From Red to Blue to Win with Steve Schueth
Much like everything else in our society, ESG and sustainable investing has officially been politicized. Are liberals and conservatives destined to invest differently or does the breadth of ESG data offer something for everyone along the ideological spectrum. A pioneer of the responsible investing industry, Steve Schueth, joins the Ethos ESG Roundtable this week to discuss the political past, present and future of the industry.
Transcript:
This transcript has been edited for clarity.
Dan Carreno, Ethos ESG
Thank you for joining us for another edition of the Ethos ESG podcast, where we break down the latest developments in the world of sustainable and responsible investing. I am Dan Carreno.
Brittany Damico, Ethos ESG
And I'm Brittany D'amico.
Dan Carreno, Ethos ESG
And our guest today is actually an indispensable advisor to Ethos ESG, Steve Schueth. If you're not familiar with Steve's background, he's done an absolutely enormous amount of work, really building this sustainable and responsible investment industry from the ground up starting 33 years ago. He's what I think of as really one of the godfathers of SRI or socially responsible investing. More specifically, he served as president and Chief Marketing Officer at first affirmative financial network. He was a Director at the US Sustainable Investment Forum. He was president of Calvert distributors and he also was the executive producer of the SRI conference for almost two decades. In fact, Steve, it might just be easier for me to ask you what you have not done in your career, as opposed to asking you what you have done. How are you? I appreciate you joining the podcast today.
Steve Schueth, Guest
It's a great pleasure. Thank you.
Dan Carreno, Ethos ESG
Well, we appreciate you being here. So I asked Steve to come on to the show today, because I really wanted to tap his background, his extensive experience in the industry to get his take on the way that ESG sustainable investing has been thrown into the culture wars in the United States. We've got politicians now referencing ESG on a regular basis, various political publications, really starting to either attack it or support it from one side or another. So it's been an interesting year. And with that being said to just get the discussion started, Steve, I was actually surprised to see, even after the talking heads and the politicians have attacked ESG and sustainable investment recently, even really well respected publications like The Economist, have started to call into question the integrity of ESG data and whether or not sustainable investing does anything. So with all of this debate going on in the public forum, what's your take on it?
Steve Schueth, Guest
A great question and a huge question. So let's try to take it in small bites, but the first thing that comes to mind quite frankly, is the relatively famous quote from Mahatma Gandhi. First, they ignore you, then they laugh at you, then they fight you and then you win. And you know, in my 33 years in helping to build this field, I I've been there. I lived a long time during the ignore you and laugh at you, let's call 'em eras and now, you know, we're into a, a bit of a fight. And the question becomes, why? Right. So maybe we'll parse the, the question a little bit. The first thing that I think is important for everyone to understand is that this notion of responsible or sustainable or positively impactful investing, did not come from Wall Street.
This may be the only investment strategy or a series of investment strategies that wasn't made up on Wall Street and then sold to us. This came from a grassroots source people, wanting people, investors, individuals, families, and ultimately institutions wanting more choice, wanting to invest in a manner that would both make money, but also perhaps help to create a better world. And, and it's that, that grassroots in investor appetite that has grown and grown and grown and is now, to the point where, vast majorities of investment capital is being attracted to these ESG or responsible or sustainable investment strategies, which is threatening some of the entrenched powers that be out there.
Brittany Damico, Ethos ESG
Steve, I think that is so interesting. And, whenever I've had this conversation internally with friends, with investors, a lot of times I try and zoom out and look at the big picture, because ESG is not something again that was derived in the states and something that falls under the left or the right, this is a global movement. And I think like looking at the United Nations Sustainable Development Goals, the 193 countries that agreed on moving forward with sustainable initiatives, and a lot of these strategies are rooted in those initiatives. It's such a powerful initiative that was adopted by the global community that I think that's really what we need to bring it back to and look at the purpose of it.
I love that you brought in Gandhi at the beginning of this, where do you see things going from here? Do you think that moving forward, ESG is going to primarily be in the purview of the liberals or how do you see the evolution moving forward?
Steve Schueth, Guest
You know, that's another great question. I don't know that I can predict, I can tell you what should happen. What I think should happen is everybody should recognize that investors benefit and value from having more information upon which to make investment decisions. And so the, all of the, you guys can probably tell me the, the number of data points, , that are reflected in the Ethos database, but hundreds, right? All of that information is not information that 20 years ago was available to investors, much of it, not even 10 years ago. So the more information investors have the more, or I should say the, the better decisions they can make in terms of identifying better managed companies. So to your question, Brittany, about, you know, where does this go from here?
