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Brian Deese on What’s Driving ESG Investing · Masters in Business

0:02
Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg Radio.
0:07
Speaker 1: This week on the podcast, I have an extra special guest.
0:10
Speaker 1: His name is Brian D's. He is head of sustainable
0:13
Speaker 1: Investing at black Rock, which now manages somewhat over seven
0:18
Speaker 1: trillion dollars. Brian has a fascinating background both in the
0:22
Speaker 1: White House and Washington, d C. Where he helped draft
0:27
Speaker 1: the Paris Climate Accord, as well as worked on the
0:30
Speaker 1: bailout of GM and Chrysler for the Obama administration and
0:35
Speaker 1: now working in black Rock. Uh, this is really a
0:39
Speaker 1: fascinating conversation about what is driving sustainable investing, how we
0:44
Speaker 1: can think about climate change and e s G investing
0:48
Speaker 1: not so much as a value play but as a
0:51
Speaker 1: form of risk analysis. Uh. It really just this conversation
0:56
Speaker 1: went to places you probably wouldn't expect it would and
1:00
Speaker 1: I found it to be absolutely fascinating and I think
1:03
Speaker 1: you will too. So, with no further ado, my conversation
1:06
Speaker 1: with Black Rocks Brian Diese. This is Masters in Business
1:13
Speaker 1: with Barry Ridholtz on Boomberg Radio. My special guest this
1:17
Speaker 1: week is Brian Diese. He is the global head of
1:20
Speaker 1: sustainable Investing at black Rock, where he focuses on identifying
1:25
Speaker 1: drivers of long term returns associated with E s G issues. Previously,
1:32
Speaker 1: he was President Obama's Senior Advisor for Climate and Energy Policy,
1:37
Speaker 1: where he helped to work on the Paris Climate Accord.
1:41
Speaker 1: He also was one of the key architects of the
1:44
Speaker 1: resurgence of the auto industry, participating in the design of
1:48
Speaker 1: the bailout of General Motors and Chrysler. He has been
1:51
Speaker 1: Deputy Director at the National Economic Council as well as
1:56
Speaker 1: at the Office of Management and Budget. Brian Diese, Welcome
2:00
Speaker 1: to Bloomberg. Thank you, happy beer. So Brian, let's jump
2:04
Speaker 1: right in. I'm kind of intrigued by your background. Your
2:07
Speaker 1: j d is from Yale. How does a legal background
2:10
Speaker 1: help someone in the field of sustainable investing. Well, you know,
2:14
Speaker 1: the joke about people who work in policy is if
2:18
Speaker 1: you don't have the attention span to go get a PhD,
2:20
Speaker 1: then you get a law school. That's fair, but well, look,
2:24
Speaker 1: I I might most of my background professional focus has
2:27
Speaker 1: been on economics and economic policy. Uh, the legal training
2:31
Speaker 1: and the law degree have been extremely helpful for me
2:34
Speaker 1: in helping have a framework to how to think about
2:37
Speaker 1: issues and break them. Down and put them back together.
2:41
Speaker 1: But I am one of those people who's got a
2:43
Speaker 1: law degree but is not deploying it directly in the
2:46
Speaker 1: practice of law. I want to say the stats, so
2:48
Speaker 1: I too have a law degree that I do not deploy,
2:51
Speaker 1: But I want to say, it's after seven years, it's
2:53
Speaker 1: something like fifty of us are not practicing laws something
2:57
Speaker 1: like that. Pretty pretty realistic number. So let's talk a
3:00
Speaker 1: little bit about the Obama White House. You were Senior
3:03
Speaker 1: adviser for Climate and Energy policy. What's it like working
3:08
Speaker 1: on those issues in the White House. Well, it's um complicated, scary, thrilling, fun, frustrating,
3:15
Speaker 1: all of those things. Everything you would amend. I worked
3:18
Speaker 1: all eight years in the during the Obama administration. Most
3:23
Speaker 1: of that time I was part of his economic team
3:25
Speaker 1: in a variety of different roles and really came at issues.
3:28
Speaker 1: So worked in the post crisis era, worked on housing, finance,
3:32
Speaker 1: the Dot Frank, and the restructuring after the financial crisis,
3:36
Speaker 1: and through it all I had a focus on energy
3:39
Speaker 1: and climate issues, but from an economic perspective. The last
3:42
Speaker 1: couple of years, the President came and said, I really
3:45
Speaker 1: want to make this a central focus on my second term.
3:48
Speaker 1: We're not moving fast enough. How do we bring all
3:50
Speaker 1: of the different agencies of government together to try to
3:53
Speaker 1: orient internationally and also domestically to do as much as
3:56
Speaker 1: we can. That was my role. Involved a lot of coordination,
4:00
Speaker 1: lot of work internationally and a lot of work with
4:02
Speaker 1: regulated industries domestically as well, to try to chart a
4:05
Speaker 1: path forward given the tools that we had. So before
4:07
Speaker 1: we delve deeper into sustainable investing and climate change, I
4:12
Speaker 1: have to roll back and ask about the bailouts of
4:14
Speaker 1: GM and Chrysler sort of antithetical in some ways to
4:18
Speaker 1: sustainable investing or maybe not. What did you do in
4:21
Speaker 1: that space? And how insane were those years posts oh nine?
4:26
Speaker 1: It had to be crazy. Yeah, it was a pretty
4:28
Speaker 1: insane period. I was helping to run then candidate Obama's
4:32
Speaker 1: economic policy during the campaign and around end of August
4:35
Speaker 1: early September two eight, what went from economic policy in
4:38
Speaker 1: a campaign context got devastatingly serious, very quickly, with the
4:42
Speaker 1: cascading failures of a g and putting Famion Fedding conservatorship,
4:46
Speaker 1: and then you know, the the escalating series of failures
4:49
Speaker 1: over the course of the fall and when we came
4:51
Speaker 1: in even during the transition. This question of what to
4:55
Speaker 1: do about the auto industry generally and GM and Chrysler
4:58
Speaker 1: that we're quickly running out of cash was front and center.
5:01
Speaker 1: So I was part of a small team that was
5:04
Speaker 1: tasked with trying to figure out what to do. Number one,
5:08
Speaker 1: did we have a way to step in and back
5:10
Speaker 1: stop them? Should we? And three? If the answer to
5:13
Speaker 1: both of those was yes, then how could we actually
5:15
Speaker 1: execute and get this done? So I have a pet
5:18
Speaker 1: theory that if the UM Treasury Secretary is an industrialist,
5:23
Speaker 1: they're very happy to bail out industry and let finance
5:26
Speaker 1: banks and stuff go the restructuring route and vice versa.
5:30
Speaker 1: There a financi air, then the industries can go through bankruptcy,
5:34
Speaker 1: but they bail out banks as too big to fail.
5:38
Speaker 1: So you guys ended up inheriting the Bush bailouts of
5:42
Speaker 1: the banks and then doing your own industrial policy bailout
5:46
Speaker 1: ten years later. How did it turn out? Well, there's
5:49
Speaker 1: actually surprising consistency between the end of the Bush administration
5:52
Speaker 1: our view on they need to do something to backstop
5:56
Speaker 1: these companies because of the second and third order effects.
5:59
Speaker 1: I think the you know, the conservative estimates were a
6:02
Speaker 1: million plus jobs on the line, because it wasn't really
6:05
Speaker 1: about the specific direct employees of GM and CHRISTI, although
6:09
Speaker 1: there were tens of thousands of them, but the suppliers,
6:12
Speaker 1: the dealers that the the auto industry touches UM a
6:16
Speaker 1: lot of communities and a lot of jobs. So we
6:19
Speaker 1: were pretty focused in the depth of such a economic downturn,
6:23
Speaker 1: if we could do something that was targeted UH and
6:27
Speaker 1: effective and that did require sacrifice from all different stakeholders.
