The ESG Update Episode 23: Transcending Politics and Embracing Values
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:
Brittany and I manage the business development efforts at Change Finance. We are 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, how are you today?
Brittany Damico, Change Finance:
I am doing great. My birthday is actually next week, so I'm really excited ramping up for that.
Dan Carreno, Change Finance:
Very nice. Happy early birthday.
Brittany Damico, Change Finance:
Thank you.
Dan Carreno, Change Finance:
I think there's some sour beers coming your way, if I'm not mistaken, from your friends at Change Finance. Okay. I'd like to introduce our guest this week, who is Nate Wyne. He is the Co-Founder and CEO of Floodlight. Nate, how are you? And thank you for joining the ESG update.
Nate Wyne, Floodlight:
Happy to be here. I’m doing really well.
Dan Carreno, Change Finance:
And where are you joining from in the world right now?
Nate Wyne, Floodlight:
I am at Rise in Barclays Tower in New York City today.
Dan Carreno, Change Finance:
I believe that before we get into discussing Floodlight, Brittany has an article that we would like to get your perspective on. So, Brittany, if you could dive into that it would be great.
Brittany Damico, Change Finance:
Thank you, Dan. Yes, I do. First, Nate, thank you for joining us today. It's great to have you. I have an article here that I'd like to get your insight on, if that's all right with you. It was published in the World Economic Forum and is titled, “ESG is missing a metric: R for Resilience”. It suggests that the Biden Administration's push for sustainability will likely increase existing ESG frameworks, as it has already taken several steps to pave the way. The article goes on to say that ESG measurement needs more uniformity, rigor, and breadth to accommodate the increasing upheavals with our climate and society. Their solution is a proposal of an additional variable to assess business's capacity to effectively recover, adapt, and grow in the face of shocks and stress. And, that variable is resilience. It goes on to state that currently most ESG metrics do not account for the vulnerabilities of a crisis, whether it be related to climate or public health, like with the pandemic within supply chains, infrastructure, and workforce. Therefore, resilience of stakeholders is becoming increasingly more important. So Nate, as co-founder and CEO of Floodlight, a company who analyzes and reports ESG data, I'd be curious about your thoughts around this idea of incorporating resilience as a metric.
Nate Wyne, Floodlight:
I think that's a fantastic question to kind of kick things off with, because so many more stakeholders across the board are asking a lot more hard-hitting questions. For a long time, impact investing and ESG investing was mostly about intentionality. With the data and reporting, most of CSR was, “what is the intention of the company who's actually reporting this?” and they took that right to the market. For us, we really wanted to turn that on its head. Not just for resilience, but also because people are really asking tougher questions. We think, especially with COVID, people have had a lot more time on their hands to invest. With the market being as volatile as it has been, but mostly in the up and right direction, questions like resilience and how quickly you can actually adjust and adapt to really capture more market are a key factor we're getting from multiple stakeholders, multiple clients, and just on our own internal team calls. This comes up a lot. So, it's exciting to see this coming from the Administration and in the market as well. It is a big factor in what makes a company successful. Not just how long have they been around, but how quickly can you change to adapting circumstances.
Brittany Damico, Change Finance:
Definitely. If 2020 showed anything, it was the adaptability of these companies. I think that is a fantastic segue to our first question for you. Can you tell us a little bit more about your personal background and what led you to found Floodlight?
Nate Wyne, Floodlight:
I'd love to. So, I actually started my career in finance as a teller in college. My employer was Wells Fargo and they had a tuition reimbursement plan. If you got A's, they paid you back for your school. So, I was a very motivated student. It was a great program because the focal point was to make sure that everything you learned had a realistic future in the bank. So that was the litmus test to make sure you could actually get your reimbursement. It helped me say, okay, what do I want to do with my career and my education, and how can that realistically happen with the vocation I've chosen?
