Navigating Through the Climate-Transition Noise

Published Feb 28, 2024, 1:00 PM

Asset Managers can find it difficult to navigate through all the noise related to the climate transition as the lack of standard data and quality of disclosures affects aspirations of reaching net-zero targets. In this episode of ESG Currents, BI analysts Shaheen Contractor and Chris Ratti are joined by Rob Fernandez and Tim Coffin from Breckinridge Capital Advisors. The two guests provide views into what the asset-management industry is looking at when it comes to the climate shift, with valuable insights into assessing the credibility of net-zero goals and more.

ESG has become established as a key business theme as companies and investors seek to navigate the climate crisis, energy transition, social mega trends, mauting, regulatory attention, and pressures from other stakeholders. The rapidly evolving landscape has become innundated with acronyms, buzzwords, and lingo, and we aim to break these down with industry experts. Welcome to ESG Currents, brought to you by Bloomberg Intelligence, your guide to navigating the evolving ESG landscape, one topic at a time. I'm Chris Rady, senior ESG credit Analyst.

And i am Shahin Contractor, senior ESG strategists, and we are your hosts for today's episode. Today we'll be speaking with Rob Fernandez, the director of ESG Research at Breckenridge Capital Advisors, and Tim Coffin, director of Sustainability. We're going to dig in what the acid management industry is looking at when it comes to the climate transition net zero goes and also dig a little deeper into a topic that I find fascinating but probably the hardest, which is the physical risk of climate change. Thank you for joining us.

You're welcome it's a pleasure to be here.

That's great to be here, thank you.

So my first question either one if you can take but as asset managers who are controlling the dollars, can you give me one climate trend or theme that you think is tough of mind? And I apologize for the one because I know there are so many. Either if you can start to go.

First run, oh sure, all right, thanks to a key climate risk, just one, just one, It will be tough. But a key one that we're paying attention to is transition risk, especially for companies. So Breckenridge signed on to the net zero Asset Manager's Pledge a little over two years ago, and by signing on, we committed to managing and understanding that transition risks in corporate corporate bond, corporate securities. We did a lot of work to you know, in anticipation and preparation of signing onto that pledge, and then have just done so much work since then, and our research team has been really a big part of that.

Interesting.

So I think my answer to that would be disclosure. So I think disclosure for investors is an increasingly important theme. Obviously, there have been great strides in standardizing disclosure and reporting. But that's something that investors are clearly focused on.

Okay, so maybe i'll just jump in with and what kind of tools or what are you using to try to manage this transition risk and how are you combating the kind of vagueness of disclosure right now?

So well, just for a point of clarity, Breckenridge is a fixed income manager, so we manage bond portfolios and I think we're we can speak to answer that question is kind of twofold one on the municipal side, which is, I think it's fair to say the municipal market is very much on the front lines of climate change from a capital market standpoint, and then maybe also on the corporate side. So Rob, do you want to start since you've already touched on that zero on the corporate side, and I can follow up on the municipal side.

Yeah.

Absolutely, And you know, so as far as data and tools, there's just been a proliferation of data sets startup firms looking at providing ESG and climate data to asset managers and to other interested parties, and so it's something that we've been paying attention to quite a good deal. As far as tools that we're actually using today. There's a few of them. We have subscribed to an outside data vendor for emissions information and other related climate related analysis, such as a term called implied temperature rise projected pathways for companies, So that's been a really useful tool for us. Another one that we looked to is the organization Climate one hundred plus or Climate Action one hundred plusa one hundred plus global initiative around encouraging companies to take action on managing transition risk. They have a benchmark that brings in outside information from firms such as carbon Tracker that assesses a company's climate transition kind of progress and preparedness, and that's been a really great tool. It's helpful from an analytical standpoint and also from an engagement standpoint, which I know we're going to get into more later. And one last organization I just wanted to kind of give a shout out to is Planet Tracker, based in London. I think they're doing really excellent analysis across a variety of themes, but one of them is climate transition and they do really great and in depth analysis on specific company which that's another really great tool as well.

