KYLELANE PURCELL | All about ESG

Do you want to find companies that support the values that are important to you and make a contribution to a better world? And do you want to make money?

These aims may seem to be at odds with each other but studies show that investing for positive change is a good way to make more money over time.

It turns out that firms that are mindful of environmental and social concerns and practice good governance — the E, S, and G of what is known as ESG investing — can be good long-term investments.

Kylelane Purcell is the Founder and President or Purcell Communications. She has spent 30 years writing, editing, and managing communications in the investment management sphere. After working as an analyst at Morningstar and a manager at American Century Investments, she was Vice President of Investment Communications at T. Rowe Price for most of a decade before leaving to start Purcell Communications in 2005. Sustainability is her passion. She retains the lead writing role for ESG-oriented research and thought leadership, and she has organized her firm around efficient, labor-friendly virtual office processes.

We spoke about a couple of resources were you can find more information about companies and their ESG ratings:

ESG Ratings & Climate Search Tool - MSCI

As You Sow

And here's a recent article from Kyle on Medium - Impact Investing — What It Is and How to Do It | by Kylelane Purcell | Oct, 2021 | Medium

EPISODE TRANSCRIPT FOLLOWS THIS BRIEF MESSAGE

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EPISODE TRANSCRIPT

Kylelane (5s):

You really can't make the perfect the enemy of the good. There is no perfect company. I think we all, kind of, want to believe that there is out there and we sort of see a new product from an innovative new company and think "Ah, this is the company that's doing everything right." Well, every company is using fossil fuels to some degree. Every company has to struggle with balancing labor policies and labor practices against profits. But every company is going to be mediocre at least in some ways, right? That doesn't necessarily mean that a company that isn't living up to the highest of all possible standards isn't moving the ball down the field.

Phil (40s):

Hi and welcome back to Stocks for Beginners. I'm Phil Muscatello. What is ESG and why is it becoming so important? How can our investing reflect our values and still provide good returns? Today we're going to explore the issues around investing with belief with Kylelane Purcell. Hi Kyle.

Kylelane (59s):

Hello, Phil. Thanks so much for having me.

Phil (1m 1s):

So Kyle is the founder and president of Purcell Communications. She spent 30 long years, I believe, writing, editing and managing communications in the investment management sphere. After working as an analyst at Morningstar and a manager at American Century Investments, she was vice president of investment communications at T. Rowe Price before leaving to start Purcell Communications in 2005. Your main focus is helping the finance industry speak more plainly, clearly and honestly, with investors, especially about investors who want to invest with their values in mind. How's that working out?

Kylelane (1m 37s):

It's going tremendously well. And actually I should say, it's going tremendously well in the last two years. You know, I'm certainly interested in making better communication a reality for the financial industry as a whole, for traditional investments and what have you. I think communication is so important and education, so important for allowing people access to the benefits that investing can offer. But it's especially true in the ESG space. But until a couple of years ago, it was still too exotic to really be something that people really were prepared to talk about. Now it's grown tremendously just in the last couple of years, there's a plethora of choices out there.

Kylelane (2m 21s):

People are ready to talk.

Phil (2m 23s):

It's only been the last couple of years, you feel, that this has really exploded as something that people want to take seriously. Is that the case?

Kylelane (2m 30s):

It's been around, this particular style of investing or, you know, maybe earlier versions of this style of investing has been around since really the sixties. And there's some historical studies that have looked at it, going back to the Quakers and, you know, the idea has been around for a long time. But for most of that time, there was just a belief that it was kind of a odd ball fringe idea on the investment sphere, because it wasn't focused on making money necessarily. It is focused on making money, but that wasn't the perception for a long time. And then just in the last few years, some real rigorous work has been done to try to really evaluate, you know, what is the performance of stocks that score well as quality, values-based investments?

Kylelane (3m 20s):

And it turns out that if you really do the rigorous work, the performance is pretty good. It's at least as good as traditional investment indexes. And in a lot of cases, it can be better.

Phil (3m 33s):

Just a little side topic. You talk about speaking plainly, clearly and honestly with investors. Because I think in the past, people have felt that the language that's being used in this industry has been more about asserting dominance and selling your things rather than explaining, you know, things to you. Keeping you in the dark like mushrooms.

