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Where ESG's $35 Trillion Explosion Really Came From - YouTube
Channel: Bloomberg Quicktake: Originals
[2]
Sustainable investing is
sort of an umbrella term.
[6]
It's been a breakout
year for Environmental,
[8]
Social and Governance
issues, known better as ESG.
[11]
2020 was really an inflection for ESG
[15]
and as a result, it's
become a mainstream topic.
[18]
That kind of subgroup
called ESG is really by far
[22]
the biggest area within
sustainable investing,
[25]
which in just the past few
years has gone from nothing
[30]
to more than $30 trillion
in assets under management.
[34]
Sustainability, it's more
than an environmental issue.
[38]
As everybody seeks to
sort of invest their money
[41]
in a way that they believe, at least,
[43]
is more aligned with their values.
[46]
I believe there will be a future
[48]
that all investments are going
[49]
to be looked through sustainability.
[51]
That's why I really talk to our people
[54]
about just four words,
[55]
higher returns, lower carbon.
[57]
The key question that we've
been looking at this year
[60]
is how much is sustainable
investing helping the world,
[63]
making capitalism more sustainable
[66]
and how much is it making
money for Wall Street?
[68]
The Securities and Exchange Commission
[70]
has come up with a regulatory agenda
[72]
to bring in more regulation
[73]
as far as ESG disclosures are concerned.
[76]
You've got to pull back the top layers
[78]
and look more deeply.
[80]
There is a threat of greenwashing
[82]
and it needs to be monitored,
it needs to be dealt with.
[86]
In that process,
[87]
we decided that we wanted to look back
[88]
at the origins of sustainable investing.
[91]
I found a book that was published in 1991,
[94]
dedicated in part to these
two obscure financiers
[97]
called Robert Schwartz and Robert Zevin.
[101]
I set out to find out as much as I could
[104]
about these two men,
[105]
their investment practices,
[106]
how they were viewed on Wall Street
[108]
and also to find them if I possibly could.
[121]
Robert Schwartz died in 2006,
[123]
but I did find an extraordinary
documentary decades old
[127]
but I did find an extraordinary
documentary decades old
[128]
that had been made about him,
innovating these practices
[132]
by a filmmaker who spent
a ton of time with him
[135]
and followed him around
across the country.
[139]
Well, I didn't grow up intending to be
[141]
an investment advisor any
more than I did a fireman
[145]
or a policeman.
[147]
Business Not As Usual is an 18 minute film
[152]
that I
[154]
recorded on 16mm film
[158]
when films were really films
[161]
in the 1980s and the 1990s.
[166]
At that time,
[167]
I was considerably younger than I am now
[170]
and I came upon people
[173]
who I discovered were
[176]
using their work in ways
that I had never heard of.
[180]
Twenty-five years ago I
realized that a strategy
[183]
of directing investments,
[184]
according to progressive
values could become a forceful
[188]
instrument for social change.
[190]
Robert Schwartz grew up
during The Depression.
[192]
The world's richest
[193]
and supposedly soundest economy perished
[196]
and small business was strangled
by The Great Depression.
[199]
He was born in 1917,
[202]
so he was coming of age during
the time when America was
[207]
really at its lowest financially
[211]
with millions of people unemployed,
[213]
with millions of people going hungry.
[216]
This had a lifelong impact on him.
[218]
I did go through The
Depression as a teenager
[222]
and keenly aware of
the problems of poverty
[225]
and unemployment.
[227]
Robert Schwartz was a senior
level official at the U.S.
[231]
Treasury Department when
World War II began
[234]
and so he enrolled in the U.S. Marine Corps
[236]
and he was sent to the Pacific.
[240]
After the war he went back
to the Treasury Department
[243]
where he worked in the
international section.
[245]
We should remember that
practically every issue which we
[248]
face today from high taxes
to the shameful mess in Korea
[253]
is inextricably interwoven
[257]
with the communist issue.
[258]
Sadly after the war,
[260]
there was also kind of a series
of witch-hunts that began
[264]
in the U.S. going after so-called communists
[267]
or leftists who were
inside the U.S. Government.
