure that data providers, uh ESG providers are, are avoiding conflict of interest in the same way that accounting firms have to do so when, when they're auditing clients. Um, but that's nothing new, right? So, iii I think we should be treated like grown ups. And, um,

Speaker 0:
yeah, the voluntary code is good enough until we regulate you. Why regulators is not launching new products? Is that a very extreme form of green hushing? Yeah. Well, yes, I, you know that, that, that is a phrase that you're hearing because fun groups

Speaker 0:
don't want to move first in an environment where regulation hasn't been tested because, you know, the FC A will come down hard. They like to make an example of someone, right? And, and so if you're the first mover and you take a position, you might get penalized because of it. Um, yeah, unfortunately that herd mentality, um, rightly exists sometimes. Um, yeah, I, I think, you know, I think if you, if you're launch, especially in a difficult market environment. Right.

Speaker 0:
So, um, yeah, Cathy will think the light touch with regulation.

Speaker 1:
Um, it's, it's, um, you know, obviously, uh, we are, um, we are now regulating many markets and, um, other regulators out of the UK have put forward a code of conduct for rating providers and, and we have uh complied with that.

Speaker 1:
I think

Speaker 1:
we understand the role of regulation and I think it's certainly, um

Speaker 1:
we have been preparing for this for a while. Um

Speaker 1:
generally for a global firm like um Morningstar sustain analytics, we would advocate for regulatory requirements that are globally coherent and that is what the UK regulator would be asking of ESG rating providers to align with what the EU is asking with what Japan regulator is, is looking for and so forth. I think the complexity in which

Speaker 1:
we found our find ourselves right now and I think I'm sure it's similar to our clients through other types of ESG regulation is that different regulators have different requirements for from parties like us, um which makes it increasingly complex. Um given that we are conducting research that is used globally by our clients. So, um

Speaker 1:
I think we are very much down the path of, of regulation in, in many jurisdictions including in the UK and and in the eu, but I think we would certainly welcome a globally coherent regime and, and unfortunately, it doesn't look like that is the direction of travel. At least right

Speaker 0:
now, I just want to finish on this one point that Jake made about product launches. And do you think with the difficult environment we've got at the moment plus regulation, incoming is very much, let's see. Let's just stay in and let's wait until it all comes.

Speaker 0:
Yeah, I think there's definitely a sense of trepidation um in, in such circumstances, there's also difficulties where, where there is a lack of clarity in the regulations exactly how you implement them for fear of

Speaker 0:
either falling behind because you've applied the most stringent definition of, let's say revenue exposure to an impact theme and other people have allowed themselves a more generous definition of that. Then all of a sudden you don't qualify for a label or your numbers are lower because of that. And

Speaker 0:
that sense of uncertainty can be, yeah, it's very stifling and it's uh it's a bit of a shame to see that there are great products and great fund managers that are sort of holding themselves back because of that lack of clarity in places.

Speaker 0:
So next up with just over a month to go before the UN Climate Change conference source known as cop, we're gonna be asking the panel about their thoughts, what they're looking forward to and a little bit on decarbonisation as well. Klena. First off of that, what are your thoughts ahead of this year's cop? It's more of a controversial one than we've had before. Where do you sit at the moment?

Speaker 1:
So I think for me, as we go into cop, there are two key questions that I think it would be great to be able to kind of um align and then further discuss also taking into account who who attends COP. One is, has progress really been made towards achieving um some of the goals that we have set ourselves, especially around kind of the 1.5

Speaker 1:
degrees um or, or not, and, and what more can and should regulators do to be able to accelerate the path towards net zero? Um I, I do, you know, I remain an optimist. I do actually think that um as financial services and governments have made significant progress um certainly compared to where we were 10 years ago, but we're still not on track to meeting a 1.5 not even I believe a 1.7 degree

Speaker 1:
um temperature rise. And I think kind of the questions remain what can be done to accelerate. So we, we reached all these objectives,

Speaker 0:
they've already rode back or not hit a lot of the targets they set out to from this cop, get us back on track.