Now setting all that inspirational stuff aside, when I moved from Salt Lake City, I went to the University of Utah. I moved down to Los Angeles to follow my dreams of beach volleyball. It happened to intersect pretty well with Wells. They have a pretty big footprint down in L.A. as well. I moved over to the commercial bank, then over to the corporate foreign exchange desk as an analyst. I really liked being on a trading floor and seeing close to a hundred people, very sharp, very focused on the markets, digesting massive amounts of news, media, and data to then go out to our specialists and say, this is what's happening in Indonesia and here's how I think it'll affect China and this is what it’ll do to the exchange rate. It really kind of tuned my mind to understand that there's so much data out there. I had a Bloomberg terminal, FactSet, and all the other proprietary systems that a person in my job would have. It really left me wondering why more of that data wasn't available to normal people, because the price points were pretty high, and then how come I wasn't seeing the same news bits translate on the television to what I could actually find on my terminal. Because I really cared and I was definitely coming up through my early twenties into my thirties in that job. I didn't have a ton of money in my 401k and in my investment accounts, but I had enough to where I was like, oh wow, I really should start thinking about retirement. I really wanted to make sure that the money I put in really did reinforce my own values because I do think for my time horizon towards retirement, I needed to think like, “okay, what companies are going to do well, even beyond DPS this quarter?” It usually aligned with the companies I used their products or I liked their marketing or I liked their end set up.
I got recruited from Wells Fargo over to Silicon Valley Bank. It gave me a front row seat to people like me who were frustrated or passionate about a certain issue. In mind, I would have had only ever been asked what's your age and what's your risk tolerance on investments, period, because the ROI didn't pay off for somebody in my tax bracket. To move them forward and see like, “Okay, I can now put the pieces together with the technologists, the venture capitalists and the teammates that I would actually need to make Floodlight a reality”. When I met Erin Andrew, my Co-Founder and our COO, I noticed in her very quickly that same hunger to make an impact. Seeing, as we both did, the massive trends in ESG and impact investing in general, I pulled her aside. I called her aside from SVB, we're sitting on the rooftop patio. They had a beautiful stretch of the beach, visible from our offices there. I said, do you want to leave all this behind and work in garages and bootstrap this company? And, it was a no brainer for both of us. We really wanted to do this. We had the tools and the network to make it happen. That’s how I got here.
Brittany Damico, Change Finance:
Right. Can you give me a little bit more information about Floodlight and what you guys are doing and how you're utilizing data and how it's really differentiated within the ESG space?
Nate Wyne, Floodlight:
Floodlight is built to be a data platform for primarily asset managers and registered investment advisors, very similar to your mission, seeking to align their values with their money without sacrificing alpha. One of the differentiators we have from the beginning was addressing a lot of the criticism of ESG that it was, in general, perceived as almost a liberal-only project. You needed to have a specific set of values, usually aligning with one party in the country to actually buy into this. We thought that was backwards, because really everybody, regardless of where the political leanings are, have values they care about. Usually there's like 20 or 30 in college and then as you go further and further into life, you come down to one or two that you feel passionately about. What we decided was it would be better if a data provider existed that would allow our users and clients to define their own definitions of environmentalism, diversity, any of the other value sets that are so important today but allow the asset owner to make that decision. Then we can show them what products, what equities, what philosophies really align best with what they want to accomplish with their money. We’re pretty excited by the results so far. It seems like a good, new approach and we're getting pretty good traction with it.
Brittany Damico, Change Finance:
Great. You mentioned that the types of businesses that would benefit most would be asset managers and registered investment advisors. Can you give me a little bit more information on that?
Nate Wyne, Floodlight:
Sure. Every entrepreneur has a world conquering goal. Erin and I want to have Floodlight be a part of every financial transaction that somebody makes. Where you send your kids to college, what restaurant you go to, et cetera, we want to be able to point people to the businesses or to the entities that they can support with their money. Our entry point was when we first lasered in on the needs of a registered investment advisor. We saw they had a ton of potential and a lot of rising demand from people, even smaller portfolio sizes like in the fifty to a hundred grand portfolio size, saying, ‘I really want to do more about diversity. I want to see more of X demographic in C-suite or in board of directors stuff. Can you help me?’ The RIA got caught saying, it would probably take me about seven or eight hours to figure out a portfolio that would work for you because of the tools that exist. Our technology is really designed to turn that into five minutes to help the client or the asset owner say, “here's what I really care about and this is the level that I care about it”. Cool. “Can you put me in a portfolio and with tech?” Yes, you can do that. You needed to have eight or nine people, humans, doing that before, which is what Erin did when she was also at Wells Fargo. We didn't know each other, but Erin worked in the ultra-high-net-worth affluent group. It really was the focal point, taking those long weekends with usually very wealthy families and figuring out their value set as you sat in a five-star hotel. Most RIAs can't do that for their entire portfolio and shouldn't really because everybody's money should matter. So that's why we built it to allow that tech to bridge the gap.
