WEBVTT 1 00:00:08.240 --> 00:00:14.599 You are listening to Redefining Energy. Your co hosts from Berlin Gerard Reed and 2 00:00:14.759 --> 00:00:22.160 from London Laurent Sagalam. Today on Real Defending ERG, we're going to talk 3 00:00:22.199 --> 00:00:29.359 about ESG. Oh, I love it, and of course is ISG dead? 4 00:00:29.519 --> 00:00:32.439 I think ISG is dead? Yeah, I think we just need to 5 00:00:32.520 --> 00:00:38.119 change the Yeah, I agree with you. But first award from our historic 6 00:00:38.200 --> 00:00:45.439 partner, DLA Piper. DLA Piper's leading energy transition practice advisors are more deals 7 00:00:45.479 --> 00:00:49.719 and projects than any other law firm in the world. They advise clients across 8 00:00:49.719 --> 00:00:55.079 the entire value chain over a project's full life cycle globally. Yeah, we 9 00:00:55.200 --> 00:01:00.960 like jel Bier very much. Excellent lawyers, absolutely your own. Absolutely Back 10 00:01:00.960 --> 00:01:03.640 to ESG, which are you? Just have to look at the guy who 11 00:01:03.640 --> 00:01:07.640 went from hero to zero of ESG, mister Larry Thing, the CEO of 12 00:01:07.680 --> 00:01:14.239 Blackhawk. Four years ago, it publishes this famous letter ESG or bust and 13 00:01:14.280 --> 00:01:17.799 now four years later I said, mah, I didn't say anything. Sorry. 14 00:01:19.480 --> 00:01:22.439 What has We've been moan and grown about ESG for quite a while? 15 00:01:22.920 --> 00:01:27.359 A rating system that gives a better mark to Xcel Mobile than TESLA raises my 16 00:01:27.599 --> 00:01:34.239 eyebrows again say the rating system is wrong. It is that that you're bundling 17 00:01:34.719 --> 00:01:38.719 ES and G. And actually what we're saying is from an x on Mobile 18 00:01:38.719 --> 00:01:42.560 point of view, there G is better than Tesla's and that's the case, 19 00:01:42.719 --> 00:01:47.040 right, Okay, But let's say on the E and S side, Tesla 20 00:01:47.200 --> 00:01:51.000 has definitely had a much more positive impact than x on Mobile. So I 21 00:01:51.040 --> 00:01:53.040 agree, that's why we have to change it. There was a crazy hype 22 00:01:53.079 --> 00:02:00.920 four years ago and the amount of funds labeled ESG went to seven trillion dollars. 23 00:02:01.280 --> 00:02:04.719 Of course, all of a sudden, a lot of people got very 24 00:02:04.760 --> 00:02:08.759 interested in managing the gigant tea cake. But recently, for the first time, 25 00:02:08.800 --> 00:02:14.879 you're starting to see outflows. One of the reasons was the performance of 26 00:02:15.199 --> 00:02:19.639 ESG level product has not been very good. I think. Also the point 27 00:02:19.639 --> 00:02:22.520 about this is when people look in the portfolio as well, they sort of 28 00:02:22.520 --> 00:02:23.840 go, well, that's not what I signed up for. But ya, 29 00:02:24.120 --> 00:02:29.960 rather than babbling, it's probably time to bring a real expert. Jean Jacques 30 00:02:30.000 --> 00:02:37.039 Barbaris. He is Deputy CEO, head of Institutional and Copyright Division and ESG 31 00:02:37.840 --> 00:02:44.520 at Amundi Asset Management, and Amundi is the largest EU asset manager. Well, 32 00:02:44.599 --> 00:02:46.520 let's bring him on the show. John Jack, Welcome to the show. 33 00:02:46.960 --> 00:02:50.840 Thank you very much for having me. Well, Jean Jacques, there's 34 00:02:50.879 --> 00:02:53.360 a bit of an ESG backlash. To say the least, do you wish 35 00:02:53.360 --> 00:02:59.039 you were back five years ago? The answer would be directly no. Maybe 36 00:02:59.039 --> 00:03:04.240 being back five years years ago we'd make the life of asset managers easier because 37 00:03:04.280 --> 00:03:09.159 in that ESG was extremely popular or maybe less criticized than it is today. 