The ESG Update Episode 16: Finding Your Ethos
Synthesizing complex ESG data sets into an intuitive and cost-effective platform is no easy task. We welcome Luke Wilcox, Founder of Ethos.so, in this week’s episode as we discuss the tools they’ve created for lead generation, ESG portfolio analyses, and values-aligned investing. Also, stay tuned until the end to hear our first-ever ‘Around the Campfire’ conversation!
Transcript
This transcript has been edited for clarity.
Dan Carreno, Change Finance:
Welcome to The ESG update presented by Change Finance. I'm Dan Carreno.
Brittany Damico, Change Finance:
And I am Brittany Damico.
Dan Carreno, Change Finance:
This podcast is brought to you by Change Finance, an ETF provider dedicated to environmental, social, and governance investing. Our mission is to help investors align their portfolios with their values without sacrificing returns. Brittany, what's going on today? How's the world treating you?
Brittany Damico, Change Finance:
Good. Feeling good, getting ready for an upcoming move, which I am very excited about.
Dan Carreno, Change Finance:
Very nice. Our guest this week is Luke Wilcox, the founder of Ethos.so. Luke, how are you?
Luke Wilcox, Ethos:
I'm good, Dan. Thanks. Great to be here.
Dan Carreno, Change Finance:
Great. Well, Luke has created a great new technology platform that enables financial advisors to expand their ESG business, and we're certainly going to get into Ethos. But first, Luke, we wanted to get your perspective on just a couple of current events and things that are going on in the world of ESG. Ready to dig in?
Luke Wilcox, Ethos:
Sounds good.
Dan Carreno, Change Finance:
Fantastic. The first article that we wanted to chat about this week is from Barron's titled, ‘MCSI Says Growth in ESG Outpaces Its Traditional Index Business.’ MSCI, which is a gigantic index provider, is saying that their ESG business is, by a pretty wide margin, the fastest growing part of their business and that most of the institutional investors are coming to them and they're asking for “ESG-tilted” benchmarks more strongly than they're asking for traditional or market cap weighted indexes. They highlight in the article the most recent report from US SIF is showing that about 1 out of every 3 dollars in the United States is invested under some sort of ESG or SRI mandate, which is a big increase from just a couple of years ago, when it was 1 out of every 4 dollars. Ultimately this is just more evidence that ESG seems to be kind of taking over the financial world. It's driving real revenues to the bottom lines of big firms like MSCI. So ultimately, I think we're going to see a lot more resources and a lot more talent being deployed within the ESG industry. Luke, Brittany, what do you guys think?
Luke Wilcox, Ethos:
I think there's a dramatic shift happening, and I can see it coming from two main sources. One, large corporations are seeing the shift and seeing the increased visceral reality of climate change, things like winter storms and fires. It's just more visceral and real for the C-suite, and that's driving a lot more focus on climate risk. Two, investors are increasingly pushing for that, so it's a bottom-up push from consumers all the way up to institutional investors. Everyone sees the urgency increasing dramatically. There's a push for more ESG, more sustainable focused funds where everyone sees the value. There's becoming more acceptance that ESG funds are not necessarily a trade-off with financial returns. You get both sustainability and financial returns from ESG.
Dan Carreno, Change Finance:
Amen. Can I get an amen?
Brittany Damico, Change Finance:
Preach! Definitely. I think that is a nice transition into the next article that we wanted to discuss. This came from the Wall Street Journal titled, ‘The SEC Opens Review of Corporate Climate Change Disclosures’. So essentially, the SEC is reviewing their more than decade-old guidance on how public companies are disclosing their climate change risks. The acting SEC Chairwoman, Allison Herren Lee, was quoted as saying, “Now more than ever investors are considering climate related issues when making their investment decisions. And it is our responsibility to ensure that they have access to material information when planning for their financial future.” This is part of a wider shift by financial regulators and policymakers regarding climate change. It is in line with the Biden Administration's goal for companies to disclose their greenhouse gas emissions and get the US to net zero emissions by 2050. The SEC’s focus on environmental disclosure and transparency has been fueled by market momentum, which again, I think, reiterates what the article that Dan was just talking about is saying. Luke, I'd love to get your perspective on that.