So just to speak briefly on the municipal side. I mean, I don't think it is a giant leap to understand how climate is so material to the municipal bond market and to investors and to local governments, but it's you know, one of the things that has always been both a challenge and an opportunity in the MEUNI market is how fragmented it is. You know, there's close to forty thousand issuers, it's a four trillion dollar market, and so where do you find kind of disclosure and tools that can help you navigate physical and adaptation and transition risks across public finance? And you know, I would say that the important thing to emphasize is how sector specific it needs to be, right because heat stress will matter in one community, sea level rise or drove vulnerability may matter in another community. And I would just make the point that our credit analysts who follow these terms would tell you that they really look at climate as a risk multiplier or risk accelerator in the UNI market, and that it's not necessarily an affluent seaside community that's suffering from sea level rise that becomes a credit concern. That community for the time being has plenty of access for capital to do the type of infrastructure improvements they need. It's really communities that are already showing some sorts of kind of credit vulnerability, where if you have a singular economy where people can't work out for several can't work outside for several days a year because it's too hot, or if companies are moving away because there's not enough water. Those are the types of things where our analysts are trying to find outliers, both on the positive side and the negative side, and a lot of that is finding communities that are forward looking and transparent and really building that kind of resilience. So, you know, I think that's there's a lot you could unpack there because it is such a fragmented market. But I also think it's it's also very much a part of where we will solve a lot of climate issues because we do finance so much infrastructure at the local level, and to the point about different communities, climate is local.

Right when a photo open something you mentioned you said, you know so many startups with climate data. I personally think there's information overload. But do you have a case study or you know example where some kind of useful data has actually pointed to either a climate risk or an opportunity for a bond or if not today, what do you expect this done govern in the future.

I guess, oh, yeah, that's that's a great question. So as far as a specific case study, so, like I mentioned, we are subscribing to a kind of a climate data package and we using that data, we created what we call a Corporate Transition Risk Framework, okay, and it's a model that consists of about ten different indicators that we're using to measure a company's transition preparedness. And some of the indicators that we're looking at would be whether the company has an approved science based target from the Science Based Targets initiative, are they reporting to CDP or preferably or in addition, doing a TCFD report. So we're scoring companies based on these metrics, and so what we're seeing is that, Oh and then the last piece is that we have that score, and then the analysts are also doing kind of qualitative analysis looking at a company's Corporate Sustainability Reporting TCFD reporting to see, okay, have they set additional GHG reduction targets, how are they progressing on those targets. All that comes together into an analysis of a company's transition alignment, and we're using the IGCC Implementation Guide for those alignment categories. So the best would be if a company's achieving net zero and currently there aren't any companies in our investable universe.

Who are When you say achieving, you mean today.

Or today, Okay, today, okay, yeah, so yeah, so that's really that's really difficult to achieve of you know, using that term again all the way down to you know, not aligned.

And so the companies that we're following are more kind of in the middle that some are our aligning, meaning they're on a net zero pathway. So I think that analysis has been really helpful to really focus in. Okay, this company, based on our scorecard, based on our analysis also looking at that C one hundred benchmark, is has has aligned, so meaning they have set a net zero target, they have means to achieve it, they have a science based target set. I mean, there's certainly lots of companies who have set a net zero target and we're gonna I know, we're gonna to this later. But then when you talk to them and they'll say, well, we know how to get there by twenty thirty, but after that the technology's not there. We're hoping it comes. We're doing some investment to get there. But so this net zero target is more aspirational. So hopefully that provides a little bit of that detail that you're asking for.

Sheen and may I.