38 00:03:09.719 --> 00:03:15.120 But I wouldn't wish to be back five years ago for one reason. It 39 00:03:15.159 --> 00:03:19.759 is because if there is an ESG backlash today, is because I'm deeply convinced 40 00:03:19.960 --> 00:03:23.879 that because it has started to bite, meaning it is because it has an 41 00:03:23.919 --> 00:03:28.319 impact. It is because it has an effect that it creates some reaction, 42 00:03:28.719 --> 00:03:32.159 the ESG backlash that we see in the financial sector, but not only by 43 00:03:32.199 --> 00:03:37.159 the way, and you've got a number of parties in Europe that are putting 44 00:03:37.240 --> 00:03:40.919 an anti transition agenda as part of the political offer, so we see that 45 00:03:42.000 --> 00:03:46.199 transition has become an element of the political debate. It's the same in the 46 00:03:46.199 --> 00:03:52.520 financial sector. That's where the ESG backlash comes from, because it has started 47 00:03:52.639 --> 00:03:55.879 to have an impact. If I take a very practical example, it is 48 00:03:55.960 --> 00:04:03.199 because there is more and more exclusions on some fossil sectors being applicated by a 49 00:04:03.280 --> 00:04:09.879 number of investors that in a number of American states taxes to name them, 50 00:04:10.199 --> 00:04:16.319 that we've seen a political reaction against investment practices that somehow were targeted against the 51 00:04:16.399 --> 00:04:20.240 local economy. Again, I wouldn't like to be back five years ago, 52 00:04:20.519 --> 00:04:26.879 because five years ago we were probably starting to be impactful. Now we are 53 00:04:27.600 --> 00:04:31.560 technically speaking. Five years ago we were at the moment where HE has just 54 00:04:31.600 --> 00:04:38.560 started to be integrated into investment processes. It means that we were really trying 55 00:04:38.560 --> 00:04:45.639 to encapsulate the overall S and gvision into the investment and now we're moving, 56 00:04:45.800 --> 00:04:50.199 particularly in Europe, to something that is much more targeted, meaning the whole 57 00:04:50.480 --> 00:04:58.399 ESG basket that is encapsulating a lot of different dimensions is more and more challenged 58 00:04:59.000 --> 00:05:02.639 because it's not in packed full enough on some aspects. And so therefore I 59 00:05:02.639 --> 00:05:09.519 think we're moving after five years, in two directions where we do focus on 60 00:05:09.600 --> 00:05:14.199 more specific things. To be precise, I don't think I have any more 61 00:05:14.240 --> 00:05:21.160 an ESG conversation with an institutional investory in Europe we're only having conversations about how 62 00:05:21.240 --> 00:05:28.959 to align their portfolios under carbon budget constraints. I also believe that part of 63 00:05:29.000 --> 00:05:33.519 the ESG backlash is the amount of green washing we've seen where all of a 64 00:05:33.560 --> 00:05:40.120 sudden, you are a lot of funds who were rebranded ESG overnight. Can 65 00:05:40.160 --> 00:05:44.240 you talk a bit about that old green washing thing and how did you leave 66 00:05:44.279 --> 00:05:47.959 it? And everything was green all of a sudden, if you call a 67 00:05:48.439 --> 00:05:55.519 spade, there was an absolute need to clarify what it means to be an 68 00:05:55.879 --> 00:06:00.240 ESG fund or a green fond. And by the way, there are some 69 00:06:00.439 --> 00:06:06.560 investment companies that have started to see that playing that little game of promoting something 70 00:06:06.759 --> 00:06:13.199 as green something that was not at all can be extremely costly from a reputational 71 00:06:13.319 --> 00:06:19.439 but also financial perspective. When BWS Deutsche as a management was accused of a 72 00:06:19.480 --> 00:06:26.480 potential green washing scandal in Germany, the stop price dropped down by thirteen percent 73 00:06:26.600 --> 00:06:30.720 in the very same day. Now, the green washing question is taken extremely 74 00:06:30.800 --> 00:06:39.199 seriously by the investment community because it is a major financial risk for them at 75 00:06:39.199 --> 00:06:46.600 the moment. What is changing progressively the landscape and makes things more credible is 76 00:06:46.639 --> 00:06:54.800 the regulation that progressively is helping investors to clearly understand what is in a fund 77 00:06:54.839 --> 00:06:59.720 that is denominated as green. I take a practical example, if you're an 78 00:06:59.720 --> 00:07:04.240 invent and you invest into a Parcelain benchmark fond, which is a European label, 79 00:07:04.639 --> 00:07:10.920 you have the absolute certainty that the cabin footprint of the potfolio is diminishing 80 00:07:11.079 --> 00:07:15.439 by seven percent every year because the index of the fund evolves to produce that 81 00:07:15.519 --> 00:07:20.319 result. And these evolutions give more transparency, consistency, and credibility to what 82 00:07:20.480 --> 00:07:25.040 we try to do. John Jack. The thing that really frustrates me about 83 00:07:25.040 --> 00:07:29.120 the E, S and G is I don't believe that they belong together. 