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Sustainable ESG Investing: Turning Promises into Performance

2020-07-14

Steve Strongin, a senior advisor at Goldman Sachs, discusses the future of ESG investing, based on a new Goldman Sachs Research report, Sustainable ESG Investing: Turning Promises into Performance. 

This is an unofficial transcript meant for reference. Accuracy is not guaranteed.
This is extra you're the Goldman Sachs. We discuss developments currently shaping markets. Industries in the global economy, objects, seaward, global, had of corporate communication to the firm today were joined by Steve, strong and one of the firms senior advisers to talk about is investing Steve, his team and Goldman Sachs Research have a new report out called sustainable. He asked investing turning promised Is it a performance? Welcome back to the programme, Steve: Pleasure to be here is always do it. I think you might be one of my most frequent interlocutors. So let's get that so in your research new, you talk about how the focus on yes, she is an investment style and not as a force for good. So explain why you took that particular approach. Sure over the years. A lot of things have happened had invested, were investors wanted something to work or was important to investors? If you look at the world
all it really only works if it actually delivers returns. Your most people, managing body. Lcd share responsibility generate returns, so somebody in the end doesn't actually help generate returns. It tends to be. sad, rather than a lasting part of investment by SUI use, spit on time frame and how that factors into the performance of the extra investing. Why should messrs think, longer term about. There is just strategies and in not just short term the heart, and that is what he is she is all about. Is she is really a police, an idea that, if cooperate events have respect for human values, care about the environment, care about diversity, care about the way the company itself is managed. that's gonna make it a better company in along all this and allow it to take better advantage, its opportunities. It's not like cost cutting we'll do it today and the return of tomorrow These are things that are going on for over two years. Three years, five years, ten years,
and unless the investor understands that we're going under very disciplined. So what is the point the timeframe by which, Judge and measure is cheap performance. I protest with a minimum of three and then stand by like we do with private equity. That opinion the environment that may have to be extended right. So, for instance, if you started ideas chief find twelve ago. You'd probably want to wait until covert played itself out before you started. Assessing perform its measures so yes, she is notoriously broad and sometimes ill defined, spends many categories of growing. More is diversity and talent. What's the relationship in diversity and performance, an immune in their poor. When you say, diversity requires real commitment, not just good statistics right. So, though,.
sure on the management side on diversity is very clear: diverse teams are more creative, more thoughtful, more inventive then terms that the teams it don't have that on the other hand, from a business standpoint that Sunday it takes time to play out and takes real work right. You know it. If your teams are gonna have more impact, you actually have to empower the teams, the Aberdeen back. You have to construct them. But everyone in the team has voice and the teams need to be diverse. That's a fairly complex undertaking, that's not just hiring sixty Gotta go. Look like you saw. Another category may be one of the earliest categories and, yes to investing is focused around climate. Implications to carbon pack, prices have and investors in wise. The many green climate change answers may turn out to be served economic dance this is one of the sort of classic problems when you figure he s, cheek
it s. A bumper sticker is a person investments that As long as it's on the right side of history is supposed to be a good investment, the world isn't bad time so there are lots of good ideas and lots of good intentions will end up now, work and so on. You look at environmental, investing Sunday, work and end up with a price of carbon, either with an explicit within the regulations. Biscuit are sadly efficient. Frontier for addressing climate change were not there yet we're- probably not gonna, be there in the next three years, but in the next five. Pretend we will be now best methods that are going to reduce carbon. Missions that are more efficient than that number are gonna, be good, long term investments, on the other hand, expense yours, which use a lot of money to save it, Small amount of carbon are gonna turn out to be economically, not viable and not further forward climate policy, and so is an investor you wanna, be August on the part of the carbon technology, you that's gonna. Last ebooks