Just follow up with a point on the materiality of that alignment that Rob is talking about. So if you think about it, I mean, it's really our analysts who cover the highest emitting sectors, right so energy and utilities and the basics, because that's where the transition will actually be most material. And similar to my comments about municipal finance, we're really looking for outliers, both on the positive and the negative side. And you can see why you really would want to lean into those high emitters that are going to be aligning or aligned or better, particularly as you approach those interroom target dates. So the investment thesis there really is that that's where you'll find resilience and be able to build portfolios that provide kind of the predictable, reliable cash flows that long term investors, particularly long term investors such as pension schemes and things like that, are really relying on their fixed income to provide.

Okay, thank you.

I think you hit you know, he kind of hit it on the head in terms of, you know, the aspirations to get to a certain level, especially from the from the corporate side, and I think, you know, net zero goals are definitely you know, top of mind and a lot of people's investment thesis when they're when they're looking at you know, some of these companies. But what is maybe one over the longer term, do you think there's other technologies that might be incorporated into you know, what we're doing for net zero or do you have any thoughts on future technologies that could be out there, because as you mentioned it, we're not quite there, but you know, like you know, kind of some of this carbon capture is big right now that you know, one of these top of my top of my mind anyway where I've read recently about these huge carbon capture projects. But are there any other technologies that you're considering or thinking about in terms of a way to meet this net zero.

Gol Yeah, that's that's certainly something that we're paying attention to, is you know, new technologies that might be coming and it's something that we talk to talk with companies about too when we engage with them. So, for example, one sector that we engaged with last year was the utility sector, and especially utilities that have a business in distribution of natural gas. And so in terms of Scope three UH, the natural gas that they're distributing to residential customers or commercial customers, that's a big source of Scope three emissions, the emissions from the use of that product. So in terms of technology that these utilities are considering, which is really interesting, is blending hydrogen, maybe hydrogen that's been produced, you know, so called blue hydrogen, which is produced using natural gas with the emission from the natural gas that's captured and stored, or green hydrogen that's produced using renewable energy. A lot of utilities are testing how to blend hydrogen with natural gas because hydrogen being you know, a zero carbon source of energy, with natural gas that is carbon intensive, maybe they can reduce the emissions from from that natural gas being delivered to resident denttrial customers by mixing and hydrogen. But there's a lot of concerns about that. There's a lot of UH. There's a lot of utilities or number of utilities are doing pilots to see. Okay, you know, how does you know can we blend hydrogen up to you know, five percent, ten percent, twenty percent with natural gas and safely deliver it to customers because it can be combustible, and you know, how is it going to how will it? You know, how will the homeowner's oven that base uses natural gas? How will that deal with hydrogen? So that's a really interesting kind of test case or technology that we're paying attention to, is the use of hydrogen.

Can I ask Rob a follow up question? So how you and your previous answer you talked about you know, how our analysts are looking at the alignment of companies towards the pathway to Paris or net zero. Can you talk a little bit about how the solutions that you just described would fit in to that assessment of alignment from perhaps a qualitative standpoint. Oh and you touched on engagement. Does that a helpful follow up question?

That's a good point.

That's good to go here?

This is too tough. Can you make it a little easier so I get you know, part of what we're looking at is a company's progress and reducing its scope one, two and three emissions scope three in a lot of cases can be the overwhelming majority of a company's emissions footprint. So if a company, if utility is making really good progress and you know, innovating and finding safe ways to blend hydrogen with natural gas, their scope three emissions are going to fall and maybe a lot, and so an analyst is going to be paying attention to that and will document, Okay, this is really great, this is going to This says a lot about about that utilities emissions trajectory. You know, maybe that utility has set a net zero goal and this is going to show that. Okay, yeah, there's real a meaningful way that they can achieve it. So I think it helps support the analyst's you know alignment, right kind of alignments.

It makes the point about qualitative assessment. And again, we're bond investors, so what we're really doing is trying to raise our site lines on the horizon and try and understand those factors that are going to be material, particularly beyond kind of maybe the next business cycle or credit cycle, because that's what our clients are hiring us to do, right, to build portfolios that they can match liabilities where or rely on for cash flows.

