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.
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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:
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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.
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4:45 - 4:46I get why you'd be looking.
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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?"
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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.
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9:15 - 9:19The stock over that same period
has outperformed the market. -
9:20 - 9:21And the biggest issue is,
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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?
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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.
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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.
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13:19 - 13:21(Applause)
- Title:
- How conscious investors can turn up the heat and make companies change
- Speaker:
- Vinay Shandal
- Description:
-
In a talk that's equal parts funny and urgent, consultant Vinay Shandal shares stories of the world's top activist investors, showing how individuals and institutions can take a page from their playbook and put pressure on companies to drive positive change. “It's your right to have your money managed in line with your values,” Shandal says. “Use your voice, and trust that it matters.”
- 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 |