Brittany Damico, Change Finance:
I mean, that sounds like a great value add. Can you give me a little bit of information on the price point, how much the services costs, and if there's different tiers?
Nate Wyne, Floodlight:
There are definitely different tiers. I should back up just a little bit. The corporate history for going to the RIAs first was that we figured it was the easiest entry point. We knew RIAs had to be sharp, had to be ready for meetings had about five minutes, usually prep time or more, depending on how important that client was for them to be fully ready before they went into a call. What happened is as we booked our first dozen or so customers, we had a couple of family offices, and then mostly RIAs were our first customers last summer in a beta. We noticed that all of them said, “hey, sounds like you guys have figured out a lot of data sets in a way that really makes them unbiased. You should talk to my asset manager because they're in my office once a month, trying to sell me on a new ETF or a new mutual fund et cetera. I think your approach, going beyond the mission statement and the prospectus to what's the actual data and what you can use to say, ‘hey, client X, this is why I put you in this. You should talk to them.’” The asset manager subscription business really kind of changed on that because they wanted to hook into our full database and license it that way. That’s how the two kind of grew. In terms of price points specifically, we charge a hundred dollars a month for access currently to four data sets. We’ll be expanding that up to 10 throughout the summer. Essentially, we'll be adding prices as we go, but you get a 20% discount if it's annualized. Our goal is to build as many data sets as there are value demands. We’d like to be in the hundreds very soon. We get random requests all the time. We had somebody who asked us for a Halal index, basically just to create something, to make that more efficient. We've had religious, secular, et cetera requests to say, ‘look this matters enough to me and nobody's providing me this option. Could I use Floodlight for this?’ We love that because we're empowering more people to take command of what they want and not give up their Alpha for it.
Brittany Damico, Change Finance:
I know in one of the previous conversations we had something that struck me as really interesting was the work that you were talking about in supply chains. I am really looking forward to seeing how that manifests and how that kind of comes to fruition.
Nate Wyne, Floodlight:
Very timely. Now we're definitely researching it, especially as more and more people are looking at it, and not to take it too close to home, but I have five kids at home. When COVID hit and all of the basic necessities were suddenly off the shelves in L.A., it really made me think as an entrepreneur and as a Floodlighter, “why is the supply chain so five minutes and it's done? How did this happen?” This is old news. Everybody knows now why that was done. For investors to be able to look at companies, if you had a company that was going against the grain, then COVID would have been a gold mine for them. They would have outperformed. They would have been resilient in that market. As you asked in the beginning to say, okay, I should maybe have my supply chain different than all my competitors, because that gives me a strategic advantage in a time of disruption. So that's exactly what we're trying to highlight, which companies are thinking differently from the pack and which ones are outperforming, not just on EPS, but also on the other value metrics, because that's where you do get that outperformance that we're all seeking.
Brittany Damico, Change Finance:
Awesome. Really looking forward to it. Love the work that you guys are doing. If listeners would like to learn more about Floodlight, where should they go?
Nate Wyne, Floodlight:
Floodlightinvest.com is our website. Support@floodlightinvest.com is our probably our best email address, or me, I'm nate@floodlightinvest.com. A lot of what we're doing now is really seeking out high expectation clients. I know that's cliche because RIAs are probably getting at least a hundred mail solicitations a week by minimum. But a lot of what we're trying to do is understand, for those of you out there that have the high demand customers and that really understand this space and want to differentiate their own brand in it. We would really love to know exactly what would help you the most. Please reach out to us. We're definitely an agile startup that's trying to make your life easier. We can work with you and we're more than thrilled to do so.