84 00:07:29.879 --> 00:07:32.360 And where I come from is in particular d G the G is governance, 85 00:07:32.920 --> 00:07:38.160 and I expect you as an asset manager to be investing in well managed, 86 00:07:38.240 --> 00:07:41.439 well governed business. I mean this is for me a given the E and 87 00:07:41.519 --> 00:07:46.199 the S different story. That's externalities. I want to invest in your fund 88 00:07:46.279 --> 00:07:53.040 so that you really are pushing that environmental social element. And the practical example 89 00:07:53.079 --> 00:07:57.000 I give them it is if I just used example of Tesla for me. 90 00:07:57.079 --> 00:08:00.519 Tesla has been really good in terms of E and the S. I really 91 00:08:00.560 --> 00:08:03.199 think they've changed the world. But on the G side, I mean sorry. 92 00:08:03.279 --> 00:08:07.240 You know, when I see Ell lost three hundred and three million split 93 00:08:07.519 --> 00:08:11.279 just to shares package which could be worth forty billion, I say, it's 94 00:08:11.439 --> 00:08:16.519 just really bad governance and this can't be. But on THEES side, I 95 00:08:16.560 --> 00:08:18.480 know it's done grace. But I'm sure there's lots and lots of examples of 96 00:08:18.519 --> 00:08:22.480 this. So I just love to hear your views on the trade and do 97 00:08:22.519 --> 00:08:24.399 you think I'm right what I'm saying? And do we split this going forward 98 00:08:24.399 --> 00:08:30.240 to how do you say it? I think you're right. The ESG object 99 00:08:30.639 --> 00:08:37.840 that materializes practically speaking, into ESG ratings, This is the basic ESG element 100 00:08:37.200 --> 00:08:41.519 that is being used by investment managers to integrate ESG. You have an ESG 101 00:08:41.639 --> 00:08:46.440 score that is applicable to a company that is made of the different parts. 102 00:08:46.840 --> 00:08:52.960 Ultimately at a MUNDI if you're rated on ESG from A to FG, meaning 103 00:08:52.000 --> 00:08:58.159 that you're excluded. It is a score that encapsulates a lot of different dimensions. 104 00:08:58.879 --> 00:09:03.639 For instance, it is not by maximizing an esgscore in a portfolio that 105 00:09:03.679 --> 00:09:09.840 you're going to deliver an impact on climate or carbon reductions emissions of your portfolio. 106 00:09:09.120 --> 00:09:16.000 The average part of what climate represents into an ESGER rating on the market 107 00:09:16.039 --> 00:09:20.759 and the ones that are provided by masisst Analytics or others is roughly twenty percent. 108 00:09:20.440 --> 00:09:24.480 Okay, So it means that if you try to maximize the esgscore, 109 00:09:24.519 --> 00:09:28.759 you're not going to have a super strong climate ambition through that scoring. To 110 00:09:28.799 --> 00:09:31.879 come back to your question, more and more, what we will see is 111 00:09:31.200 --> 00:09:37.240 the ESG concept as a basket of plenty of things being more split, the 112 00:09:37.279 --> 00:09:43.519 governance part being traditionally already addressed by the financial analysis you take into account. 113 00:09:43.720 --> 00:09:48.480 What is the good governance when you make an investment is a good example of 114 00:09:48.519 --> 00:09:56.879 that. And then even moving forward by having the impact splitted into more specific 115 00:09:56.159 --> 00:10:01.320 issues that you want to tackle, climate big one, natural capital being one, 116 00:10:01.639 --> 00:10:07.360 and others. In a nutshell, the ESG concept is going progressively to 117 00:10:07.399 --> 00:10:13.440 disappear to go to much more specifically oriented impact that wants to be generated by 118 00:10:13.440 --> 00:10:18.919 the investors, climate being the first one. Now digging into what you said 119 00:10:18.960 --> 00:10:24.919 about indexes and reporting agency and on the way I see it is you are 120 00:10:24.960 --> 00:10:31.360 