How conscious investors can turn up the heat and make companies change

We love to engage
on the issues of the day.

We love it.

We comment on the news,

we post our views on social media,

we march, we protest.

But who among us is working on solutions,

big solutions to big issues

like gun violence,

mistreatment of workers,

flood, famine, drought?

Who is on it.

Boom!

These guys.

(Laughter)

What, you were hoping for Peter Parker,

the Avengers?

You don't expect this beacon of diversity,

these good-looking, nicely dressed dudes
just oozing charisma to solve the issues?

Well good, because they're actually
not going to solve the issues.

But before you dismiss them,

let me say, they're not going
to solve the issues,

but they will show us how.

So who are they?

They're activist investors:

Carl Icahn, Dan Loeb,
Paul Singer, Barry Rosenstein.

These are the modern day
OGs of Wall Street.

(Laughter)

These are scary dudes.

I don't mean Green Goblin scary.

I mean real scary.

The fear they strike in the hearts
of a company's CEO and board

when they enter its stock

is the same fear you feel

when you hear a bear outside your tent

and it's dark, and you're sitting there
with a mouthful of Doritos

that just moments ago
you had snuck out of the tent

to pull down from the bear hang
because you had the munchies?

That fear, and in that moment,
you are praying, "Oh Lord,

please let this bear be passing through."

That bear is not passing through!

That bear made a detour for you.

Bears like Doritos!

(Laughter)

Activists like money.

Some activists also like Doritos,
but they definitely want money.

And the way they make money,

the way they create value,

is by getting management of corporations

to make changes.

Now some will argue
that the changes they create,

the value they create,
is too short-term in nature,

and others will say the tactics
they use are egregious.

I agree.

Long, drawn-out lawsuits,

public smear campaigns.

There is no need for that.

But I must say, there's
a small handful of activists,

very small,

that go to great lengths to be
constructive and collaborative,

and overall we have to give credit
where credit is due.

As a group, they have managed
to catalyze large-scale change

in large corporations,
and that's no small feat.

Now, imagine a world

where all investors were working
with management to make change,

not just to make more money,

but to improve
the environment and society.

Imagine what a greener
and better world this would be.

Now why? Why would an investor bother?

And at first blush I'm with you.
Why would an investor care?

Because if doing well on ESG issues --

environmental, social
and governance issues --

was just an act of good
corporate citizenship,

then I agree, investors would not care.

But the good news,

and perhaps the saving grace
for our collective futures,

is that it's so much more than
an act of good corporate citizenship.

It's good business.

There's now enough evidence
that shows a clear correlation

between ESG performance
and financial performance.

Companies that do good
for the environment and society

also do well financially.

And some of the best companies
are catching on, like Adidas.

Adidas is cleaning up the ocean
and making money in the process.

Adidas teamed up with an organization
called Parley for the Oceans.

Parley goes out and collects
plastic waste from the ocean.

Adidas uses the plastic waste
to make shoes.

Shoes made with plastic from the ocean:

good for the environment
and good for business.

Because if you know that rapidly growing
consumer segment known as hipsters,

and I know you know hipsters,

then you know that a hipster faced with
the choice between a no-name shoe

and an Adidas made with
plastic from the ocean

will pick the Adidas every day
of the week and twice on Sunday,

and then walk around like it's no big deal

but look for every opportunity
to talk about them.

Like, in an Uber Pool.

(Laughter)

"Hey, I noticed you looking at my feet."

"What? Dude, no, I'm just making slides.
I'm a consultant. I made slides.

I'm making a PowerPoint slide,
so I'm not looking--"

"No, it's fine.

I get why you would be looking.

The plastic on my shoe
must be bothering you.

Well let me talk about it
for the rest of this ride.

You see, the plastic on my shoe
is from the ocean,

on my feet, not in your fish,

being walked on, not being munched on.

Happy feet. Happy fish. Happy ocean.

Doing my part. I got eco-shoes.
I got eco-shoes.

You need some eco-shoes?
You need some eco-shoes?"

And so on, just cornering him.
We've all been there.

"Hey man, pass me your cell phone.
I'm going to give you a discount code.

I've got a discount code.
Let me give you a discount code."

We've all been --

Folks, I have jumped out
of moving Uber Pools.

(Laughter)

Just, moving, highway, I'm out. I'm out.

But look, we've got
to forgive the hipsters,

because we need to love the hipsters.

We need hipsters,
and we need companies like Adidas,

and what we need most is for investors
to convince other companies

to behave like Adidas.

And herein lies the challenge.

There's a growing group of investors,
call them conscious investors.

Conscious investors care about ESG issues,

and they talk a lot about
engaging management on ESG issues.

But they don't actually get management
to make changes that will improve

the environment and society.

And this is where conscious investors
can take a page from the playbook

of the activist investors,

because the activist investors

have no issues getting
management to make changes.

They have no issues turning up the heat.

You know, take Paul Singer.

He's an old school Wall Street OG,

now in his 70s, loves Doritos,
loves making money.

Argentina owed Paul 600 million dollars

and would not pay.

Big mistake.

You can't take money from an OG
and not pay it back.

Paul went to war with Argentina.

I am not inventing.

This is big. This is huge.

This was bigger than Tyson Vs. Holyfield,

Ali Vs. Foreman.

This was man versus country.