Speaker 0:
Well, I think getting back on track is a, is an interesting concept really because in terms of framing where we are currently and where we need to be. There's a long way to go and we do need to get there. We, we should be there. We arguably have a duty to be there,

Speaker 0:
but we tend to stand back and wait for the plan that's gonna get us all the way that full distance. We need it all laid out in one go, but it's made up of a multitude of small decisions collectively and individually and some of them are, some of them are big decisions on an individual level. Like who do you vote for that? You think will, will best satisfy your, your ethical requirements in terms of progress.

Speaker 0:
But then there's smaller decisions in terms of

Speaker 0:
taking the bus instead of the car and there's a difference in scale. But both those decisions do avoid a slightly worse outcome. And as you go forward, you know, taking the bus instead of the car this time and then next time and another time that becomes behavior change and that starts bending the curve even further. And as more people do that collectively on a societal level, then the impacts start to get scaled up. And I think it's important to, to recognize the importance

Speaker 0:
of those small movements as well and celebrate them as a step in the right direction rather than being put off by the huge distance. We still have to go. So less silver bullet, more small decisions every day. Step by step rather than trying to evil Knievel the whole distance. What do you think, Jake?

Speaker 0:
I think, I just hope that someone at cop says something interesting because the narrative from these international forums is being lost on your average punter. And

Speaker 0:
yeah, great. It's, it's a great international event. I don't remember much about cop 27. I think if you polled any person who walking along the street here, what was the key ta? They probably wouldn't tell you. And CC 27 did have some great initiatives, right? Climate finance initiative. There was some great things for biodiversity. Uh And you know, the loss and damage fund was created. All those things are really, really good but they get lost in the blur and the the, you know, the politics of where it is and who's che it. And

Speaker 0:
please someone say something interesting that gets us excited because we are missing the targets and you know, people like big things, you know, get Brexit done, take back control these short concise little things have changed, you know, electoral outcomes. Um something catchy and interesting, please. For, for COP 28 K, we've spoken a lot about the end investor in this whole panel is that the key really appealing to the end investor or the punter industry?

Speaker 1:
Um I think for, for me for, for sure. Yes. Um you know, kind of going back some earlier comments, the extent to which we're all making more um sustainable life decisions, whether it is, you know, cycling, um

Speaker 1:
where we make our groceries, whether we're vegetarian or not, um things that pertain to we bank with what pension fund we choose. Uh what do we do with our um savings and investments. Those are really important decisions. Sometimes when it comes to

Speaker 1:
um environmental, social or sustainable outcomes can be more important than some of the others. Um And I think right now there is just kind of quite a gap in terms of awareness and understanding of how to best make some of these decisions when it comes to, to esg or sustainable investment. And I think that can substantially change how ultimately the companies that we are all owners in, I mean, as it pertains to changing company behavior in response to consumer preferences.

Speaker 1:
Um you know, whether they provide um organic products, um recycled cups when you have your cup of coffee. So a lot of these decisions are really ultimately driven by how we choose to empower those companies through where we decide to buy products or not. But then indirectly, um where do we choose to put our pension fund money? Where do we choose to put our savings accounts? What bank we choose to, to work with?

Speaker 0:
Uh Do you think it's a case of, we haven't really factored in the costs both to our own behavior and then to governments too so rich that climbing back on a lot of the pledges we make is it's gonna cost a lot and we, as individuals making decisions every day, we haven't quite made that step yet. We're not ready to sacrifice uh, our way of life yet.

Speaker 0:
Yeah. And I think there's, there's 22 concurrent issues. One is that

Speaker 0:
when you look at just climate change and there are other issues available that are also very pressing, but it's a problem that's removed from people in time and space. And habitually, we're just not geared to take that into account when we're making everyday decisions. And so when you measure up an uncertain cost somewhere in the future, somewhere in the world and measure that up against an immediate

Speaker 0:
financial cost, perceived or real, quite often more perceived than real, then it's easy to, to pull back from that decision. And you know, we've seen, we've seen in the UK with the by elections that was deemed a, a politically suc successful move that would

Speaker 0:
make the party more successful. But I think it's a, it's a dangerous direction to take things in. And I think when it comes to decision making as well, there's, there's another