faced with two levels of ESG. The first are the equities you invest in, 121 00:10:31.919 --> 00:10:37.279 and then the second is the obligation you have as an investor. So 122 00:10:37.360 --> 00:10:43.799 if we go back to the first aspect, we've got voluntary reporting it's called 123 00:10:43.120 --> 00:10:50.039 sus BSBTI WRI, International Sustainabiity Standard Board, and of course mandatory that's in 124 00:10:50.080 --> 00:10:54.799 Europe. We're going to have corporate I'm reading my notes because I get lost 125 00:10:54.799 --> 00:11:01.480 in alphabetsu Corporate Sustainability Reporting Directive CSRDS. And then you've got all those rating 126 00:11:01.559 --> 00:11:05.320 agencies MESCI but I mean I guess there are dozens of them which publicly scores. 127 00:11:05.879 --> 00:11:11.799 How do you sort that mess? First, we try to navigate into 128 00:11:11.879 --> 00:11:16.120 the mess. It means that the first thing that we do is that we 129 00:11:16.279 --> 00:11:20.960 require almost all of the data that is on the market to be in capacity 130 00:11:20.240 --> 00:11:24.919 to look at each of them, the methodologies that are behind, and to 131 00:11:24.000 --> 00:11:28.799 be selective. So the idea for us is not to be linked to one 132 00:11:28.960 --> 00:11:35.919 specific method or one specific criteria in particular, and to build up our own 133 00:11:35.960 --> 00:11:41.039 assessment. Then when it comes to climate in particular, we're going to focus 134 00:11:41.240 --> 00:11:46.840 first on real metrics, meaning theotry reportings and real missions reportings. That's where 135 00:11:48.159 --> 00:11:54.200 you have a potential issue because there are some sectors that have mandatory reporting requirements 136 00:11:54.440 --> 00:11:56.679 on which you can rely Because they are publicly audited etc. This is, 137 00:11:56.679 --> 00:12:01.720 for instance, the case of sectors in Europe that are under the European trading 138 00:12:01.720 --> 00:12:05.039 schemes, so the carbon market, so you have reporting on that. For 139 00:12:05.360 --> 00:12:09.039 other companies, for instance in Europe, you need to rely on their voluntary 140 00:12:09.200 --> 00:12:13.799 reportings according to all the different standards. At the end of the day, 141 00:12:13.960 --> 00:12:20.120 by crossing the different ones, you have a relatively good idea of, say, 142 00:12:20.200 --> 00:12:24.879 the validity of what is reported by the company. So to navigate into 143 00:12:24.960 --> 00:12:28.519 all this going forward, what is going to change that we're going to focus 144 00:12:28.639 --> 00:12:35.200 more and more on the raw data that are published by companies under mandatory public 145 00:12:35.519 --> 00:12:41.960 obligations. And this is what the awful acronym you mentioned CSRD is supposed to 146 00:12:41.000 --> 00:12:46.399 help us in Europe because it will force listed companits to report on probably way 147 00:12:46.440 --> 00:12:50.679 too much by the way, but one thousand different data points and that will, 148 00:12:50.879 --> 00:12:56.200 if it's properly done, going to change the landscape of the ESG ratings, 149 00:12:56.200 --> 00:13:00.279 etc. Because it means that you will be public data available that you 150 00:13:00.360 --> 00:13:03.679 can work on and rely on in a contarable matter. The big problem that 151 00:13:03.720 --> 00:13:07.039 we'll face in Europe is that at dominent there is no system to centralize that 152 00:13:07.120 --> 00:13:09.960 data, which is the case in the US or in the US you've got 153 00:13:09.960 --> 00:13:13.559 everything that is on the website of the SEC, the American regulator. In 154 00:13:13.639 --> 00:13:16.320 Europe, we are supposed to have what is going to be called a single 155 00:13:16.440 --> 00:13:20.480 access point, which I hope I will see before I'm retired. That is 156 00:13:20.720 --> 00:13:26.320 probably the thing that will change our life in this ocean of data and metrics. 157 00:13:26.600 --> 00:13:31.879 And the second aspect of the regulation is the one you are subject to 158 00:13:31.039 --> 00:13:39.279 as an asset manager. And there was this taxonomy I nuclear and gas not 159 00:13:39.440 --> 00:13:43.519 very clear, but also there is article eight, article nine. I mean, 160 00:13:43.440 --> 00:13:46.519 can you explain a bit what's going on you as an asset manager? 