And you might if I mention one other technology that we're trying to pay attention to as well. Just to elaborate briefly, you had mentioned carbon capture, sure, you know, related to that as carbon removal. Carbon dioxide removal certainly has been growing and there's been a lot of attention being paid to that that sector, but it's something that we're also thinking a lot about. You know, a company like Microsoft, for example, has a really detailed carbon dioxide removal strategy where they're investing in early stage companies such as director capture and other approaches to removing carbon dioxide. But we think in the coming years that's going to become increasingly popular and an important way for companies to manage their emissions footprint. You know, Decarbonization is the number one priority they have to roll out. These companies have to roll out solar wind find ways to reduce their emissions, but there's going to be hard to abate areas where it's going to be very challenging, and so we're looking to see how companies are going to invest in the carbon dioxide removal industry.

Interesting to get back to, you know, the nets you mentioned alignment, You mentioned a lot of these goals are aspirational. How does one analyze preparedness? Gobbon ambition is I think an easier piece of that puzzle. You just you know, you focus their emissions out, but how do you actually dig into preparedness whether they're going to meet those goals or not? Any any tipsod tricks? You know.

We think when we think of preparedness, we are looking at like I guess I mentioned already are Corporate Climate Transition Risk Framework, and we're looking at a number of data points, the quality of the targets that have been set.

The quality like can you describe, give.

Me examples, Oh, yeah, you know, has has the company just set a net zero target? So there, you know, are they going to be net zero by twenty fifteen? Maybe that's all they said? Oh so like an interim Yeah, what is there an interim target? Has an interim target been approved by the Science Based Targets Initiative for example? We feel like that's like a good housekeeping seal of approval for their target. And then we're really paying attention to capital spending, capital expenditures related to the transition. You know, if a company has pledged to reduce emissions, but then they're not investing much to get there, then you know that would be concerning from a preparedness standpoint. So I guess it's just trying to cut through, you know, maybe some stated aspirations and stated goals to see if is there really substance behind it.

Rob touched on IGCC earlier in the conversation, and I think they really break it into kind of channels of what kind of exposure, what sort of track record do they have, what kind of targets are they setting, and then what sort of governance is in place? So those are kind of the high level categories, and then Robs kind of discussing the kind of the more granular quantitative elements. And then you add the qualitative ass which is where you're really trying to make that quality assessment but also looking at investments and opportunity and cap backs and things like that.

And when you say governance in place, do you mean who's overseeing that something?

Yes, I mean you know who's is there. I mean, I'll let Rob details if necessary, but you know, is executive compensation tied to these these goals?

Right?

Is there somebody on the board who is taking ownership and responsibility? This from a stewardship standpoint, would you add anything.

Yeah, that's a great example about the board. That's something that the Climate Action one hundred benchmark calls out as one of their criteria. Excuse me, has a particular board member been designated as the climate expert?

You know?

So we're looking for that. Some companies will say that, you know, the whole board is experienced in climate, but you know that's maybe questionable, so to Tim's point that we're looking for that as well.

Right, And then Tim kind of touched on, you know, some of the municipal work that you know, you guys have engaged in. But how about a similar question there, how do you know, think about governance when it comes to municipalities and their preparedness for some of these future climate or THEIRS transition events.

Well, go right back to disclosure, I guess, right. So that's one aspect that you could look at. But I know our team also has a number of, you know, factors that they will look at in terms of what sort of sustainability plans do communities have. So remember there's a lot of different types of issuers, so it's going to be so specific, right, So I mean airports and hospitals, which kind of are on the balancing, you know, between corporate finance and municipal finance, but they're big, huge municipal bond issuers, and so what's a lot of the attributes that Rob might be talking about in the corporate bond market may be very material there for healthcare for a hospital system, and I think for local communities you just have to look at from them, you know, you have to look so locally, and obviously quantitative data is going to play an important role there as well, but just have forward looking assessments, transparency, sustainability officers, sustainability plans, all of those factors can help really give the analyst a sense to understand the character of the town management and how forward looking they are.