[271]
Apparently every time
anybody says anything
[274]
against anybody working
for Senator McCarthy,
[277]
he is accusing them of communism.
[281]
It swept up Hollywood,
it swept up literature,
[283]
it swept up Washington D.C.
[285]
and the highest-powered
corners of the U.S. Government,
[288]
especially the Treasury
Department and The Pentagon.
[291]
This body is improperly constituted.
[294]
It is a kangaroo court, it
does not have my respect.
[298]
It has my upmost contempt.
[300]
Robert Schwartz caught up in this
[302]
because he was a leftist.
[304]
He was incredibly
progressive for his time
[307]
and he had to give up his career
[308]
and his livelihood and the
future of his family even
[313]
was in jeopardy because
he didn't know how,
[315]
or if he would ever be able
to make a living again.
[318]
It created a
[321]
lifelong desire on his part
[325]
to challenge established authorities.
[329]
It also led to him wanting to,
[333]
in whatever ways that he
could, use the next steps
[337]
that were at that time unknown,
[340]
to again, pursue what he
believed strongly in.
[344]
I was put in a position
of really having to retire
[347]
from the Treasury Department
and started life over again,
[350]
back in New York with
the Amalgamated Bank.
[353]
He finally found a bank on Wall Street
[355]
that was a pretty unique bank
and a pretty innovative bank,
[358]
and also a pretty progressive bank.
[360]
It was called The Amalgamated Bank
[362]
and it was set up by a
textile workers union
[365]
that represented European
Jews who were fleeing Europe
[369]
in the 20th century
[370]
and coming to work in one
of the toughest industries,
[373]
which was the textile,
the garment industry
[376]
and the bank was founded by
the union as a safe repository
[380]
for the workers earnings,
for their pensions,
[383]
for their welfare funds.
[384]
But also as a way to
provide credit to them
[387]
so they could start the American dream
[389]
and own a home and have access to finance
[393]
that could change their lives
[394]
and the lives of their families.
[400]
When Robert went into
the Amalgamated Bank,
[401]
he discovered something
pretty extraordinary.
[403]
He was responsible for about
a billion dollars in assets
[408]
that the bank had, which
is a huge amount back then
[411]
and he discovered that a
significant amount of these funds
[414]
were invested by a union essentially
[418]
in companies that were anti-union
[421]
that were breaking strikes,
[422]
that refused to negotiate
with their workers,
[424]
that were even engaged
in supporting violence
[427]
against their own workers on picket lines.
[430]
And he thought that the bank
should definitely alter its
[433]
investment practices to
not support companies
[437]
that were engaged in
unfair labor practices
[441]
and this was really a first for anyone.
[445]
Robert Schwartz believed
that it was possible
[449]
both to do well
[452]
and to do good.
[454]
Portfolios for clients may
avoid military contractors,
[458]
exclude nuclear power,
destroyers of the environment,
[463]
union-busters and
business in South Africa.
[468]
To replace those companies,
I seek innovative companies
[471]
meeting social needs.
[473]
He was not after maximum profits.
[477]
He was after maximum
profits that would fit with
[483]
what he believed
[484]
and what most importantly,
his clients believed.
[488]
Had his clients not believed in that,
[491]
my guess is that rather
than change his principles,
[495]
he would have dropped those clients.
[499]
While Robert Schwartz
was building his practice
[501]
around these principles,
another investment advisor,
[504]
another economist,
[506]
this one trained at Harvard,
was building a very similar
[510]
business for clients starting
with his family in Boston.
[517]
I started investing for myself
[520]
when my parents began giving
me stock in the company,
[525]
they encouraged me,
[526]
my father anyway, encouraged me to sell it
[529]
and invest it, which I did.
[530]
I must have been extraordinarily lucky
[533]
because I invested all my money
in only one or two stocks
[536]
and I just had two or
three or four big winners.
[540]
I said, "Great, so by the time I'm 30,
I'll be a millionaire
[545]
just from investing."
[547]
And did that happen?
