ESG has become established as a key business theme as companies and investors seek to navigate the climate crisis, energy transition, social mega trends, mounting regulatory tension, and pressure from other stakeholders. The rapidly evolving landscape has become inundated with acronyms, buzzwords and lingo, and we aim to break these down with industry experts. Welcome to ESG Currents, your guide to navigating the evolving ESG space, one topic at a time, Brought to you by Bloomberg Intelligence, part of Bloomberg's Research department, with five hundred analysts and strategists working across all major world markets. Our coverage includes over two thousand equities and credits, as well as outlooks on more than ninety industries and one hundred market indicesncies and commodities. I'm Eric Kane, director of ESG Research for Bloomberg Intelligence.

ESG has become established as a key business theme as companies and investors seek to navigate the climate crisis, energy transition, social mega trends, mounting regulatory tension, and pressure from other stakeholders. The rapidly evolving landscape has become inundated with acronyms, buzzwords and lingo, and we aim to break these down with industry experts. Welcome to ESG Currents, your guide to navigating the evolving ESG space, one topic at a time, Brought to you by Bloomberg Intelligence, part of Bloomberg's Research department, with five hundred analysts and strategists working across all major world markets. Our coverage includes over two thousand equities and credits, as well as outlooks on more than ninety industries and one hundred market indicesncies and commodities. I'm Eric Kane, director of ESG Research for Bloomberg Intelligence.

And I'm Chris Raddi, senior ESG credit strategist.

And I'm Chris Raddi, senior ESG credit strategist.

Today we're joined by Levi Zerberg and Elizabeth Alm, who are both senior investment analysts and portfolio managers at Saturna Capital. We'll discuss how ESG differs when looking at equity versus credit, the energy transition and many of its evolving nuances, and we may even go into the seemingly requisite discussion of what the pushback to ESG has meant for Saturna, Levi and Elizabeth Welcome to the podcast and thanks so much for taking the time to join us.

Today we're joined by Levi Zerberg and Elizabeth Alm, who are both senior investment analysts and portfolio managers at Saturna Capital. We'll discuss how ESG differs when looking at equity versus credit, the energy transition and many of its evolving nuances, and we may even go into the seemingly requisite discussion of what the pushback to ESG has meant for Saturna, Levi and Elizabeth Welcome to the podcast and thanks so much for taking the time to join us.

Yeah, thanks for having us. Eric excited to be here.

Yeah, thanks for having us. Eric excited to be here.

Yeah, absolutely, thank you so much.

Yeah, absolutely, thank you so much.

So maybe we can start with just a brief description of SATURNA sure thing.

So maybe we can start with just a brief description of SATURNA sure thing.

So Saturnic Capital was founded in nineteen eighty nine. We're located in Bellingham, Washington, which we joke as the financial center of the world, but you know, not where you think of as an asset management capital, but it's a beautiful area. And saturn Capital is an asset manager with about eight billion in assets under management, and that's across three different mutual fund families and a host of individually managed accounts. So we have twelve different mutual funds and those are across the Amana Funds family, which is invested according to Islamic principles. They also on the equity side, have an ESG mandate. We have Saturna Sustainable Funds which have an ESG mandate but not an Islamic mandate, and then the sextant funds which don't have an ESG or an Islamic mandate.

So Saturnic Capital was founded in nineteen eighty nine. We're located in Bellingham, Washington, which we joke as the financial center of the world, but you know, not where you think of as an asset management capital, but it's a beautiful area. And saturn Capital is an asset manager with about eight billion in assets under management, and that's across three different mutual fund families and a host of individually managed accounts. So we have twelve different mutual funds and those are across the Amana Funds family, which is invested according to Islamic principles. They also on the equity side, have an ESG mandate. We have Saturna Sustainable Funds which have an ESG mandate but not an Islamic mandate, and then the sextant funds which don't have an ESG or an Islamic mandate.

Great and on Saturna's website, it mentions that the firm views the consideration of environmental, social and governance factors as essential informing portfolios of high quality companies that are better positioned to reduce risk and identify opportunities. It continues to say that you believe the companies actively managing business risks related to ESG make better contributions to the global economy and are more resilient. So I'm wondering if you can walk through kind of what exactly these statements mean for Saturna and your research process when it comes to considering ESG factors. Yeah.

Great and on Saturna's website, it mentions that the firm views the consideration of environmental, social and governance factors as essential informing portfolios of high quality companies that are better positioned to reduce risk and identify opportunities. It continues to say that you believe the companies actively managing business risks related to ESG make better contributions to the global economy and are more resilient. So I'm wondering if you can walk through kind of what exactly these statements mean for Saturna and your research process when it comes to considering ESG factors. Yeah.

Absolutely, I mean, at its core, it means that we fundamentally integrate ESG or sustainability information into our investment process. So as part of this, each sector analyst is responsible for understanding what we consider the full mosaic of information that provides a lens into a business, and so that includes everything from the business environment, competitive dynamics, fundamental financials, and ESG performance. So at Saturna, we don't separate ESG or investment analyst functions. They're integrated and each analyst is really responsible for combining both those kind of frameworks and models into their investment philosophy.

Absolutely, I mean, at its core, it means that we fundamentally integrate ESG or sustainability information into our investment process. So as part of this, each sector analyst is responsible for understanding what we consider the full mosaic of information that provides a lens into a business, and so that includes everything from the business environment, competitive dynamics, fundamental financials, and ESG performance. So at Saturna, we don't separate ESG or investment analyst functions. They're integrated and each analyst is really responsible for combining both those kind of frameworks and models into their investment philosophy.

And from the fixed income perspective, we're pretty unique in that we don't separate our equity and fixed income team from the investment side, so we're really working collectively with the analysts and portfolio managers from both sides to formulate our opinion on risks and the future. But really at the heart of both processes is governance because formulating credible plans to reduce carbon emissions, diversifying the workforce, mitigating risk, that really at the heart is another more data points and evidence on the quality of governance on the investments we choose.

And from the fixed income perspective, we're pretty unique in that we don't separate our equity and fixed income team from the investment side, so we're really working collectively with the analysts and portfolio managers from both sides to formulate our opinion on risks and the future. But really at the heart of both processes is governance because formulating credible plans to reduce carbon emissions, diversifying the workforce, mitigating risk, that really at the heart is another more data points and evidence on the quality of governance on the investments we choose.