And if you had situations where you've actively been like this isn't going to cut it, and you've addressed it with some of these.

You know, I think it's important to understand that we're looking at materiality of any kind of ESG factors, sustainability issues, sustainable business practices, and for the most part that just largely informs our overall credit assessment. So there's no binary by cell type of scenario that I know of you know, we follow over three thousand, close to thirty five hundred municipal credits. But I'm sure an analyst would probably say that a lack of disclosure, or a lack of plans, or maybe just drought vulnerability at no fault of their own, may have informed a credit decision to be instead of maybe an A plus a single A, or instead of a single A A minus. But I don't have a specific example besides that, just kind of the scenario that I can share with you. Do you have anything you.

Would add, Yeah, that's certainly happened exactly what you're saying, Or we may we have passed on a new municipal bond deal a transaction because the analysts determine that the climate risk and the lack of preparedness kind of outweighs all other credit, you know, investment attributes.

I mean one of the most I mean, just the obvious factor about municipalities is they can't move right. So if they have a heat issue, they've got to come up with long term solutions, whether it's you know, trying to create a tree canopy in their downtown areas or heat you know, address heat islands within historically kind of underserved communities within their districts and factors like that. So it's just a it's not that it's more complicated, but it's a lot different than kind of the way we approach transition risk and corporate in the corporate bond market. But incredibly, you know, certainly material from a credit assessment standpoint.

I want to get into physical risk, and I know that's at least for me, that's a challenging topic. But maybe we'll start with corporate. So, Rob, how do you evaluate physical risks when it comes to climate change? And you know, my next question is going to be can you give you an example of for financial impact?

So in terms of physical risk, it is something that we consider for companies in our investable universe, but we don't view it as the key, you know, going back to that initial theme. For US, it's uh, it's transition and it kind of speaks to where we invest on a corporate side. We generally invest in medium to large capitalization companies in the United States, you know, essentially the S and P five hundred, but we will invest in US dollar denominated bond issuance from non US based companies, but generally.

Physical risk you think like diversified.

It's more diverse. Yeah, that Jen. These companies are big operations, lots of facilities. They're sourcing you know, from suppliers that in many geographies, many locations, and if they're having troubles sourcing from one spot, generally they can source from you know, the same what they need from a different supplier. So that physical risk, yeah, to your point, is generally diversified. But we do pay attention, you know, just in terms of one kind of case study. We do pay attention to it in our engagement when it when you know, may be kind of material for a specific sector. So we talked to a number of rates real estate investment trusts last year based in the US. You know, maybe they manage and own commercial property or apartments. So we are talking to them about how they're thinking about physical risk, and we did that last year. So by and large, across our amessable universe, it's not a priority, but we will dive in in certain sectors. And so one particular rate that we talked to did a whole physic coal risk analysis across all their properties. They own, big apartment complexes, develop and own across the US, and you know, they highlighted how some of these properties were at risk, but they felt like generally it was well maintained, so that that was certainly a positive.

And is that analysis common or it's far and in between where a company is doing.

This, Oh, it's far and in between. There would certainly be a leader others I think they're just getting started, but realize that it's an issue.

And there are are there in your research certain sectors that you inherently just aren't that interested in because of their lack of maybe a transition plan. Or are there certain sectors that you're really leading towards because of how well they're you know, what's kind of the thought process there? Do you have certain sectors that you're really just not worried about as much?

Oh?