6:31
Speaker 1: The stakes were pretty high, and so we should give
6:33
Speaker 1: it a shot. And that was the sort of the
6:36
Speaker 1: core animating these is behind it. But we did ultimately
6:39
Speaker 1: decide that the way to actually get the level of
6:43
Speaker 1: um sacrifice necessary, that the level of changes in these
6:46
Speaker 1: companies was going to require them going through bankruptcy, and
6:49
Speaker 1: so both companies ended up going through bankruptcy. It was
6:51
Speaker 1: a harrowing and lots of respects, but in hindsight, I
6:55
Speaker 1: believe it's one of the most effective economic policy interventions
6:58
Speaker 1: at the height of our recession, and I think we
7:00
Speaker 1: saved more than a million jobs. At the end of
7:02
Speaker 1: the day, we got back more money than the obadministration invested,
7:06
Speaker 1: and as a whole, in the government, UH, the entire
7:09
Speaker 1: effort cost about ten billion dollars, and so if you
7:11
Speaker 1: look at the jobs in the economic impact that we
7:13
Speaker 1: were able to protect and solve, I feel like it
7:16
Speaker 1: was a an effective and reasonable use of tax payer resources.
7:20
Speaker 1: So then you transition from a government employee effectively even
7:24
Speaker 1: though you're on the policy side of it, to one
7:27
Speaker 1: of the biggest investment firms in the world. What is
7:30
Speaker 1: that transition like? Well, you know, in some ways, uh
7:36
Speaker 1: both large complicated organizations that have a global reach and
7:41
Speaker 1: that uh so in some ways less difference than you
7:44
Speaker 1: might think between the complexity of the executive branch and
7:47
Speaker 1: the complexity of a big, uh complicated organization. But on
7:51
Speaker 1: the other hand, you know, very different in the sense
7:54
Speaker 1: that the same set of issues that I was thinking
7:57
Speaker 1: about and we were working on from the policy side
7:59
Speaker 1: around how do we create the right conditions for private
8:02
Speaker 1: capital to move into lower carbon solutions and accelerate the
8:06
Speaker 1: transition of low carbon economy. There's what we think about
8:09
Speaker 1: at black Rock, but with a very different lens, the
8:12
Speaker 1: lens being how do we actually deliver for our clients,
8:15
Speaker 1: for our the end h end investors, most of whom
8:19
Speaker 1: are uh you know, our our our pensioners and who
8:23
Speaker 1: have a long term orientation and are trying to save
8:25
Speaker 1: for long term goals. So, you know, similarities, but really
8:30
Speaker 1: a different focus on how do you bring the lens
8:34
Speaker 1: of sustainability and sustainable investing to that ultimate goal of
8:38
Speaker 1: delivering financial return. Ultimately quite fascinating. Let's talk a little
8:42
Speaker 1: bit about climate change and what we're doing in response
8:46
Speaker 1: to it. You helped to actually draft the Paris Climate Agreement.
8:51
Speaker 1: What was your reaction to seeing the current administration withdraw
8:55
Speaker 1: from that and how dangerous is it for the United
8:58
Speaker 1: States to not be a part of that. Well, look,
9:01
Speaker 1: I think it's in the the economic and national security
9:04
Speaker 1: interest of every country to be finding a coordinate solution
9:07
Speaker 1: to this issue. You know, I think the impacts both
9:10
Speaker 1: the physical impacts that we're seeing that you know, we
9:13
Speaker 1: were seeing with our own eyes. Californians are seeing at
9:16
Speaker 1: people in the Midwestern seeing Australia and you know, up
9:20
Speaker 1: and down the East coast of the United States. Uh,
9:22
Speaker 1: we're seeing that everywhere. And we're also seeing the risks
9:26
Speaker 1: from a financial perspective of what it means to actually
9:29
Speaker 1: move toward a low carbon economy. Pressure on fossil intensive
9:32
Speaker 1: business models, more economic opportunity for low carbon solutions, and
9:37
Speaker 1: I think that's the piece that is is missing from
9:39
Speaker 1: this conversation. Sometimes you think about Paris and you think
9:41
Speaker 1: about a global effort. What Paris really did was climate
9:46
Speaker 1: change internationally used to be this big debate between two teams.
9:49
Speaker 1: It was like a soccer match, developed countries on the
9:52
Speaker 1: one hand, developing countries and the others fighting about who
9:55
Speaker 1: was in charge of having to solve this problem. What
9:58
Speaker 1: Paris did was changed that from head to head fight
10:01
Speaker 1: into a race. We're all working together, and now the
10:04
Speaker 1: question is which countries can actually get ahead in being
10:08
Speaker 1: the clean energy superpowers of the twenty one century. Who's
10:11
Speaker 1: going to actually capture the economic opportunity, the enormous economic
10:14
Speaker 1: opportunity that's going to colm from this transition in these
10:17
Speaker 1: new industries. And so at the end of the day,
10:20
Speaker 1: every country should want to be part of that race
10:22
Speaker 1: because of the economic dividends that it creates. So I
10:25
Speaker 1: saw a chart yesterday from Torsten Slock of Deutsche Bank
10:29
Speaker 1: basically showing the US gets only about ten percent of
10:33
Speaker 1: our energy supply from renewables, and I remember that more
10:36
Speaker 1: or less correctly, that's from wind and solar. If you
10:39
Speaker 1: look at zero carbon including nuclear and hydro, the number
10:43
Speaker 1: is the numbers closer before you, right, But oh, really
10:45
Speaker 1: that much because we've had pretty robust nuclear and hydro,
10:49
Speaker 1: not as much as France has on the nuclear side
10:52
Speaker 1: or hydro, so dependent on the local geology. But we've
10:56
Speaker 1: had that for decades. And so what has been the
10:59
Speaker 1: marginal increase in low carbon or zero carbon energy sources
11:04
Speaker 1: over the past decade or so? Well, So, the two
11:05
Speaker 1: big things that you've seen happen in the U S
11:07
Speaker 1: energy mix are one, the rapid increase of renewables bringing
11:12
Speaker 1: onto the grid and the the rate of change and
11:15
Speaker 1: adoption of renewables is very fast, even though we're still
11:18
Speaker 1: you know, we're still moving up at a relatively low base.
11:20
Speaker 1: And the second is the adoption of and build out
11:23
Speaker 1: of natural gas as a baseload, cheaper baseload energy source
11:28
Speaker 1: to coal, which is primarily manifesting itself in the transition
11:33
Speaker 1: of the big electrical generation plans that used to be
11:37
Speaker 1: mostly coal fired and now have seemed to dramatically move
11:40
Speaker 1: towards gas. Is that fair correct? So those are the
11:43
Speaker 1: two the two big dynamics is gas driving coal out
11:46
Speaker 1: of the energy mix and renewables coming onto the grid rapidly.
