How conscious investors can turn up the heat and make companies change
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0:01 - 0:04We love to engage
on the issues of the day. -
0:04 - 0:05We love it.
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0:05 - 0:07We comment on the news,
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0:07 - 0:09we post our views on social media,
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0:09 - 0:12we march, we protest ...
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0:12 - 0:16But who among us is working on solutions,
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0:16 - 0:18big solutions to big issues,
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0:18 - 0:20like gun violence,
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0:20 - 0:22mistreatment of workers,
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0:22 - 0:24flood, famine, drought?
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0:24 - 0:26Who is on it?
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0:26 - 0:27Boom!
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0:29 - 0:30These guys.
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0:30 - 0:32(Laughter)
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0:32 - 0:35What? You were hoping for Peter Parker?
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0:35 - 0:36The Avengers?
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0:36 - 0:39You don't expect this beacon of diversity,
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0:39 - 0:45these good-looking, nicely dressed dudes
just oozing charisma to solve the issues? -
0:45 - 0:49Well good, because they're actually
not going to solve the issues. -
0:49 - 0:52But before you dismiss them,
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0:52 - 0:54let me say, they're not going
to solve the issues, -
0:54 - 0:57but they will show us how.
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0:57 - 0:59So who are they?
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0:59 - 1:00They're activist investors:
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1:01 - 1:07Carl Icahn, Dan Loeb,
Paul Singer, Barry Rosenstein. -
1:07 - 1:10These are the modern-day
OGs of Wall Street. -
1:10 - 1:12(Laughter)
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1:12 - 1:13These are scary dudes.
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1:13 - 1:14I don't mean Green Goblin scary.
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1:14 - 1:17I mean real scary.
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1:17 - 1:22The fear they strike in the hearts
of a company's CEO and board -
1:22 - 1:24when they enter its stock
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1:24 - 1:29is the same fear you feel
when you hear a bear outside your tent, -
1:29 - 1:30and it's dark,
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1:30 - 1:32and you're sitting there
with a mouthful of Doritos -- -
1:32 - 1:33(Laughter)
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1:34 - 1:35that just moments ago,
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1:35 - 1:38you had snuck out of the tent
to pull down from the bear hang, -
1:38 - 1:39because you had the munchies.
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1:39 - 1:41That fear.
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1:41 - 1:43And in that moment, you are praying,
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1:43 - 1:46"Oh Lord, please let this bear
be passing through." -
1:46 - 1:49That bear is not passing through!
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1:49 - 1:52That bear made a detour for you.
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1:52 - 1:54Bears like Doritos!
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1:54 - 1:55(Laughter)
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1:55 - 1:58Activists like money.
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1:58 - 2:04Some activists also like Doritos,
but they definitely want money. -
2:04 - 2:09And the way they make money,
the way they create value, -
2:09 - 2:11is by getting management of corporations
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2:11 - 2:13to make changes.
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2:14 - 2:17Now, some will argue
that the changes they create, -
2:17 - 2:20the value they create,
is too short-term in nature. -
2:20 - 2:24And others will say the tactics
they use are egregious. -
2:24 - 2:26I agree.
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2:26 - 2:27Long, drawn-out lawsuits,
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2:27 - 2:29public smear campaigns --
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2:29 - 2:31there is no need for that.
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2:32 - 2:35But I must say, there's
a small handful of activists, -
2:35 - 2:36very small,
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2:36 - 2:39that go to great lengths
to be constructive and collaborative. -
2:39 - 2:42And overall, we have to give credit
where credit is due. -
2:42 - 2:46As a group, they have managed
to catalyze large-scale change -
2:46 - 2:47in large corporations,
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2:47 - 2:49and that's no small feat.
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2:50 - 2:52Now, imagine a world
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2:53 - 2:56where all investors were working
with management to make change, -
2:56 - 2:58not just to make more money,
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2:59 - 3:02but to improve
the environment and society. -
3:02 - 3:07Imagine what a greener
and better world this would be. -
3:07 - 3:09Now, why? Why would an investor bother?
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3:09 - 3:12And at first, blush I'm with you:
Why would an investor care? -
3:12 - 3:14Because if doing well on ESG issues --
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3:14 - 3:17environmental, social
and governance issues -- -
3:17 - 3:19was just an act of good
corporate citizenship, -
3:20 - 3:22then I agree, investors would not care.
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3:22 - 3:24But the good news,
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3:24 - 3:27and perhaps the saving grace
for our collective futures, -
3:27 - 3:31is that it's so much more than
an act of good corporate citizenship. -
3:31 - 3:33It's good business.
-
3:33 - 3:36There's now enough evidence
that shows a clear correlation -
3:36 - 3:39between ESG performance
and financial performance. -
3:39 - 3:43Companies that do good
for the environment and society -
3:43 - 3:45also do well financially.