[548]
No.
[551]
It did not happen.
[556]
I started an organization called Resist,
[559]
designed to deliver
support for individuals,
[564]
mostly for civilians, who used
passive resistance, tax refusal,
[569]
whatever, to oppose the war
[571]
and a year later I started
[574]
the United States Servicemen's Fund,
[576]
which had the more important ambition
[580]
and more useful ambition
of supporting servicemen
[584]
and women who opposed the war.
[586]
So, in the day I'm teaching
[589]
in the weekends I'm investing
[592]
and in the evenings,
[593]
I'm knocking on people's doors
[596]
and going and visiting them to
raise money for these causes.
[601]
But a few of them would say,
[602]
"What, a person with your politics
[605]
you're in the investment business?
[607]
I'd love to have you manage my money."
[609]
They would say,
[610]
"But I don't wanna own
weapons manufacturers.
[613]
I don't wanna own people who make napalm.
[617]
I don't wanna own people
who do strip mining.
[619]
I don't wanna own
companies in South Africa."
[622]
So it was the investors really who brought
[624]
the idea to you.
[625]
It was the investors who
brought the idea to me
[627]
and I was very reluctant
and very skeptical
[630]
and it took about five years
of success to convince me that
[635]
I had been wrong and that
this didn't cost anything.
[640]
More than 7,000 anti-Vietnam
War demonstrators
[644]
parade near the Los Angeles hotel,
[645]
where President Johnson attends
[647]
a Democratic fundraising dinner.
[649]
The civil rights movement
and the Vietnam War
[651]
both created similar momentum
[654]
for some really clever activists
[657]
who realized that they could use money
[659]
and boycotts specifically
to channel their activism
[663]
into capital and to hold back capital
[667]
or divest from companies that
[669]
or other actors that weren't
supporting civil rights
[672]
or were supporting the Vietnam War.
[674]
Probably the first really
high profile war contractor
[679]
that was targeted in at
least modern U.S. history
[683]
was the Dow Chemical Company
[685]
and the Dow Chemical Company
was manufacturing napalm
[689]
for the U.S. military
for its use in Vietnam.
[693]
Nearly 400,000 tons of napalm
were dropped on Vietnam
[699]
it was estimated within a
decade from 1963 to 1973.
[704]
So the Dow Chemical Company,
[705]
which was making napalm
and profiting from napalm
[708]
became a main target of the
investment activist community,
[712]
which was really coming
together for the first time.
[715]
The boycotts against Dow
did start to take a toll
[718]
and they proved effective.
[721]
Publicizing the destructive
role of military contractors,
[724]
caused many on Wall
Street to oppose the war.
[727]
This lent more legitimacy
to the peace movement
[730]
and helped bring an end to the war,
[732]
which claimed 50,000 American lives
[735]
and over 1 million Vietnamese.
[737]
After Dow Chemical,
[738]
the movement really started to grow
[740]
and it grew beyond labor standards
[742]
and a main new target of activists
[745]
and activist investors became
every major U.S. company
[750]
that was doing business in South Africa.
[752]
South Africa was run by
a white minority regime
[757]
and was under attack and under pressure
[759]
from virtually all corners of the world.
[762]
And it was really the
activist community joining up
[765]
with people like Robert
Schwartz and Robert Zevin,
[768]
who started to push
the divestment movement
[770]
in the United States.
[772]
The exclusion of the
companies in South Africa,
[774]
from the S&P 500 has resulted
in better performance.
[780]
Both Robert Schwartz and
Robert Zevin were surprised
[784]
when they ran the numbers,
[785]
their strategies of not
investing in companies that were
[789]
doing things that they and their investors
[792]
found horrible, was actually
working out incredibly well
[796]
for their investors and for them.
[798]
Do you remember if there
was a moment when you really
[800]
thought this could be a good thing?
[803]
I'm not sure I remember
some light going off
[806]
but years later, I did some research
[810]
about the effects of these screens
[813]
and proved that the restrictions
had no effect on results
[818]
and many other people
did the same research
[821]
but didn't tell anybody about it
[823]
because they didn't want to
embarrass their clients
[826]
who were opposed to it.