Speaker 0:
issue at the same time that when we're trying to make better decisions, it can be incredibly difficult. If for example, you want to go out and buy some sustainable clothes or the most sustainable clothes that you can within your budget, when you go to different clothes shops to understand which one is your best option. You need a really detailed understanding of supply chains externalities and all the different issues that arise along the way

Speaker 0:
and most people just don't have time for that. So one of the things I'm really excited about in terms of greater transparency, more access to data is we'll get better, clearer and more reliable ways of signposting, which products are more sustainable. Cos I really think that a huge number of people would factor that into their, into their decisions if they had confidence and access to that insight,

Speaker 0:
K, do you think that decisions made by people are almost redundant? If the big companies don't dec carbon, we don't reduce emissions. And I know we need um oil and gas for the foreseeable or the small term, short to medium term. But ultimately, if they don't do that decisions made by individuals is quite redundant.

Speaker 1:
Um No, actually, I I think that collectively individuals have a huge uh power, you know, going back to some of the earlier examples in ter in terms of, you know, how you vote. Um and, and again, who you, how you choose to, where you choose to put your pension for the money. Like a lot of there are a lot of options that enable the individual saver investor to reflect their preference towards

Speaker 1:
decarbonizing the economy or rather than kind of indirectly supporting some of these companies if they believe that their actions are not aligned with the decarbonizing path to be able to align their choices with their values and consumer preferences. I think the challenge that we have is that there's currently quite a significant gap in knowledge and thinking. How can I, how can I make these choices count? Uh Because there isn't as much

Speaker 1:
understanding or the labeling perhaps is not as easily understood when you go into a shop to buy organic or, or to buy a piece of clothing that has been manufactured by consideration on supply chain. It's not as even easy to attempt making that decision when you think about your pension fund. Uh For example,

Speaker 0:
like I said, more data,

Speaker 1:
uh more, more clarity or kind of or better labeling just enable the consumer to make an easier decision. Uh I I don't necessarily think that when it comes to the end consumer necessarily uh more availability of data makes the decision easier. But, but as long as you have, I would say, um high degree of transparency and integrity as it pertains to labels that enables the end investor to make up a better um informed investment decision.

Speaker 0:
Jake, I can't remember if it was cop 26 or 27 but the just transition was one of the big phrases to come out of that and it's very rich for developing countries to go well, you shouldn't be using oil and gas. We've benefited a lot from it, but now it's polluting the planet. So it's, it's a bit rich. Yeah. The loss and damage fund I think goes some way to try to address this pro, I mean, look, someone cut down the last tree on Easter Island, didn't they? You know, that is human nature to, to do something that's, that we collectively know is bad. But now you're,

Speaker 0:
you know, consumers can change. They, uh, this is going back to, to cop if, if, if there's an inspirational message, you can, you can change the way that a supply and demand

Speaker 0:
chart interacts, right? Those dynamics can be changed through consumer preference. Um And consumers won't always just buy the cheapest because it's the cheapest. They, if they're educated and inspired, they can change behaviors even if it's not in the neoclassical sense, you know, rational.

Speaker 0:
Um So I think inspiration is important. That's why the messages from cop have, have to get our attention and

Speaker 0:
educate us. Um

Speaker 0:
There was a very real risk that

Speaker 0:
we we will cut down the last tree because we don't know how bad it's gonna be. But companies cannot be left with uninsurable assets. Companies cannot destroy value by not dealing with flood risk, right? So companies too can be encouraged to change their behavior because it's good for shareholder value. So, so I I

Speaker 0:
I know we're dealing with marketing efficiencies and externalities and the tragedy of the commons and all that stuff. But I do think if the messages are inspirational enough and

Speaker 0:
the data can be edu, people can be taught by data, the behaviors by both companies and consumers can change to a better end. I, I certainly hope so. And what do you think?