11:50
Speaker 1: That's that's the story of the last decade. I think
11:53
Speaker 1: the story of the next decade is really going to
11:56
Speaker 1: be about what happens not the future of utilities, but
12:00
Speaker 1: the utilities of the future, because we're gonna move increasingly
12:03
Speaker 1: toward a scenario where we are electrifying everything, and so
12:07
Speaker 1: the grid and the grid applications are going to become
12:09
Speaker 1: less straightforward of you have a point source where you
12:12
Speaker 1: generate a bunch of electrons and then you figure out
12:14
Speaker 1: a transmission and distribution system. We're going to have increasingly
12:18
Speaker 1: distributed generation. You're gonna have sources, you know, sources of
12:23
Speaker 1: power and sources of storage that are plugging into the
12:25
Speaker 1: grid in different ways, which will create new stresses, but
12:28
Speaker 1: also a bunch of new opportunities different That will be
12:31
Speaker 1: one of the things that make the next decade different
12:32
Speaker 1: from the last. So we converted to natural gas about
12:35
Speaker 1: two or three years ago. Not only do we do that,
12:39
Speaker 1: I ran a backup generator on top of that, and
12:43
Speaker 1: I noticed, not only am I not burning home heating
12:47
Speaker 1: oil on burning gas, the price is a fraction of
12:51
Speaker 1: what it was. And if you live anywhere north of
12:54
Speaker 1: the Mason Dixon line and want to heat a pool,
12:57
Speaker 1: Oh my god. I used to get thousand dollar oil deliveries,
12:59
Speaker 1: it seemed every other day, And now it costs me
13:02
Speaker 1: two bucks to keep the pool at eighty six degrees
13:05
Speaker 1: into November. It's so incredibly cheap. Why hasn't this transition
13:09
Speaker 1: taken place faster or are we going as fast as
13:12
Speaker 1: we can? Well, the good news is that the transition
13:15
Speaker 1: has both economics and physics on its side, and so
13:18
Speaker 1: the reason why you're seeing that and the reason why
13:21
Speaker 1: zero carbon renewable energy is increasingly the lowest cost source
13:26
Speaker 1: of generation to add into the grid in places around
13:28
Speaker 1: the world from India to Chile, where new solar beats
13:32
Speaker 1: on a levelized cost the build out of new coral
13:35
Speaker 1: or other sources. That's amazing. So the market is driving that.
13:38
Speaker 1: But also the zero carbon energy sources are technology, and
13:43
Speaker 1: so part of the reason why is you've seen this
13:45
Speaker 1: rapid reduction in the cost of wind and solar and
13:48
Speaker 1: battery storage because the technology is just advancing very rapidly,
13:51
Speaker 1: and so the zero carbon energy sources have technology at
13:55
Speaker 1: their back as well. That's the good news. The bad
13:57
Speaker 1: news is that even though this transition, it's not moving
14:01
Speaker 1: nearly fast enough to put us on a trajectory that
14:04
Speaker 1: would keep the increase in global temperatures to the rate
14:08
Speaker 1: that we identified in the Paris Agreement, or to the
14:12
Speaker 1: rate of even a more ambitious set of targets that
14:14
Speaker 1: are what the global body of science is telling us,
14:17
Speaker 1: you need to avoid the worst impacts. So what aren't
14:19
Speaker 1: we doing that we should be doing? And what I
14:22
Speaker 1: mean by that is not just hey, everybody go by
14:25
Speaker 1: a tesla or a GM vault, but what is the
14:29
Speaker 1: government not doing to provide incentives to accelerate what's already
14:34
Speaker 1: taking place on an economic and market driven set of functions. Right, Ultimately,
14:39
Speaker 1: what's going to drive the speed of the transition is
14:43
Speaker 1: government policies that provide long term stability in prioritizing more
14:49
Speaker 1: sustainable source of energy and more sustainable sources of economic activity.
14:54
Speaker 1: And you know, around the world we're seeing less than
14:58
Speaker 1: a coherent global coordination policy, and so we're a long
15:01
Speaker 1: way from that being the case. But the other thing
15:03
Speaker 1: that's gonna help accelerating it gets to the work we're
15:06
Speaker 1: really doing. A black rock is a greater understanding and
15:10
Speaker 1: a greater clarity within financial markets about the magnitude that
15:15
Speaker 1: of the risk that actually already exists or is coming.
15:20
Speaker 1: And our view is as that becomes clearer, we're going
15:24
Speaker 1: to see a big reallocation of capital based on risk
15:27
Speaker 1: and based on financial markets fully reflecting those risks in
15:32
Speaker 1: the market. So let's focus on that for a moment.
15:35
Speaker 1: We've seen in the insurance space more than anywhere else,
15:39
Speaker 1: big increase in rates, big set of changes as to
15:43
Speaker 1: who insures will cover, and I'm not just talking about
15:46
Speaker 1: residential waterfront property across the board. And then the reinsures
15:51
Speaker 1: also showing a giant uptick in their premiums. So while
15:55
Speaker 1: a big chunk of the marketplace maybe dawdling or not
15:59
Speaker 1: paying attention to it, it's clear in the insurance sector
16:02
Speaker 1: they are clearly well aware of the risks that are
16:05
Speaker 1: taking place and have already acted on that. How long
16:09
Speaker 1: do you expect it to take to transition from insurance
16:13
Speaker 1: as a frontline recipient of the impact and costs of
16:17
Speaker 1: climate change to the rest of the sectors in the marketplace. Well, look,
16:21
Speaker 1: I would say you're starting to see that insurance, but
16:24
Speaker 1: I think we're going to see it accelerate much more
16:25
Speaker 1: significantly as well. Most of the financial models and the
16:30
Speaker 1: financial approaches that we've taken are either backward looking or
16:35
Speaker 1: they rely on this assumption of climactic stability, that the
16:39
Speaker 1: basic stability we've seen around physical impacts and threats will
16:45
Speaker 1: accelerate the way it has in the past. And that's
16:48
Speaker 1: no longer a viable option, which is going to require
16:50
Speaker 1: us to rethink a lot of basic questions about finance.
16:53
Speaker 1: So you raised the question of mortgages and waterfront property. Well,
16:57
Speaker 1: you know, an important year in lots of respects, but
17:01
Speaker 1: one think about the thirty year mortgage. It's kind of
17:04
Speaker 1: the you know, one of the centerpieces of our modern
17:06
Speaker 1: financial system is the first year where if you're issuing
17:09
Speaker 1: a thirty year mortgage, that's going to touch which we've
17:12
Speaker 1: always thought of as a sort of long out, long
17:15
Speaker 1: term area mile marker for impacts of climate change. Well,
17:19
Speaker 1: today we a thirty year, you know, a thirty year
17:22
Speaker 1: fixed touches that. What are the implications of that? You're right,
17:26
Speaker 1: we're starting to see it in insurance, But what are
17:29
Speaker 1: the implications when there are big areas of the country
17:33
Speaker 1: where even if you can get a thirty year mortgage.
17:35
Speaker 1: You can't get mortgage insurance that that that resets annually.
17:38
Speaker 1: What are the implications for municipal finance If risks that
17:43
Speaker 1: felt like they were long term twenty thirty years, I'll
17:46
Speaker 1: start to get pulled forward. And our you know, our
17:50
Speaker 1: our sense having looked at this, is that we're gonna see.
17:53
Speaker 1: One thing the financial markets are good at is pulling
17:55
Speaker 1: forward risk once they can identify and measure it. And
17:58
Speaker 1: so what you're starting to see in isolated areas in
18:01
Speaker 1: insurance and otherwise is likely to move much more quickly
18:04
Speaker 1: as bigger, you know, bigger elements of the financial market
18:08
Speaker 1: starts to recognize and identify these risks as real, and
18:11
Speaker 1: even if they are fifteen years forward, that's going to
18:14
Speaker 1: affect duration quite fascinating. Let's talk a little bit about
18:19
Speaker 1: sustainable investing. Your boss, Larry Fink made a pretty big
18:23
Speaker 1: splash with his annual letter on sustainability. What does Blackrock
18:28
Speaker 1: want to accomplish with that sort of communication. What was
18:31
Speaker 1: Larry trying to say, Well, we wanted to communicate our
18:35
Speaker 1: view as a fiduciary, as an entity that our principal
18:39
Speaker 1: goal is to try to think forward on behalf of
18:41
Speaker 1: our clients to what will be important to delivering them
18:44
Speaker 1: their long term financial goals. And in that context, we
18:48
Speaker 1: wanted to communicate two things. One, our view that climate
18:52
Speaker 1: risk is investment risk, and that's going to have big
18:55
Speaker 1: implications on how we think about a lot of these
18:58
Speaker 1: core questions of how we think about duration assets, how
19:01
Speaker 1: we think about risk going forward. And the second is
19:04
Speaker 1: that there is a larger societal shift right now toward
19:09
Speaker 1: a focus on sustainability and changing expectations of companies that
19:13
Speaker 1: we believe will escalate that their structural drivers behind that
19:17
Speaker 1: that will escalate across time. And therefore companies that are
19:21
Speaker 1: not thinking forward to what that means for their business
19:23
Speaker 1: model and trying to get ahead of that are going
19:26
Speaker 1: to struggle to deliver long term profitability because this is
19:30
Speaker 1: going to become an increasingly important part of the financial conversation.
