ESG, (environmental, social and governance), has become a hot, and increasingly controversial topic throughout the investments community, with those in the industry disagreeing on a variety of issues within the three broad factors.
“For every one-dollar that governments and non-profits deploy every year, there’s ten dollars that the investments community has access to,” said Paulina Stannard, head of impact investing at CI Private Wealth in an interview with Greg Mausz, the chief operating officer and senior managing director of Skyway Capital Markets.
Stannard argues that the main solution to societal change lies in the private sector and that governments and non-profits are there to assist and support the industry. In this interview, the she focuses on how “change happens in the investments community.”
Greg Mausz 00:10
Welcome to another edition of Focus on Alternatives brought to you by ADISA, the Alternative and Direct Investment Securities Association. For more information about alternative investments please visit a adisa.org, and while you’re there check out the resource library. My name is Greg Mausz, I’m joined today by Paulina Stannard, she is the head of impact at CI Private Wealth. Thank you for joining me here today.
Paulina Stannard 00:34
Thanks for having me.
Greg Mausz 00:35
So, we want to talk about ESG and the current environment around ESG. So, do you think that ESG is being politicized right now?
Paulina Stannard 00:45
Um, absolutely I’m glad you asked. But right off the bat I think it’s really important to distinguish a couple things. You need to have opposing viewpoints in order for something to be politicized appropriately, and ESG is not a set of viewpoints. It’s actually just a set of factors around environmental social and governance issues and whether those factors are integrated or not into a company’s operations. So, you know to bring it to life on the environmental front, how is an organization interacting with its environment and community around it. Socially, is it treating its employee base and customers well? And on the governance side are there checks and balances in place to make sure that the decision making process is sound. And all else equal those factors I think we’d all agree, deserve to be a part of the investment process but that’s not what everyone focused on.
Greg Mausz 01:47
Fair enough. So, you don’t think that it should be, but it is. Then why is it being politicized?
Paulina Stannard 01:54
So, I think the distinction between the why and the how is the breakdown.
Greg Mausz 01:58
Paulina Stannard 01:59
So, in terms of the why, all of those issues I just outlined… seem to be inherent in the investment due diligence process. We should be looking at those things anyway, and I think investors and individuals on both sides of the aisle would agree that if you don’t treat the environment well there won’t be a planet left to live on.
Greg Mausz 02:20
Paulina Stannard 02:21
If you alienate or exploit the humans are interacting with there won’t be much of a business left. And then governance is probably the most important piece from a risk perspective. So, I think we’re all in agreement about the why, it’s the how… how do we get to a place where we feel confident in those factors that I mentioned?
Greg Mausz 02:40
And so, is that why people are taking sides? it’s over the how?
Paulina Stannard 02:43
It’s over the how. And again I would like to see the conversation just dissipate because at the end of the day everyone wants to do two things, make money and do the right thing. That’s what we should be focused on. The current issue however rightfully so is that there’s a big data ask, and so right now the government Is asking for organizations to provide data points on those factors I mentioned, and that can be pretty resource intensive.
Greg Mausz 03:13
Paulina Stannard 03:14
Um, and we haven’t fully proven exactly how those data points are going to be used and if they’re even valid.
Greg Mausz 03:20
And it could be a big burden on business.
Paulina Stannard 03:21
It can be a huge burden, a time suck, and a resource suck. And so, there’s a very valid argument to say why am I incentive to do that? Um and then furthermore think there’s a fear appropriately so that they may be used in a way that jeopardizes meritocracy in the workplace or in some way threatens the free capital market system that we that we all strive for. On the other hand, part of that free-market society is an implied contract to pieces around data. We need to have access to it, and it needs to be accurate.
Greg Mausz 03:55
Paulina Stannard 03:56
And currently it’s the government and regulatory bodies responsibility to ensure that. And so those two pieces are sort of in conflict, like I don’t want to provide the data but at the same time investors really need it in order to make sound decisions and evaluate risks and businesses.
Greg Mausz 04:12
Fair enough. So how do you think we fixed this?
Paulina Stannard 04:16
I don’t have a perfect solution in terms of the government piece. But what I think is perhaps more important is focusing on what we’re what we’re talking about relative to the rest of the universe. For every one dollar that governments and nonprofits deploy every year there’s $10 that the investment community has access to. That is a tremendous opportunity just in and of itself from a dollar perspective. Then when we think about the differences in in structure, investment dollars can do a lot more than government and philanthropic dollars can. We are actually incented in the investment community to address problems differently. To build strategic solutions to things to take risks our time horizon is different. And so all of that means that actually the innovation happens and the change happens regardless of which side of those factors you’re on the change happens in the investment community.
Greg Mausz 05:15
Paulina Stannard 05:16
Not really the government or philanthropic community as much.
Greg Mausz 05:18
Interesting. So, is it really the investment community’s responsibility to lead in all these social environmental and governance ways?
Paulina Stannard 05:27
You know not necessarily, certainly that’s not the implied contract that the investment community is responsible for solving all of the world’s problems. But at the same time, just again purely from an alpha seeking perspective, a lot of our global challenges and gaps in the solution set happen to exist where there are social and environmental problems.
Greg Mausz 05:50
Paulina Stannard 05:51
So again, just purely purely from an investment thesis perspective that’s where the dollars are flowing, not because we think it’s our responsibility to solve the world’s problems, but we know that we can make a heck of a lot of money trying and be rewarded for taking that risk.
Greg Mausz 06:06
Well thank you for laying all that out I know that that was a a tricky subject, so really appreciate it.
Paulina Stannard 06:11
Absolutely and I guess one one example that I think might be helpful and maybe it’s a little tongue in cheek. ut look at one point we were walking around or using horse and buggies.
Greg Mausz 06:22
Paulina Stannard 06:23
And it was inefficient and tiring but no one said Hey I hope someone just drops an alternative you know down on my doorstep. No it was the investment community and private capital that innovated…
Greg Mausz 06:34
Paulina Stannard 06:35
To come up with the car…
Greg Mausz 06:36
Paulina Stannard 06:37
And then, you know overtime realized there’s a better way to do this let’s make this more efficient. So, the assembly line came into play… that brought costs down and cars more accessible and equitable. But then again eventually regulation is kind of needed. We have to know if we’re driving on the right or the left and have speed limits and that was actually welcomed with open arms. And nonprofits play a role in a lot of other ways as well and so as we think about how these three capital participants interact there’s a role for all of them…
Greg Mausz 07:08
Paulina Stannard 07:09
But it’s a reminder that the innovation comes from the investment community and is supported from the others.
Greg Mausz 07:14
Right so let the free markets drive ahead…
Paulina Stannard 07:17
Greg Mausz 07:18
But let some governments put the guardrails on there so that nobody drives off the road.
Paulina Stannard 07:22
Greg Mausz 07:23
Great any final thoughts to share with us?
Paulina Stannard 07:25
I am optimistic that additional education on a lot of these issues will hopefully give people the comfort that they need. And to focus less on the government involvement so to speak and more on the incredible opportunity that exists in the marketplace.
Greg Mausz 07:42
Paulina, thank you for taking the time out with us today.
Paulina Stannard 07:44
Thanks so much for having me.
Greg Mausz 07:46
And thank you for watching another episode of Focus on Alternatives. Again, for more information about ESG or alternative investing please visit adisa.org thank you.
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