Kylelane (3m 51s):

Yeah, exactly. I couldn't agree with that more. I mean, to be fair, a lot of people that are successful investment people tend to be very bright, numbers-oriented, data analyst type of people who aren't necessarily comfortable talking plainly or clearly. They're comfortable talking about numbers and deep analytical ideas. So, you know, I don't need to be too critical of them, but the result of that has been a lot of important influential people in the industry have set the standard where if you're not a really highly financially educated person, it's very difficult to understand what the heck they're saying. And I've always thought that that was both unnecessary and problematic because at the end of the day, you're asking people to put their money with you for decades.

Kylelane (4m 42s):

And if you can't demonstrate that you're going to be a good steward and that you're a good partner in this collaboration to help someone build their wealth or build toward retirement, you know, then you deserve what you get. This was kind of what I think.

Phil (4m 56s):

Well, let's move on to ESG. What does that acronym mean? It's a TLA, three letter acronym, what's ESG mean?

Kylelane (5m 3s):

Yeah. And there's so many of those, right? But, well look, ESG means environmental, social and governance. And what that is, is a shorthand for a whole, sort of, raft of information that isn't financially oriented. It's not about price to earnings ratio, it's not about accounting-oriented information, it's about collecting information related to a company's environmental record, related to its labor practices, related to the decisions that it makes within its own community. So, you know, it's looking at a lot of executive decisions that are made and what the impact is not only on, you know, the wider sort of world that the company operates in, but also on the long-term, on the company itself.

Phil (5m 53s):

Okay. So just to be clear, it's environmental, social and governance.

Kylelane (5m 59s):

Exactly. So environmental is meant to be about impact on the planet. So we're talking here about environment concerns, climate concerns. There's a lot of concern about overly extracting raw materials in an unsustainable way. So that kind of covers off sustainability, climate and a lot of environmental issues. Social is mostly about the impact on people. So you're talking about diversity, wealth, inequality, labor practices. And then governance is, you know, it's a way of describing a style of leadership that considers impact on the planet and people basically on a par with the financial bottom line.

Kylelane (6m 39s):

So there's legitimate governance attention being paid to these wider impacts.

Phil (6m 44s):

And I think it's important for people when they start looking at this, that they understand what's important to them as investors, because this actually covers a wide range of areas, doesn't it?

Kylelane (6m 56s):

It absolutely does. And one of the biggest challenges with this style of investing is there's hundreds of approaches that you can take. You know, some people really care about climate. Some people really care about, say, achieving gender equity or reducing wealth inequality. Some people, they have strong faith-based views and they really want to be able to execute their religion or their faith in the way that they invest as well. And the important thing, in my mind, to think about is that it's not so important what the values are. What is important is to have the opportunity to invest in a way that incorporates those values.

Kylelane (7m 38s):

I always like to say, everybody likes to incorporate their values and almost every other decision that you make. You know, when you go to a restaurant, you go places that serve the kind of food you like to eat. When you make friends with people, you make friends with people that you have respect for. You know, when you buy something from a store, you don't want to go to the store that, you know, screwed over your neighbors, so to speak. I mean, you always have your values when you make important decisions, especially with your money. But for some reason, people have come to this conclusion that you shouldn't use your values when you're investing, that you should just focus on bottom lines and people have made money that way. But the data shows that if you make money that way for too long, you ultimately alienate your customers, your labor force, your community in a lot of ways.

Kylelane (8m 26s):

And that leads to companies that kind of fall apart.

Phil (8m 29s):

Funnily enough, I was talking to a fund manager yesterday and his Twitter is handle’s something about barbell carbon. And I sort of asked him, "What do you mean by that?" And it's where he still wants to invest in fossil fuel companies, but then he also invested in companies that cleans up the mess that these and other companies can make. I mean, this is how detailed you can get in the ESG space.

Kylelane (8m 51s):

Yeah. And you know, I think it's worth pointing out that, you know, we're kind of at the beginning of what I expect will be a really long stretch where this style, not just in investing, but this style of managing a business begins to kind of take hold. And what's interesting about that to me is that there's a lot of different ways you can do it. I mean, even if you just look in the investments sphere, you can invest in ESG products that really are not very different from your traditional mutual fund or ETF. They pretty much invest in more or less the same universe of stocks. They just incorporate a little bit of data about, you know, a company's governance structures and maybe its labor situation.