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3:45 - 3:48And some of the best
companies are catching on. -
3:48 - 3:49Like Adidas:
-
3:49 - 3:53Adidas is cleaning up the ocean
and making money in the process. -
3:53 - 3:57Adidas teamed up with an organization
called Parley for the Oceans. -
3:57 - 4:01Parley goes out and collects
plastic waste from the ocean. -
4:01 - 4:03Adidas uses the plastic waste
to make shoes. -
4:03 - 4:06Shoes made with plastic from the ocean:
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4:06 - 4:09good for the environment
and good for business. -
4:09 - 4:13Because if you know that rapidly growing
consumer segment known as hipsters -- -
4:14 - 4:15and I know you know hipsters --
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4:15 - 4:19then you know that a hipster faced with
the choice between a no-name shoe -
4:19 - 4:21and an Adidas made with
plastic from the ocean -
4:21 - 4:25will pick the Adidas every day
of the week and twice on Sunday, -
4:25 - 4:28and then walk around like it's no big deal
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4:28 - 4:31but look for every opportunity
to talk about them. -
4:32 - 4:33Like, in an Uber Pool.
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4:33 - 4:34(Laughter)
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4:35 - 4:37"Hey, I noticed you looking at my feet."
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4:37 - 4:41"What? Dude, no, I'm just making slides.
I'm a consultant. I make slides. -
4:41 - 4:44I'm making PowerPoint slides,
I'm not looking --" -
4:44 - 4:45"No, it's fine.
-
4:45 - 4:46I get why you'd be looking.
-
4:46 - 4:48The plastic on my shoe
must be bothering you. -
4:48 - 4:51Well, let me talk about it
for the rest of this ride. -
4:51 - 4:53You see, the plastic on my shoe
is from the ocean, -
4:53 - 4:56on my feet, not in your fish,
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4:56 - 4:58being walked on, not being munched on.
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4:58 - 5:00Happy feet. Happy fish. Happy ocean.
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5:00 - 5:03Doing my part. I got eco-shoes.
I got eco-shoes. -
5:03 - 5:05You need some eco-shoes?"
-
5:05 - 5:07And so on, just cornering him.
We've all been there. -
5:07 - 5:10"Hey, pass me your cell phone.
I'll give you a discount code. -
5:10 - 5:12Let me give you a discount code."
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5:12 - 5:13We've all been --
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5:13 - 5:15Folks, I have jumped out
of moving Uber Pools. -
5:15 - 5:16(Laughter)
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5:16 - 5:19Just, moving, highway, I'm out. I'm out.
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5:21 - 5:24But we've got to forgive the hipsters,
we need to love the hipsters. -
5:24 - 5:26We need hipsters,
and we need companies like Adidas, -
5:26 - 5:30and what we need most is for investors
to convince other companies -
5:30 - 5:32to behave like Adidas.
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5:32 - 5:33And herein lies the challenge.
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5:34 - 5:38There's a growing group of investors,
call them "conscious investors." -
5:38 - 5:41Conscious investors care about ESG issues.
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5:42 - 5:46And they talk a lot about
engaging management on ESG issues. -
5:46 - 5:49But they don't actually get
management to make changes -
5:49 - 5:51that will improve
the environment and society. -
5:52 - 5:56And this is where conscious investors
can take a page from the playbook -
5:56 - 5:58of the activist investors,
-
5:58 - 6:02because the activist investors have no
issues getting management to make changes. -
6:02 - 6:04They have no issues turning up the heat.
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6:04 - 6:05Take Paul Singer.
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6:05 - 6:08He's an old-school Wall Street OG,
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6:08 - 6:11now in his 70s, loves Doritos,
loves making money. -
6:12 - 6:16Argentina owed Paul 600 million dollars
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6:16 - 6:18and would not pay.
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6:18 - 6:20Big mistake.
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6:20 - 6:23You can't take money from an OG
and not pay it back. -
6:23 - 6:26Paul went to war with Argentina.
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6:26 - 6:28I am not inventing.
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6:28 - 6:30This is big. This was huge.
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6:30 - 6:32This was bigger than Tyson vs Holyfield,
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6:32 - 6:34Ali vs Foreman.
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6:34 - 6:36This was man vs country.
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6:36 - 6:40Paul Singer started going around the world
trying to seize up Argentinian assets. -
6:40 - 6:45At one point, he tried to seize
an Argentinian navy vessel -
6:45 - 6:46off the coast of Ghana.
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6:46 - 6:50He tried to take over a 350-foot ship
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6:50 - 6:54while big navy officers
with big guns were on the ship. -
6:54 - 6:57He got the police in Ghana
to show up with a crane -
6:57 - 6:59and threaten to board the ship,
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6:59 - 7:03and it wasn't until
the navy officers drew their weapons -
7:03 - 7:05that they called off the operation.