19:33
Speaker 1: So this seems to be an evolution and thought at
19:36
Speaker 1: black Rock. I think has written a number of different
19:39
Speaker 1: letters over the years. He's talked about this as an issue.
19:44
Speaker 1: He sent letters out to various CEOs and other things,
19:48
Speaker 1: but it seems that this year is really a tipping point.
19:52
Speaker 1: The content and the tone of his letter is urgent
19:55
Speaker 1: the right word and much more emphatic. In the past
19:59
Speaker 1: it was almost mentioned as part of it. This time
20:02
Speaker 1: it was front and center, and I think that reflects
20:05
Speaker 1: that there were a lot of things in twenty nineteen
20:07
Speaker 1: that we saw escalating come together to really enforce the
20:11
Speaker 1: conviction in this view and the urgency of the view one.
20:14
Speaker 1: You saw, you know, an escalation in the physical impacts.
20:16
Speaker 1: We talked about un worlds on fire. To this idea
20:23
Speaker 1: about where regulatory body is going to really step in
20:25
Speaker 1: went from the future tense maybe they will in the
20:28
Speaker 1: future to the present tense. You saw the Bank of
20:29
Speaker 1: England begin to actually regulate financial entities, requiring stress tests.
20:34
Speaker 1: You see pension regulation across the globe. Obviously in the
20:37
Speaker 1: United States as an outlier in that respect, but if
20:39
Speaker 1: you're a global company and you're operating Europe, for example,
20:43
Speaker 1: integration of these types of issues into your disclosure and
20:47
Speaker 1: your investment process will become in a sort of required reading.
20:50
Speaker 1: That changed in twenty and we saw these sets of
20:53
Speaker 1: issues culminate and spill over into the global geopolitical scale.
20:57
Speaker 1: At the g twenty you saw a citizen movement of
20:59
Speaker 1: six million in a student's grassroots um walking out in
21:03
Speaker 1: demanding action. There's an escalation and focus on this that
21:06
Speaker 1: we assess again from an investment perspective, as being durable
21:10
Speaker 1: and and actually this being the front of something that
21:13
Speaker 1: is going to be a significant shift in investor preferences
21:16
Speaker 1: over time. So let's talk about another shift. Sustainable investing
21:20
Speaker 1: used to be pitched as, hey, here's how to align
21:23
Speaker 1: your capital investments with your morals, your ethical beliefs, your values.
21:29
Speaker 1: Now it's really being contextualized as look at how well
21:34
Speaker 1: E s G funds have done over the past few years.
21:37
Speaker 1: This is a source of alpha, This is a source
21:39
Speaker 1: of market beating performance. How do you see this being
21:42
Speaker 1: talked about by Black Rocks investors. I think one of
21:45
Speaker 1: the most significant things we communicated in the set of
21:48
Speaker 1: communications earlier this year was this view as a fiducier,
21:51
Speaker 1: as a view of looking at the long term financial
21:55
Speaker 1: interests of our clients first and foremost, that we believe
21:58
Speaker 1: that sustainability and integrating sustainability is likely to be the
22:03
Speaker 1: best way to position you for long term finitial return.
22:05
Speaker 1: And you're right, that is different. That's different than the
22:08
Speaker 1: traditional conversation which always came with an implicit assumption that
22:13
Speaker 1: you were trading value for values. Our view is that
22:17
Speaker 1: that's in the rear view mirror. Now the question of
22:20
Speaker 1: how you integrate sustainability and how you do that in
22:22
Speaker 1: ways that actually capture material insights and and not noise.
22:27
Speaker 1: It's hard, it's complicated like any other area of investing.
22:29
Speaker 1: But our view increasingly is that you can build a
22:32
Speaker 1: portfolio integrate sustainability and at least do as well and
22:36
Speaker 1: likely position yourself to do better over the long term
22:39
Speaker 1: because of all the structural elements we're talking about, and
22:42
Speaker 1: that underlies the conviction of everything we're doing across risk
22:45
Speaker 1: and integration products and services were offering. Is that underlying
22:50
Speaker 1: core view? So here's the pushback. I've read not my view,
22:53
Speaker 1: but I've read, Hey, you know, e s G has
22:55
Speaker 1: been out performing because really it's a closet technology index
22:59
Speaker 1: and if you own a lot of Apple and Google
23:02
Speaker 1: and Microsoft and Netflix, hey, of course your portfolio is
23:05
Speaker 1: killing it. What's the response to that claim? First, our
23:08
Speaker 1: conviction around the materiality these issues is not based principally
23:13
Speaker 1: or solely on limited period of performance over over a
23:16
Speaker 1: limited period of time. It's based on thinking about what
23:19
Speaker 1: are the underlying drivers of these changes, climate change, the
23:22
Speaker 1: physical and the technological risks, the change and investor sentiment
23:26
Speaker 1: that is connected to you know, the largest transfer of
23:29
Speaker 1: wealth and human history from the Baby boom to the
23:32
Speaker 1: millennial generation, and so we don't principally pin it on that.
23:36
Speaker 1: The second, more specifically though, is you know, there's been
23:38
Speaker 1: a lot of talk about is it sort of a
23:40
Speaker 1: closet tech play, is it just a momentum play, that
23:43
Speaker 1: there's a sort of an E S G momentum trade
23:45
Speaker 1: on and the like. And I think our view on
23:47
Speaker 1: this is that elements of that may all be true
23:49
Speaker 1: in the market today, but we believe that those structural
23:53
Speaker 1: factors are going to actually sustain this shift for some
23:57
Speaker 1: significant period of time. And so the true sational view
24:00
Speaker 1: that says, look, um uh, these you know, uh, if
24:04
Speaker 1: these if these, if these assets, are these stocks actually
24:06
Speaker 1: are getting greater demand than you'll actually have a sin
24:08
Speaker 1: strock premium and maybe you'll see some bounce back. What
24:11
Speaker 1: that misses is if we're on the front end of
24:13
Speaker 1: a long term structural trend. If you believe that structural
24:17
Speaker 1: trend is fully priced into the market today, then of
24:19
Speaker 1: course um uh, then of course you wouldn't see these
24:23
Speaker 1: relative changes in value. There's a lot of reasons to believe,
24:26
Speaker 1: including from financial literature around other long term structural trends
24:30
Speaker 1: like demographics, that this is that the transition itself will
24:35
Speaker 1: be a period where you'll see this sort of lack
24:39
Speaker 1: of a tradeoff persist for some significant period. That is
24:42
Speaker 1: absolutely fascinating. Let's talk about a quote that I really
24:46
Speaker 1: like from your team. Quote the sustainable Investing team is
24:50
Speaker 1: focused on identifying drivers of long term return associated with environmental,
24:56
Speaker 1: social and governance issues, integrating them through out Black Rocks
25:01
Speaker 1: investment processes, and creating solutions for a clients to achieve
25:06
Speaker 1: sustainable investment return. What I'm reading between the lines there,
25:11
Speaker 1: or maybe it's more explicit, this isn't just about the
25:15
Speaker 1: s G portfolios. You are looking at E s G
25:18
Speaker 1: as a potential risk factor across the full portfolio, whether
25:23
Speaker 1: it's E s G or not. Well, I was a mouthful,
25:26
Speaker 1: but I'm glad you picked up on that, because that's
25:27
Speaker 1: exactly how we are thinking about it. Fundamentally, we if
25:32
Speaker 1: we come at this from the perspective of risk, then
25:36
Speaker 1: our view is we need to integrate this in our
25:39
Speaker 1: core risk processes the same way that we think about
25:42
Speaker 1: any other core element of financial risks. So what that
25:45
Speaker 1: means is if we identify that, for example, the physical
25:50
Speaker 1: risks of climate change that you can pinpoint to an
25:53
Speaker 1: asset or you can pinpoint to a company based on
25:56
Speaker 1: the geographic footprint, are measurable and real. We want to
26:01
Speaker 1: integrate that into how all of our active investors are
26:04
Speaker 1: thinking about building their portfolios. Which doesn't mean that the
26:08
Speaker 1: end output of a particular strategy has a dedicated sustainable focus,
26:12
Speaker 1: but it does mean that this is risk and so
26:14
Speaker 1: like any other element of risk. So let me give
26:17
Speaker 1: you a concrete example. We built a tool internally that
26:21
Speaker 1: allows us to stress test all of our portfolios for
26:24
Speaker 1: different carbon price scenarios. What happens in the future if
26:27
Speaker 1: you see a carbon price imposed at certain different levels.