Kylelane (9m 36s):

They just add a few bits of data in there into their screens and call it a day, right? And that's not super exciting, but it's a step it's a meaningful step forward or a meaningful change in the way that investments have operated so that's not bad. But if that's not quite what you're looking for, you can go all the way to focusing on ETFs that only care about redressing the water shortages that exist in a lot of third-world countries because there's a lot of infrastructure that isn't in place in a lot of poorer nations. And so there are companies that are looking to redress that problem.

Kylelane (10m 16s):

And you can invest in that if you want to do that. So there's a lot of different approaches. And I think for businesses too, there's a lot of different ideas that are out there about, should we be just not making things worse? Should we be actively trying to make things better? How do we balance that against our financial pressures? It's a lot, it's a lot. But, you know, instead of viewing it as overwhelming, I choose to look at it as being kind of exciting because it creates a lot of different kinds of opportunities. It just creates the need for companies and investments to be clear about what it is they're doing, how and why, and for people to be looking for that information.

Phil (10m 59s):

If you focus on non-financial matters in a business, doesn't that mean you don't make as much money? Isn't it best left to non-profits and charities?

Kylelane (11m 7s):

It's a really important question. And when I first talk about these issues with individual investors, it's always the first question that comes up. I mean, immediately people either ask the question or they dismiss the whole conversation out of hand because they think, "Oh, there's no money to be made investing this way." But it just isn't the case. It's just a myth. And it's a myth that has been perpetuated by people who, you know, kind of just don't want to think about doing things this way, you know? "Oh, you can't make money that way so why even bother thinking about it, right?" But for people who have thought about it and who've really looked into it, it turns out the companies that are thoughtful about balancing planet, people and profits, they're just better long-term investments.

Kylelane (11m 52s):

I mean, there are literally thousands of studies. There are even dozens of studies that have looked at thousands of earlier studies to try to, sort of, do that meta-take on, you know, what do all the studies say? And consistently, the evidence shows that you make money investing this way. There's a lot of good reasons for that. I don't think that people have quite nailed down what the formula is exactly for out-performance if you invest this way. But there are a lot of good theories out there about why these type of investments do perform well. And the big one is that, you know, there's a lot of resiliency in companies that do a good job of balancing planet, people and profits.

Kylelane (12m 37s):

So when you have a big event, like a COVID pandemic, you have a lot of disruption and you have a lot of very stressed people. People whose lives are being kind of turned upside down. And, you know, in those cases, the customers, they just don't want to buy anymore. The labor force, they don't want to work anymore. You know, and the companies that are going to be hurt by those kinds of peoples are the ones that have not given significant thought to planet and people and profits and balancing those factors properly, right? So it's kind of like, you can succeed for a while not caring that much about paying your employees properly or, you know, not giving your customers the best products or services.

Kylelane (13m 17s):

You can succeed that way for a while. But you know, when the poo hits the pan, so to speak, you're in the targets, you're in the cross hairs for people being like, "That's a relationship I want to sever", right? So that seems to have a lot to do with it. And I think it's really important to point out that, you know, the big institutions and the wealthy investors they've really caught onto this trend. And that's why, I think it's, a third of all assets under management, as of the beginning of this year, are ESG managed in the US. I mean, that's unbelievably fast growth from, you know, maybe 10%, just a couple of years ago. But this kind of investing, it's available to individuals too. And I think it's a great idea for individuals to know what these big investors know.

Phil (14m 0s):

And these big investors, it's all going up to board level now, isn't it? Like boards are actually taking these kind of issues and governance and ESG issues into their planning as well. It's going up to that level, isn't it?

Kylelane (14m 13s):

Yeah. It's very true. In fact, you mentioned non-profits and charities in the previous question and, you know like, it's very interesting. You know, non-profits and charities account for billions of dollars of endowments. Same is true of universities. And, you know, those billions of dollars, they were pretty early to get on board this train of, you know, if you're a university, like, our student and faculty base, they're not going to be too happy to know that we're investing in companies that are choking the climate that these young students are, you know, going to have to live in, in the next 50 years, right? You know, so there's been a lot of that kind of thinking there. But even in the strict corporate world, like boards of directors are much more aware now.

Kylelane (14m 56s):

The internet has made everyone aware. There's so many good examples just recently of Tesla and Facebook. I mean, if you're out there doing things that cause harm in some way, and you as a business, think that you can kind of hide that, well, that's just not going to happen anymore. There is no hiding anything. Everyone knows everything now. So, you know, if you are the board of any kind of company, you have to be thinking about these issues.