Interesting, So maybe just to follow up on that, So Levi and Elizabeth, you cover equities and credits perspectively. So when we've chatted in the past, you mentioned you know that the firm takes slightly different approaches to ESG across the different asset classes. But then, of course, Elizabeth, you just mentioned the idea that you don't really separate the investment team, So just curious to hear more about Ultimately how ESG may differ between the equity consideration and the credit considerations.

Interesting, So maybe just to follow up on that, So Levi and Elizabeth, you cover equities and credits perspectively. So when we've chatted in the past, you mentioned you know that the firm takes slightly different approaches to ESG across the different asset classes. But then, of course, Elizabeth, you just mentioned the idea that you don't really separate the investment team, So just curious to hear more about Ultimately how ESG may differ between the equity consideration and the credit considerations.

Absolutely, so. The sustainable fixed income fund that we manage is actually a global bond fund, so it's multi currency choosing from assets and issuers around the world. So the market in which we operate is incredibly diverse. We look at munis, corporations, sovereigns, supernationals, but really on the corporate side where there's a lot of overlap between the equity and fixed income team, our processes and approaches are very similar because we work together. We leverage the equity team a lot with their expertise in their sector specialties, and we use we actually have an internal quantitative model that we use in conjunction with other analysis to look at the sustainability of corporations. But we don't overlap the fixed income team. It definitely has their own separate processes like with unis and sovereigns that the equity team wouldn't focus on as much. But I think it really does lend to a more holistic view of risk because we're able to share those viewpoints across the teams.

Absolutely, so. The sustainable fixed income fund that we manage is actually a global bond fund, so it's multi currency choosing from assets and issuers around the world. So the market in which we operate is incredibly diverse. We look at munis, corporations, sovereigns, supernationals, but really on the corporate side where there's a lot of overlap between the equity and fixed income team, our processes and approaches are very similar because we work together. We leverage the equity team a lot with their expertise in their sector specialties, and we use we actually have an internal quantitative model that we use in conjunction with other analysis to look at the sustainability of corporations. But we don't overlap the fixed income team. It definitely has their own separate processes like with unis and sovereigns that the equity team wouldn't focus on as much. But I think it really does lend to a more holistic view of risk because we're able to share those viewpoints across the teams.

Yeah, I think that obviously the equities are a little bit less exciting just in terms of the various vehicles that you can invest in a little bit more clear cut and dry. The only thing I would really add to what Elizabeth said is and this is I think goes back to how we integrate ESG and why we think it's just part of good financial or investment analysis. And that's you know, as is the case with credits, you know, they may be a little bit more skewed towards what are the risks associated with ESG, and we try and certainly consider the risks, but also what are the potential opportunities and wait that in the equity side as well.

Yeah, I think that obviously the equities are a little bit less exciting just in terms of the various vehicles that you can invest in a little bit more clear cut and dry. The only thing I would really add to what Elizabeth said is and this is I think goes back to how we integrate ESG and why we think it's just part of good financial or investment analysis. And that's you know, as is the case with credits, you know, they may be a little bit more skewed towards what are the risks associated with ESG, and we try and certainly consider the risks, but also what are the potential opportunities and wait that in the equity side as well.

Yeah, I'm more interested obviously in the fixed income side as I'm a credit person, but overall, in terms of your investment process and some of your sustainable strategies, I'd like to know a little more specifically how you determine what could be deemed sustainable, like a sustainable entity to be included or not sustainable to be excluded, you know, some of the risks that you're really trying to avoid. And then the second part to that would kind of be, I know you said that it's a global fund, but I wonder if you do anything with the sustainable bond type labels like green, social sustainability, Do those factor into any of your decisions?

Yeah, I'm more interested obviously in the fixed income side as I'm a credit person, but overall, in terms of your investment process and some of your sustainable strategies, I'd like to know a little more specifically how you determine what could be deemed sustainable, like a sustainable entity to be included or not sustainable to be excluded, you know, some of the risks that you're really trying to avoid. And then the second part to that would kind of be, I know you said that it's a global fund, but I wonder if you do anything with the sustainable bond type labels like green, social sustainability, Do those factor into any of your decisions?

Absolutely, that's a great question. I have to be honest. I love bonds and I love the types of analysis and types of projects that they can do. I think often fixed income takes a backstage in the conversation with sustainable finance, but to me, I feel like they have some of the most tangible impact. For our sustainable analysis. We really break it down into four different sections. We have specifically a climate analysis. We're looking at climate risks, climate adaptation, especially because we're dealing with sub sovereign sovereign issuers, corporations, etc. Some of those issuers can have unique risks, especially when it comes to physical risks, sea levels, storms, that sort of analysis. We're also looking at biodiversity, natural resources, and then in terms of the social we're definitely having a broad view of stakeholder considerations such as supply chain relationships, gender diversity, and of course, as I had mentioned earlier, really at the heart of this is governance. What really makes our fixed income analysis unique, and I think, as Levi I mentioned, we are not in separate teams. Each analyst and portfolio manager fully integrates ESG risks and opportunities into our initial analysis. So from a bonds perspective, we have of course our traditional credit fundamental strong balance, you good governance, along with the analysis that's unique to bonds like curve positioning, coupon structure, relative value, currency diversification. But then we're really evaluating those risks through the ESG aliens specifically climate change, carbon risk, regulatory and transitional risks along with ESG integration. And then finally positive attributes like opportunities in the energy transition, resource efficiency, and also whatever benefits a company can gain from a diverse workforce all around the objective of our fund, which is capital preservation and current income. And then to speak to your question about green and labeled bonds, really we focus more on the quality of the entity itself versus the label of the bond. This is really for two reasons. Issuers can have an amazing use of proceeds on paper, but if the credit quality and the governance isn't there, we really don't think that they're going to be able to put through that project or act on that project effectively, and we just don't want to support that type of issuer for the credit risk alone, also when it comes to relative value ultimately, because we're able to look in such a diverse market globally, if something like a green project is overpriced, this has happened sometimes in Europe. We tend to focus where there's more value and potentially more impact, and we do think there are also excellent opportunities for looking at great issuers outside of the label market, but even within labeled bonds, we're really not looking at all of them as equal, like we're looking at use of proceeds, the allocation and tracking of those bond proceeds, ongoing impact reporting and disclosure, and then overall is your equality and commitment because I think one of the growing topics and growing concerned is going to be ultimately reporting on that impact and having quality data with which we can actually evaluate these projects going forward.