26:31
Speaker 1: We run those stress test scenarios on all of our portfolios.
26:35
Speaker 1: Not because all of our portfolios have us dedicated sustainable
26:37
Speaker 1: injective objective, but because that's a risk factor that all
26:40
Speaker 1: of our portfolio managers should think about and have the
26:43
Speaker 1: tools in data in front of them to know is
26:45
Speaker 1: there risk in my portfolio that I might not see
26:48
Speaker 1: if I'm not using this lens. So we're focusing a
26:50
Speaker 1: lot on the E. Let's let's move forward and talk
26:53
Speaker 1: about the S and the G for a moment. I've
26:55
Speaker 1: had people who are not sustainable investors. I've had portfolio
26:59
Speaker 1: managers who were not E s G investors tell me
27:02
Speaker 1: they still focus on the governance aspect because, according to them,
27:06
Speaker 1: it's a risk factor. If you have a diverse board
27:09
Speaker 1: of directors and uh pretty close to gender parity both
27:13
Speaker 1: in pay and executive hiring, you're much less likely to
27:17
Speaker 1: have a me too scenario or any other governance risk
27:22
Speaker 1: that seems to have affected a number of companies, both
27:25
Speaker 1: tech startups and and more season traditional companies. Yeah. Look,
27:30
Speaker 1: part of the way I think about this is I
27:32
Speaker 1: don't start a D S G. We start at risk,
27:35
Speaker 1: and we start at where can we develop confection that
27:39
Speaker 1: sustainability related factors are material? And if you do that,
27:43
Speaker 1: then you can build out. And by the way I
27:45
Speaker 1: think about E S G, it's just a way of
27:47
Speaker 1: bucketing those risks. So um, the conversations that I think
27:51
Speaker 1: are actually the least helpful are, well, is that a
27:53
Speaker 1: G risk or any risk right? If you're if your
27:56
Speaker 1: board has effective management, risk management practic is that include climate?
28:01
Speaker 1: Was that a G or any doesn't matter if it's
28:03
Speaker 1: risk and you believe it's material. You want to understand
28:06
Speaker 1: if a company is thinking about that. Similar to your example,
28:09
Speaker 1: if we know that diverse groups of people make better
28:13
Speaker 1: decisions across time, they may take a little longer to
28:15
Speaker 1: make them, but they make better decisions across time. We
28:17
Speaker 1: want to understand how a company is structured in terms
28:20
Speaker 1: of their governance and in terms of their employment practices
28:23
Speaker 1: to actually encourage more diversity of thought across their their
28:27
Speaker 1: company and management. We come at it and say that
28:29
Speaker 1: sustainability of related risk and then ultimately you know E,
28:33
Speaker 1: S G is In some ways, it's a kind of
28:35
Speaker 1: a naming convention to try to identify these and bucket
28:38
Speaker 1: them in ways that you know helps people understand. So
28:40
Speaker 1: so let's talk about that naming convention. One of the
28:43
Speaker 1: pushbacks I've heard is who gets to decide what the
28:46
Speaker 1: E and the S and the G is. They all
28:48
Speaker 1: mean different things two different people. How do you operate
28:52
Speaker 1: in that sort of nebulous area? What definitions matter? What
28:56
Speaker 1: are you looking at when you're looking at let's say
28:59
Speaker 1: S for social or G for governance. Sure, it's definitely
29:02
Speaker 1: the case that there are too many frameworks out there
29:05
Speaker 1: and we will all benefit from bringing greater coordination consolidation
29:09
Speaker 1: into as we get better at measuring and identifying these issues.
29:14
Speaker 1: On the other hand, I think that it's also important
29:17
Speaker 1: to to put in perspective. You know, it took eighty
29:20
Speaker 1: years to get GAP to be like you know, completely right,
29:23
Speaker 1: and we can't let the enemy the perfect be the
29:26
Speaker 1: enemy of the good. With the disclosure that is out
29:29
Speaker 1: there and the data that is out there, we can
29:31
Speaker 1: measure a lot about how companies are managing material sustainability risks,
29:36
Speaker 1: and that as a as a as a finuciary and
29:39
Speaker 1: an investor, that's our responsibility. So you know, when we
29:41
Speaker 1: think about these issues, we talked a lot about EVE,
29:43
Speaker 1: when we talk about S, you know, a lot of
29:45
Speaker 1: this really is about effective management of what we think
29:48
Speaker 1: about effective management of your internal stakeholders, your external stakeholds.
29:51
Speaker 1: Who are your internal stakeholds, mostly your employees, So diversity inclusion, pay,
29:57
Speaker 1: flexible workplace practices, those are places where we know that
30:00
Speaker 1: contributes to employee retention, employee engagement. Those are connected to
30:04
Speaker 1: drivers of return. External stakeholders, about the communities you operate in,
30:08
Speaker 1: and about the stakeholders that who are your customers, right UM,
30:12
Speaker 1: and that that is principally about how you manage your
30:15
Speaker 1: supply chain and how you manage the impact of your
30:18
Speaker 1: operations in communities. So that's really how we think about
30:21
Speaker 1: the s distilled down. Obviously, there's very specific metrics under
30:24
Speaker 1: each of US. So technology obviously pays a big role
30:29
Speaker 1: in UM, clean air, clean water, dealing with recyclables as UH,
30:35
Speaker 1: and of course energy. As an investor, how do you
30:38
Speaker 1: look at the role of tech impacting sustainable investment. Well,
30:44
Speaker 1: one of the most interesting things about UH, the the
30:48
Speaker 1: issue of the decarbonization the economy is that when you
30:51
Speaker 1: when you talk about that issue in the energy transition,
30:54
Speaker 1: people's minds principally go to windmills, solar panels, electric electrical ours.
