How to Select Strong Sustainability-Fund Managers?

Published Jun 26, 2024, 12:00 PM

Given the array of new ESG funds and strategies over the past few years, along with the changing regulatory environment and shifts in demand, efforts to ensure strong management have taken on added importance. In this episode of ESG Currents, BI analyst Shaheen Contractor is joined by Mark Hays, director of sustainable & impact investing at Glenmede, to better understand all aspects of the manager-selection process. He discusses fees, performance and asset allocation, to tips and tricks in selecting capable managers. This episode was recorded on May 7.

ESG has become established is a key business theme as companies and investors seek to navigate the climate crisis, energy transition, social mega trends, mounting regulatory attention and pressure from other stakeholders. The rapidly evolving landscape has become inundated with acronyms, buzzwords and lingo, and we aim to break this down with industry experts. Welcome to ESG Currents, brought to you by Bloomberg Intelligence, your guide to navigating the evolving ESG space, one topic at a time. I am Shahen, contractor, senior ESG analyst, and your host for today's episode. Today, we're going to be speaking with Mark Hayes, the director of Sustainable and Impact Investing at Glenn MEEAT. Mark is going to help us better understand the manager's selection process when it comes to choosing ESG and sustainability funds, and at the end of this we're all going to learn about how to be strong manager selectors when it comes to sustainable Demark thank you for joining.

Us, Thank you for having me.

Mark. Let's maybe kick things off with just a quick introduction, but also if you could just walk me through the manager's selection journey. And you know your process of evaluating managers.

Sure, and again thank you for having me. I think it's really important to start with first principles around what we're really talking about when someone says ESG.

The name of this podcast is called ESG.

Currents, and often I'm asked what do you look for in an ESG investment strategy? And really importantly for me, ESG is a data set, and it's really about what you're seeking to do with that data set as an investor. That drives how you think about strategy selection. So for us at let made you know, we're an investment and wealth management firm, So our role is to understand investment strategies using an open our texture approach and make sure we have the right tools in our platform to meet a wide range of client motivations. For us, again, starting with ESG as that overarching data set. For US, there are four specific and distinct approaches for how one can utilize ESG information in practice from an investment perspective. For us, we're asking this first principal question of why are you seeking to integrate ESG into your portfolio? So, for example, we have a category of investment strategies called ESG integration. These strategies are using ESG information really exclusively to drive risk and return benefits in their view. So as such, they're incorporating ESG data purely where it's material and relevant. You're not limiting your investment universe. You're not seeking to produce an impact. Now on kind of the other end of this spectrum I mentioned, there's four approaches take kind of the opposing view here, and we have a category of strategies called high impact concessionary. Now, these strategies, they too are utilizing environmental and social data as part of their approach, but these investment managers are actually prioritizing impact, specifically looking to use that information to produce a very high and tangible impact, and they're willing to sacrifice returns to do so. In between those two, we have two categories that are kind of in the middle. Of these categories are seeking to produce risk return benefits, still producing those market rate returns, but also seeking to produce impact right alongside that. So these categories we call one is ESG mandated. So these are strategies that use negative or positive screens. Think of these classic exclusionary strategies that may exclude out a portion of the investment portfolio because of es and G risks, or positively tilting or using active ownership towards those companies that are strongest the other categories called thematic It is what it sounds like. It's again prioritizing E or S, but honing in on one specific theme within that. So for us, that's why I get confused sometimes when I hear this idea of is ESG investing good or is ESG investing bad? For us, ESG again is a data set under which there are four very distinct approaches around that. So when selecting a manager, the first questions we ask are why are you incorporating ESG and what's your goal? And that helps us quickly sort those strategies into one of four buckets.

And that's a very good breakdown sort of the of the types of strategies out there. I guess my next question is, you know, when you're looking to select a manager, of course, any of these four strategies, what are things you look for? In other words, you know what is good and what is what is? You know something that you don't like to see when you're evaluating.

Sure, Yeah, So for us, we're seeking to evaluate, really how is the investment manager incorporating ES and G information into their approach to be value accreative, And by value a creative, I mean whether to produce stronger risk return results or to produce stronger impact outcomes. It's really around again, whatever the manager's stated goal is and their intent for using SG, we're looking to really understand how they have an edge in doing so. So I'll give you an example of a few categories of questions that we often ask an investment manager. And again the questions are nuanced and tweaked depending on which one of those approaches that I just discussed.