Phil (15m 18s):

And it's not only non-profits and charities as well that you mentioned before, but pension funds as well. They're searching the world for investments that will be acceptable to their members.

Kylelane (15m 31s):

Acceptable to their members and investments that will meet their financial needs. I mean, those pensions in particular, they have to really hit targets or they're not going to be able to live up to their liability. So they are looking at ESG not only because it's more palatable to their base of investors, but also because there's this evidence that it performs as well or better. So, you know, this is kind of like, you know, a double bottom line.

Phil (16m 1s):

We briefly touched previously about how investors can think about what's important to them. What are some of these steps that people can take to really nail down what they want to care about?

Kylelane (16m 12s):

Yeah. You know, it really does start with individuals, kind of, looking inward and thinking through what matters to them enough for it to impact the way that they want to invest. I mean, you know, obviously some people are quite passionate about a particular issue, whether it's climate change or wealth inequality or social justice. I mean, there's plenty of people that really have strong views on one of those issues in particular. And there are investments that will be a good fit for people who have those strong particular views, but other people. And I think very reasonably just generally prefer to invest in a way that holds up a higher standard of accountability and good behavior from these large influential businesses.

Kylelane (16m 56s):

So, you know, I often say to people when I'm trying to help them understand this, think about the kinds of things that you do outside of investing. Where do you volunteer? Where do you donate? Think about what you react to in the news. I do think it's perfectly possible for an individual to do the research themselves, but I do think it's not a bad idea to talk to a financial professional if that's appropriate for your situation. You know, there's a cost associated with that obviously, but I think it's a cost well spent because if you talk to the right financial professional, who's really on top of this, they'll not only be able to point you to the right investments, but they'll also be able to help you make sure that you're not getting drawn in by these greenwashing efforts, right?

Phil (17m 41s):

That's right. There's a lot of marketing in this, isn't there?

Kylelane (17m 45s):

Exactly. There's a fair amount of nonsense out there. So I think, you know, to be able to work with someone who is deeply enough involved in this and is focused on it enough that they're able to say, "I don't think that's the strategy", that's really going to, you know, promote the kinds of values that you're coming to it with. Personally, I feel like that has a lot of value.

Phil (18m 4s):

Some people think about ESG, I think one of the first steps actually for people thinking about ESG, is avoidance. That's the companies they want to avoid. But then there's the idea that you want to actually make a positive impact into the world, isn't it? It's almost like, once you start becoming interested in this area and learning more about it, you realize there's many ways for investors to think about approaching this kind of investing, isn't there?

Kylelane (18m 29s):

Yeah, that's right. I mean, one of the interesting developments in this, if you want to think of it as an industry, is that for a really long time, professional investors who run these mutual funds and ETFs, they honestly didn't know how to screen for this non-financial information. There wasn't data out there, or the data wasn't good, or it wasn't consistent. And so the easiest thing to do was these sort of exclusion strategies, right? You know, just avoid tobacco, avoid firearms, avoid casino stocks, avoid, you know, the sin stocks as they used to like to say, right? Because that was a pretty easy screen. You know, that was a pretty easy thing to figure out how to do.

Kylelane (19m 9s):

But we've seen this explosion in the last five years of data, that's really trying to dig more deeply into these company behaviors. How can they be measured? How can they be compared across different industries? How can we define what data matters for a given industry? So for example, if you're a, you know, if you're an industrial company, your transportation costs, the amount of fuel you use in moving materials here and there is a much more relevant data point than if you're, say, in technology and everyone's working from home and you're just doing things on the internet, you don't have any of those costs. So figuring out those issues of materiality and what data is needed to really explain those things.

Kylelane (19m 55s):

There's so many extremely intelligent people that are really trying to come up with good standards. We are not there yet. And I think it's important not to get too caught up in thinking, "Oh yeah, the data's perfect now" because it really isn't. We're still a long way from that. But we are a long way from where we were five years ago. I mean, a really long way. And there's a lot of really powerful, influential, big time, world leader-y type of executives that are out there really pushing to make that happen faster: BlackRock, Morgan Stanley. I mean, those are just the companies that are demanding that the data get better and putting their resources into helping that happen.

Kylelane (20m 35s):

And then you've got your Morningstars and your State Analytics and, you know, there's just so many really good people out there that are really pushing the envelope on this and that's going to make a lot of difference pretty quickly I think.