[827]
Eliminating each whole sector
[831]
of the S&P 500
[832]
doesn't make any difference
over 5, 10, 15, 20 years,
[836]
you still get the same results,
[838]
which is kind of amazing
and counterintuitive.
[840]
It's now a widely accepted idea
that all these restrictions
[845]
do not make any difference.
[846]
Divestment should not be ruled
out on financial grounds.
[850]
The final consideration is not its effect
[853]
on your investment portfolio,
[855]
but its effect on apartheid.
[859]
I think the most extraordinary
thing that I've found
[861]
in looking at these two men,
[862]
Robert Schwartz and Robert
Zevin was how they just flew in
[866]
the face of everything that
was happening politically.
[869]
This was the Reagan - Thatcher era.
[872]
Everything that was
happening on Wall Street,
[873]
everything that was happening
in the City of London
[875]
was the exact opposite of what
these two peacenik economists
[880]
were pushing as investment advisors
[882]
and they were viewed
somewhat openly at times
[886]
with hostility by other
investment advisors,
[890]
by other people in the
business that they were in.
[893]
Almost never did they say,
[895]
"Oh, that's very interesting."
[897]
Almost always they said,
[898]
"Oh, that's almost, that's impossible.
[901]
That must be very difficult."
[903]
Or "Why would you do that?"
[905]
It always seemed like a
foreign land to me anyway
[908]
so the impact on me was nil basically.
[912]
I just kept plodding along on my own path.
[916]
The practice of social investment that I
[919]
and a few others began 25 years ago
has garnered increasing
[924]
acceptance and respect with
the huge amounts of money
[927]
available for productive
application, investment decisions
[931]
can profoundly shape public
discussion in social conditions.
[935]
Socially responsible investing
is a powerful vehicle for
[939]
pointing the way to a more
just and humane society.
[943]
There is still a handful of niche funds
[946]
and niche investment
firms that really focus on
[951]
the kinds of principles
that Robert Schwartz
[953]
and Robert Zevin put into practice.
[954]
But in the past couple of years,
[955]
what's really changed is
Wall Street has capitalized
[959]
on this demand by investors
[962]
to want to make the world a better place,
[964]
but it's done it mostly through marketing
[966]
and underneath that marketing
are some rather dubious claims
[970]
about making the world a better place.
[973]
We're seeing transformative
changes in almost every sector
[977]
of the economy
[979]
and that's very, very encouraging,
[981]
but investors who want
to participate in this
[985]
have to take care, to identify
the risk of greenwashing.
[990]
Success was the mother of defeat somehow.
[994]
I think some of the original pioneers
[997]
were actually the instigators of
[1000]
deciding that it really wasn't socially
[1003]
responsible investing anymore
[1005]
it was 'ESG' Environment, Social
and Governance investing,
[1010]
which to my way of thinking,
[1013]
was taking something that
was a social movement
[1016]
and that was intimately
connected to people
[1018]
who weren't investors
and didn't own stock,
[1020]
but were struggling to make a living
[1023]
or to end a war
[1024]
or to escape from a war.
[1026]
It somehow threw all those people out
[1028]
and it said,
[1029]
"Now we're a niche product."
[1031]
It's not just Wall Street, it's capitalism,
[1033]
it always finds some way
to repackage an idea
[1036]
so that it's profitable
and mass-producible
[1041]
and that's going to be hard to overcome.
[1046]
All of the really ground-breaking things
[1048]
that these two men did in
finance are really what led us to
[1052]
this extraordinary moment today,
[1055]
where this has become a
multi-trillion-dollar business
[1058]
on Wall Street.
[1060]
The problem for people
who've invested their money
[1063]
in these strategies
[1064]
and in these funds, especially
in the United States,
[1067]
is that fundamentally the
largest funds don't address the
[1071]
key questions that people
believe are being addressed
[1075]
by the funds.
[1076]
In fact, some of the biggest
ones actually can contribute
[1079]
to making things even worse.
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