But why don't we take.

An ESG integrated manager as an example. So first we'll look at a category of questions that I would call proprietary data and systemization. So this is looking to understand when an investment manager is telling us that they're incorporating ESG and it helps them make better investment decisions. For us, you're only as good as an investor in making sure that you are able to spot the most financially material issues and find the right data points to be able to actually identify those. So for us, what we're looking for is, you know, walk us through an individual position in your portfolio and demonstrate to us what data sources are you actually pulling. Is it a third party data source? You know, Bloomberg has an ESG data source, MSCI, sustain analytics.

These are just some.

Of what is a really exploding market around ESG data vendors. Are you utilizing those off the rack? Are you customizing those to what fits with your approach? Are you doing your own primary data and direct dialogue with managers to understand those ESG disclosures to what is most material to you? And how do you systemize that? So repeatability is important, So how do you make sure across your whole portfolio that again you're being able to pull the data that you believe is most financially material and relevant to help you make better investment decisions on a consistent basis. Another category of questions is around documentation. And I will note that we'll talk about regulators perhaps in this conversation, but this is an area regulators really have honed in on as well when looking at strategies that are labeled as ESG. And this is really around you know, maybe another way to say it is show your work prove it. So something that we often do is we'll actually pick out a few positions from our portfolio that is stated that they're ESG integrated. Let's say, and I'll use a random example. Let's say it's pepsi that we see, and we'll say, okay, we see hold pepsi in the portfolio. Can you walk us through some of the analysis you did again the data sources you used, but also show us how this was documented as part of your existing investment process. Some managers have an investment memo that they write for every name held in the portfolio. Others contained it on a system somewhere. It's really importantly whatever the manager does for any other data set. We want to see ESG in the same way alongside that. So we'll be asking them, you know, walk us through what you saw as the risks and opportunities for PEPSI on an ESG basis. Perhaps the investment strategy would flag fresh water withdrawal as something that they see could pose a risk to pepsi given the supply chain risk with increased droughts, just an example. So that's something that we'll look to test to see if there is that consistency across the board with ESG, there are a few other categories around it. I would say broadly, we're also looking to understand the investment manager's expertise from a team standpoint, So what sort of individuals do they have on the team that we think will enable them to have that lasting edge in continuing to evolve and find those best data points to incorporate. So that just gives you a flavor of just some of the questions that we're asking and again their tweaked depending on the exact approach.

Yeah, I like that. I like the you know that you look for repeatability because you know, what's the point otherwise the documentation sort of that long term edge. I guess my follow up question to that is, you know, when you are interviewing managers, what do you find to be out of these categories, where the gaps most lie in the ESG world, and what do you find them strong in? For example, you know, maybe across everybody you're just not satisfied with documentation. Just you know, any examples on what's the gap out of everything you tend to look for.

I guess I'd say a couple of comments here in terms of gaps, you know, The biggest area that I see investment managers coming up short on is really around that consistency of documentation or documentation that fits and makes sense within their investment process. And I'll explain for us, ESG is simply an emerging and increasingly financially relevant data set and as such, in our view, it makes sense for it to be incorporated and ingrained into how the investment man makes any decision. So I think we're some investment managers you know come up shut is that it appears like it's almost tacked on as a separate discipline or siloed process. So often you'll see an investment managers say, well, here's how we you know, consider all these different fundamental data points or quantitative data points, and we say, okay, well how is ESG incorporating? Then they say, oh, well, actually, ESG is this separate team that's done after the fact, held in.

This separate system, and to go talk to them, and for us.

It doesn't make as much sense because again we're coming from a baseline understanding and view that ESG if ingrained where financially material element can help you make better investment decisions. So that's where sometimes the disconnect doesn't make much sense even if it's consistent. The fact that it's separate and siloed, I think is, you know, leads to kind of adverse results in our view.

