In Episode 2 of The ESG Update, President of YourStake.org, Gabe Rissman, joins the pod to discuss the importance shareholder advocacy and the availability of ESG data.

Transcript

Dan Carreno, Change Finance:
Welcome to The ESG Update presented by Change Finance. I'm your host Dan Carreno, head of business development at Change Finance. We are an ETF provider dedicated to Environmental, Social, and Governance investing, and it's our mission to help investors align their portfolios with their values without sacrificing returns. Joining the pod this week is Gabe Rissman. Gabe is the Co-Founder and President of YourStake.org, which is an online petition platform and portfolio analytics provider. Gabe, how we doing today?

Gabe Rissman, YourStake.org:
Doing great. I'm really glad to be on. Thanks for both hosting the podcast today and for doing it in general. I think that there is a need for this type of content, and I'm glad you’re providing it.

Dan Carreno, Change Finance:
Just trying to get more information out there. We will talk more about YourStake later in the pod, but first, we have to cover the news. Gabe, are you ready to talk about what's happening in the world of responsible investing?

Gabe Rissman, YourStake.org:
Let’s do it.

Dan Carreno, Change Finance:
The first article that we're going to cover this week comes from Bloomberg Green. It is titled “Mutual Fund Industry Tries to Figure Out How to Define ESG Funds.” The thrust of the article here is that there are a lot of different types of funds and investment products that get lumped into the ESG conversation. We have sustainable funds and gender lens focused. We have low carbon and fossil fuel free. They all tend to get lumped into the same pile, and that is creating some confusion for both investors and advisors. So, the Investment Company Institute has come along, and they are working on providing better categories. They've come up with three broad ones to start, which include ESG Exclusionary: those funds that may block out one particular factor that individuals may find objectionable such as fossil fuels. Then we have ESG Inclusionary: those would be the funds that are utilizing ESG data in the security selection process. And then, finally as a third category, they have Impact Investing: these would be funds with very specific environmental or social themes. Think about a green bond fund or funds that focus on cleantech and renewable energy. This is all in line with some of the commentary that we have heard lately from the SEC. They have said that they would like to see some more clarifying rules around ESG to limit confusion for investors. Gabe, what do you think?

Gabe Rissman, YourStake.org:
I'm really glad you started with this one. I like that they have three different levels. I think that what is missing is a focus on proxy voting and shareholder advocacy. You can have two funds investing in the exact same companies creating entirely different impacts based on how they're using their position as an investor. If they're aligned with management on proxy votes or pushing the needle. That is something that has been missing not just in this classification but is also missing from a lot of the ESG ratings out there. It's missing from a lot of the commentary. It was really the start for us as I came from the advocacy side. It's really where a lot of the impact is created.

Dan Carreno, Change Finance:
I'm so glad that you mentioned that. Then this has been a big frustration for me. There's really no good central database to find that type of information. Say you want a list of who is engaging in shareholder advocacy and what degree to which they are doing it, and who is not. It’s a lot of work to figure that out.

Gabe Rissman, YourStake.org:
Totally right. My first project, before I built YourStake, was trying to solve that question exactly with an organization called the Real Impact Tracker where we were looking at what fund managers actually do on a holistic level. Not just what companies they're investing in but also whether they're involved in shareholder advocacy. How they're voting. Whether they're talking to companies. If they're doing that in coalitions. If they're persistent. If they're filing shareholder resolutions. If they're speaking out publicly. If they're signing on to investor letters. All these different things get ignored by these classifications sometimes. It’s growing in popularity. I know that InfluenceMap came out with something that's looking at shareholder engagement as well. I think that it's starting to be recognized. That’s extremely important because a lot of the big asset managers are highlighting the stewardship side of what they're doing.

Dan Carreno, Change Finance:
The other comment I had about this article is that these three categories are a great starting place, but as time goes on, and the ESG industry continues to grow and evolve, I think we're going to need some additional categorizations. Don't you think?

Gabe Rissman, YourStake.org:
I think you're right. I think the biggest thing to measure is the level of intentionality and resources and effort put into ESG. They need to [incorporate] ESG well along with impact, along with exclusionary screening, along with active positive screening. As long as there's the intention, and you're not just an overlay as a last-ditch effort. That’s what creates a lot more impact and sends a better signal to companies

Dan Carreno, Change Finance:
It will also be interesting to see when we start overlaying performance data. We can see how the exclusionary funds do relative to the inclusionary funds. Who knows, maybe the companies that do engage in shareholder advocacy end up putting up better returns.