Paul Singer started going around the world
trying to seize up Argentinian assets.

At one point, he tried to seize
an Argentinian navy vessel

off the coast of Ghana.

He tried to take over a 350-foot ship

while big navy officers
with big guns were on the ship.

He got the police in Ghana

to show up with a crane

and threaten to board the ship,

and it wasn't until
the Navy officers drew their weapons

that they called off the operation.

That's what I call turning up the heat.

Now you may say,

well Paul lost the battle,

and I'll say, Paul won the war,

because Paul didn't get paid one time,

he got paid 20 times
his original investment.

Then you have Barry Rosenstein.

His fund, Jana Partners,

started stealth mode buying up
stock in Whole Foods

at a time when Whole Foods was struggling.

They got to eight percent, came out,

and pushed Whole Foods
to self itself to Amazon,

and not because Barry wanted
same-day delivery of his organic Doritos.

(Laughter)

He wanted to make some money.

Now the CEO of Whole Foods,
John Mackey, and the board

did not want to sell themselves to Amazon,

because that would be
the prime example of selling out.

But in the end, they caved.

Why? Because Barry turned up the heat,

and he made 300 million
dollars in the process,

and he did not leave
a very nice impression on John.

Okay? You're not going to see
John and Barry just hugging it out

at the Whole Foods cafe.

Let's take a very different example now:

the Chicago Teachers Pension Fund,

a 10-billion-dollar conscious investor.

They recently came out hard
against private prisons in the US,

and good for them.

As a new parent, I tell you,
I am troubled by devastating images

of young children being ripped
out of the arms of their parents

at the US border

and being placed in private
detention facilities that did too little

to help the kids maintain
contact with their parents.

So what did the Chicago teachers do?

Did they get management to make changes?
Did they turn up the heat?

Did they look management in the eye
and say, this is no way to run a business?

There's a different way
to do things. Let me show you.

No. They just sold their stock.

Selling did nothing.

It's not like management
woke up the next day

and had an epiphany and said,

"Gosh, the teachers sold their stock.
We'd better be nice to the kids."

No. That didn't happen.

And despite a decade
of several high profile divestitures

in private prison stock in the US,

the stock has continued to climb.

The stock over that same period
has outperformed the market.

And the biggest issue is we went
from a set of conscious investors

owning the stock

to it potentially being owned

by investors who don't
care about these issues

and don't care what
you think about these issues.

And this is my issue
with conscious investors.

Their MO is to divest

or divert money into ESG-focused funds.

You can't divest your way
to a greener world.

You can divest your way
to a greener portfolio,

not to a greener world.

So what's it going to take? What's it
going to take to flip the script,

to get conscious investors to go
from divesting to engaging,

to go from talking about engaging
to actually working with management

to make changes that will improve
their ESG performance?

Because there's a lot suggesting
they should and they could.

They should, given the clear correlation
between ESG performance

and financial performance.

They could because the activists
have shown us they could.

A shareholder can
drive change in a company.

The difference is, Paul and Barry
do what they do to make money.

The conscious investors would do it
to improve society and the environment

and make money in the process

and do it a little more
collaboratively and constructively.

And they have the backing
of the some of the largest investors.

Vanguard and BlackRock,
together they manage trillions.

They've been increasingly vocal
about the importance of ESG.

The CEO of BlackRock has been
increasingly vocal in his annual letters

about this issue.

Even Jana Partners, the same OGs
that John called "greedy bastards,"

recently co-wrote an open letter
to the board of Apple,

saying, "Hey, your smartphones
are addictive for children. Fix it."

Apple is working on it.

So what it's going
to take is some pressure.

It's going to take some pressure
on conscious investors

to in turn put some pressure on management

to make changes that will improve
the environment and society.

And where do they start?
They start by picking an issue

that matters to them
and taking a stand on it.

Take a stand on an issue
that lines up with your purpose:

water preservation,
labor rights, diversity.

As long as it lines up
with your purpose, you are golden.

And the biggest unlock?

Get the seniormost investment
professionals focused on this.

Today, when an activist
shows up to a campaign,

it's the senior investment professional
talking to the CEO and the board

and everyone hears about it.

When a conscious investor shows up
to talk about an ESG issue,

it's some junior person
in the risk department

talking to some junior person
in the investor relations department,

and nobody hears about it,
and that needs to change.

And it's not some massive leap.

Today, when a company
underperforms financially,

who is on the hook?

The senior investment professional.

So what do they do?
They drop everything

and work with management
collaboratively and constructively

to make changes to improve
the company's financial performance.

The same should be true when the company
underperforms on ESG issues.

And yes, that requires standardization
on how we measure ESG,

but we're on it.

So folks, here's my call to action.

It's your money.

It's your pension fund.

It's your sovereign wealth fund.

It's your university's endowment.

It's your money, and it's your right
to have your money managed

in line with your values.

So use your voice

and trust that it matters.

It was your voice that got the investors
more conscious in the first place.

You protested for years

because you didn't feel right
about your money being invested

in companies whose values
don't line up with yours.

It's time to use that voice again.

But this time, instead of
pushing them to divest,

push them to engage,

truly engage, truly work with management

to make changes that will
improve their ESG performance.

You made them aware of the issues.

You can now focus them on fixing them.

Thank you.

(Applause)