That's actually a common theme. We have heard that you know, the investment and team treats it as you know, a separate topic and something to be addressed by the ESD and actually they should be talking together and coming up with ditions together. Yeah, that's a common theme. I guess. Another similar question is you know you evaluate these four different strategies and integration impact, I guess are there enough products out there that meet your needs? Do you? Are you having a situation where you're like, oh, there is so much demand for this, but I can't find a fund around it.

Yeah.

And this has emerged in a really interesting way over time.

So a few years ago I.

Was seeing an enormous demand for climate change related strategies. Yes, and at the time I wasn't seeing the high quality product out there to support it, whether you're looking at public equities or fixed income. I would say in the years subsequent to that, we've seen an enormous amount of really high quality strategies come to market that think about climate change risks, climate change mitigation, adaptation, and I'm starting to get really excited around how robust that product landscape is.

You know.

Similarly, I would say that the marketplace for broad based ESG mandated strategies tends to be quite strong across equity and the fixed income.

Strategies as well.

One area I would flag would be racial justice. This is an area that I do see an increasing amount of interest from uh, you know, a wide range of client segments. You know, particularly, I would say some of the mission allowance mission aligned foundations that are out there have shown a lot of interest here. We've seen some endowments out in the market, and these are broad trends that we've seen that show an interest in identifying investment managers that are incorporating, you know, corporate approaches to racial justice and you know, racial equity within those companies as part of the investment process. And I would say in looking out to investment strategies that do this, it's still a relatively light area. There are some investment managers within the large cap equity side that have emerged I think are quite interesting, but once you start looking at MidCap or small cap or fixed income space, it starts to get a little lighter, and I recognize that one of the reasons that the investment strategy landscape may be light is because of the data sets. The data sets themselves are still emerging exactly data right, So there's a little bit of that. So I do think managers that have an active approach around this, that have direct dialogue and can understand how companies are thinking about this maybe first movers and be able to emerge as leaders early on. Certainly I would view the data as an area that will continue to improve from the robustness there that we're able to have. And again back to climate, this was a similar issue a few years ago where there just wasn't the consistency of climate related data to actually build strategies. That has changed really rapidly, partially because of regulation around more consistent climate data that's available.

So hopefully racial justice will also be taken on that journey.

I think.

So for more about products, that's good. Yeah, so that talks about you know, THEMS. I'm curious also in terms of demand, you know, how has that shifted in terms of your client base or just who is interested in ESG. I think the world of ESG has changed so much, Right, in the last three years, We've gone from you know, the highest to sort of I don't want to call it the lowest, but definitely not a high. So how has the client demand changed?

Yeah, and actually even some of the language you used just now around demand for ESG, i'd say that has actually shifted. So a few years ago, I was seeing this widespread across different client types, whether it's family offices and Dowmond's foundations, pensions for ESG ESG integration.

We describe it as ESG integration.

Yes, yes, it was around this concept of we understand and recognize that ESG data can be financially material and relevant and as such, we want a foundation across our portfolio that incorporates.

This in a way that is value accreative.

So it was this big push for ESG integration and as part of that, and really in a similar period again a few years ago, there was some clients you know, I would say most pronounced in again more of the endowment and foundation realm. That said, we want a portion of portfolio to also have a more pronounced tilt towards companies that are strong along ESG characteristics or exclude those that are the weakest around it. So again we call it ESG mandata. But these broad based, positive or negatively tilting strategies that are focused again on ESG as a whole, and that's where most of the interest was. I would say today the interest is quite different. The interest today is really focused on thematic That's where we're seeing this interest go. There's still that foundational view that ESG integration is important, but I would say most folks that I talk to, they recognize that as just an extension of traditional investing in this space, and that interest then to hone in on a portion of the portfolio, it's almost leapfrogging this broad based ESG approach and going right to these are the issues that are important to us. You know, you're hearing from a foundation we really are passionate about the environment. How do we express that view from an investment perspective within our portfolio? Or really passionate about gender equity or racial equity, how do we express that in our portfolio? And that's why you're seeing and you're seeing this in trends in the marketplace that that thematic product set is the one that is growing more rapidly than the broad based ESG mandated side, and I would expect that to continue. Part of it even is you kind of noted it. The ESG acronym has taken on a life of its own. So I see more quickly. You know a lot of folks really gravitating to issue specific interest saying I really am passionate and I care about climate. I'm really impassionate, I care about equity. How do I express that in my portfolio versus going right to yesgah?