161 00:13:48.000 --> 00:13:52.360 What regulation are you subject to? Yeah, if I may take a little 162 00:13:52.399 --> 00:13:56.039 step back, I think it's super important to understand the European regulation landscape, 163 00:13:56.200 --> 00:14:01.240 to understand where you comes from and that subjects and if you come from that 164 00:14:01.279 --> 00:14:09.159 subject on the idea that ultimately to provide the right allocation of capital to the 165 00:14:09.240 --> 00:14:16.240 transition, you need to have the right decisions being made by the individual investors, 166 00:14:16.759 --> 00:14:20.720 which is a very strong principle. One may decide that you need to 167 00:14:20.799 --> 00:14:26.039 force that allocation, but the idea is, let's rely on the free choice 168 00:14:26.200 --> 00:14:31.399 of individual investors. And therefore, let's build up a system that allows the 169 00:14:31.480 --> 00:14:37.519 individual investors to take enlightened decision. And to do that, the second step 170 00:14:37.519 --> 00:14:43.679 of the regulation is, therefore we need to define what is green or sustainable 171 00:14:43.000 --> 00:14:50.480 to make the investor in capacity to do its allocation based on enlightened choices. 172 00:14:50.200 --> 00:14:58.039 That's where the taxonomy comes from. Taxonomy is basically a percentage of green activities 173 00:14:58.399 --> 00:15:03.960 in a portfolio. To make it very simple at the moment, taxonomy eligible 174 00:15:03.120 --> 00:15:09.720 assets in a traditional investment universe such as MSCI World. MSCI World, it's 175 00:15:09.799 --> 00:15:15.200 the largest equities in the world, it's basically six percent, and the largest 176 00:15:15.200 --> 00:15:18.120 contributor to that. By the way, GIRLD is Tesla. It's amusing, 177 00:15:18.159 --> 00:15:22.360 but it's it's just to put a little flash around that. So taxonomy define 178 00:15:22.399 --> 00:15:28.039 what's green SFDR, not getting into an acronym, which is article in an 179 00:15:28.080 --> 00:15:33.120 article nine helps to define what is sustainable, so not already green, but 180 00:15:33.200 --> 00:15:39.399 sustainable and based on the percentage of that in a portfolio helps you to categorize 181 00:15:39.440 --> 00:15:43.840 eight or nine. So that's what we're subject to. We're subject to report 182 00:15:45.240 --> 00:15:50.320 either take commitments based on the level of green nitude or of the portfolios according 183 00:15:50.360 --> 00:15:56.120 to taxonomy or SLDR. The big question is does that work? Does that 184 00:15:56.240 --> 00:16:00.279 move an additional penny to the transition? And on that if I'm a little 185 00:16:00.279 --> 00:16:06.639 provocative, I think we can have relative strong doubts because it is absolutely impossible 186 00:16:06.679 --> 00:16:12.080 to understand to the end investor if you don't have an ESGPHD minimum. It's 187 00:16:12.120 --> 00:16:15.399 impossible at the moment in Europe to have a proper conversation with your banker, 188 00:16:17.000 --> 00:16:22.559 because your banker, when he's supposed mandatory wise I hope geryld and Laura you've 189 00:16:22.600 --> 00:16:26.360 been subject to that by your banker, but normally supposed to classify you as 190 00:16:26.360 --> 00:16:30.360 a responsible investor and to ask you questions such as what is the percentage of 191 00:16:30.440 --> 00:16:34.360 taxonomy digible assets you want in your investment, which normally, when you have 192 00:16:34.440 --> 00:16:37.600 heard that question, you've not understood it, and so your bents or no, 193 00:16:37.960 --> 00:16:41.720 or you say you don't care, and so basically it doesn't work. 194 00:16:41.159 --> 00:16:45.159 I think the problem we face at the moment in Europe in particular is that 195 00:16:45.440 --> 00:16:52.399 the whole purpose of that regulation is to put the individual investor in capacity to 196 00:16:52.480 --> 00:16:59.039 exert its responsible investment preferences, but as she or he is made totally in 197 00:16:59.120 --> 00:17:03.279 incapacity to understand the questions that