31:00
Speaker 1: But also you know a lot about UM energy production,
31:03
Speaker 1: the energy production system. The actually the lowest cost and
31:07
Speaker 1: most significant opportunities for decarbonization today operate in the broad
31:11
Speaker 1: space of efficiency and in efficiency. It's technology place that
31:15
Speaker 1: have the greatest opportunity for scale. So think about how
31:18
Speaker 1: do we make the buildings we live and work in
31:21
Speaker 1: more energy efficient. How do we reduce the the efficiency
31:25
Speaker 1: of the materials we use, whether it's an industrial processes
31:28
Speaker 1: or consumer processes. Literally, there was a giant article I
31:31
Speaker 1: want to say it was out of U. C. L
31:32
Speaker 1: A about cement production is a huge producer of of
31:36
Speaker 1: CEO two and a new technology came up with a
31:40
Speaker 1: way to turn cement into a carbon sink. And that
31:44
Speaker 1: sort of stuff is kind of fascinating. We don't think
31:47
Speaker 1: about cements the concrete you walk on on the sidewalk
31:51
Speaker 1: as oh, it took a lot of CEO to to
31:52
Speaker 1: produce this. Right, So, if you think about technology and
31:54
Speaker 1: efficiency coming together and the opportunities both for UM emissions
31:58
Speaker 1: reductions but also UM breakthroughs that can improve the improve
32:03
Speaker 1: the efficiency of industrial processes, make you money, that can
32:08
Speaker 1: reduce the energy consumption of a business, which is an
32:10
Speaker 1: input cost in a number of businesses, that is a
32:13
Speaker 1: meaningful UM the balance sheet, right UM. The ways in
32:17
Speaker 1: which technology can be disruptive UM are really are really exciting.
32:22
Speaker 1: And that's also why this question of how the economy
32:26
Speaker 1: moves toward more carbon efficient activity touches every element of
32:32
Speaker 1: of our economy. This is not just about oil companies
32:35
Speaker 1: and utilities. This is about you know, if you if
32:38
Speaker 1: you run a business like like Bloomberg, right, and uh,
32:42
Speaker 1: how are you thinking about how technology can help make
32:45
Speaker 1: your business more efficient, make you operate with lower carbon footprint,
32:49
Speaker 1: help you save money, help you you know, help you
32:52
Speaker 1: engage your employees. Those are all things that every business
32:55
Speaker 1: should be thinking. It seems pretty pretty universal. Let let
32:58
Speaker 1: me uh, let me switch up on you a little bit.
33:01
Speaker 1: You've been lecturing at the Kennedy School um about sustainable investing,
33:06
Speaker 1: and you've been providing advice to institutions. When you're speaking
33:10
Speaker 1: to an institution or you're speaking to a bunch of young,
33:14
Speaker 1: fresh scrub grad students, do you get the same questions?
33:18
Speaker 1: You get the same pushback? How do those two wildly
33:21
Speaker 1: disparate groups look similar and how are they so different?
33:26
Speaker 1: That's interesting. So look, um, a lot of the conversations
33:30
Speaker 1: in kind of trag in more traditional financial circles among
33:34
Speaker 1: our clients and otherwise do start from a presumption of
33:40
Speaker 1: of skepticism because there has been this dominant overhang in
33:45
Speaker 1: finance that has assumed that as soon as you hear
33:47
Speaker 1: the word sustainability, we're talking about that trade off that
33:50
Speaker 1: that trade off between value and values. I think a
33:52
Speaker 1: lot of that skepticism is healthy because it forces this
33:55
Speaker 1: space to be very rigorous about where do you actually
33:58
Speaker 1: see UM, real meaningful material impact as opposed to just noise.
34:02
Speaker 1: But that skepticism is often kind of UM overhangs a
34:06
Speaker 1: lot of conversations in those types of UM UH. For
34:09
Speaker 1: a you know, among among younger people and students, I
34:13
Speaker 1: think that they're you what you you know you hear
34:16
Speaker 1: is UM a degree of urgency and bordering on panic
34:22
Speaker 1: on this set of issues that is forcing, that forces
34:25
Speaker 1: a kind of questioning of a lot of basic assumptions
34:28
Speaker 1: of how finance works, about how institutions work. And I
34:31
Speaker 1: think that that's UM. It's a different perspective UM, but
34:35
Speaker 1: it's also relevant to this conversation because UM, you know,
34:38
Speaker 1: society tends to shape institutions as opposed to the other
34:40
Speaker 1: way around. And so I think we all would do
34:43
Speaker 1: well to pay attention to that UM and that impulse
34:45
Speaker 1: because it's likely to get louder rather than UH than software.
34:48
Speaker 1: Quite fascinating. We have been speaking with Brian des He
34:52
Speaker 1: is the head of UH Sustainable Investing at black Rock.
34:56
Speaker 1: If you enjoy this conversation. We'll be trying to stick
34:58
Speaker 1: around for the podcast extras, where we keep the tape
35:00
Speaker 1: rolling and continue discussing all things E. S. G. Related.
35:04
Speaker 1: You can find that at iTunes, Google Podcasts, at your Spotify,
35:08
Speaker 1: wherever your final podcasts are found. We love your comments,
35:12
Speaker 1: feedback and suggestions right to us at m IB podcast
35:16
Speaker 1: at Bloomberg dot net. Check out my weekly column on
35:19
Speaker 1: Bloomberg dot com. Follow me on Twitter at rit Halts.
35:22
Speaker 1: I'm Barry Riholts. You're listening to Masters and Business on
35:25
Speaker 1: Bloomberg Radio. Welcome to the podcast, Brian, Thank you so
35:41
Speaker 1: much for doing this. I've been looking forward to this
35:43
Speaker 1: conversation for a while, and I was saying off, Mike,
35:47
Speaker 1: I thought, a decade ago we should have done a
35:51
Speaker 1: Manhattan Project like approach to the fundamental sciences of alternative energy.
35:58
Speaker 1: How do we make solar panels more efficient? How do
36:01
Speaker 1: we make battery storage more effective? We're doing these really
36:04
Speaker 1: incremental improvements, and the ironic thing about that is a
36:08
Speaker 1: decade later, hey, one percent here, two percent, they are
36:12
Speaker 1: do that for fifteen twenty years. It really compounds and
36:16
Speaker 1: becomes a significant change, and you already see it in
36:20
Speaker 1: the cost of solar, like you could put solar panels
36:24
Speaker 1: on a roof and have them be very cash flow
36:28
Speaker 1: positive in most of the country. I mean, if you're
36:31
Speaker 1: in the northernmost parts, it may or may not pay
36:35
Speaker 1: for itself quickly. But most of the country it's now
36:39
Speaker 1: pretty reasonable, isn't it. Well. I would say two things.
36:42
Speaker 1: The first is part of the reason why solar and
36:46
Speaker 1: wind have gotten so cheap. As we did a version
36:49
Speaker 1: of what you said coming out of the financial crisis
36:52
Speaker 1: in two the US, with the U S and the lead,
36:55
Speaker 1: we made an extraordinary almost ninety billion dollar investment in
37:00
Speaker 1: in basic and applied R and D into clean energy sources.
37:03
Speaker 1: The biggest, you know, the biggest mistake because we did
37:06
Speaker 1: it once and we didn't we had didn't sustain it
37:08
Speaker 1: over over over, over a decade or more. But we
37:11
Speaker 1: know that actually effectively allocating dollars into the basic R
37:16
Speaker 1: and D space in this area does pay dividends. You
37:19
Speaker 1: can draw a line between those types of basic uh
37:22
Speaker 1: UM research efforts and innovations that then flow through and
37:28
Speaker 1: you know, we're gonna it's gonna take continuing to to
37:32
Speaker 1: to double down and double down on that because one
37:34
Speaker 1: of the points that you're making is as as the
37:37
Speaker 1: installed solar gets cheaper, as you get more intermittent UM
37:43
Speaker 1: sources of power on the grid, we're gonna need more
37:45
Speaker 1: and more innovation in storage and in distributed structures of
37:50
Speaker 1: energy delivery to get over that UM. And we're gonna
37:54
Speaker 1: have to come down the cost curve sort of again
37:56
Speaker 1: and again to get that right. So let's talk about
37:58
Speaker 1: automotive and aviation and trucking UM. Clearly companies. I know
38:05
Speaker 1: you don't want to talk about specific companies, but when
38:08
Speaker 1: I look at the space, it's not just Tesla, it's
38:12
Speaker 1: just about every manufacturer either has a hybrid or an
38:17
Speaker 1: all electric today or plans for it. By is this
38:23
Speaker 1: argument about electrical cars over We're going to be electrified
38:27
Speaker 1: and there isn't a whole lot of UM lifespan left
38:32
Speaker 1: in the internal combustion engine, or am I overstating that? Well? Look,
38:37
Speaker 1: I think the I think that the I think that
38:39
Speaker 1: the that the direction of travel is clear toward electrifying everything.