And where does this? You know, who are these clients?

Sure?

Where does this demand come from?

Yeah, it's a broad based set of demand. I would say this most of the demand if you look at calend surveys or surly surveys recently at large and I would say r V at LEMMEAD has been similar directionally, the endowmentant foundation market is where there is the highest amount of pronounced interests that you've seen be expressed over the last three years, an allocation and forward looking interest going forward. I would say during this period where it's been quite a polarized environment, I think it's fair to say that client segment has been the most durable in showing their interests, particularly mission aligned foundations that say, look, this is ingrained.

With what we do.

You know, I would say there are pockets of interests certainly on the family side as well. You think about a multi generational family office human Yeah, family offices which has been which has been interesting. The pension part of the market, which Glenmy broadly doesn't work with, I should know. But from a trend standpoint, certainly the state pensions you've seen at least how they're publicly expressing interest in the ESG side has come down a bit, so we have seen that trend.

Okay, So it's really the endowments on the mission aligned foundation which has seen that sustained interest. That makes sense. And I want to maybe switch over to the other piece of managers selection. I don't know if it's the other piece, but it's you know, putting these managers together, which is sure the asset allocation, I guess, you know, taking managers and making one fund or one strategy out of it. How does that work? Are you the person deciding, you know, I have a climate and agender fund, I'm going to put this together in X, Y and Z we have just how does that flow?

Sure? So I'll talk to you a little b about how we think about it. Like lemonade, So for broad based portfolio construction, it doesn't start with me in my group. It actually starts with what's called our investment strategy and Research group. So essentially think of that group as setting long term capital market assumptions, setting views on from a top of the house perspective, where we believe, from large cap equities to small cap equities to fixed income, where there is opportunity from a valuation perspective, and how kind of a diversified portfolio could be constructed just from a building block standpoint. And for us, we have a whole range of different acid allocations depending on risk profile of client types.

We have some that are.

Heavily focused on income generation for example. We have others that are really growth oriented and more capital appreciation oriented. But out of those different spectrum of acid allocations, it's my team's job then to ensure that we have the best investment strategies in our view from a sustainable and impact investing perspective, So again making sure we have those buckets across the four approaches. But when you're constructing that acid allocation that's built on long term capital market assumptions, making sure you have the right sustainable and impact investment strategies slotted in there. So for us, then this space really importantly is not one size fits all. So every client we work with may have a slightly different view both on what their financial goal is, what their risk profile is, but also what their impact goals are. So really importantly, I think it's important to say, like, we don't have here's your sustainable and impact product. I don't think that would make much sense for us or for the clients. For us, we say, here is our roster of top tier in our view, sustainable and impact investment managers. Here's our optimized acid allocation in our view, and let's tweak this and customize it in a way that enables you as a client to express your impact goals and your financial goals.

And that's a lot of clients specific it is.

It's think of us as drawing from a toolkit to be able to meet clients where they are and express their motivations again across financial goals and impact goals. We say we build double bottom line portfolio for clients. That's the two lines. It's financial goal and impact goals and again really importantly, it just doesn't work. I don't think if you're delivering one product to try to meet with such a wide range of motivations that makes sense.

So it's not only about managers selection and you know, selecting strong managers, but also you know, asset allocation and putting this together to express your client's goals exactly.

And we try to be rigorous not only in how we're establishing what the financial goals are, but also the impact goals. So I mentioned, you know, let's say a climate comes and client comes and they say they're interested in climate change. We spend a lot of time trying to understand, okay, well what do you mean by climate change? What specifically are you looking to achieve in your portfolio? Is it a reduction of carbon emissions? Is it a reduction and how much fresh water would draw intensity your companies have for example, And if those are the goals, let's state those in a document. Could be an investment policy statement that we set that says, okay, alongside the goal on the financial side, we also have a goal to reduce carbon emissions in the portfolio, and that's something that we would measure over time the same way you'd measure the financial results.

Impact measurement, right, do you find that to be a challenge? I know, you know, coming back to like racial justice for example, Like, I'm sure it might be easier to express impact in terms of climate change and mission reductions, et cetera than to express impact in terms of racial justice. So how do you deal with impact measurement? Let's just say, on the non climate theme.