Absolutely, that's a great question. I have to be honest. I love bonds and I love the types of analysis and types of projects that they can do. I think often fixed income takes a backstage in the conversation with sustainable finance, but to me, I feel like they have some of the most tangible impact. For our sustainable analysis. We really break it down into four different sections. We have specifically a climate analysis. We're looking at climate risks, climate adaptation, especially because we're dealing with sub sovereign sovereign issuers, corporations, etc. Some of those issuers can have unique risks, especially when it comes to physical risks, sea levels, storms, that sort of analysis. We're also looking at biodiversity, natural resources, and then in terms of the social we're definitely having a broad view of stakeholder considerations such as supply chain relationships, gender diversity, and of course, as I had mentioned earlier, really at the heart of this is governance. What really makes our fixed income analysis unique, and I think, as Levi I mentioned, we are not in separate teams. Each analyst and portfolio manager fully integrates ESG risks and opportunities into our initial analysis. So from a bonds perspective, we have of course our traditional credit fundamental strong balance, you good governance, along with the analysis that's unique to bonds like curve positioning, coupon structure, relative value, currency diversification. But then we're really evaluating those risks through the ESG aliens specifically climate change, carbon risk, regulatory and transitional risks along with ESG integration. And then finally positive attributes like opportunities in the energy transition, resource efficiency, and also whatever benefits a company can gain from a diverse workforce all around the objective of our fund, which is capital preservation and current income. And then to speak to your question about green and labeled bonds, really we focus more on the quality of the entity itself versus the label of the bond. This is really for two reasons. Issuers can have an amazing use of proceeds on paper, but if the credit quality and the governance isn't there, we really don't think that they're going to be able to put through that project or act on that project effectively, and we just don't want to support that type of issuer for the credit risk alone, also when it comes to relative value ultimately, because we're able to look in such a diverse market globally, if something like a green project is overpriced, this has happened sometimes in Europe. We tend to focus where there's more value and potentially more impact, and we do think there are also excellent opportunities for looking at great issuers outside of the label market, but even within labeled bonds, we're really not looking at all of them as equal, like we're looking at use of proceeds, the allocation and tracking of those bond proceeds, ongoing impact reporting and disclosure, and then overall is your equality and commitment because I think one of the growing topics and growing concerned is going to be ultimately reporting on that impact and having quality data with which we can actually evaluate these projects going forward.

Right one hundred percent. And I think that's just a great way to look at it too, because it's you know, you're looking at the entity as a whole, and then also for your clients trying to find the best relative value that you can and a lot of times some of these green things are coming a little bit too rich in certain people's opinions and maybe trading through other opportunities that you that you might have. So no, I think that was very well said. One of the other things I was going to ask was about the potential risks, which I thought you hit on quite well in terms of the climate risk and diversity risk and some of the other risks that are out there for you that you're looking at. But do you also have kind of an active exclusionary maybe model that you that you follow where certain industries are just completely excluded or or like a negative screening process.

Right one hundred percent. And I think that's just a great way to look at it too, because it's you know, you're looking at the entity as a whole, and then also for your clients trying to find the best relative value that you can and a lot of times some of these green things are coming a little bit too rich in certain people's opinions and maybe trading through other opportunities that you that you might have. So no, I think that was very well said. One of the other things I was going to ask was about the potential risks, which I thought you hit on quite well in terms of the climate risk and diversity risk and some of the other risks that are out there for you that you're looking at. But do you also have kind of an active exclusionary maybe model that you that you follow where certain industries are just completely excluded or or like a negative screening process.

Yeah, we do. In our perspectives. We have a broad exclusion of alcohol, tobacco, pornography, weapons, gambling, fossil fuel exploration, production or refining what's left.

Yeah, we do. In our perspectives. We have a broad exclusion of alcohol, tobacco, pornography, weapons, gambling, fossil fuel exploration, production or refining what's left.

What's left then now.

What's left then now.

We have a lot of options. But aside from those specifically stated, we don't categorically exclude industries, but definitely view some as higher risk than others, especially where you're looking at high exposure to commodities, especially large indirect supply chains, or if they operate in a difficult sector like cocoa or forestry. We're very careful, but we also acknowledge that with good governance or good programs in a company you can actually have some positive impact in those very difficult industries, even if we're making progress and it's not perfect. We have invested in issuers with governance turnaround stories where maybe they've had a controversy in the past, but we think that they've made enough change that we feel comfortable investing. But we do tend to favor dynamic thinking and creative thinking just because of the diversity of issuers and each one really takes special care and we need to learn the story.

We have a lot of options. But aside from those specifically stated, we don't categorically exclude industries, but definitely view some as higher risk than others, especially where you're looking at high exposure to commodities, especially large indirect supply chains, or if they operate in a difficult sector like cocoa or forestry. We're very careful, but we also acknowledge that with good governance or good programs in a company you can actually have some positive impact in those very difficult industries, even if we're making progress and it's not perfect. We have invested in issuers with governance turnaround stories where maybe they've had a controversy in the past, but we think that they've made enough change that we feel comfortable investing. But we do tend to favor dynamic thinking and creative thinking just because of the diversity of issuers and each one really takes special care and we need to learn the story.

That's super interesting. And there are a couple of things that you touched on, Elizabeth that I think speak to some of the big challenges that we all face when trying to evaluate credit or equities from an isustry perspective. In particular, you mentioned the idea of looking at things like climate adaptation. You mentioned specific industries like coco in forestry where I think, you know, there tends to be a little bit of a lack of data in terms of some of the impact some of the risks there so curious to hear from kind of both of you, how ultimately you're solving, you know, some of these challenges looking at things like physical risk or supply change as it pertains to biodiversity or nature risk or impact.

That's super interesting. And there are a couple of things that you touched on, Elizabeth that I think speak to some of the big challenges that we all face when trying to evaluate credit or equities from an isustry perspective. In particular, you mentioned the idea of looking at things like climate adaptation. You mentioned specific industries like coco in forestry where I think, you know, there tends to be a little bit of a lack of data in terms of some of the impact some of the risks there so curious to hear from kind of both of you, how ultimately you're solving, you know, some of these challenges looking at things like physical risk or supply change as it pertains to biodiversity or nature risk or impact.