Brittany Damico, Change Finance:
Thank You.
Dan Carreno, Change Finance:
Okay. We’ll start wrapping it up there. Nate, thank you so much for your comments and for sharing a little bit about Floodlight. Before we do wrap up, I want to take a minute here just to sit around the campfire. And as usual, Brittany, let's start with you. You’re drinking one of those sour beers on your birthday, and you're sitting around the campfire with friends. What are you going to be chatting about?
Brittany Damico, Change Finance:
So, first of all, I am really looking forward to this weekend. I'm actually flying to Palm Springs to see my family for the first time in over a year. My nieces, my grandmother, my parents, my sister, everyone's getting together. I'm just really excited to finally have some in-person time with my family after so long. One of the things that I will definitely be bringing up, which they know I will be, is about World Oceans Day, because it just passed. I hope everybody celebrated and had a great World Oceans Day. I joined an event called ESGX and they were really diving into the elimination of single use plastics. They had some really great initiatives with these companies that are trying to come up with these ideas to help the transition. I'm really excited and feeling inspired about that. I'll definitely be bringing that up, at least around the pool. It might not be around the campfire.
Dan Carreno, Change Finance:
Great. Thanks for sharing that. Nate, how about you?
Nate Wyne, Floodlight:
I finished a book recently called Mobituaries by Mo Rocca. If you're not familiar with him, he was on The Daily Show before going over to CBS for a morning program. He wrote a book about the obituaries that finished off very famous people's lives and really what they did from the moment they made it and became famous to that obituary being printed. It really struck a chord with me because a lot of my motivation for becoming an entrepreneur was wanting to really have a good life. I had a great job or it paid really well. It was in a great location. Things were kind of moving up and up financially. Hanging that all up to become an entrepreneur is a pretty big risk, especially when you have a big family. When I read through that book and saw the decision points that these people made, a lot of them really took risks that were, a hundred X, what I just did and seeing the good that they could accomplish or the bad that they could accomplish. It’s not just a praise happy book, but it was definitely one that through a kind and comedic lens you see people who decided for one reason or another to change course. A big part of my motivation in starting Floodlight was wanting to make the world a better place. Which might sound a little cheesy, because it is. In all honesty, we only get so much time to do it. For me, pulling the trigger and actually doing entrepreneurship as what I want to contribute was a biggie for me. Reading that book was incredibly helpful and still is to be honest. Yeah, I love it.
Dan Carreno, Change Finance:
That's great. And, really interesting. It actually kind of reminds me of years and years ago, I read the biography of Elon Musk. Elon is this really polarizing figure now. But the one thing that I took away from that biography is that that guy bet the farm on what he believed in. Right? Obviously he's had a lot of success now and is the richest person in the world or one of the richest. Man, he really put all the chips on the table. You got to hand it to folks like that, that take those types of risks.
I guess just to round it out, I wanted to start my campfire chat with actually a question to you guys. If you have two human beings and one is about seven times more active than the other, how many more calories would you expect that person to burn on a daily basis?
Brittany Damico, Change Finance:
I'm going to go ahead and say either the same or less.
Dan Carreno, Change Finance:
Cheater. Brittany knows the answer we were talking about it before the pod.
Nate Wyne, Floodlight:
My answer was much more, just to be fair. I'm a transparency company. I should actually admit I was wrong.
Dan Carreno, Change Finance:
It is about the same number of calories. There is this wild and really interesting finding that is documented in a book called Burn that I just started reading from Herman Ponsor and the subtitle on the book is, ‘new research blows the lid off of how we really burn calories, lose weight, and stay healthy’ and everything that this researcher has discovered about the way that our bodies sort of metabolize and burn calories is blowing my mind. Really interesting if you're into health and fitness, it’s definitely a book that you should check out.
Thank you again, Brittany and Nate for your time and your perspectives today. I do want to remind anyone that is listening if you would like to find any of the articles or resources that were discussed during the podcast, you can find those on our website at change-finance.com. And of course, those will be in the podcast library under the insights tab. If you do have questions for us or feedback, you can always get in touch with us through the website. I want to thank you again for tuning in and listening. We will be back soon with another episode of the ESG.