Yeah, and you're right what you suggest is true that it is a little more difficult in an area like racial justice, for example. I will tell you that there are some really interesting emerging data sets and measurement tools that are out there. What I would encourage you know, kind of your audience to consider is looking beyond just the large you know esg data providers and trying to understand where there could be a complementary data source that you can bring in to help you measure an area like that. I think you know, for this space, one way that advisors and investment firms can be quite differentiated is to be able to show that nuance and saying that we recognize that there's an area like racial justice that is difficult to report using the standard tools.

As such, we think about it in X y Z way.

So for us, we use a couple of additional data sources for that specific issue, so we're able to report out on that.

That makes sense, And I guess I want to, you know, pick up at different pieces of the manager selection process. So I would imagine fees is, you know, place a big rule. So how do you establish what fees are adequate? And you know, you hear this thought that ESG funds have a higher fee than.

Others, right, it's a great question, and I think your assumption is still correct industry wide if you were to look at ESG funds, let's just use that term here versus a traditional counterpart across the whole industry. The last data I saw is that the ESG funds are priced a little bit higher. I've seen that a road a bit, I will say, over the last few years. We think about it like this when we're selecting again, let's call it an ESG fund across our spectrum of approaches. Really importantly, we're stacking up that strategies fees and their end net returns against traditional counterparts. So we're not just stacking it against other ESG funds. We're stacking them up against a whole peer group. So if you're looking at a large cap equity ESG fund, we're looking at how it's priced, and we're looking at its net returns compared to the traditional space. And let's say that it's priced a little bit higher than it's peers. For us, it's about understanding, okay, looking at the net returns even after that fee, do we believe that this we're paying up for something that's worth it? Is there a premium related to this fund? Is the way that they select ESG data and incorporate it actually really value a creative in our view, and we believe that this higher fee is okay, that we're going to be compensated for taking that on and the net returns will continue to be strong. So that's generally how we approach it.

That makes sense. So it's almost like, is fees rationalized by the performance of the fund? That makes sense? Maybe another piece of the manager's selection process, right, we have performance and I don't know, but that's this general notion that ESG funds tend to, you know, tilt towards technology and tilt away from energy and ionalyze the ETF word a lot, and we actually do see that whole true. They do actually towards tech and away from energy, and that causes these marketsquesed right in a year when energy does well or YESH funds underperform, and vice versa. Do you see that? Do you agree with that? Does that influence your decision? I'm just curious as to your thoughts on that.

I do see that broadly, it does influence my decision when I'm constructing portfolios using the tools on our platform. We have investment strategies on our platform that we draw from that do exhibit based on their approach, for example, potential lower exposure to traditional energy. We do have some as well that tend to be tilted towards tech. It's something that we would consider as part of that manager selection to begin with, to say, are there periods or cycles where we think this investment strategy would underperform based on sector drivers.

So that's an important thing, that's that asset allocation. We read like these sectors are going.

To exactly I would say broadly, for us, our philosophy tends to shy away from investment strategies that have a total exclusion from a sector or really pronounced deviation on a sector.

In the other direction.

For us, we really value investment managers that are willing to keep their investment universe broad rather than totally divest, and instead within a sector look at who they believe are the strongest leaders going forward, who they believe are laggards based on the financial material material lens that they use, and to use active ownership tools, whether it's proxy voting, whether it's shareholder resolutions and filing those themselves. That for us philosophically, can both be a really powerful driver from a risk return standpoint investing rather than divesting and being part of that ship, but also in some cases be a powerful driver to impact. You know, there's a whole philosophical thought out there that would be a whole nother podcast around divestment versus engagement. But being able to engage and effectively drive change in a company to shift their mix toward something that is stronger and potentially linked to what is a mega trend like climate can be a powerful tool as part of a portfolio. So again it's all in the beauty of what the manager themselves doing and what their edge is, which is why that's a big part of our process.

And is that another thing that you evaluate the engagement side or how managers are engaging with the companies within their portfolio.