I think it's going to continue to move in the direction of more and more people recognizing the value proposition that is reflected in ESG factor analysis, which provides more useful information in terms of investors of an investment decision making process. Now, at the same time, if we take a half a step back this whole field of socially, what used to be socially responsible and became sustainable, responsible impact. And now it's ESG, the language has continued to evolve as the data has become more and more rich. And as the decision making processes have become more and more effective and transparent, there's always been kind of two sides or two hemispheres to this, this radical notion of being able to invest in a manner that's not only going to make money, but also make a positive difference in the world. So on the make money side, it's all about better portfolio management.
It's all about, mitigating risk and that side, that hemisphere, if you will, maybe we're talking about a crystal skull. So, the left hemisphere is, is really grown big. It's gotten huge firms like BlackRock and Goldman Sachs, believe it or not, involved, right. Why? Two reasons, one is because of client demand, as we talked about earlier. And the second one is because, now there's information, there's data, there's professional approach that is so all about better portfolio management and they're turning out better managed portfolios, which have better performance characteristics. The other hemisphere, which has atrophied a bit in the past 30 years is to make the world a better place side of things. It's the positive impact piece, you know? And, so back to your question, Brittany, where's it going to go from here? I think the emphasis is going to shift over to the impact side of the equation and it's an impact that will affect everybody regardless of your political persuasion.
Dan Carreno, Ethos ESG
So Steve, Brittany, let me jump back in here and play devil's advocate if I can, for a second, because even though Brittany, as you were saying, a lot of what is defined as sustainable and responsible investing is really built on the back of the United Nations Sustainable Development Goals. That includes things like peace and good education and things that we should all be supportive of. But the reality is that almost everything in our society now is getting polarized, right? Every single thing. And so if one political side of the spectrum is in favor of those United Nations Sustainable Development Goals, then the other side has to be opposed to it regardless, right? Even if, deep down and fundamentally, they agree with a lot of the elements of those SDGs. So I just wonder if just culturally, despite all of the conversation about risk and the value of this data, if we will get to a point where more politically liberal investors embrace this type of data and more politically conservative people reject it out of somewhat of a knee-jerk reaction.
And if that happens, is that enough money, enough assets and capital to win, as you said, Steve, does that get us to the final stage of, of Gandhi's quote?
Dan Carreno, Ethos ESG
Thus far enormous amounts of capital have been attracted to a more progressive way of investing. And it, it's not just about investors. It's about companies who are recognizing that their customers, in fact, all of their various stakeholders have a, have a stake in a more responsible corporate citizen and to help create a better world to leave to their families, their grandchildren, great grandchildren, what have you.
Brittany Damico, Ethos ESG
So I agree. And I think that we have seen huge fund flows move into ESG, especially over the past three years. I think this last year has been really challenging with a lot of ugly anti-ESG narrative that comes from a really political perspective that I think is immediate and will pass because again, the broader scope of what we're doing is to move forward, to remove slavery from supply chains. I think all of these things we can all agree on are positive moves forward. I think the approach will continue to evolve and I think that's going to always be important.
So I'm going to go out on a limb here and say that all of us are ESG proponents. Steve, I'd be curious from your perspective, the way that the ESG community has been continuing to move forward alongside the anti ESG narrative, do you believe that that progression forward is working? Is that what we should continue doing? How do you think the community is really handling the anti ESG rhetoric?
Steve Schueth, Guest
Well, there's several questions obviously baked into that one? Let me start with, let me start with a recognition that as of today, more than 90% of the S&P500 companies, you know, publish sustainability reports of some kind or another and 70% of the Russell 1000 companies. So if you just look at it from a company perspective now, yes, these companies are responding to investor, let's call a demand, but they're also responding to other things like, they're positioned in the marketplace and they're positioned in their community. They're licensed to operate things like that. All come into play here. And again, the language has already morphed multiple times over the past three decades. And I think it will morph again.
Brittany, to your point about the sustainable development goals. I think it's important to understand that they came in pretty late in the game. Those goals were agreed to in late 2015 and they became the first time that we had a global set of goal posts. Goals to work toward where we as investors and companies for that matter, because one of the most interesting things to me was looking at these comp large companies, sustainability reports, and seeing how all of them started talking about their work towards certain Sustainable Development Goals. No companies focused on all 17 of them, but every company's got three or four or five that, that already fit their mission, their vision, their purpose ,their client base, that kind of thing. This is too big, it's too broad to rollback progress. The progress that we are talking about here may not move forward in the, in the form that we're envisioning right now, but it will not be rolled back.