Luke Wilcox, Ethos:
This is a dramatic shift for anyone who cares about sustainability and the future of the world. This data is core to looking at the impact of money. Anyone who has been involved with ESG knows that ESG data has been a difficult challenge or problem for investors for a long time. If this ruling helps bring more transparency and more standardization to data, that is a huge change and would be welcomed by ESG and sustainable investors everywhere. For Ethos, we standardized data and pull together this very disparate data. It's a challenge to use very disparate data. Any standardization would make a huge, huge difference.
Brittany Damico, Change Finance:
I think I've heard Dan reference ESG data as the wild west on multiple occasions.
Dan Carreno, Change Finance:
It's interesting because it wasn't that long ago that we were talking about the UK’s move towards climate disclosure there, and we were saying on the podcast that it's going to take some time, but we'll eventually get there in the US. You know, it really hasn't taken that long at all. Fast forward six, eight months, and it looks like the US is at least taking the first steps toward following suit. Encouraging to see.
Brittany Damico, Change Finance:
The article from the SEC also says that the US is looking to the EU for guidance on how to go about this process.
Luke Wilcox, Ethos:
Yeah. In some respects, the EU is a little bit farther ahead of the US with standardizing some of the reporting requirements for large corporations. It can be a good model for sure.
Dan Carreno, Change Finance:
Luke, when you were giving your perspective there, you mentioned the way that Ethos sources data. That's probably a pretty good segue to have you back up and tell us just a little bit more about Ethos and your career path that led to you founding the company.
Luke Wilcox, Ethos:
Ethos shares the same mission with Change Finance, in that we help people align money with values that they care about and causes they care about. At Ethos, we aim to help financial advisors and other financial actors really align investments with causes. I was a consultant working for big corporations for about five years before starting Ethos. I worked with very unstructured data, large data sets that big corporations are using to solve corporate problems. I was also doing my own investing through online brokerages and found out about ESG and started looking into environmental, social, governance data and found there was a similarity between the unstructured data problems I was addressing for big corporations and unstructured data in ESG. I also have a background working for human rights organizations doing social impact measurements prior to being a consultant. I decided to bring those two things together and to use social impact measurements with big unstructured data to help investors and financial advisors align money with causes they care about.
Dan Carreno, Change Finance:
I'm getting the sense that you've worked with a lot of spreadsheets. I'm sensing large, large spreadsheets here.
Brittany Damico, Change Finance:
That’s amazing. It sounds like you're incredibly well equipped to be working on this, and we sure appreciate it. I first wanted to ask you about the lead generation capabilities of your platform. Would you explain how Ethos can help financial advisors grow their practices?
Luke Wilcox, Ethos:
Investors increasingly are interested in sustainability, and Ethos helps financial advisors engage and convert investors who care about sustainability or other causes. We have a simple questionnaire that advisors can use on their website, use on social media, or use on email. It's a questionnaire that asks leads for input on causes they care about. So if you, as an investor, care about gender equality and climate change, and racial justice, we use a simple questionnaire to gather that input, capture your information and pass that information onto an advisor. It's a simple way to get input and start a conversation with leads about the causes they care about and then using that to start helping that lead better align their money with those causes.
Dan Carreno, Change Finance:
Poking around on your platform, I'm noticing a lot of data on both companies as well as funds and ETFs. Could you give us a little bit more context on the methodology and how you're constructing the scoring system that you're applying to these companies and funds?
Luke Wilcox, Ethos:
We aggregate a lot of publicly available data, about 230 sources. We'll aggregate publicly available data, things like greenhouse gas emissions, government fines, product recalls, a whole variety of this is very disparate data. It's similar to the unstructured data problems that I was referencing earlier. We'll use this to roll up data into ratings on things like climate change, gender equality, and racial justice. We have 45 causes that we map this unstructured data to and then show our financial advisors, or investors, the underlying data as well as the rolled up ratings at the company fund and portfolio level. So we use all this desegregated data and then rate a company and use a fund's holdings, or portfolios holdings, to rate that portfolio or that fund.