Absolutely, if that's part of their stated approach, I see, then yes, then we're trying to see Okay, if engagement is a big part of what they're doing and they're saying they'd rather not divest but rather engage, some of the questions we ask, Okay, show us your track record of engaging with a company, showing us the success rate of those engagement and how it is flowed through both an impact side and a return side within your portfolio.

Okay, that makes sense. And I want to continue on the tragicory of you know, picking up out these notions when it comes to ES she funds. Another one is that the passive rapper for yes, she is, for the lack of a better word, inappropriate right. And people prefer the active rapper where you're active because they think es She's so nuanced. You need, you know, you need some human touch into evaluating, and you know a passive strategy cannot meet that. As a practitioner, I'm curious as to whether you feel the same or having looked at passive and active approaches, you think there's a place for both.

I think there's a place for both. Okay, you're right about this notion.

I have heard this a lot, that there's a little bit of a negative view in the industry sometimes around passive strategies and ESG, like they don't go together. What I would say is this passive as a place in a portfolio, and I would say particularly in places of the portfolio where there's an enormous amount of data and more data consistency around it. Another way to say it is within large cap and megacap companies, particularly in the US, there's an enormous amount of data availability, comparable data. It's relatively well understood, relatively efficient part of the market, and as such, a passive expression of an ESG related strategy within parts of your large cap portfolio can make sense. In my view, I think there are other parts of the portfolio where one is really rewarded in an outsized way from taking a more active approach because the data isn't there yet, there's still inconsistency.

With data availability.

So if you were to look at small cap equity, for example, emerging markets equity, these are areas where I'd probably be more a little more hesitant to utilize passive exposures today because I do think that there is that active management component that can really be value accreative to use some of the language I used earlier to your portfolio. So that tends to be how I think that does make sense.

I mean, I do agree that there is a place for both, and you know, depending on the strategy, you can have either an act of approach or a passible So I do agree. I guess the other thing I want to dig into, and I won't term it is a question on greenwashing because I've given them many questions on that and just in general. But one of the challenges I have is that, you know, when I look at particularly these ESG integrated funds, I read that prospectus and again I don't know. I'm not in a position to, you know, call managers and things like that, because we do this across many funds. But I'm reading a prospectus and they use language like we may consider ESG, and sometimes I don't know what to make of that. Right may is a probabilistic language, probabilistic statement. I can say I may be a billionaett tomorrow. That doesn't mean I'm going to be on right. So in that case, you know, I don't know whether it is any ESU fund. Notice, so how does somebody who doesn't have access to managers as you do deal with this kind of transparency and language in this broad category that I call Christy integration.

Yeah, and you're right to point this out, And I would just note upfront that I think there's still more work to do around this space. Regulation has actually helped this space a lot over the last couple of years, specifically the SEC coming out with their naming rule and around how they require now investment strategies, whether they're ESG integrated or ESG focused as they call them, to disclose in a consistent way as part of their fact sheet and their marketing materials that are publicly available on that investment manager's website around more detail than you noted in the perspectus. So within an ESG integrated strategy, now you will have a number of sentences at least that give you a little bit more color around how they do it. Within an ESG focused strategy, there's actually a consistent table you have to disclose that really explicitly discloses the negative and positive tilts you're using. So that's a starting point. I think there's still more room to go because to your point, it still can be a little vague. Certainly, I don't to your point, don't want this to be a selling point of well, you need to work with an advisor like this, because folks out there that listening may not have access to those.

One tool I would flag.

For the audience is an organization called as you Sew. It's a nonprofit organization that has open source tools that are out there if you search to be able to type in any mutual funder ETF and get more information around the tilts they utilize, as well as their exposure along a number of different lens that the audience may may feel passionate about. So that's a tool I do think is really valuable. And again I would note that there's still more room in this space to be more transparent around how these strategies are operating for the retail investor.

I think that's a good point. It's you know, it's not just looking at transperencing what the fund says, looking at exposures, for example, looking at the carbon intensity of the fund or you know, the diversity for the Diversity Fund and rolling up metrics. We do have that on Bloombergos, and I think that's a good point and just not taking what the fund says it says at face value. I guess my maybe my last two questions, But what is a sustainability theme you're most excited about? You talked about racial diversity, climate, what else?