Dan Carreno, Ethos ESG
And I feel like Brittany, you kind of already did this, but you only put it out there one more time. So if I were to ask each of you to, to kind of hold an olive branch out, if you will, to the other side of the ideological spectrum and say, this is why ESG data sustainable and responsible investing is something that should be universally embraced by people of all political stripes. What would be your olive branch that you would hold out? How would you try to convince somebody?
Brittany Damico, Ethos ESG
My initial response would be to refer to data and transparency and knowledge. Knowledge is power. That's one of the oldest sayings, right? So having better data about what's going on at the different elements of a company, I think can only help inform better decisions. And I think that's really what it comes down to.
Steve Schueth, Guest
Especially at the in individual investor level or the family, level where in fact, what Ethos is doing is empowering investors to reflect and to align their values in their investment strategies. And those values have different side of the aisle will have different values or different priorities or different weightings on certain things. And that's okay because what you're doing, what Ethos is doing is providing information to allow those kinds of values based decisions and those kinds of priorities to be reflected in a custom design portfolio. And so I think that there's huge value as opposed to values. There's huge value on this approach, regardless of the, of the political perspective you, you bring to the investment process.
Brittany Damico, Ethos ESG
I agree. I think if you are human, you are going to have some values in some facet that are relating to one aspect that can be correlated to ESG or sustainable investing. So the ability to align your portfolio with your values, I think is really important.
Steve Schueth, Guest
And I, I frankly think the critical eye that's now being focused on ESG is a good thing. You know, I think it will channel investments toward businesses that are creating the most regenerative, societal and environmental value and perhaps, well, I think there's a pretty good bet that it will achieve long term economic value as well. In other words, it will make money and make a positive difference at the same time.
Dan Carreno, Ethos ESG
Well, again, guys, thank you so much for your perspectives and your commentary on this. And let's go ahead and just start closing out the podcast with a small round of ESG trivia. So for this week's round of trivia, I actually went and I pulled some questions out of a recent analysis that we conducted at Ethos ESG in regards to the Inflation Reduction Act, which does look like it's going to be signed into law, by president Biden here, sometime in the not too distant future. And so just a couple of real high level questions about the law and how it's going to theoretically impact things like climate moving forward. So, first question is the majority of the analyses that have been conducted thus far what are they anticipating that this particular law will reduce emissions by what percentage? By the year 2030.
Brittany Damico, Ethos ESG
I think it was 50, wasn't it?
Dan Carreno, Ethos ESG
And that is, that is incorrect. There's a opportunity here for Steve to step in and steal.
Steve Schueth, Guest
Oh, oh, I don't know.
Dan Carreno, Ethos ESG
It's pretty close. So it actually get comes out at 40%.
Steve Schueth, Guest
So if this 40% is of what?
Dan Carreno, Ethos ESG
So it's a reduction of carbon emissions in the United States, reducing them to 40% below 2005 levels by the year 2030. It's a pretty massive reduction that we are anticipating in carbon emissions. It is not quite the level that we need in order to meet our obligations to the Paris climate accord. But for most of the analyses that I've read so far, I mean, it's pretty close.
Okay. So next question. According to Ethos analysis of the, the bill, what are the four broad industries that look like they are poised to benefit from this, this bill?
I'm gonna go with Steve here.
Steve Schueth, Guest
Them are, some of them are pretty obvious, renewable energy is one, Cleantech, sustainable ag., and I guess EVs.
Dan Carreno, Ethos ESG
That, is number four. Yeah. Well done. Well done. All right, Steve, Steve's gonna be running away with this one. And, finally getting a little bit more specific about Ethos ESG, our database, our software platform. We have a whole methodology of rating and scoring companies on a variety of different causes and factors. So based upon the analysis that we recently put out there, what are the two causes that are most germane to evaluating investments and how they might benefit or suffer under this new legislation?
Brittany got in there first
Brittany Damico, Ethos ESG
I feel like I should be the one to answer this one. The the two causes within Ethos are Renewable Energy Growth and Climate Action.
Dan Carreno, Ethos ESG
Fantastic. Yes. All right. So I appreciate you guys getting in there playing a quick round of trivia, and I will close out by saying that anybody that would like to see the analysis of the Inflation Reduction Act that we just referenced for the trivia, feel free to get in touch with us at support@ethosesg.com. We'd be happy to send that analysis directly to you.
Brittany, Steve. I really appreciate you guys coming on talking about the political aspect of ESG that we've seen recently as a really enlightening conversation for me, Steve, but maybe we should have just ended the conversation after the Gandhi quote, because that was just perfect. That was the best framing of the debate that I've heard in a really long time. So kudos to you on that one. And, for our listeners, I appreciate you tuning in and we will be back soon with another episode of the Ethos ESG podcast.
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