are being asked. I have a little doubt 198 00:17:03.279 --> 00:17:06.519 on the fact it works. John Jack. I'm laughing here in the background 199 00:17:06.640 --> 00:17:10.559 because I've experienced this so I know what it is. And actually I used 200 00:17:10.599 --> 00:17:14.880 to run an eschief fund and I did not understand the question. It actually 201 00:17:14.920 --> 00:17:17.960 brings me back to one thing, which is I don't think we should get 202 00:17:18.039 --> 00:17:21.440 lost in the regulation. I think actually we should go back about it's all 203 00:17:21.440 --> 00:17:25.480 about making money in this. So I suppose my question to you is how 204 00:17:25.599 --> 00:17:30.039 have es chief funds performed? A very good starting point of any conversation with 205 00:17:30.079 --> 00:17:33.000 a retail investor in not to use the word ESG. My mother doesn't understand 206 00:17:33.079 --> 00:17:38.759 the word ESG. We need to simplify the transition questions to make them accessible 207 00:17:38.799 --> 00:17:42.599 to read investors. If you look at the data on the ten years basis 208 00:17:42.880 --> 00:17:48.039 so forgetting the two or twenty two blip that was due to the energy crisis. 209 00:17:48.240 --> 00:17:52.880 Quantitatively speaking, the ESG indices are beating the traditional indices, and even 210 00:17:53.440 --> 00:17:59.440 the net zero indices are beating the traditional in thises and overall, you can 211 00:17:59.759 --> 00:18:04.519 if you make a content analysis a company that has a better ARG rating than 212 00:18:04.559 --> 00:18:08.680 its peers in the same sector tend to have a higher price of its security 213 00:18:08.839 --> 00:18:12.640 and a lower access cost to capital. What is the reason behind that? 214 00:18:14.000 --> 00:18:18.279 Is it due to fundamentals or is it due to the fact that during the 215 00:18:18.319 --> 00:18:23.079 past years, in particular, there was such an increased demand for companies having 216 00:18:23.119 --> 00:18:27.960 better ESG profiles that demands had an effect on the prices, which is not 217 00:18:29.000 --> 00:18:33.039 a problem, and the markets are driven both by fundamentals and representations. The 218 00:18:33.119 --> 00:18:38.759 question is at some point in time, when ESG becomes a super large part 219 00:18:40.079 --> 00:18:44.920 of the market, that natural effect stops and you're coming back a little bit 220 00:18:44.960 --> 00:18:49.680 to the fundamentals, meaning is a company that has a strong transition plan, 221 00:18:51.279 --> 00:18:56.759 better position and will provide ultimately better profits to its shareholders. And I think 222 00:18:56.799 --> 00:19:00.039 that's exactly the moment we are at, to come back to the very first 223 00:19:00.079 --> 00:19:03.799 question of law. I think that's also why we have at the moment an 224 00:19:03.960 --> 00:19:08.440 ESG backlash question again of the political questions it goes where after a decade, 225 00:19:08.640 --> 00:19:14.039 particularly in Europe, where ESG now represents a super large part of the market, 226 00:19:14.119 --> 00:19:17.559 where nobody was re asking questions about it, its as just something natural 227 00:19:17.960 --> 00:19:22.559 and now we're coming at the moment where it has become a super large part 228 00:19:22.599 --> 00:19:26.960 of the financial market that the traditional questions rises again. I like your answer, 229 00:19:26.960 --> 00:19:29.880 and I'd like to go to the reverse side, which is you said 230 00:19:29.880 --> 00:19:33.799 that there was possibly a premium for some of these high rated s two companies, 231 00:19:33.799 --> 00:19:37.480 which I agree with. What about the companies that are the producers And 232 00:19:37.519 --> 00:19:41.720 I'm thinking as an irishman, I'm thinking of CRH, which is the largest 233 00:19:41.720 --> 00:19:45.000 semount producer in the world. It's actually, if your account for it's fifty 234 00:19:45.000 --> 00:19:47.519 percent of Irish emissions. If it was counted that way, it's not, 235 00:19:47.759 --> 00:19:52.200 but if it would be. But they've just delisted in Ireland and they've gone 236 00:19:52.200 --> 00:19:56.000 to the US, and I suppose the question is is that because