I would say climate, But I would say it like this. I think climate change as a theme is evolving in a really exciting direction in terms of how broad the opportunity is. A few years ago, I think a lot of folks were thinking about climate from an energy and transport perspective, and I think there's still a lot of work to do now there. But I would say interest around nature based investing, Interest around sustainable food and agriculture, around how those spaces are being transformed to help mitigate and adapt around climate change, I think is really interesting. Also, even within the industrial's realm, some of the heavy industrials or materials realms exactly thinking about decarbonization and efficiency within those sectors. I think there's an enormous amount of investment opportunities across public and private markets, and for that reason, I do see climate emerging as not just a theme that can be a small sleeve of or portfolio, but one that could be a lens by which you use to consider your whole portfolio. So that I would say, as a theme is really exciting. I would make one of their comment just as an emerging I don't know if it's a theme yet, but it's an emerging area of interest. Is responsible AI. AI tends to be a buzzword that you hear day after day and I see in my podcast feed, certainly around all of the productivity gains and the excitement around it, but also some of the concerns and that some of our investment managers are starting to consider and think about when they're investing in corporations, is how are corporations considering the.

Gains from AI?

But also some of the risks, whether it's bias in, bias out meaning, or their racial or gender biases that could be propagated from AI. The environmental component of AI, the enormous amount of energy that is needed to power AI going forward. So some of these issues I think are just starting to emerge and be understood, and it's just a trend to watch.

So it's it's it's a more like people asking questions now and we'll figure it out data.

Yeah, exactly. It's it's really in that question and learning part. But I'm really curious just kind of see how it evolves. And I think that could be one that we're talking about for a long time.

That's a good one. And I want to end this with the you know, just asking you for your greatest your greatest learning moment. I think of different ways to end podcast every time this is this is new.

I'll go back to one of the earliest impact investments that I was involved with, okay, and the learning lesson from this impact investment is that how important it is to be nuanced and holistic in how you think about the impact you're looking to achieve and how you consider it. So the investment was a private investment is about ten years ago that was looking to bring olive oil and olive oil plants into the emerging world, specifically in parts of Africa. The impact story was that this was a region that was heavily reliant on palm oil. Palm oil is quite negative in some cases for the environment, and it also can be negative from a health and wellness perspective. So the idea was we bring all of oil. Here we replace these palm oil plantations with all of oil plantations, and everyone wins. Right, it's better for the environment, it's better for the health and wellness of the organization of the towns. As we're doing due diligence here, we start to understand this component that maybe wasn't considered, which was what happens to the livelihoods of those towns that are all working on the palm oil plantations that are all really in that ecosystem, And it hadn't been considered. And when you think about the end result there, what would have happened from an impact perspective. Perhaps it would be better for the environment, perhaps it'd be better for that health and wellness, but what happens to livelihoods, what happens to jobs?

So we have like this just an equitabus.

Yes, yes, it's the intersection of issues, the just transition transitions. And I think that was a lesson. So we ended up passing on the investment because of that component. It was a lesson for me that I've used throughout my career since then, where don't be too one dimensional around and how you're thinking about this space, don't be too focused on just one component of impact, but rather try to understand how these issues are linked. Try to understand how one issue that's quite strong can be a trade off for another, and try to understand how you make that holistic investment that again helps you achieve the financial goals you want, but also the impact you want alongside it. So I've always taken that lesson and try to apply that and try to ask myself is there something I'm missing? Is there an unintended consequence with this investment that we're not thinking about now?

I like that because I find that to be a recording question. Right, you can have the E trade off for the S, you can have vice versa. And how does one think about that? You know, is it like a cost opportunities approach towards that? So I do like that example, and I think that's a perfect way to end. I think, you know, my biggest takeaway was your point on the gaps that you find within managers that they think of ESG performance and fundamental performances maybe two separate things. I think that's something that we've heard from a lot of people, so definitely something to watch going forward. And then your last point on the you know, looking at it holistically and not in a one dimensionally So thank you so much.

Mark, Thank you.

You can find more information on ESG funds by going to BIESG on the Bloomberg terminal, which opens up Bloomberg Intelligence, our research dashboard. If you have an ESG quandary or burning question you'd like to ask our bi expert analysts, please send us an email at ESG Currents at Bloomberg dot net. Thank you,

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