Phil (20m 47s):

So, in the previous answer, you were just talking about just doing things on the internet and that that's not necessarily going to have any kind of carbon footprint, but the servers that the internet works on actually do chew up lots and lots of electricity. And I believe that there's many companies that provide these data solutions that are trying to approach this and deal with this situation.

Kylelane (21m 12s):

Oh yeah. That's certainly true. I think one of the most important things to consider when you want to try to go down the road of investing with ESG in mind, is you really can't make the perfect the enemy of the good, there is no perfect company. I think we all kind of want to believe that there is out there and we sort of see a new product from an innovative new company and we think, "Ah, this is the company that's doing everything right." Well, every company is using fossil fuels to some degree. Every company has to struggle with balancing labor policies and labor practices against profits. You know, every company is going to be mediocre at least in some ways, right?

Kylelane (21m 56s):

That doesn't necessarily mean that a company that isn't living up to the highest of all possible standards, isn't moving the ball down the field, so to speak. I mean, you know, they, there was a time not too long ago when companies didn't think about these issues at all. And now because there's so many large investors, influential people asking these tough questions and the data is starting to become available, companies are starting to figure out "We not only need to be able to answer these questions, but we also need to be able to look internally and figure out how to do these things better". You know, a great example of that is diversity. Companies have been talking about how they care about diversity and we're doing great things with diversity for decades.

Kylelane (22m 38s):

At least I'm old enough to remember a lot of those conversations go back a long ways. But the truth of the matter is, they did a token effort here and a token from there and it didn't really advance the ball very much. Now that you have companies out there that are really recording how many people do you have in your management ranks that are diverse? How many people on your board of directors are women or people of color? How many people are you reaching out to in your recruiting efforts and where are those people coming from? So you have this data coming up and you have all of these people like these pension funds that are saying, "Hey company, like you said that you care about diversity. And yet your percentage of senior management that is diverse has gone from, you know, 3% to 5%.

Kylelane (23m 24s):

Where's the progress, right?" So, you know, companies may not be perfect. But the interest in this, the consistent, sort of, money, that's sort of pouring into it, the investors continuing to want to invest this way and showing that they're interested in this, it's putting a lot of pressure on companies to take steps to make things work better. And once companies start to compete with one another on this basis, which I can already see happening at least in some industries, you know, that's when you're really going to see a lot of progress. 

Phil (23m 60s):

So a big part of this kind of investing is understanding how a company treats their own employees. And I know there's apps available now where employees actually rate the companies that they work for. And this can be a valuable tool for finding out how a company actually treats their, their staff and workers. Have you seen this? And are there any other tools that you can use to asses this?

Kylelane (24m 22s):

I've certainly seen social media be used in this way, right? And I've seen it being used in positive ways where, you know, you've got groups of people within an organization that sort of create a social environment and social media and they use it for friendship or volunteering or things of that nature. And I've seen social media be used as a, sort of, venting platform for companies that have a reduction force or what have you. So, you know, I'm always a little skeptical about, like, raw reactions on social media. You know, people say things on social media that maybe they wouldn't say, you know, in mixed company,

Phil (24m 60s):

The things I wouldn't say to the human resources department face-to-face.

Kylelane (25m 3s):

That's right. And they certainly wouldn't say it to the boss, right? So I'm always a little bit, like, grain of salt about that kind of thing. But I do think that the data that's being created to better track what companies are doing, it's not qualitative data, it's quantitative data, right? So what I mean by that is, you know, they're trying to capture hard numbers, number of people that do this number of people that do that rather than trying to get a feel for people's mood or how employees feel about their companies, right? So it's not easy to find good qualitative information.

Kylelane (25m 45s):

But that doesn't necessarily mean that you can't take something from what you're seeing in a social media environment, right? If there's enough negativity being discussed, I think this was an issue with Uber, right? Where you had a lot of individual drivers with Uber that were, kind of, separate from one another and until they found each other online and could start comparing notes, that was where you started to see people raising issues that kind of changed the way Uber had to do business, right? So, you know, there's definitely like a pathway for that. I just think it's a little bit hard to find or hard to know what you're looking at when you do. And so, you know, I tend to look for tools that are more data oriented.

Kylelane (26m 26s):

It's just easier, I think, for me personally, to interpret. MSEI has a great ESG ratings corporate search tool. So you just enter that phrase into your Google bar and it says, MSEI ESG ratings corporate search tool. And you can put any ticker in there and it'll show you everything that MSEI has gathered about that particular company. I think it's really great tool. I mean, it's not necessarily going to give you the perfect picture, but it is going to tell you a lot of things you didn't already know. And it's going to give you a sense for, you know, how the professionals, who are trying to figure out how to make this data better, are evaluating companies.

