over 2 years ago • 9 mins
This is the transcript of an audio interview with Audrey Choi, chief sustainability officer at Morgan Stanley. Tap the 🎧 button above to listen to the podcast.
With the giant COP26 UN climate change conference kicking off in Glasgow at the end of this week, environmental issues are jumping back to the top of the news agenda. But as the politicians haggle over haggis, what can we as investors do to make a positive impact on our planet?
To help answer that, today’s guest on Insights is Audrey Choi, chief sustainability officer at the Wall Street investment bank Morgan Stanley.
Audrey began by explaining to Finimize analyst Andrew Rummer how she defines this whole area of investing along sustainable or environmental, social, and governance (ESG) principles.
Audrey Choi: I’d say there are a couple of important things that we've always said were really key to how we view sustainable investing. One is, sustainable investing needs to be what I always call sort of “capital S” sustainable, right? Because – especially in the early days – a lot of people thought that sustainable just meant environmental issues. Just green. And I always said, “no no”. Sustainability really has to mean environmental sustainability, social sustainability and, frankly, it also has to mean financial sustainability – if it's going to be an investment, right, because you won't do it a second time if it didn't turn out well as an investment.
Fundamentally, sustainable investing should be thought about as traditional, best-in-class investing, enhanced by the additional perspective and insights and data you get when you also think about impact on environmental issues or impact on social issues. And, of course, good governance. And so really, I think one of the very fundamental things – and part of why the growth has really accelerated and increased so much of late – is that people have finally begun to understand that holistic understanding of ESG, which is not about falsely limiting your your investment universe, it's really about enhancing the best investing processes and diligence with those additional insights. When you realise the critical impacts that environmental issues and social issues can have on business – as well as on society.
Andrew Rummer: I was watching your TED Talk from a few years ago online. And one of the things you hit on is that over the past decade or two consumers have really come to understand that their decisions on the things that they buy – what type of coffee, what type of cleaner for their kitchen – those decisions can promote positive change at companies. But perhaps that hasn't yet fed through to people's consciousness as much when it comes to investments. So how can we help smaller investors realise that they have power to influence corporate behaviour?
Audrey: First of all, one of the interesting things – and thank you for watching the TED talk – was that I had forgotten that I had actually given it in like 2015, or like six years ago, and at the time, I was like, wow, isn't it amazing that sustainable investing is one out of every six dollars under professional management – and today it’s more than one in three. So we've seen this continued acceleration. And I think it's in part, frankly, because the individual investors that you're talking about have increasingly realised that every time you do anything, whether it is buying that local – you know, the local organic, artisanal, whatever it is at the at the grocery market – or ideally at the farmers market without using a plastic bag. Or when you're choosing a stock and saying, oh, I actually love the value proposition here, because it's talking about creating value while being more sustainable. So whether it's number of overtly sustainable brands, or whether it's choosing to avoid certain stocks – all those things really do add up.
I mean, back in 2013, we were certainly seeing the beginnings of it, and I was really hopeful that this was going to continue to be a trend. And I think what we're seeing as people really understand, like, even from the C-suite perspective, if you're the chief HR officer, you have to recognise that, I mean, one of our studies found that Millennials and younger talent, they're three times more likely than Baby Boomers to choose their employer if they believe that you have a sustainable proposition as part of your business strategy. So if you're in the war for talent, sustainability matters. If you're in the war for customers, and consumers of your product, it matters. And so increasingly, I think people really realise that: that you can make your voice heard, whether it's choosing who you're going to work for, choosing what you're going to buy, choosing what you're going to post on social media – in terms of opinions. You know, all that stuff actually really does matter.
Andrew: So if in 2015 roughly roughly one in six dollars was invested sustainably and nowadays we’re up to one in three dollars, what does the world look like if that goes even higher? What does the world look like if 100% of investments are branded as ethical or ESG? Or is that unrealistic?
Audrey: So you have a bunch of different really interesting questions layered into that. So if 100% of all investing were sustainable, ideally, that would mean that all companies are running in a very sustainable way. And so if that were the case, I think that we would start to see a very, very different world. I think layered into your question also is, what is the difference between a sustainable investment and one that might be called a sustainable investment? And what are the different levels of impact? Right? And so I think that’s where it's an evolving industry right now. And I think that it is critical for financial service companies – but also for investors – to really try to be much more rigorous, and say, what do I mean by that? Right?
So if I am a committed investor, and I'm really concerned about a particular issue, I might want to have a very different investment choice decision matrix than if I'm interested in a broader set of things. And so if I'm very focused on gender, or diversity, or biodiversity, or clean water, those could be very, very different things. And I think that we're at a really interesting stage right now, where what we're seeing from investors – especially individual investors, and especially younger investors – is wanting much more specificity, right? Don't just tell me that this fund is generically good and sort of generically sustainable. I specifically want a climate-action portfolio, I specifically want to buy a diversity portfolio, or something focused on fair labour – and so that's where I think the industry is challenged to go. And what's really exciting about the next set of innovations is how can we really provide more and more sharp, pointy, specific, really high impact results from these investment strategies?
Andrew: With COP26 coming up, I want to focus in on this environmental part of the whole ESG equation. Maybe I'm making assumptions here, but I'm gonna guess the majority of people listening to this don’t need convincing that action is needed to tackle climate change, or that capitalism has a role to play. But there's a question that comes up when I talk to Finimizers out there, which is, which is “how?” They’re convinced on the why part of it, but they want to know how. What practical steps can concerned investors take to improve the planet via their investments?
Audrey: Well, first of all, as in everything, right, there's always the two sides of the equation. So one is, what do we avoid doing? And then what do we really try to incentivize doing? And so I think for industrials – and, again, that is going to be a personal decision for everyone – are you more focused on really trying to stop some of the old practices or to really try to drive innovation? And I do think that the reason that I love focusing on the driving innovation part is that a lot of times people get very focused on just sustainability as a lack – as opposed to actually sustainability can give you huge growth opportunities. And if you do it right, they kind of go hand in hand, right? If you find a better way to retool a manufacturing process, so it creates less waste, uses less water, has fewer emissions, that can be a real growth opportunity.
So I would say for all investors, it is really first about thinking about the specific kind of way you want to target your impact. And I think what's really powerful is investors can today, by their choices, both have impact in terms of giving their capital towards companies that are trying to do proactive things around climate change and it also sends incredibly important signals to the markets.
Every time an investor makes a choice, it actually does send a signal. And you know, these days, everyone's out there looking at data, whether it's marketers or data folks or investors and asset managers – and these signals are now becoming undeniable.
For Finimizers, I think what's really exciting is that there's just so many different vectors along which you can have impact, right? I think there is the choice of your specific investments, there's the choice of how you make your voice heard, as a consumer, there's the voice, the impact of how you make your voices heard as a citizen, right? Because ultimately, at the end of the day, if nothing else, my biggest mantra is climate change, social justice, all of the issues, global pandemics, all these issues that we're facing are way too big, too fast-moving, too powerful for industry, or consumers, or governments to manage on their own.
And we have to have a multi-sector, collaborative approach to this. So Glasgow is just one example. We've got to have bold action, vision, and commitment from governments as well as from industry players, right? And we're not going to get there without government laying the right rules of the road to hopefully incentivize the proactive investments we need for the future, and then the investment dollars need to follow. So I would really say for you Finimizers, think about yourself as a consumer, as an investor, and a citizen – and recognize that you have power on all three vectors, and engage and use it.
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