the solution in five and ten years, not the part, that's gonna, look economically silly and reference Do you talk a little bit about government policy in the energy space? This isn't a place were elites in the? U S, government has been particularly active, at least at the federal level, using research than investing can and should run ahead of the current political consensus, as probably true beyond the eschew, but not too far ahead. So explained the dynamic. There sure the issue you have permanent best me standpoint is that governments do respond to public makes. You say that government's new S hasn't been active, isn't even very active, but not a rebel and he s cheese sense, but in the sense that, after the financing, crisis, you saw a credit, was changed, the seven days you signed by criminalize change, and so they can but he's needed pre prepared for those coming regulatory changes Coming. Environmental law changes. Those coming diverse,
did he rule changes in order to be efficient now That does mean that if you did any of those things today, right gonna economically work out freedom, more right you're. So, if you had best today at least I can happen said years, you re to return starting to be very high up, on the other hand, to invest today, person, for half a year or two years that can be an incredibly powerful invested. You introduced the phrase flashpoints as central to performance and social mission. Now we think we know it points mean but explain how you use the phrase flashpoint. How can they help portfolio managers assess which companies are bracing that long term perspective of yesterday, rather than just sort of Jack in the box? I think essential to realize what a flash point is consistently as well as morally psychological. There are lots of ways of progress that occur over time
either it's the march on summer or aids. The recent black lives matter movement, or it is the environmental protests. The night insanities things come together. make people realize things have to change. Those are the flashlights. They are easy to predict, neither form or their suffering. Nevertheless, we know you know the sort of March should human dignity that right spend over time. They don't shrink over time that respect for people's lifestyles, increases over time. It doesn't move backwards are concerned. the environment grows every time it doesn't track its being prepared for that March Forward progress, but thinking carefully about where the focal point is likely to be get above, improve the human I'll come and investing so can he has to investing, actually be a sustainable strategy. More specifically, what is needed for is Jean remain sustainable framework for investing, rather than just, as you said, another fad,
The answer to that is deceptively simple. The answer is that he has two funds need to provide access returns that way look at the long scope of investing history. People put money where it makes them money, and that also tends to be what generates the most progress diversity wouldn't be the force. It is if it wasn't Ashley good economics. We realise when we look at what is going on in climate, that the economics will force us to good I'm in policy, even if our belief stop, and so understanding that for did you realise that if you're going to invest will want Germany as cheap, you? Actually to do it in a way this gonna make money for your investors. Standing which parts of the environmental movement actually will end up, profitable and willing the long term solution. What types of commitments to diversity actually make your workforce, a good workforce that will make you competitive,
one ought is essential to write a business. One is also going to generate returned to the business and generate returns for the investor that sweet spot. Where Dewey both good and doing? Well, here's what sustainable Do you mean only one of the tens not to work out long term? So a quick recap in thirty seconds or less would have been so many obstacles that investors are facing as they think about unity. Investing. I think, metrics any easier, as there has been a problem is she is at its heart, a very nuanced deep concept, and people with like it to be simpler than it is right, a check list of things If you do them. You're a good company, separate Sherman, and see our accompanied site. a green pledge commit yourself to diversity targets. Was actually very easy to do. These things will be investing in doing would be straightforward, the trickiest You say the difference between having diverse statistics in giving diverse people. Voices is the difference.
When a fish in environmental policies, it make good sense for the economy and good sense. environment, verses, one. It just sound nice, its governance. That is good in practice, not just on paper Those are the things that really make. Yes, she worked Warhol. Alright, Steve thanks. Joining us today, a pleasure as always Sure to check out these reports sustainable is investing turning promises in performance available wherever you get your Goldman Sachs Research that concludes some sort of Exchanges- Goldman Sachs thanks for listening, and if you enjoy the show, we hope you subscribe and apple pie, gasoline reading or a comet tuning later this week from weekly markets update, were leaders round the fern provide a quick take on the latest in markets. This podcast was courted on Monday July Thirteenth in the year two thousand twenty thanks for.
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Transcript generated on 2021-07-03.