38:44
Speaker 1: The question of that the pace of that is gonna
38:47
Speaker 1: be an intersection between technology and the innovation that comes
38:52
Speaker 1: out of companies and also policy, including for example, you know,
38:57
Speaker 1: the how much foresight, is there into austing forward in
39:00
Speaker 1: the infrastructure to enable electric vehicles to become more ubiquitous.
39:05
Speaker 1: One thing I'll say that we're not thinking enough about
39:07
Speaker 1: and that we didn't you know, when I was back
39:09
Speaker 1: in UH in policy in the middle of the tens,
39:13
Speaker 1: we didn't think about the policymakers in theies we'll have
39:15
Speaker 1: to think about is the intersection of electrification and autonomy. Yeah,
39:19
Speaker 1: that's that's pretty obvious. Is I knew you're going to
39:21
Speaker 1: go there? Because you have these self driving cars relying
39:25
Speaker 1: on you know, signs and paint. Why aren't there RF
39:28
Speaker 1: devices implanted across all the highways United States? Think about
39:33
Speaker 1: how much more efficient we're going to be if autonomous
39:36
Speaker 1: driving cars can can safely follow two feet behind and
39:40
Speaker 1: put a bunch of people in a larger vehicle and
39:43
Speaker 1: move it more efficiently, and if and look, there's there's
39:46
Speaker 1: an infrastructure element and the complexity of autonomy. You know,
39:49
Speaker 1: I wouldn't I wouldn't. I wouldn't understate that. But in particular,
39:54
Speaker 1: when when what happens when you bring electrification and autonomy
39:57
Speaker 1: together is you can drum ramatically reduce the giobradically increase
40:03
Speaker 1: the competitiveness of an electric vehicle, because an electric autonomous
40:07
Speaker 1: vehicle is a multiple uh more cost effective than electric
40:12
Speaker 1: vehicle compared to a to a conventional powered vehicle. And
40:16
Speaker 1: so my my, my sense is that the path towards
40:20
Speaker 1: towards electrification in the transport sector is not going to
40:24
Speaker 1: be straight. There. We're going to see some discontinuities when
40:27
Speaker 1: you see those types of technologies come together and you know,
40:31
Speaker 1: potentially disrupt the traditional modes of transport in a more
40:35
Speaker 1: fundamental way. So we're seeing trucking move towards both electric
40:38
Speaker 1: and autonomy. What about aviation, there have been some small
40:44
Speaker 1: um money they almost look like big drones or small
40:48
Speaker 1: personal craft that have been playing with electrification. Is it
40:52
Speaker 1: is the technology even imaginable that we can one day
40:55
Speaker 1: fly across the Atlantic in an electric plane? Or is
40:59
Speaker 1: the physics to imposing look that that technology is hard
41:03
Speaker 1: And I think it's farther. It's it's farther afield, it
41:05
Speaker 1: doesn't exist today. The point that I think is important
41:09
Speaker 1: for context is that today globally, airline emissions represent two
41:15
Speaker 1: percent of global emissions, so not a giant so uh technologically,
41:20
Speaker 1: ultimately that's something that will need to be solved. Um,
41:23
Speaker 1: it's not a it's it's it's not a near term
41:25
Speaker 1: thing that the technology is pretty complicated. On the other hand,
41:29
Speaker 1: in terms of looking at the big categories of emissions,
41:33
Speaker 1: it's not it's not something that has to be at
41:35
Speaker 1: the immediate or top of your list to really accelerate
41:39
Speaker 1: the decarbonization. So so what's the top three on that list?
41:43
Speaker 1: The top three are efficiency. You gotta massively reduce the
41:50
Speaker 1: footprint of our built environment in ways that to the
41:53
Speaker 1: point you're making earlier, are already in the money. You
41:56
Speaker 1: just gotta figure out ways to overcome barriers. Second is
41:59
Speaker 1: you've got to carbonized the electricity production system. Um, the
42:03
Speaker 1: economics are already pushing in that direction, but it moves
42:05
Speaker 1: more quickly. And Third, electrify everything in transport. Transport quite
42:10
Speaker 1: quite fascinating. All right, I want to get to my
42:12
Speaker 1: favorite questions before we have to wrap up. Um, we
42:15
Speaker 1: ask these of all our guests and kind of think
42:17
Speaker 1: of this as our speed round. That's revealing of who
42:20
Speaker 1: you are. Uh, tell us what you're streaming these days?
42:23
Speaker 1: What are you what are you listening to, either Netflix
42:26
Speaker 1: or podcast or whatever? So I am I am catching
42:31
Speaker 1: up um on Game of Thrones. I'm almost done. I
42:35
Speaker 1: know that I'm I know I'm a little I'm way
42:37
Speaker 1: behind you, So don't don't feel that I'm a little
42:39
Speaker 1: behind the curve. I just finished breaking bad, so you
42:41
Speaker 1: know that gives you a sense that I've sort of
42:44
Speaker 1: my queue is a little dated, but I'm working through it. Um,
42:47
Speaker 1: what tell us the most important thing people don't know about?
42:50
Speaker 1: Brian D's uh that people don't know? Well? Uh uh
42:56
Speaker 1: the most important, the most important thing in my life
42:59
Speaker 1: is that I've got two kids. I've got a seven
43:02
Speaker 1: year old uh and a a four year old and uh,
43:06
Speaker 1: I can I can measure my kid's age by um
43:10
Speaker 1: by milestones in policy my my my daughter was born
43:15
Speaker 1: right after the reelect in twelve and my son was
43:18
Speaker 1: born two weeks before we left for Paris to try
43:21
Speaker 1: to negotiate the paras agram. That's pretty good. So who were, um,
43:24
Speaker 1: some of your early mentors who influenced the course of
43:27
Speaker 1: your career? Uh? Well, I was I was fortunate. I
43:31
Speaker 1: had to have a great professors in college who really
43:34
Speaker 1: brought out me and the way that I thought about things.
43:37
Speaker 1: I UM, I had an early mentor, a woman named
43:41
Speaker 1: Nancy Birdsall is a great economist who thinks about UM,
43:45
Speaker 1: how developing economies fail and succeed in increasing human potential.
43:50
Speaker 1: Who really helped me think in different ways. And I've
43:54
Speaker 1: been I've been blessed across several people who have been
43:58
Speaker 1: at the height of American economic policy, from UH Gene
44:02
Speaker 1: Spurling to Larry Summers to UH near A Tandon and others.
44:06
Speaker 1: I've I've I've had a I've had a string of
44:07
Speaker 1: pretty great bosses. What about on the sustainable investing side,
44:11
Speaker 1: what investors influenced how you look at the world through
44:14
Speaker 1: the lens of E. S. G. Well, you know, for me,
44:17
Speaker 1: coming to black Rock and the both the diversity of
44:22
Speaker 1: thought and the diversity of investment approaches at black Rock
44:25
Speaker 1: really is a kind of UM. A is a UM
44:29
Speaker 1: unmatched privilege to actually just be able to work. You know,
44:31
Speaker 1: if you think about black Rock is often thought of
44:34
Speaker 1: for the scale, the seven trillion and and the large
44:37
Speaker 1: index business, But we have one point eight trillion dollars
44:40
Speaker 1: and active mandates across UH fixed income and equities alternatives
44:45
Speaker 1: uh UM, almost every geography UM and almost every asset
44:50
Speaker 1: class in investment style. So I have I have learned
44:52
Speaker 1: an enormous amount in this period from just from the
44:55
Speaker 1: the the the the the leaders and the innovators across
44:58
Speaker 1: the board and inside the firm. What are some of
45:00
Speaker 1: your favorite books? What do you like to read? Uh?