Kylelane (27m 6s):

Morningstar does good work with this. And, you know, I always like to point people to, asyousow.org, because they do a terrific job as well of providing broad data that gives you as complete and clear a picture as you're likely to get as an individual investor, trying to get this information.

Phil (27m 25s):

And of course, we'll put those links in the show notes and the blog post as well to make it easier for people to find what you are talking about. But what about greenwashing and box ticking? Because sometimes companies that are trying to attempt to do this are doing it as a marketing ploy rather than really believing in what they're doing. Have you seen examples of this when it, is there any way of, I don't know, having a built-in detector about this?

Kylelane (27m 50s):

Yeah. It's a very legitimate concern because you know, there's enough people who have shown that they care about this approach. They want their businesses to be better behaved and more accountable. So there's a lot of greenwashing out there. I wouldn't say that, you know, if you looked at a hundred companies or a hundred investments that 99 of them are greenwashing. You know, it's maybe a little bit more half and half. So, you know, your odds, aren't so bad of finding a legitimate, kind of, strategy or business. But you do have to watch out for it. What we do in our business is we actually look at the reporting that the company or the mutual fund or ETF does.

Kylelane (28m 31s):

Because we're communications people. So, you know, we like reports and we like to see what people say. You know, people will say, "Yes, we care about this thing you care about and we're doing something." But then they have to be able to say what it is they're doing. And the things that we watch out for are when the company talks about what they're doing or the mutual fund or ETF talks about their ESG strategy, are they being vague? Or alternately, are they being way too complicated? Are they over-talking it and throwing in a ton of different things that are really hard to understand?

Kylelane (29m 11s):

Are they being overly optimistic? Do you see data? And do you understand what the data is that they're using? And the other thing is examples. Let's look at examples. You know, I think we looked at a report that was done by Microsoft as part of their net zero initiative. And it was a great, great report because it was clear, it was well-written, it wasn't vague, It was very specific about the actions that they're taking and the data that they're looking at, it showed the data that they have and the positives of the data they have and the not so positive so weren't trying to fluff themselves up too much. It was a really great report.

Kylelane (29m 51s):

That kind of thing, I think, gives me a lot of confidence that even if Microsoft isn't the perfect company to be investing in, if you're an ESG investor, at least as a business, I believe, based on what I'm seeing, that they are trying to move the needle in a legitimate way. And that gives me a lot of comfort as an investor.

Phil (30m 10s):

Something else that we can see on the horizon is taking it beyond ESG investing and that's impact investing. What's the difference between ESG investing and impact investing?

Kylelane (30m 21s):

Well, at this point in time, there's like a technical difference. So professional investors view impact investing as investments usually by private individuals or institutions and high net worth people. Investments that are intended to achieve a very specific outcome through investing. So an impact investment might be, we want to build a sustainable farm in this location in Kenya, right? And then we're going to gather up enough investing funding to be able to create that farm. And then whatever the profits are of that farm, they will be shared with the investors, right?

Kylelane (31m 1s):

So that's what the industry calls impact investing. And for the most part, that's not all that available to individual investors. Individual investors mostly have to stick with ESG general funds, which are, you know like, they're like traditional investments but they have that ESG data that they're looking at, or there's also thematic funds. Thematic funds are those kinds of ETFs, especially there's a lot of thematic ETFs that are trying to focus on groups of companies that are very focused on specific issues, like say gender equality. There's definitely a number of funds out there that are investing in companies that really focus on ensuring that there's gender equity in their leadership and in their boards of directors.

Kylelane (31m 43s):

So if that's the impact you want to have in the world, that's a really good investment.

Phil (31m 48s):

So where's the demand for this kind of investing coming from?

Kylelane (31m 56s):

Well, you know, like we said earlier, major institutions, endowments, universities, family foundations, those have been the core drivers of the growth in ESG to date.

Phil (32m 5s):

What, even before the retail investors caught onto this?

Kylelane (32m 9s):

That's correct. I mean, I would say that there's always been an interest in this style of investing, but it was like about five, seven years ago that you started to see some of the major, like, institutional investors really bring this up as a serious issue when they were making decisions about their investments. But the growth we've seen in the last couple of years, it's really being driven, to a large degree, by, you know, what I like to think of as new entries into investing. So 84% of women and 95% of millennials are reported as saying, they want to invest to align with their values.