I could take a quick overview on supply chains and then pass it on to LEVI. We actually had written a paper last year about the challenges of indirect supply chains and the cocoa industry, and really what we're looking for are some innovative solutions, Like I know Unilever and Barry Calibo they've had some pilot programs into using orbital data geo location satellite data to evaluate where a lot of their indirect supply chain maybe coming from and looking at potential deforce station also trying to bring more indirect suppliers to train them to collect data so they can have more visibility. Programs like that we view as very favorable, but obviously not all issuers have those sort of programs, and we're still kind of at the infancy, I think, in evaluating some of these risks, but it is it remains an ongoing challenge and process for us.

I could take a quick overview on supply chains and then pass it on to LEVI. We actually had written a paper last year about the challenges of indirect supply chains and the cocoa industry, and really what we're looking for are some innovative solutions, Like I know Unilever and Barry Calibo they've had some pilot programs into using orbital data geo location satellite data to evaluate where a lot of their indirect supply chain maybe coming from and looking at potential deforce station also trying to bring more indirect suppliers to train them to collect data so they can have more visibility. Programs like that we view as very favorable, but obviously not all issuers have those sort of programs, and we're still kind of at the infancy, I think, in evaluating some of these risks, but it is it remains an ongoing challenge and process for us.

I think Elizabeth gives a great case study there and that highlights how this is. Especially these topics that are less easily quantified and maybe less universally disclosed, lend themselves to individual company analysis just because you know, if you treat it as just a checkbox yes or no. You have a policy on supply chain and deforestation in your supply chain, that policy can vary just wildly cross companies, so you really have to kind of dig into the policy and understand what it means for the underlying company, what it means for their suppliers, and what kind of boots on the ground look like. And so I think that's, you know, really lends itself to this sort of active role of being able to peel back the onion and dig into each individual case study.

I think Elizabeth gives a great case study there and that highlights how this is. Especially these topics that are less easily quantified and maybe less universally disclosed, lend themselves to individual company analysis just because you know, if you treat it as just a checkbox yes or no. You have a policy on supply chain and deforestation in your supply chain, that policy can vary just wildly cross companies, so you really have to kind of dig into the policy and understand what it means for the underlying company, what it means for their suppliers, and what kind of boots on the ground look like. And so I think that's, you know, really lends itself to this sort of active role of being able to peel back the onion and dig into each individual case study.

Absolutely. Yeah, I certainly agree that's a tremendous amount of value in that. And Elizabeth, you also mentioned, you know, the opportunities within the energy transition. It's something that you're also you know, looking at. And Levi, I know you've written extensively on the topic in recent months. Curiously, why if you could kind of walk us through the three part series that you've published and some of the key insights from that.

Absolutely. Yeah, I certainly agree that's a tremendous amount of value in that. And Elizabeth, you also mentioned, you know, the opportunities within the energy transition. It's something that you're also you know, looking at. And Levi, I know you've written extensively on the topic in recent months. Curiously, why if you could kind of walk us through the three part series that you've published and some of the key insights from that.

Yeah, absolutely, so the three we recently published a three part series on the energy transition, and these publications are really a culmination of several years of work that we've been doing to map out and understand the industries and the companies that are involved in the energy transition with the goal of finding investment opportunities. So this kind of goes to the opportunity side that we see from ESG and how it presents itself. And so the work what I want to do was basically track the opportunities throughout the supply chain. So it starts with and I started to work with kind of the end of the supply chain. Everyone knows about renewal energy technology. It kind of grabs the headlines solar panels or wind turbines, and then it works its way up through different areas. And the second part kind of highlights what we consider as likely bottleneckt to the transition, and this is the mining and production of metals and material that are really needed to support the energy transition. And then the third part rounds it out, and it's really what I consider an area that maybe less glamorous, but potentially the most important part of the transition, and that's just energy efficiency and making the grid harder. And it's not necessarily what you see on the front of a CSR report or grabbing headlines. It's certainly getting more headlines nowadays as we've realized it's important. But this is an area that I'm really excited about across the energy transition.

Yeah, absolutely, so the three we recently published a three part series on the energy transition, and these publications are really a culmination of several years of work that we've been doing to map out and understand the industries and the companies that are involved in the energy transition with the goal of finding investment opportunities. So this kind of goes to the opportunity side that we see from ESG and how it presents itself. And so the work what I want to do was basically track the opportunities throughout the supply chain. So it starts with and I started to work with kind of the end of the supply chain. Everyone knows about renewal energy technology. It kind of grabs the headlines solar panels or wind turbines, and then it works its way up through different areas. And the second part kind of highlights what we consider as likely bottleneckt to the transition, and this is the mining and production of metals and material that are really needed to support the energy transition. And then the third part rounds it out, and it's really what I consider an area that maybe less glamorous, but potentially the most important part of the transition, and that's just energy efficiency and making the grid harder. And it's not necessarily what you see on the front of a CSR report or grabbing headlines. It's certainly getting more headlines nowadays as we've realized it's important. But this is an area that I'm really excited about across the energy transition.

Yeah. Absolutely, And you mentioned, you know, the idea of of nowadays. I feel like one of the things in the ESG space is that things change quite quickly and it's ever evolving. And one of the things I think we're all kind of contending with right now as it pertains to the energy industry or sorry, energy transition is, you know, some recent developments in you know, the Supreme Court here in the US, for example, with respect to the Chevron ruling, which I think, you know many of us are great, could have implications for the ability of you know, federal agencies obviously to regulate pollution what that means for you know, the power industry for example. But then that also coupled with you know, the fact that we're seeing for the first time and you know a decade a significant increase in energy consumption and energy to demand going forward right as a result of electric electrification of everything, AI, et cetera. So, you know, just curious to hear your thoughts on, you know, whether that picture that you described in that three part series is changing in any ways, or whether you have any you know, concern about that kind of ultimate end piece, which is you know, the ultimate you know, transition towards towards renewables for example.

Yeah. Absolutely, And you mentioned, you know, the idea of of nowadays. I feel like one of the things in the ESG space is that things change quite quickly and it's ever evolving. And one of the things I think we're all kind of contending with right now as it pertains to the energy industry or sorry, energy transition is, you know, some recent developments in you know, the Supreme Court here in the US, for example, with respect to the Chevron ruling, which I think, you know many of us are great, could have implications for the ability of you know, federal agencies obviously to regulate pollution what that means for you know, the power industry for example. But then that also coupled with you know, the fact that we're seeing for the first time and you know a decade a significant increase in energy consumption and energy to demand going forward right as a result of electric electrification of everything, AI, et cetera. So, you know, just curious to hear your thoughts on, you know, whether that picture that you described in that three part series is changing in any ways, or whether you have any you know, concern about that kind of ultimate end piece, which is you know, the ultimate you know, transition towards towards renewables for example.