So it will be fascinating to see how this evolves over the long term, but let's go ahead and move on to the next article that we're going to cover this week. This comes at Gabe's recommendation. This is an article from Andrew Ross Sorkin at The New York Times. And the title is “A Company Backs a Cause. It Funds a Politician Who Doesn't. What Gives?”

Andrew Ross Sorkin is saying that there are many Fortune 500 companies that on social media, in their branding, and in their advertising, are saying that they support specific social or environmental causes. And then those companies, behind the scenes, turn around and give money to and support politicians that are adamantly opposed to those same issues. Andrew Ross Sorkin gave the example of companies showing support for the Black Lives Matter movement. Many of those companies that created TV commercials or social media posts around Black Lives Matter at the same time donated to the campaigns of politicians that were opposed to the very existence of Black Lives Matter. So there's a lot of hypocrisy there. Gabe what do you think?

Gabe Rissman, YourStake.org:
Sometimes I wonder if it's benevolent and ignorant. That there are different parts of the organization doing different things that don't talk to each other. Sometimes I wonder if it's malicious and really clever. I go back and forth, not knowing which is which. Greenwashing is something that is coming up more and more as a negative response to ESG. A lot of people don't trust and believe in it, which is understandable. I think you and a few others in this space do some really good work to cut through the greenwashing. I don't know if you want to talk about that for a bit, but I think that's a really important part of managing ESG.

Dan Carreno, Change Finance:
I think it's a lot of examining more granular data. It's so easy just to take a broad index, or a starting university of securities, and apply some high-level ESG screens. It's enough to slap the ESG label on any particular fund, and then out the door it goes. Start selling it. But often, that sort of high-level ESG work is just not going to get into the issues like we're talking about today. This hypocrisy that we see with companies and how they may be using their financial resources to push certain political agendas. Companies like Change Finance and others are out there getting more granular on their analysis of [ESG] data. They look not just at three broad categories of Environmental, Social, and Governance but start digging into specific metrics. Then this type of thing becomes apparent.

We at Change Finance always consider ESG to be a great way to mitigate risk. One of the risks that we talk about is loss of social license, which is a fancy way of saying reputational risk. I can't think of a better way for a company to damage its reputation by saying one thing and then doing another.

Gabe Rissman, YourStake.org:
I think that's right. I know that there are some organizations doing the data science right now to try to make that case or hopefully take a scientific approach to show that companies are actually being penalized in their stock price when they are not transparent about their political spending or when they are antithetical to their public statements. I think that it is important to be able to prove that it's not just the flavor of the month, it's not just some cause that might be nice, it's really affecting the bottom line. Although that shouldn't be the only reason to do something, it certainly helps and makes it easier to make the case that companies should be more consistent with their social efforts and their social message.

Dan Carreno, Change Finance:
Appreciate your comments. This probably a good segue into talking about YourStake because I know that this is an issue that's been part of the platform, and we can talk more about that. But why don't we start at a high level. Why don't you give us a broad introduction to YourStake, what it's all about, and what you guys bring to the table.

Gabe Rissman, YourStake.org:
Thanks Dan. So, we found that a lot of ESG investors or financial advisors are excited about ESG, but there is this lingering fear and gap of knowledge around ESG funds. Often, there isn't information available that can help you explain what's going on in that portfolio. Unfortunately, what this does is it holds people back from joining the sustainable investment movement because if you're not able to communicate why you're choosing an ESG fund, or you're not comfortable opening up a conversation around ESG, it can lead to a conversation that's going to hold a lot of people back. So, we created YourStake to solve that challenge. How do I communicate the impact of my investments? If I choose Change Finance, or whatever I may be investing in, what's happening in the world?

What YourStake does is pull in a whole bunch of data points from 100 different sources. Government, non-profit, academic sources, and we consolidate them down into the most interesting and relevant data points. Then, we create a simple report that can show you how many cars off the road equivalent your portfolio is taking by having a lower emissions intensity. Or we can show you what your exposure to animal exploitation is and show that you're saving animals by not investing in certain companies. Our mission and our goal is to grow the movement for sustainable investing because of the impact that it creates. We know that just the transparency and the availability of data is often holding back a lot of people. Advisors themselves or clients who don't know exactly what they're getting.

YourStake provides this data. Once you have that data, now you have this enlightening experience and know what's going on in your portfolio. Now you want to do something about it. YourStake helps you understand your stake within a company, within a fund, within a portfolio, and then actually use your stake to be able to participate in shareholder engagement in a much easier and more facilitated way.

Dan Carreno, Change Finance:
So let's say I'm an investor or a financial advisor, and I have a portfolio where I want to know what that impact looks like. What does the process look like in terms of utilizing YourStake to get the data that you're referencing?