Yeah, I mean, like Tim mentioned earlier, you know, in certain corporate sectors are much more exposed to that transition risk, you know, than others such as energy utilities, like I mentioned, autos chemicals, basics. You know, generally, from a firm's philosophical standpoint, our investment philosophy has been that we have never looked to divest or avoid any particular sector. You know, we manage approximately ten billion in sustainable bond strategies and we've never we have it hasn't been our focus to avoid any particular sector for maybe more elevated ESG risk. You know, we will we will manage that and something the analysts are focused on. If a client wants to screen out a particular company or sector, we can do that and we've done that on a number of occasions and Tim can speak to that better than me. But in terms of, you know, specific sectors that we're overweighthing or watching for transition risk. It was interesting in the in the energy sector, the integrate the ones that the large oil and gas companies that you know do exploit exploration, production, marketing. They have gas stations. We're seeing that they're doing more investing for the future, you know, investing in ev charging stations for example, solar, wind, hydrogen, biofuels, more of that's going on. Certainly they need to be doing a lot more, you know, personally, the you can't compare the integrateds to just the exploration and production companies, you know, bigger ones like in the US, and that we see them as really falling behind. You know, they're they're not looking to it to invest in other potential future technologies.

And I don't know if you have any comments on the physical rece aspect, maybe.

For mutis well in either case in municipals or corporates. I mean, I can't underscore the notion of materiality enough, right, I mean, it's really the foundation for everything we're talking about here. Again, we're really trying to improve risk adjuster returns over the medium to long term. I think on the municipal side, you know, it just becomes again. And going back to my opening comments was that the UNI market really is very much on the front lines, but also that notion of climate really being a risk accelerator. But it's going to be so local, right, and so sect or specific.

Right.

What is material to a water and sewer authority is going to be very different than what's material to a school district or a library district. But it doesn't take a lot of reach to kind of unpack how those can be affected both by the nature of the sector, like where their source of revenue comes from. Is it property taxes, right? And what's happening to the value of property taxes if you can't get insurance for those properties, right? Or is it a rate payer base, you know, and what is the what happens if there's not enough water for a water authority and they're just running around drilling drilling wells like whack a mole. Right, that's just not a sustainable model, right. And public transportation, you know what if you start running into situations where rapid transit or light rail is running into physical damages to the point where people can't use it, and so, I mean it just takes a logical approach to kind of going down how all of those revenue sources can be interrupted. But when you think about like the breadth of the MUNI market, so much of it is local general obligation bonds which are backed by property taxes for things like schools and libraries, things that don't have their own source of revenue. And you know what is that a lot of these projects are financed over twenty or thirty years, right, and yet the properties are carrying you know, property and casualty insurance that renews every year. So what are the long term implications to those types of property values? And I think that's what our an US are trying to stay ahead of. Right, the MUNI market is inherently a very safe market. As you know, you know, multiple multi notched downgrades are incredibly rare. You know, there's and you really do have an ability both from a willingness and ability to pay, to see far out into the future. But this climate is material in some sectors and in some regions more than others. But it would be we would be tying one hand behind our analysts back if they weren't able to do this type of work. They really need to be able to look out beyond further on the horizon.

Okay, And I mean you mentioned the MEUNI market again with the general obligations, but what about with actual labeled green social sustainability bonds. Have you done a lot with those? And do you give those a higher weight in the portfolio if it's an actual labeled bond then just a general you know, a conventional bond from the same company, or do you do anything along those lines.

Do you want to start, tim and then I'll touch and a little bit.

I'll just say briefly, we certainly have clients who love to see green bonds in.

Their portfolios, and the municipal market in.

The UNI market as well. In fact, I'm pretty sure Massachusetts issued the first green bond in the MUNI market, so it's over ten years hometown plug there for Massachusetts. But I would say, you know, I'm not an analyst, so I get a little nervous speaking on behalf of our analysts. But I suspect that our analysts would rather see robust climate disclosure in an offering document than a green bond label on the front of that offering document, because that's really what matters, and I think that's what should matter to investors too, including those investors who'd like to see green bonds. That's what I would say.