Yeah, I think that the question is important. The way you pose it's important too. So these developments, I think, on the surface don't necessarily make themselves any easier. And something I wanted to get across in the in the series and understand as part of the underlying work was the transition is going to be messy. I think we often see these logarithmic curves and and and think it's smooth, and even if they end up being logarithmic in between, it can feel very messy. We can cross these these large chasms and it can be a bit scary to get to that kind of end goal that you're talking about, you know. I mean with Chevron, I think that that one personally is more of a clear headwind versus AI, which I can talk about in a little bit. I do think it's also important to keep in mind, you know, that this isn't necessarily something that was just sprung on regulators. So you know, if you look back, the court hasn't upheld an EPA rule on the basis of Chevron since twenty fourteen, and it hasn't relied on the doctrine in any decision since twenty sixteen. So numerous and in the meantime, numerous clean air acts and methane rules have appeared, you know, in the Federal register that don't site Chevron. So I think sure that there it certainly presents a headwind. It stands to make things more challenging, but it's also something that I think agencies knew was coming down the pipe.

Yeah, I think that the question is important. The way you pose it's important too. So these developments, I think, on the surface don't necessarily make themselves any easier. And something I wanted to get across in the in the series and understand as part of the underlying work was the transition is going to be messy. I think we often see these logarithmic curves and and and think it's smooth, and even if they end up being logarithmic in between, it can feel very messy. We can cross these these large chasms and it can be a bit scary to get to that kind of end goal that you're talking about, you know. I mean with Chevron, I think that that one personally is more of a clear headwind versus AI, which I can talk about in a little bit. I do think it's also important to keep in mind, you know, that this isn't necessarily something that was just sprung on regulators. So you know, if you look back, the court hasn't upheld an EPA rule on the basis of Chevron since twenty fourteen, and it hasn't relied on the doctrine in any decision since twenty sixteen. So numerous and in the meantime, numerous clean air acts and methane rules have appeared, you know, in the Federal register that don't site Chevron. So I think sure that there it certainly presents a headwind. It stands to make things more challenging, but it's also something that I think agencies knew was coming down the pipe.

It's going to say, from a fixed income perspective, I definitely see some forthcoming risks, especially when it comes to the forthcoming litigation we're going to see. I just don't think that we have a full idea of the scope or consequences of this decision yet, but I do think that it's going to be potentially much more of a buyer beware situation in the investment world, and so I think it's going to favor those of us who do a deeper dive, have direct issuer conversations, do that sort of risk analysis, especially with the long term view, choosing issuers and credits that we can invest through regulatory and economic cycles.

It's going to say, from a fixed income perspective, I definitely see some forthcoming risks, especially when it comes to the forthcoming litigation we're going to see. I just don't think that we have a full idea of the scope or consequences of this decision yet, but I do think that it's going to be potentially much more of a buyer beware situation in the investment world, and so I think it's going to favor those of us who do a deeper dive, have direct issuer conversations, do that sort of risk analysis, especially with the long term view, choosing issuers and credits that we can invest through regulatory and economic cycles.

Thanks for that and I was just going to jump in with you know, despite what we've seen some of these rulings and changes, there has been some pretty strong government support in terms of funding, you know, the transition to more renewables and a greener or a more sustainable economy. But I just wonder if you know, we've seen countries, you know, the IRA has been one that was pretty successful here in the US, Europe has has been really pushing funding as well as China, and I just wonder if some of the ambitions of the government maybe is outpacing the ability of suppliers to meet the demand for solar panels or renewables. Do you have any thoughts on that.

Thanks for that and I was just going to jump in with you know, despite what we've seen some of these rulings and changes, there has been some pretty strong government support in terms of funding, you know, the transition to more renewables and a greener or a more sustainable economy. But I just wonder if you know, we've seen countries, you know, the IRA has been one that was pretty successful here in the US, Europe has has been really pushing funding as well as China, and I just wonder if some of the ambitions of the government maybe is outpacing the ability of suppliers to meet the demand for solar panels or renewables. Do you have any thoughts on that.

Yeah, I mean it's an interesting question, and I think more more to come in a way, because what we've seen right with in respect to China, for instance, is an abundance of solar panels be created, and probably much of that will be loss making. And so you have these really challenging factors of trying to understand non economic actors and how they play a role. And then you've got tariffs being put up in the US so those excess solar panels.

Yeah, I mean it's an interesting question, and I think more more to come in a way, because what we've seen right with in respect to China, for instance, is an abundance of solar panels be created, and probably much of that will be loss making. And so you have these really challenging factors of trying to understand non economic actors and how they play a role. And then you've got tariffs being put up in the US so those excess solar panels.

Can't Yeah, the global political environment is hampering some of the some of the funding.

Can't Yeah, the global political environment is hampering some of the some of the funding.

Too, right exactly. And then you know you've got kind of government giving in one hand in terms of encouraging the development of these projects and withholding in the other. And what I mean by that this gets back to the grid, is we see cues for interconnections really spike. So it's very hard to bring renewables online. And you've seen that recently the fossil fuel and renewables come together and kind of work to encourage government to make sighting of these projects and interconnections a little bit easier. So you know, this is part of if I were to describe it, you know, it looks like a logarithmic trend and in between, or if you were to take a very short term look, there's going to be waves like this, And I think, Chris, to your point, there's there's other factors to consider in terms of resource constraints, and so in a way, I think the slowdown in China and kind of implications that's had on copper has helped there be less of a bottleneck than there could be. You know, if you think about if China's economy was running full steam and you have the green transition happening at the same time these bottlenecks maybe coming to a front more immediately. There's still the potential, certainly, I think, for that to happen twenty six down the road, just with how challenging it is to bring on new minds, particularly in copper. But in a way, we haven't seen that those resource constraints as challenging, you know, this past year or two, just because I think of the rest of the global you know, economy and what we've seen there.