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7:06 - 7:08That's what I call turning up the heat.
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7:08 - 7:10Now, you may say
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7:10 - 7:13Paul lost the battle.
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7:13 - 7:14And I'll say, Paul won the war,
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7:14 - 7:16because Paul didn't get paid one time,
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7:16 - 7:19he got paid 20 times
his original investment. -
7:21 - 7:22Then you have Barry Rosenstein.
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7:22 - 7:24His fund, Jana Partners,
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7:24 - 7:26started stealth-mode buying up
stock in Whole Foods, -
7:26 - 7:29at a time when Whole Foods was struggling.
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7:29 - 7:30They got to eight percent, came out,
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7:31 - 7:33and pushed Whole Foods
to sell itself to Amazon, -
7:33 - 7:37and not because Barry wanted
same-day delivery of his organic Doritos. -
7:37 - 7:38(Laughter)
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7:39 - 7:41He wanted to make some money.
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7:41 - 7:44Now, the CEO of Whole Foods,
John Mackey, and the board -
7:44 - 7:48did not want to sell themselves to Amazon,
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7:48 - 7:51because that would be
the prime example of selling out. -
7:51 - 7:53But in the end, they caved.
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7:54 - 7:56Why? Because Barry turned up the heat,
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7:56 - 7:59and he made 300 million
dollars in the process. -
8:00 - 8:03And he did not leave
a very nice impression on John. -
8:04 - 8:06You're not going to see
John and Barry just hugging it out -
8:06 - 8:08at the Whole Foods café.
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8:09 - 8:11Let's take a very different example now:
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8:12 - 8:14the Chicago Teachers' Pension Fund,
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8:15 - 8:17a $10 billion conscious investor.
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8:18 - 8:21They recently came out hard
against private prisons in the US, -
8:21 - 8:22and good for them.
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8:22 - 8:25As a new parent, I tell you,
I am troubled by devastating images -
8:25 - 8:29of young children being ripped
out of the arms of their parents -
8:29 - 8:30at the US border
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8:30 - 8:34and being placed in private
detention facilities that did too little -
8:34 - 8:37to help the kids maintain
contact with their parents. -
8:38 - 8:39So what did the Chicago teachers do?
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8:40 - 8:43Did they get management to make changes?
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8:43 - 8:45Did they turn up the heat?
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8:45 - 8:47Did they look management
in the eye and say, -
8:47 - 8:48"This is no way to run a business.
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8:49 - 8:52There's a different way
to do things. Let me show you"? -
8:52 - 8:55No. They just sold their stock.
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8:56 - 8:57Selling did nothing.
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8:57 - 9:00It's not like management
woke up the next day -
9:00 - 9:01and had an epiphany and said,
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9:01 - 9:05"Gosh, the teachers sold their stock.
We'd better be nice to the kids." -
9:05 - 9:06No. That didn't happen.
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9:07 - 9:11And despite a decade
of several high-profile divestitures -
9:11 - 9:13in private prison stock in the US,
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9:13 - 9:14the stock has continued to climb.
-
9:15 - 9:19The stock over that same period
has outperformed the market. -
9:20 - 9:21And the biggest issue is,
-
9:21 - 9:25we went from a set of conscious
investors owning the stock -
9:25 - 9:30to it potentially being owned by investors
who don't care about these issues -
9:30 - 9:32and don't care what you think
about these issues. -
9:32 - 9:35And this is my issue
with conscious investors. -
9:35 - 9:37Their MO is to divest
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9:37 - 9:40or divert money into ESG-focused funds.
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9:41 - 9:44You can't divest your way
to a greener world. -
9:45 - 9:48You can divest your way
to a greener portfolio, -
9:48 - 9:49not to a greener world.
-
9:51 - 9:52So what's it going to take?
-
9:52 - 9:54What's it going to take
to flip the script, -
9:54 - 9:57to get conscious investors to go
from divesting to engaging, -
9:57 - 10:01to go from talking about engaging
to actually working with management -
10:01 - 10:05to make changes that will improve
their ESG performance? -
10:05 - 10:08Because there's a lot suggesting
they should and they could. -
10:08 - 10:11They should, given the clear correlation
between ESG performance -
10:11 - 10:13and financial performance.
-
10:14 - 10:17They could because the activists
have shown us they could. -
10:18 - 10:20A shareholder can drive
change in a company. -
10:20 - 10:24The difference is, Paul and Barry
do what they do to make money. -
10:24 - 10:30The conscious investors would do it
to improve society and the environment -
10:30 - 10:31and make money in the process
-
10:31 - 10:34and do it a little more
collaboratively and constructively. -
10:35 - 10:38And they have the backing
of the some of the largest investors. -
10:38 - 10:41Vanguard and BlackRock --
together, they manage trillions. -
10:41 - 10:45They've been increasingly vocal
about the importance of ESG. -
10:46 - 10:50The CEO of BlackRock has been
increasingly vocal in his annual letters -
10:50 - 10:51about this issue.