of this 237 00:19:56.680 --> 00:19:59.319 or is it because of something else? And if that's the case, are 238 00:19:59.319 --> 00:20:03.319 we going to see shell total etcetera, etcetera going on the same rich It 239 00:20:03.440 --> 00:20:10.000 is absolutely true that European investors are more demanding on these questions and transition pass 240 00:20:10.000 --> 00:20:11.920 ways of companies. That's a part of the US, and I say a 241 00:20:11.920 --> 00:20:15.680 part of the US. I think it's important not to see the US as 242 00:20:15.720 --> 00:20:18.359 a block there. US market is very divided at the moment, You've got 243 00:20:18.640 --> 00:20:23.359 a deep division. It's not at all the same if you're an ESG player 244 00:20:23.480 --> 00:20:27.960 in Texas, you don't have the same conversation in New York. This being 245 00:20:29.000 --> 00:20:33.440 said, this is absolutely true that the European investors are more demanding. If 246 00:20:33.480 --> 00:20:37.680 you look, for instance, last year at the level of support of European 247 00:20:37.759 --> 00:20:44.359 investors to environmental shareholder resolutions at general shareholder meetings of companies in the world, 248 00:20:44.720 --> 00:20:49.880 it has been massive support, whereas the support of American players has massively dropped 249 00:20:49.880 --> 00:20:53.240 down. So there is clearly a division of the world happening at the moment. 250 00:20:53.759 --> 00:20:59.880 Does it mean that this is the fundamental reason why some companies are delisting 251 00:21:00.480 --> 00:21:04.400 from Europe to go to the US or are contemplating to do so. It 252 00:21:04.559 --> 00:21:10.240 might be a componentce I doubt a little. You just need to have in 253 00:21:10.279 --> 00:21:17.599 mind that the number of investors and amounts in equities in the US is much 254 00:21:17.680 --> 00:21:21.880 larger than in Europe, and therefore that there is also an economic interest for 255 00:21:21.920 --> 00:21:27.000 companies to list there. But I'm pretty sure that some companies are also considering 256 00:21:27.039 --> 00:21:33.319 that being listed in the US they will have less sustainability pressure. Jacques it's 257 00:21:33.359 --> 00:21:40.359 not just about picking stocks. It's also about what we call engaging and you 258 00:21:40.480 --> 00:21:45.240 probably expect me what engaging means. So your company a mundie, your large 259 00:21:45.279 --> 00:21:52.240 just asset manager, you have been joined by twenty six investors demanding that Shell 260 00:21:52.720 --> 00:21:56.519 improve its in nontal target. Does it work? How does it work or 261 00:21:56.680 --> 00:22:03.480 is it just a reason for Well to say bye by London, Welcome New 262 00:22:03.599 --> 00:22:08.599 York. Just coming back to what engagement means in terms of definition or stewartship 263 00:22:08.880 --> 00:22:14.400 in a British environment, It's basically a shareholder dialogue. It's the dialogue that 264 00:22:14.440 --> 00:22:21.400 you have as an investor visavi company you're invested in and you're discussing with the 265 00:22:21.400 --> 00:22:25.519 company on its strategy. So it's very classical thing. That's something that you 266 00:22:25.599 --> 00:22:30.920 do as a shareholder on a traditional items govenance, dividends the capex for the 267 00:22:30.000 --> 00:22:36.559 strategy. It's exerting your role as a shareholder of dialogue with companies that has 268 00:22:36.759 --> 00:22:41.559 now a very strong sustainable dimension for a number of investors, including us. 269 00:22:41.160 --> 00:22:47.680 The large part of the engagement we do is unsustainability questions. Last year we 270 00:22:47.839 --> 00:22:51.200 engage two hundred and twenty five companies in the world, so that's a lot 271 00:22:51.640 --> 00:22:53.680 an engagement. Practically, what it means, it means the analysts in a 272 00:22:53.799 --> 00:22:59.240 mundee that are discussing with the management. I personally do a lot of engagement 273 00:22:59.319 --> 00:23:03.519 myself as your level of a number of companies, and for instance on climates. 