Too, right exactly. And then you know you've got kind of government giving in one hand in terms of encouraging the development of these projects and withholding in the other. And what I mean by that this gets back to the grid, is we see cues for interconnections really spike. So it's very hard to bring renewables online. And you've seen that recently the fossil fuel and renewables come together and kind of work to encourage government to make sighting of these projects and interconnections a little bit easier. So you know, this is part of if I were to describe it, you know, it looks like a logarithmic trend and in between, or if you were to take a very short term look, there's going to be waves like this, And I think, Chris, to your point, there's there's other factors to consider in terms of resource constraints, and so in a way, I think the slowdown in China and kind of implications that's had on copper has helped there be less of a bottleneck than there could be. You know, if you think about if China's economy was running full steam and you have the green transition happening at the same time these bottlenecks maybe coming to a front more immediately. There's still the potential, certainly, I think, for that to happen twenty six down the road, just with how challenging it is to bring on new minds, particularly in copper. But in a way, we haven't seen that those resource constraints as challenging, you know, this past year or two, just because I think of the rest of the global you know, economy and what we've seen there.

So Leva, you mentioned copper just now, and I know in the second kind of installment of the three piece research report that you wrote, you talk specifically, of course about some of the metals that are keyed to the transition and the evaluation of those metals, and of course it's more than just looking at, you know, kind of the environmental benefit, but also thinking about some of the social implications associated with the mining of those metal of those metals. I was curious if you could kind of walk us through that analysis and you know, ultimately how you you know, decide whether to exclude, you know, something from a portfolio that may have you know, the end environmental benefit of contributing to renewables, but the kind of newer supply you know, impact on a social issue for example.

So Leva, you mentioned copper just now, and I know in the second kind of installment of the three piece research report that you wrote, you talk specifically, of course about some of the metals that are keyed to the transition and the evaluation of those metals, and of course it's more than just looking at, you know, kind of the environmental benefit, but also thinking about some of the social implications associated with the mining of those metal of those metals. I was curious if you could kind of walk us through that analysis and you know, ultimately how you you know, decide whether to exclude, you know, something from a portfolio that may have you know, the end environmental benefit of contributing to renewables, but the kind of newer supply you know, impact on a social issue for example.

Yeah, Eric, it's a great question, not just for the immediacy here, but also I think for some of the critiques that ESG has had, or people have had for ESG saying, oh, you know, they don't consider the trade offs of these, uh, you know, social implications versus environmental But you know, I think whoever said that hasn't taken a look under the head, because we absolutely do. And h So, you know, mining's obviously for a long time been considered and a challenging one from an ESG perspective based on the effects of its low you know that it has on local environments and the social challenges. And so in some ways it's kind of a case study for why I think ESG matters because in the end of things, you know, all minings, they are literally granted as social license to operate. Governments are saying, go ahead, take resources from our land and sell them, and we'll tax you. And so one thing that we consider kind of first and foremost is the governance environment that the companies operate in. You know, are they are the operating in countries that have strong standards of law. You know, for us, it's just not really palatable to invest in companies that have large exposure to places where you know, their minds could could be taken away the next day, or where you don't have these strong sort of social regulations and government oversight. From there, there's a lot of opportunities I think to look at individual companies and you know what I've actually seen in this space. There's obviously a lot of work and improvement for miners to do, but I think that they've kind of attached themselves to the energy transition. They see the opportunities, and so we've seen miners become a lot more forthcoming with information on various ESG factors. Seeing it outside of the mining sector, but the mining sector is one of the sectors that I first saw start to really broadly disclose ESG information on quarterly or semi annual calls, and the social aspect was paramount always there, whether it was work they're doing with indigenous communities to keep their social license to operate, or you know, the mind safety and fatality rates being one of the first things that any mining company will talk about. I think you add to this kind of investor interest. We've got tools like the Responsible Mining Index and policies like the London Metals Exchange Sourcing policy that have really kind of raised the standard for miners. And so when we're looking at mining companies, we want to see and make sure that that they've got metrics and that they've got in depth policies that deal with things like indigenous partnerships, and we want to see you know, continued performance on workplace safety and inclusive and future ready workforces. So you know, we could go down in one of those channels, but I do think it's an area that the sector has realized it needs to improve on. And some there's there's always gonna be bad actors, but we've seen certainly a handful of companies that have really taken the lead here and are very kind of progressive in terms of their way and there are the routes that they take to address these issues.

Yeah, Eric, it's a great question, not just for the immediacy here, but also I think for some of the critiques that ESG has had, or people have had for ESG saying, oh, you know, they don't consider the trade offs of these, uh, you know, social implications versus environmental But you know, I think whoever said that hasn't taken a look under the head, because we absolutely do. And h So, you know, mining's obviously for a long time been considered and a challenging one from an ESG perspective based on the effects of its low you know that it has on local environments and the social challenges. And so in some ways it's kind of a case study for why I think ESG matters because in the end of things, you know, all minings, they are literally granted as social license to operate. Governments are saying, go ahead, take resources from our land and sell them, and we'll tax you. And so one thing that we consider kind of first and foremost is the governance environment that the companies operate in. You know, are they are the operating in countries that have strong standards of law. You know, for us, it's just not really palatable to invest in companies that have large exposure to places where you know, their minds could could be taken away the next day, or where you don't have these strong sort of social regulations and government oversight. From there, there's a lot of opportunities I think to look at individual companies and you know what I've actually seen in this space. There's obviously a lot of work and improvement for miners to do, but I think that they've kind of attached themselves to the energy transition. They see the opportunities, and so we've seen miners become a lot more forthcoming with information on various ESG factors. Seeing it outside of the mining sector, but the mining sector is one of the sectors that I first saw start to really broadly disclose ESG information on quarterly or semi annual calls, and the social aspect was paramount always there, whether it was work they're doing with indigenous communities to keep their social license to operate, or you know, the mind safety and fatality rates being one of the first things that any mining company will talk about. I think you add to this kind of investor interest. We've got tools like the Responsible Mining Index and policies like the London Metals Exchange Sourcing policy that have really kind of raised the standard for miners. And so when we're looking at mining companies, we want to see and make sure that that they've got metrics and that they've got in depth policies that deal with things like indigenous partnerships, and we want to see you know, continued performance on workplace safety and inclusive and future ready workforces. So you know, we could go down in one of those channels, but I do think it's an area that the sector has realized it needs to improve on. And some there's there's always gonna be bad actors, but we've seen certainly a handful of companies that have really taken the lead here and are very kind of progressive in terms of their way and there are the routes that they take to address these issues.