-
10:52 - 10:56Even Jana Partners, the same OGs
that John called "greedy bastards," -
10:56 - 10:59recently co-wrote an open letter
to the board of Apple, -
10:59 - 11:02saying, "Hey, your smartphones
are addictive for children. -
11:03 - 11:04Fix it."
-
11:05 - 11:06Apple is working on it.
-
11:08 - 11:10So what it's going to take
is some pressure. -
11:11 - 11:13It's going to take some pressure
on conscious investors -
11:13 - 11:16to, in turn, put some pressure
on management -
11:16 - 11:20to make changes that will improve
the environment and society. -
11:22 - 11:23And where do they start?
-
11:23 - 11:26They start by picking an issue
that matters to them -
11:26 - 11:27and taking a stand on it.
-
11:27 - 11:31Take a stand on an issue
that lines up with your purpose: -
11:31 - 11:34water preservation,
labor rights, diversity. -
11:34 - 11:37As long as it lines up
with your purpose, you are golden. -
11:37 - 11:39And the biggest unlock?
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11:39 - 11:44Get the senior-most investment
professionals focused on this. -
11:45 - 11:47Today, when an activist
shows up to a campaign, -
11:47 - 11:50it's the senior investment professional
talking to the CEO and the board -
11:50 - 11:52and everyone hears about it.
-
11:52 - 11:55When a conscious investor shows up
to talk about an ESG issue, -
11:55 - 11:58it's some junior person
in the risk department -
11:58 - 12:01talking to some junior person
in the investor relations department, -
12:01 - 12:04and nobody hears about it,
and that needs to change. -
12:04 - 12:05And it's not some massive leap.
-
12:05 - 12:08Today, when a company
underperforms financially, -
12:08 - 12:09who is on the hook?
-
12:09 - 12:11The senior investment professional.
-
12:11 - 12:12So what do they do?
-
12:12 - 12:14They drop everything
and work with management, -
12:14 - 12:16collaboratively and constructively,
-
12:16 - 12:19to make changes to improve
the company's financial performance. -
12:19 - 12:23The same should be true when the company
underperforms on ESG issues. -
12:23 - 12:27And yes, that requires standardization
on how we measure ESG, -
12:27 - 12:28but we're on it.
-
12:29 - 12:31So folks, here's my call to action:
-
12:32 - 12:33it's your money.
-
12:33 - 12:35It's your pension fund,
-
12:35 - 12:37it's your sovereign wealth fund.
-
12:37 - 12:38it's your university's endowment.
-
12:38 - 12:40It's your money.
-
12:40 - 12:43And it's your right to have your money
managed in line with your values. -
12:44 - 12:45So use your voice
-
12:46 - 12:47and trust that it matters.
-
12:48 - 12:52It was your voice that got the investors
more conscious in the first place. -
12:52 - 12:54You protested for years,
-
12:54 - 12:57because you didn't feel right
about your money being invested -
12:57 - 12:59in companies whose values
don't line up with yours. -
12:59 - 13:01It's time to use that voice again.
-
13:01 - 13:04But this time, instead of
pushing them to divest, -
13:04 - 13:07push them to engage, truly engage,
truly work with management -
13:07 - 13:11to make changes that will improve
their ESG performance. -
13:12 - 13:15You made them aware of the issues.
-
13:15 - 13:16You can now focus them on fixing them.
-
13:17 - 13:19Thank you.
-
13:19 - 13:21(Applause)
- Title:
- How conscious investors can turn up the heat and make companies change
- Speaker:
- Vinay Shandal
- Description:
-
Vinay Shandal speaks at TED@BCG 2018
- Video Language:
- English
- Team:
- closed TED
- Project:
- TEDTalks
- Duration:
- 13:37
Oliver Friedman edited English subtitles for How conscious investors can turn up the heat and make companies change | ||
Oliver Friedman edited English subtitles for How conscious investors can turn up the heat and make companies change | ||
Oliver Friedman edited English subtitles for How conscious investors can turn up the heat and make companies change | ||
Camille Martínez accepted English subtitles for How conscious investors can turn up the heat and make companies change | ||
Camille Martínez edited English subtitles for How conscious investors can turn up the heat and make companies change | ||
Camille Martínez edited English subtitles for How conscious investors can turn up the heat and make companies change | ||
Joseph Geni edited English subtitles for How conscious investors can turn up the heat and make companies change |