In the I think that's true, definitely true for our corporate analysts. They want to see that really strong disclosure. But it's certainly a market that we've been paying attention to for a long time. We invested in as a company and as in the first green bond in twenty thirteen, it was the International Finance Corp issued a billion dollar green bond over ten years ago. And so we will allocate green social sustainability bond, sustainability link bonds to our sustainable portfolios because like ten men mentioned, clients love to see them there. They're great from a so called ESG storytelling standpoint, you know, you can get some information from the impact report, assuming companies have published those, and generally they do if they're adhering to the EKMA Green Social Sustainability principles.

Right, Yeah, because sometimes just the disclosure is better if they have that label. Yeah, they're putting out that allocation report, that impact report. You just get a little bit more disclosure on what the actual impact of that those proceeds were.

Yeah, and clients like it. We like it as well, that transparency. And it's also a form of climate solutions potentially too that would fit within the net zero strategy as long as that bond is financing you know, clean renewable energy. I think that could be a real opportunity as well.

And maybe to touch on engagement with companies, So Robbie mentioned you engage on physical risk to some extent, maybe probably transition risk. I guess what is the reaction you get from companies Do they want to talk to do they want nothing to do with you? And maybe what is a measure of success in an engagement.

That Yeah, that's a really good question. So we've been engaging with companies and municipalities for a number of years now, and how we determine the themes or the topics that we want to talk to companies about, or cities and municipalities. It's a kind of a discussion with the analysts, the coverage analysts. So if there's a particular theme that they feel like it's really important to talk to, you know, companies in their sector about, then that's something that we would it will pursue, will dive into, and our number one objective when engaging and having these conversations is to supplement our ESG research where generally our focus is not on pushing for corporate behavior change. It's really about having kind of meaningful, in depth, depth discussions with company management teams or municipal issuers about their ESG practices and sustainability initiatives and how they're looking to embed sustainability into their corporate operating strategy as an example. But to your question, one area where we have been involved in pushing for action is in the CA one hundred. Breckenridge has been co lead investors on three US companies in the C one hundred list. So that means that's three companies out of the one hundred and sixty six lists that are you know, the largest one hundred and sixty six corporate meters greenhouse gases globally. So they're big companies, big emitters, and you know, so we're looking for them to make progress in the three objectives within the C one hundred around climate governance, emissions reduction, and reporting. And so to your question, an area where we've seen some progress in one of those companies is there's one that was kind of dragging its feet in terms of measuring and disclosing their Scope three emissions. They finally did this year, which was which was really great and we applaud there's a lot more progress. This company needs to make a lot more progress, but we were certainly excited to see that, and just by publishing that information, it really shed light on their emissions profile. Like I mentioned earlier, and as I'm sure listeners are well aware that Scope three emissions can be like a big, big part of a company's emissions profile, and it was very clear that when they when the company published this report, it turns out it's ninety five percent their emissions or from the use of their products, and that wasn't clear before, so it really helps from a transparency standpoint. So that was we felt was a good win and companies happy to do no not always.

Does that put you in a different position as a bond investor with companies like does that change the tenor.

Oh yeah, versus an equity holder who can file a shareholder proposal if they want to. You know, I haven't necessarily seen any real difference. I think buy and large companies are willing and open to speaking to bondholders because we're another important stakeholder, right, just like equity holders or anyone else. So we overall we feel that the conversations are very productive.

I think, you know, for us, a lot of the conversations we have sometimes with clients is just about educating them on as we've gone through, you know, all the different data sets, all the different things that are going on. But you know, there has been some pushback. I wonder if you guys get some of the same pushback, and maybe how do you overcome it or address it with some of the people that you know you're trying to educate them on what you're doing.