That makes perfect sense. And in your report you mentioned Cobalt, for example, you know, has one of the highest, if not the highest, kind of incidents of child labor and forced labor associated with it. So if you you know, come to kind of a conclusion like that is is that ultimately something that you kind of exclude and don't engage with further.

That makes perfect sense. And in your report you mentioned Cobalt, for example, you know, has one of the highest, if not the highest, kind of incidents of child labor and forced labor associated with it. So if you you know, come to kind of a conclusion like that is is that ultimately something that you kind of exclude and don't engage with further.

Yeah, and again, I think this is a value that we have for having an es you truly integrated is one the cobalts. Really there's very few places where it's found in economic quantities that we're interested in investing. You know, we're just investing in the Democratic Republic of Congo, And there could be a critique, and I'm totally open to that that these communities need investment and it could be beneficial. But for us, you know, sitting in Bellingham, Washington, not being able to travel to the DRC and see these operations, and just a general concern over the wider governance of that country, it's an area where we're going to be hands off. And even even before that, you know, in my research on cobalt in the green minerals, one thing that I look at is substitutability, and cobalt, you know, really is substitutable. There there are other options you can you can reduce cobalt use in batteries by increasing nickel use. And so the fact that it's that I see it as much more substitutable than something like copper, which you know has an aluminum substitute, but but there's more gives and takes there. Kind of made us stand back and say, you know, this, this isn't really a route that we see is one where Saturnic Capital, you know, that really aligns with Saturnic Capital's values.

Yeah, and again, I think this is a value that we have for having an es you truly integrated is one the cobalts. Really there's very few places where it's found in economic quantities that we're interested in investing. You know, we're just investing in the Democratic Republic of Congo, And there could be a critique, and I'm totally open to that that these communities need investment and it could be beneficial. But for us, you know, sitting in Bellingham, Washington, not being able to travel to the DRC and see these operations, and just a general concern over the wider governance of that country, it's an area where we're going to be hands off. And even even before that, you know, in my research on cobalt in the green minerals, one thing that I look at is substitutability, and cobalt, you know, really is substitutable. There there are other options you can you can reduce cobalt use in batteries by increasing nickel use. And so the fact that it's that I see it as much more substitutable than something like copper, which you know has an aluminum substitute, but but there's more gives and takes there. Kind of made us stand back and say, you know, this, this isn't really a route that we see is one where Saturnic Capital, you know, that really aligns with Saturnic Capital's values.

And that's interesting. You know, I really enjoyed the parts of the report that you put on on renewables and some of the challenges that they face, as well as some of the drivers. But I was just wondering, you know, obviously there's much more in terms of investment we need for not just developing renewables improving grid as you mentioned, but maybe for other technologies such as carbon removal or carbon capture systems to try to meet some of these net zero goals that we have, especially by twenty fifty. Are there any other areas of the market that you guys are excited about or really looking at as potential drivers of the net zero initiative.

And that's interesting. You know, I really enjoyed the parts of the report that you put on on renewables and some of the challenges that they face, as well as some of the drivers. But I was just wondering, you know, obviously there's much more in terms of investment we need for not just developing renewables improving grid as you mentioned, but maybe for other technologies such as carbon removal or carbon capture systems to try to meet some of these net zero goals that we have, especially by twenty fifty. Are there any other areas of the market that you guys are excited about or really looking at as potential drivers of the net zero initiative.

I can speak a little bit to the bond market's role. I think that the bar market has a huge part to play. I think there's a lot more room for innovation in the green transition, sustainably linked and sustainable bond space. I think that well, before I switched to global bonds, I spent eleven years in the municipal market, and I think munis are maybe the unsung hero of the energy transition. After all, they financed around seventy five percent of US public infrastructure. They can be a more advantage just type of funding for states and cities and really those uh they're the front lines for a lot of storm recovery, for a lot of disaster response, for building out the electrical infrastructure.

I can speak a little bit to the bond market's role. I think that the bar market has a huge part to play. I think there's a lot more room for innovation in the green transition, sustainably linked and sustainable bond space. I think that well, before I switched to global bonds, I spent eleven years in the municipal market, and I think munis are maybe the unsung hero of the energy transition. After all, they financed around seventy five percent of US public infrastructure. They can be a more advantage just type of funding for states and cities and really those uh they're the front lines for a lot of storm recovery, for a lot of disaster response, for building out the electrical infrastructure.

Yeah, and Chris, see your question. From from an equity perspective, part of the reason why we focused on the renewables kind of metals and mining and energy efficiency was they're very much here and now proven technologies. You know, we see them as as being economic and we've you know, found companies that we believe provide economic profits there. And from Saturna Capital's kind of investment philosophy, you know, I describe it as kind of hokey Warren Buffett style. We're looking at companies that we can really understand that we want to own for a long period of time, and that that have defensible uh businesses and business model and so I think that there's a lot of really interesting technology out there, carbon capture, hydrogen, different ways to make cement, but in a lot of ways. We look at that as and I covered hydrogen in part of our internal study, and it was just not an area that looked like an area where Saturna would invest. I think there's other capital providers out there that are either able to take more risk venture capital, that are able to start new technologies, and so I think there's a role kind of for everyone to play in the energy transition. It's really all hands on deck funding situation.

Yeah, and Chris, see your question. From from an equity perspective, part of the reason why we focused on the renewables kind of metals and mining and energy efficiency was they're very much here and now proven technologies. You know, we see them as as being economic and we've you know, found companies that we believe provide economic profits there. And from Saturna Capital's kind of investment philosophy, you know, I describe it as kind of hokey Warren Buffett style. We're looking at companies that we can really understand that we want to own for a long period of time, and that that have defensible uh businesses and business model and so I think that there's a lot of really interesting technology out there, carbon capture, hydrogen, different ways to make cement, but in a lot of ways. We look at that as and I covered hydrogen in part of our internal study, and it was just not an area that looked like an area where Saturna would invest. I think there's other capital providers out there that are either able to take more risk venture capital, that are able to start new technologies, and so I think there's a role kind of for everyone to play in the energy transition. It's really all hands on deck funding situation.