Speaker 1:
Yes, I agree. And, and certainly, you know, there are many companies that are part of the transition journey just because, you know, a company is, uh, you know, let's say exclusive in oil and gas right now. It doesn't mean that that is the path that they will be in the next 5, 10, 15 years. But I, you know, very much in alignment with my um a Panelist here. I think it's about kind of

Speaker 1:
sending the right signals from the regulators, but as well as from end consumers. And I think over the last year, in particular, we have been probably sending very mixed messages in terms of how important decarbonization is. How important is um kind of making sure that we have kind of an orderly um climate change uh transition

Speaker 1:
ed. What about people

Speaker 0:
in, in the global South people that rely on oil and gas fuel of their livelihoods. And what about these people do? They get factored into the discussion?

Speaker 0:
I think that they are considered. Um And I think how to, how to enable that just transition is quite rightly a focus of a lot of these deliberations.

Speaker 0:
And that makes me optimistic. Um because I think it's uh a key component of making those goals realistic over the long term. Um I'm concerned that once we get to the cost component of it, then a lot of that enthusiasm dissipates. And that's a real shame. We see a kind of a parallel to that when we had the COVID vaccines and COVID vaccine rollouts. There's an equitable way to do it.

Speaker 0:
That makes sense objectively in terms of who gets those vaccines first, in terms of front line responders and vulnerable populations around the world. But that's not how it panned out. It was the rich countries that got multiple jabs before anyone else did. And my concern is that

Speaker 0:
equitable transition will run into the same roadblocks. And Kathy, maybe in a few years, we'll watch back at this panel and laugh at maybe how negative we were being. But what is giving you optimism? What are you seeing that Becky hope for?

Speaker 1:
Um I mean, I think we've come an incredibly long way. Um I have been, you know, working in this field myself for um close to 14 years now. And, and I do think that once on the, on the one hand is just we have far better data to enable ultimately investors to think about

Speaker 1:
um environmental, social and corporate governance considerations as they look at investing companies, uh companies are reporting far better than ever before. Um I think even as it pertains to uh standardization of um climate change data, whether carbon reporting or some other data sets, we have come a very long way.

Speaker 1:
Um So ultimately, what gives me hope is that we um have come, we are in a place where we have far better data to be able to make better informed investment decisions as it pertains to esg and sustainable investing. Um

Speaker 1:
I do think that when you look at investors that are adopting these datasets as part of their um approaches, um kind of the level of assets that are integrating these considerations has tripled if, if not more than that over the last 10 years. So, uh yeah, I think there's been uh incredible progress being made. But if, if you think about what are the challenges ahead? Uh they, they, they do remain significant.

Speaker 1:
Um But we have come a long way

Speaker 0:
and Jake, I'm not gonna ask for your catchy slogan. That's gonna be a, a cock this year. But you've been in this space a while. What's giving you optimism? What do you, what do you see? I am a natural optimist. Um I, you know, I recognize the problem and I recognize the externality and I know that poor countries suffer more. I recognize all of these things. Now, we, you know, we're dealing with the three of us sit within a fund management context. The reason I'm optimistic is I don't think

Speaker 0:
that greenwashing is as prevalent as people think it is. I certainly there is greenwashing. I, I think generally fund managers want to be a force for good. And I know

Speaker 0:
some fund managers are leaving the net zero asset management initiative and that's terrible. Um And they should be ashamed of themselves. But um generally speaking, the fund managers that we speak to at square mile want to do good with their capital, right? So they're making better decisions because we as gatekeepers have been lobbying them. You as trade journalists have been asking difficult questions. Uh and they get it. Um Company directors are now realizing that being a good actor

Speaker 0:
is good for shareholder value. You don't want to be landed with stranded assets that's gonna destroy shareholder. So these traditional forces of profit can sit with, you know, benevolent or important good actions. I, I'm optimistic for that reason. I, I don't think it's precise yet. I think some, you know, some fund groups are better than others and some aren't working hard enough and some fund managers aren't

Speaker 0:
good enough with their governance and demanding enough in their stewardship. But I generally think that most fund groups that we deal with are genuinely advocates for changing bad behaviors. And that gives me a lot of optimism.

Speaker 0:
I do hate to cut this discussion off, but that's a good place to leave it. Well, that is all we have time for on this discussion. Thanks to Ed, thanks to Katharina and to Jake. Thank you for watching and we'll see you next time.