You're talking about the ESG backlash as it's kind of been coined that way. So I would say a few things I think the I think as an industry perhaps we walked into a little bit of that criticism. I mean, so many products kind of got rushed out so quickly that there were a lot of there's a lot of dispersion, I guess to use an investment term between kind of definitions of what sustainability and responsible investing and in ESG investing means. But I would take a step back, and you know, one thing that I think is important to understand is that in the rest of the world, in the UK and Europe and Asia, I mean, the sustainable investing has really been driven by the kind of the fiduciary responsibility, right, and that these are pension schemes and sovereign wealth funds who really are trying to do as much rigorous due diligence on making sure that they're properly building kind of lia about liability matching tools that will serve the beneficiaries over the long term. And so obviously integrating sustainability, whether it's climate or even some social factors into research is all about kind of fiduciary and here in the States, I think I'm speaking obviously and kind of sweeping generalizations here, but I think a lot of the kind of the ESG movement and sustainability movement has been driven by mission driven investors. So certainly faith based organizations like ICCR, who has been doing this long before anybody, you know, going back to the nineteen seventies, but foundations and endowments they really looked at ESG almost through a mission alignment standpoint, and I expect that will certainly continue. But I also believe that the fiduciary lens is going to become more and more prevalent. If you're sitting on an investment committee for an endowment or a pension fund, and this is exactly the type of topic you're supposed to be thinking about, right Like you have managers and consultants and advisors who are helping you kind of allocate assets and things like that, and so you really, from a government standpoint, are the are the stakeholder who is supposed to be taking the higher level longer tooking, longer term looking view. And I think that actually is getting some traction specific to the backlash quote unquote over the last year. I think it has been effective in terms of kind of hushing some of the narrative, but I don't think it's actually have any sub having any substantive impact on where capital is going or will go. Capital doesn't change like that. People may stop talking about it, but capital is going to go where capital thinks it should be and where it's going to be safest and where it's going to get those best risk adjusted returns, regardless of kind of the banter at the political.

Level, I guess I would echo what Tim said as far as I would. I think the industry brought this a little bit on ourselves because of all the differ different terminology that was used to market different ESG funds, sustainable funds and what does it mean in the end if this fund is ESG and this one sustainable and so being able to really describe it well is important, and I think that has been a challenge for the industry. But there's certainly initiatives that are in place to try to improve that, like the SEC with their fund manager Disclosure kind of guidance, which I'm not sure when that will be officially published, and then the CFA Institute, the ESG Technical Working Group has their own guidance that they put out to help asset managers describe their ESG process and communicate that externally. So overall, we feel like this is probably unfortunate but maybe important scrutiny.

You mean that the sort of the bedrock has been laid regardless of some of this, I guess noise.

Yeah, I think so. Yeah, certainly, And you have all these managers, including ourselves, whoill build up you know, exg ESG expertise and knowledge that that's not going anything for many years. Yeah, for many years.

Yeah. I don't have any other questions, Chris, any butting thoughts or questions.

No. I thought that was a great discussion a lot of the risks that we're seeing and and some of the ways to address them. So thanks guys.

First of all, it's a great podcast. You know, we really appreciate the content that you guys have been producing, and we're certainly flattered to be included in the discussion. So thank you for including Breckrage.

Yeah.

I echo what Tim said. You know, it's a podcast that I listened to on the weekends while watching the Walking the Dog around the neighborhood. So it's uh, it's great to listen to and really appreciate being here.

Thank you, and maybe some botting thoughts on you know, is there anything you think we missed any gaps that you know, we think we should have addressed. There's just research analysts. This is just food for thought for us.

Well, one I was wondering about was just the charm. Well maybe the net zero pledge.

Okay, yep, I think the must will do interesting questions that are we missed, right.

I know that was good? This is great? Yeah, this is this is awesome.

Yeah okay, well maybe to sum it up, you can find more information on climate investments, net zero and a hola ray of other topics by going to b I E s G on the Bloomberg Terminal, which opens up Bloomberg Intelligence, our research dashboard. If you have an E. S G quandary or a burning question you'd like to ask BI experts, please send us an email at ESG Currents at Bloomberg dot net. Thank you everyone,

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