Kylelane (32m 52s):

If they're going to invest at all, they want to do it in this manner. Those numbers are obviously enormous, but it was important to me about them is that these are groups of people that haven't necessarily been the largest, sort of, demographics within the world of investing. So what we're seeing is that women and millennials, but also gen Z to the degree that they have money to invest yet, when they get into the world of investing, they want to invest in this way. And these are the types of investments they look at first, which is a big change from where we've been in the past, you know, the baby boomers and even my generation gen X, where there was investing, it was usually like set it and forget it, put it into, you know, your big companies and hope that it gets you somewhere in 30 years, but just don't think about it too much.

Kylelane (33m 47s):

That's just not what we're seeing from women that are coming into the investment environment and millennials, younger people as well.

Phil (33m 53s):

And it's really important, as well as, that younger women are becoming much more focused on investment from a younger age and really taking control of their own money. And so you can see that this is going to have an enormous effect, especially when we're going to get this great wealth transfer that's going to be coming up where the baby boomers' wealth is going to go to these generations that are younger.

Kylelane (34m 15s):

That's exactly correct. I mean, that's a big deal. I mean, that is a lot, that's trillions of dollars that's going to be changing hands in the next 10, 15, 20 years. And when that money does change hands, it's going to change in the way that what the strategies are that are being focused on with that money. So, you know, it's a big change that's coming down the road. I mean, this is not a bad time to be, you know, looking at this and getting ahead of that. We're like on the ground floor right now.

Phil (34m 43s):

So how are you finding the corporate sector's response to this demand? I mean, these are kind of people that have been used to rapacious capitalism. This must be a big change in their mindset.

Kylelane (34m 54s):

I had a conversation a couple of weeks ago, just doing some quarter end reporting for a company that has a traditional natural resources fund. And the managers that I talked to said, "Well, yeah, we do invest in some, you know, sort of alternative energy investments. But let's, I mean, let's be honest, it's going to take a hundred years for all of that to change. I mean, you know, this is so marginal, it's just, you know, this isn't really going to be a big factor for us anytime soon."You know, that's their perspective, that's fine, but I'm listening to them and thinking, "You know what? Iphones came out in, what, 2007, 2006, and like everyone's lives changed instantly because of the existence of the iPhone, right?"

Kylelane (35m 38s):

They're ubiquitous now. And it's barely been like 15 years. So I think it's a good example of what the response has been from the corporate sector. I mean, there's a mixed response and I think we need to be very real about this. There's sort of an old guard. You know, that still has the vast majority of leadership positions. And a lot of that old guard is still not really ready to deal with this change. And they can isolate, they can insulate themselves to a certain degree, you know, they can say, "No one's really paying attention. I can do whatever I want." But the more, I think we see examples out in the media of companies, you know, like Facebook that, you know, I think Facebook is a great example. It's a, sort of, a great test case because I think it's fair to say that Facebook has done a lot of real good in the world by bringing people together.

Kylelane (36m 26s):

But it's also done some things in the world that have created a lot of problems, especially for very specific communities. You know, I think the studies that they were trying to suppress were about how, you know, Facebook causes a lot of issues and self-image issues with young women. It was their natural instinct, right? To just try to pretend like that wasn't happening, you know? Just, kind of, put their fingers in their ears and go, "Oh, no that doesn't, you know, we don't have to pay attention to that." But, you know, weren't able to get away with that for very long. So if you want to be an influential company, I just think, you know, the eyes are upon you. And as a company, you're either prepared to deal with that and you're prepared to run your business to deal with that and to avoid those kinds of hard questions or your ignoring it, and you're getting caught out.

Kylelane (37m 16s):

And I think part of the reason that I'm really interested in ESG as a style of investing as a way to make money over the long-term is I would much rather be with the companies that are aware of this challenge and are preparing for it, are really thinking about how to run themselves so that they don't end up getting pulled in front of Congress all the time, right? So that's, you know, that's my thinking on it.

Phil (37m 40s):

It's a serious incentive, isn't it?

Kylelane (37m 42s):

Yeah, exactly.

Phil (37m 42s):

Kylelane Purcell, thank you very much for joining me today.

Kylelane (37m 44s):

Thank you so much for having me. It was really lovely to talk to you.

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