Brittany Damico, Change Finance:
You had mentioned that you have the ability to conduct research by causes. Can you talk a little bit more about the causes that you're looking into? I know you referenced a few just there, but can you go a little bit deeper into that?
Luke Wilcox, Ethos:
Every investor is different in terms of the causes that they care about. A lot of investors care about sustainability-related causes, but some might care more about gender equality or biodiversity or the humane treatment of animals. We try to help investors invest specifically for the causes they care about. So with this questionnaire that I referenced, you can pick the causes that you care about, and then we personalize or weight all of our ratings for that specific mix of causes. We're really helping investors find and align their portfolio with whatever causes they care most about.
Dan Carreno, Change Finance:
Excellent. I guess the million-dollar question here, how much does this service cost, and how do advisors get access to the data and the platform that you're talking about?
Luke Wilcox, Ethos:
We start at $30 per month per user. It's a monthly subscription, and there are a few tiers after that. As an early-stage company, we are focused on the success of advisors, and we want to help our advisors grow. So we're priced at a very reasonable monthly price to partner with advisors and help them grow their practices.
Dan Carreno, Change Finance:
I'll say. Do you guys provide a trial period for those looking to poke around and see what it's all about?
Luke Wilcox, Ethos:
We do. A 14 day trial period, which you can start at any time. You can sign up at Ethos.so. It's a 14 day trial period.
Dan Carreno, Change Finance:
Well, Luke, thank you so much for telling us a little bit more about Ethos, and now it's time for our new segment, Around the Campfire. This is a new segment where we want to have an opportunity to share something from each of the guests here today that that's been inspirational or thought-provoking that we've come across in our lives recently. So Brittany, why don't we start with you? The next time you're sitting around the campfire with friends, family colleagues - what are you going to be chatting about?
Brittany Damico, Change Finance:
I listened to a podcast recently that I have shared with numerous friends of mine. It's from Bloomberg. It's called, The ETF Story. It talks about the genesis of ETFs and where they came from. As someone who is learning more about the ETF space, it was really fascinating and an interesting way to learn quite a bit of information in a really absorbable way.
Dan Carreno, Change Finance:
Awesome. I have also listened to that podcast and it was wildly helpful. How about you, Luke? What are you going to be chatting about around the campfire?
Luke Wilcox, Ethos:
Well, my spouse and I are expecting our first child, so we are pretty consumed with baby books and setting up a nursery, and thinking about becoming parents for the first time. We're thinking about the next generation and how ESG relates to long-term sustainability. It's made it much more personal for me and has inspired me to think about what ESG actually means or could mean for making a more sustainable and better world for the next generation, including my daughter, who will be arriving soon.
Dan Carreno, Change Finance:
Congratulations! Really happy for you guys. That's wonderful. When I'm around the campfire, I want to share a book that I read not that long ago called ‘Eat Like a Fish’ by Bren Smith. It is an amazing book about ocean farming as a practice that can enhance the health of marine ecosystems while sequestering tons and tons of carbon. It’s part narrative part and almost part instruction manual. What I personally loved about it is that I love eating oysters, mussels, and even seaweed and kelp. If 3D ocean farming really takes off, and those foods become cheaper and more ubiquitous, I am going to be totally fine with that. Also, most of the books on climate solutions that I've read have come from academics, and that's fine, but obviously, they have a certain tone to them. Bren Smith is a working-class guy who has so many amazing stories about his life working on the ocean. The whole thing is just wildly refreshing and really, really entertaining. So I can't recommend the book enough.
Luke Wilcox, Ethos:
That's awesome.
Dan Carreno, Change Finance:
We'll wrap it up there. Luke, thank you so much for coming on and sharing your insights with us and for the work that you are doing with Ethos. It sounds really amazing. I hope people go to the website and check it out. For anyone listening that wants to find the articles or resources that we discussed during the podcast today, you can go to our website, which is change-finance.com, and you can find our podcast library under the Insights tab, and links will be provided within the podcast transcript. Of course, if you have questions or feedback for us, you can always get in touch through the website. Thank you for being here. Thank you for listening. And we will be back soon with another episode of The ESG Update.