Absolutely. Yeah, No, I think the idea of it being all hands on deck funding situations is something that we continue to hear in the space, and I think I certainly agree. So I mentioned at the beginning of the podcast that we probably have to touch on the pushback because it seems required of any ESG commerce at this point. So I do want to maybe conclude with your thoughts Elizabeth and Levi on the pushback to ESG. Levi, you mentioned in one of your answers earlier the idea that you know, some of those who are criticizing ESG aren't really looking under the hood, certainly not you know, under the hood of the type of analysis that you're doing, and I would certainly say under the hood of the type of analysis that we're doing here at Bloomberg. But with that said, I am curious to kind of hear your thoughts on the pushback and whether you've seen any you know, direct impact really on Saturna and your clients and the demand for your products.

Absolutely. Yeah, No, I think the idea of it being all hands on deck funding situations is something that we continue to hear in the space, and I think I certainly agree. So I mentioned at the beginning of the podcast that we probably have to touch on the pushback because it seems required of any ESG commerce at this point. So I do want to maybe conclude with your thoughts Elizabeth and Levi on the pushback to ESG. Levi, you mentioned in one of your answers earlier the idea that you know, some of those who are criticizing ESG aren't really looking under the hood, certainly not you know, under the hood of the type of analysis that you're doing, and I would certainly say under the hood of the type of analysis that we're doing here at Bloomberg. But with that said, I am curious to kind of hear your thoughts on the pushback and whether you've seen any you know, direct impact really on Saturna and your clients and the demand for your products.

From our perspective, really, the wins of politics may change, but the climate isn't going to stop changing. Really, our focus is good governance risks that are material to our investments, and we really continue to think that this type of analysis only serves our clients, especially with a long term view, in terms of the impact to our clients. Really, it's my understanding that we haven't seen much. A lot of the people who have chosen to invest in this fund clearly share a similar mindset in a long term view.

From our perspective, really, the wins of politics may change, but the climate isn't going to stop changing. Really, our focus is good governance risks that are material to our investments, and we really continue to think that this type of analysis only serves our clients, especially with a long term view, in terms of the impact to our clients. Really, it's my understanding that we haven't seen much. A lot of the people who have chosen to invest in this fund clearly share a similar mindset in a long term view.

Yeah, and I'll just add, you know, maybe it's the fact we're in Bellingham, or we've tried to stay off people's political radars, so we haven't seen a ton of blowback. We did, or I did, about a year and a half ago, write up a piece on this because it was just I found a little frustrating to see the narratives in the news, and like I said, you know, have that feeling that people were really seeking just emotional appeal and using you know, wild boards to fuel clickbait as opposed to understanding what ESG analysis is. And so at the same time, I think there are some well found in critiques and I think it's important for the progression of ESG or the stainable investing, you know, to have those kind of critiques and make sure that what we're doing is you know, does create a positive and is kind of operating according to plan. So you know, in that analysis, I think that there's a couple of well founded critiques that came out of it, and those are things like, you know, we have to admit that greenwashing is occurring, and that kind of holding people's feet to the fire is a positive and and that we the most as much as we can address greenwashing, the better. There was a lot of criticism among data providers that they didn't agree. I think it's it's important not to sweep that under the carpet. That's it's okay that they don't agree. We should just understand why they don't agree. But then beyond that there was a lot of I think cynicisms that came out and just you know, I at least from how we practice TURNA or how we practice ESG at Saturna, we're just kind of patently false. And you know, the idea again that we don't consider those those trade offs like we discussed their front and in front of mine when we're talking about ESG and considering the investments we want to make and so or that people don't care about, you know, ESG and it's financial effects that you know, as we got to in the beginning of this conversation, we we you know, maintain that these are really valuable tools for us to use and to understand a business, uh and it's future financial performance or it's expected future financial performance. So I do think it's important that the industry doesn't just kind of recoil and you know, create its own bubble and acknowledge the criticisms and seek to address them.

Yeah, and I'll just add, you know, maybe it's the fact we're in Bellingham, or we've tried to stay off people's political radars, so we haven't seen a ton of blowback. We did, or I did, about a year and a half ago, write up a piece on this because it was just I found a little frustrating to see the narratives in the news, and like I said, you know, have that feeling that people were really seeking just emotional appeal and using you know, wild boards to fuel clickbait as opposed to understanding what ESG analysis is. And so at the same time, I think there are some well found in critiques and I think it's important for the progression of ESG or the stainable investing, you know, to have those kind of critiques and make sure that what we're doing is you know, does create a positive and is kind of operating according to plan. So you know, in that analysis, I think that there's a couple of well founded critiques that came out of it, and those are things like, you know, we have to admit that greenwashing is occurring, and that kind of holding people's feet to the fire is a positive and and that we the most as much as we can address greenwashing, the better. There was a lot of criticism among data providers that they didn't agree. I think it's it's important not to sweep that under the carpet. That's it's okay that they don't agree. We should just understand why they don't agree. But then beyond that there was a lot of I think cynicisms that came out and just you know, I at least from how we practice TURNA or how we practice ESG at Saturna, we're just kind of patently false. And you know, the idea again that we don't consider those those trade offs like we discussed their front and in front of mine when we're talking about ESG and considering the investments we want to make and so or that people don't care about, you know, ESG and it's financial effects that you know, as we got to in the beginning of this conversation, we we you know, maintain that these are really valuable tools for us to use and to understand a business, uh and it's future financial performance or it's expected future financial performance. So I do think it's important that the industry doesn't just kind of recoil and you know, create its own bubble and acknowledge the criticisms and seek to address them.

Yep, No, I would certainly agree. I think it's a it's a great note to end on. So I appreciate Elizabeth and Levi both of your time and your thoughts. I think it was a great conversation.

Yep, No, I would certainly agree. I think it's a it's a great note to end on. So I appreciate Elizabeth and Levi both of your time and your thoughts. I think it was a great conversation.

Yes, thank you very much.

Yes, thank you very much.

Guys appreciate it.

Guys appreciate it.

Yeah, thanks Eric, Thanks Chris.

Yeah, thanks Eric, Thanks Chris.

Thank you very much.

Thank you very much.

So you can find more information on all things ESG, credit and equity by going to our dashboard on the Bloomberg terminal bispace ESG go. If you have an ESG quandary or burning question you would like to ask bi's expert analysts, please send us an email at ESG Currents at Bloomberg dot net. Thank you very much and we'll see you next time.

So you can find more information on all things ESG, credit and equity by going to our dashboard on the Bloomberg terminal bispace ESG go. If you have an ESG quandary or burning question you would like to ask bi's expert analysts, please send us an email at ESG Currents at Bloomberg dot net. Thank you very much and we'll see you next time.