Gabe Rissman, YourStake.org:
You plug a portfolio into our system, that can be mutual funds or individual stocks and bonds as well. We’re pulling in data that we have for all these different companies and funds that may be in your portfolio from a hundred different data sources. Full coverage of U.S. and international companies. Then we show you how the companies in your portfolio are tied to issues that you may care about. You can customize what the report looks like. Say that you care about CEO pay and median worker pay. Perhaps, you really don't want CEOs to be paid an obscene amount when we have much broader social issues at hand. You can now see how the companies in your portfolio are performing on their CEO pay ratio, or you can look at racial justice metrics. It can show you how companies are polluting the air and the water. And not only how much pollution they're causing, but also where that pollution is located. You can see if they're polluting poor and minority communities. You can see where that pollution is located from a racial justice and economic equality perspective. We are able to show very granular detail on metrics you or your clients may care about and then present that in a way where people are amazed. It's fun to see the stories and see the expressions. They had no idea that their portfolio is related to an issue. They're really happy to see what impact they're creating that they never would have known about.

Dan Carreno, Change Finance:
That's great. We were just talking about this issue of shareholder advocacy and it being somewhat difficult to determine which financial products engage in advocacy and which do not. I know that's something that you have been working on. How does that resource look, and how is that information presented on the platform?

Gabe Rissman, YourStake.org:
That's part of our data gathering process. We pull in advocacy stories and aggregate how many companies your portfolio has pushed to improve as a result of shareholder engagement. We can tell you all those stats, and that shows up on your report.

Dan Carreno, Change Finance:
I would imagine just having those stories and those anecdotes allows you to internalize the information. "Because I decided to invest this way, and I purchased XYZ fund out there, this very tangible benefit occurred in the world. And I was part of that." I think those stories, those anecdotes, are amazing. I think those are important for growing our industry. Do you also want to talk a little bit about the petition work that you do through the platform as well? And how that's available to both wealth managers as well as individual investors?

Gabe Rissman, YourStake.org:
Absolutely. The petitions offer a way for anyone to participate directly in shareholder engagement. For example, Dan you put a petition on YourStake which is calling for companies to improve their disclosure around racial diversity and pay data. It's amazing that you've been able to send out a letter and lead this campaign from your own perspective. What YourStake allows anyone to do is to say “hey, we really like what Changed Finance is doing, and we want to add our assets in support.” We are able to link your assets. We have syncs with all the major custodians. You link your assets and then sign petitions like the one that Change Finance posted. That then helps you run your campaigns. You're now able to say that there is more of a coalition behind what you're asking for and that it's not a one-off request.

It's something that individuals and financial advisors are looking for. We're excited that individuals and financial advisors can participate in signing these petitions and bolstering shareholder engagement work that's done by Change Finance and other SRI and ESG funds, as well as some nonprofits. Public Citizen and the Union of Concerned Scientists are running other petitions along with a corporate campaign that allows them to ask major mutual fund managers to improve their proxy voting records. It's gotten a ton of support. Over $600 million from individual investors and financial advisors signing on behalf of their clients. It’s funny because when we asked Vanguard why it doesn't vote in support of ESG shareholder resolutions, it said that it doesn't hear from its clients about that. We're trying to provide that bridge to show that people do care.

Dan Carreno, Change Finance:
We are big fans of the YourStake platform at Change Finance. We like to think about our engagement and advocacy efforts as a process. There's often not a defined starting and ending point. Having the ongoing petitions is wonderful because it gives us a talking point that we can go back to these companies with and say “Yes, we've made this request. We want this for these reasons, and you should also know that there are a lot of other investors behind us who support the same request and who would like to see the same things happen in the world.” It’s a great tool. I think it's wonderful for individual investors, for wealth managers, and asset managers.

We’re going to wrap it up there. If anyone listening wants to find the articles and resources that we discussed during the pod, you can go to www.change-finance.com. Find our podcast library under the INSIGHTS tab, and links are provided there within the podcast transcript. If you have questions or feedback for us, you can always get in touch with us through the website. Gabe, if listeners want more information about YourStake, where should they go?

Gabe Rissman, YourStake.org:
You can go to YourStake.org where you can find everything you need, and you can set up a time to talk.

Dan Carreno, Change Finance:
I appreciate you being on today Gabe. Pleasure speaking with you and best of luck with YourStake. I'm sure we'll be talking soon.

Gabe Rissman, YourStake.org:
Thank you. Thanks for the conversation. Love the articles that you chose. I hope people give them a read.

Dan Carreno, Change Finance:
Thank you everybody. Goodbye.