45:03
Speaker 1: What are some of your favorite authors? So I I
45:08
Speaker 1: tend to like I have. I have, up until somewhat recently,
45:12
Speaker 1: been more of a nonfiction guy. Most of my guests
45:16
Speaker 1: seem to say the same. I really like John McPhee. UM,
45:20
Speaker 1: and he's a he's a sort of nature nature writer
45:23
Speaker 1: who's written some incredible histories, including of Alaska and how
45:28
Speaker 1: how transportation works in the US. UM. I'm reading right
45:32
Speaker 1: now though, UM, a book called The Overstory by Richard Power,
45:37
Speaker 1: which is a it's it's dense, but it's an incredible
45:41
Speaker 1: it's a beautiful book. That's that's that's in the fiction category. UM.
45:45
Speaker 1: Give us a John McPhee book, Uncommon Carriers. It's a
45:49
Speaker 1: set of vignettes from him traveling across the country with
45:54
Speaker 1: people who transport things from barges that go up and
45:58
Speaker 1: down the Mississippi River to UH, chemical tanks, chemical tank
46:02
Speaker 1: trucks that or coal trains. UH. Pretty weedy, but fascinating,
46:08
Speaker 1: but quite interesting. What do you do for fun? What
46:10
Speaker 1: do you do when you are not thinking about sustainable investing? Uh?
46:15
Speaker 1: Mostly spent time with my family. Uh. And we like
46:19
Speaker 1: to get outside. Uh get get to either to the
46:23
Speaker 1: mountains or the ocean hik ski uh or otherwise does
46:27
Speaker 1: sound like fun? Tell us about a time you failed
46:30
Speaker 1: and what you learned from the experience. Uh. I failed
46:35
Speaker 1: enough this morning to fill up the uh that uh
46:39
Speaker 1: that category. One would imagine policy and politics is just
46:43
Speaker 1: a constant battle of winning and losing. Yeah, you know.
46:46
Speaker 1: I mean if you think about, um that for every
46:49
Speaker 1: major achievement you know, we uh we had in you know,
46:53
Speaker 1: uh we uh in the same year at the administration
46:56
Speaker 1: past the Affordable Care Acts, something I thought was a
46:58
Speaker 1: great achievement, and at the same time I failed to
47:00
Speaker 1: get a climate and cap and trade legislation done. And
47:03
Speaker 1: so you get used to this sort of this give
47:06
Speaker 1: and take of trying to understand that there's a bigger picture.
47:09
Speaker 1: You're not going to get everything. Uh. And one of
47:12
Speaker 1: the things I learned there very directly is if you
47:15
Speaker 1: can advance progress incrementally, and you can do it in
47:19
Speaker 1: a way that doesn't violate the hippocratic oath. You should
47:22
Speaker 1: grab that and take those opportunities, because ultimately, while you
47:26
Speaker 1: have to have a big vision, the world moves in
47:29
Speaker 1: you know, lots of incremental steps along the way. So
47:32
Speaker 1: here's the most challenging philosophical question. What are you most
47:36
Speaker 1: optimistic about today relative to climate change and sustainable investing
47:41
Speaker 1: and what has you most pessimistic? So I would say,
47:46
Speaker 1: you know what, what I'm optimistic about the fact that, UM,
47:51
Speaker 1: if we if we look back a decade and we
47:55
Speaker 1: had said, what do we think the rate of change
47:57
Speaker 1: in technological innovation would be partly in these areas that
48:01
Speaker 1: we've talked about that are driving UM carbon efficient solutions,
48:05
Speaker 1: we would have consistently underestimated the degree to which human
48:09
Speaker 1: innovation technological innovation can come together to change things. UM.
48:13
Speaker 1: And I'm also optimistic frankly that UM, we're seeing a
48:18
Speaker 1: degree of UM focus energy, including a lot of fear
48:22
Speaker 1: and a lot of anger, but energy around this set
48:24
Speaker 1: of issues where UM, I think that that's going to
48:27
Speaker 1: drive in a durable way this to the front and
48:29
Speaker 1: center of conversations and financial markets, in politics as well. UM.
48:34
Speaker 1: The thing that I'm the most worried about, or the
48:36
Speaker 1: most pestimistic is that we've got to you know, we
48:39
Speaker 1: we have a we have a more fundamental or you know,
48:42
Speaker 1: existential challenge right now around whether institutions, whether they be
48:47
Speaker 1: institutions of in uh, in the private sector, or institutions
48:51
Speaker 1: and particularly in government, can actually effectively drive change, particularly
48:55
Speaker 1: in democracies. And we were facing some some real, you know,
48:59
Speaker 1: existential challenges, not just in you know, not just in
49:02
Speaker 1: any particular country. And I think that those have to
49:05
Speaker 1: do with complicated social and global dynamics. But UM, we're
49:08
Speaker 1: gonna have if we're going to actually get on the
49:11
Speaker 1: right side of this issue. UM, we're gonna have to
49:14
Speaker 1: have a degree of coordinated action with institutions actually working
49:19
Speaker 1: together that Um, it's easy to get a little dark
49:22
Speaker 1: about that. And our final questions, what sort of advice
49:26
Speaker 1: would you give to a recent college grad who was
49:28
Speaker 1: interested in sustainable investing. Uh, that's great, it's a growth area. Uh.
49:35
Speaker 1: Study up um, uh and and and the and the
49:38
Speaker 1: The advice I would say is study up with a
49:40
Speaker 1: degree of skepticism and rigor around this set of issues,
49:42
Speaker 1: because what we need is more people who are really invested,
49:46
Speaker 1: really passionate, but also come at it with a dispassion
49:49
Speaker 1: and our final question, what do you know about the
49:51
Speaker 1: world of sustainable investing today that you might have wished
49:55
Speaker 1: you knew ten fifteen years ago, that uh, that you
50:04
Speaker 1: can you can unlock a lot of progress by just
50:10
Speaker 1: uh putting facts in data out there and being clear
50:13
Speaker 1: about the implications that that ultimately we're gonna need policy
50:17
Speaker 1: solutions to get this done. But there's a lot uh
50:19
Speaker 1: that finance can do by being clear about risk and
50:22
Speaker 1: data and analytics. Quite fascinating. Thank you, Brian. This has
50:25
Speaker 1: really been very, very interesting. We have been speaking with
50:28
Speaker 1: Brian Deese. He is the global head of sustainable investing
50:32
Speaker 1: at black Rock. If you enjoy this conversation, well, be
50:35
Speaker 1: sure and look up an intro down an Inch on
50:37
Speaker 1: Apple iTunes, where you can see any of our previous
50:40
Speaker 1: three hundred such conversations we've held over the past five years.
50:44
Speaker 1: We love your comments, feedback and suggestions right to us
50:48
Speaker 1: at m IB podcast at Bloomberg dot net. Leave us
50:52
Speaker 1: a review on Apple iTunes. Be sure and check out
50:55
Speaker 1: my weekly column on Bloomberg dot com slash Opinion. Follow
50:59
Speaker 1: me on Twitter at rid Halts. I would be remiss
51:02
Speaker 1: if I did not thank the crack staff that helps
51:05
Speaker 1: put this together with me each week. Michael Batnick is
51:08
Speaker 1: my head of research. Sam Chivraj is our booker producer.
51:12
Speaker 1: Nick Falco is our engineer. I'm Barry rid Halts. You're
51:16
Speaker 1: listening to Masters in Business on Bloomberg Radio.