274 00:23:03.759 --> 00:23:06.640 When we engage a company on climate, most of the time we ask 275 00:23:06.720 --> 00:23:11.039 three things. Define the transition passway that is compatible with carbon neutrality, present 276 00:23:11.079 --> 00:23:15.000 it to your general shareholder meeting and report on it annually. And third half 277 00:23:15.039 --> 00:23:18.160 compensation, keep you eyes of your management that are attached to the execution. 278 00:23:18.480 --> 00:23:22.039 Okay, So that's what engagement meets. The big question is does it work. 279 00:23:22.480 --> 00:23:26.400 It's very difficult to assess. But if I take a step back, 280 00:23:26.920 --> 00:23:32.039 when we founded with a number of other asset managers the net zero Asset Manager 281 00:23:32.079 --> 00:23:36.680 Initiatives or the largest asset manager coalition in the world on net zero, there 282 00:23:36.680 --> 00:23:41.279 were like eight hundred companies in the world that had climate commitments. Now you've 283 00:23:41.319 --> 00:23:47.319 got eight thousand. I strongly believe that it's partially due to the fact that 284 00:23:47.359 --> 00:23:52.319 the shareholders such as US are pushing that agenda a lot visa with these companies, 285 00:23:52.079 --> 00:23:56.400 and that's something that has really impact because it's true the carbonization of the 286 00:23:56.440 --> 00:24:00.519 real economy going forward, because it's the transformation of the business model of companies. 287 00:24:02.039 --> 00:24:03.839 So I think it does work, but it needs to be done very 288 00:24:04.079 --> 00:24:10.480 professionally. Active engagement is not activism. You need to explain to a company, 289 00:24:10.559 --> 00:24:14.400 this is what we expect for you to do. The company would say 290 00:24:14.480 --> 00:24:18.440 this is what I can do or not and have the right dialogue about that. 291 00:24:18.359 --> 00:24:25.200 When we're in the position to file or cofile or resolution to encourage a 292 00:24:25.240 --> 00:24:29.359 company to do more, it means most of the time that our engagement has 293 00:24:29.440 --> 00:24:34.200 not been that successful. The number of resolutions we do not put on the 294 00:24:34.240 --> 00:24:40.799 table or we do not cofile because engagement has worked is way higher than the 295 00:24:40.880 --> 00:24:45.319 number of resolutions we support. That's where we believe we are not here to 296 00:24:45.359 --> 00:24:51.200 behave as an activist, but as a shareholder that taking into consideration its fiduciary 297 00:24:51.279 --> 00:24:55.119 duties, it's also promoting a transition agenda. We believe it is in the 298 00:24:55.160 --> 00:24:57.640 interest of our end clients. John Jack, just as the last question, 299 00:24:57.680 --> 00:25:02.640 maybe we're talking a little bit of a few of investing in ESG and and 300 00:25:02.680 --> 00:25:07.000 I'd also like you to touch on the whole active versus passive management approach and 301 00:25:07.039 --> 00:25:11.240 what that means and how you see that going forward, or just maybe for 302 00:25:11.599 --> 00:25:15.480 the orders in case they're not familiar with what active management and passive management is. 303 00:25:15.799 --> 00:25:18.000 Passive management is replicating an index. Okay, So if you take a 304 00:25:18.000 --> 00:25:22.960 French rand is the management you do is you just replicate the performance of the 305 00:25:22.039 --> 00:25:27.200 account and this is what you're invested in as a client. And by definition 306 00:25:27.400 --> 00:25:33.039 it's an asset management technique that is relatively low cost and therefore low price. 307 00:25:33.119 --> 00:25:34.960 Okay, but you just replicate what the market is doing, okay, where 308 00:25:36.000 --> 00:25:38.519 active management. The ambition that you have under active management is you try to 309 00:25:38.599 --> 00:25:44.480 do better than the market, and it's traditionally an asset management technique that goes 310 00:25:44.519 --> 00:25:48.519 with higher costs. And for the end investors when it comes to ESG and 311 00:25:48.559 --> 00:25:53.039 in particular transition investment, you can use the two techniques to achieve these kind 312 00:25:53.039 --> 00:25:59.759 of goals. Two practical examples. If you want to manage a portfolio under 313 00:26:00.000 --> 00:26:03.200 a carbon constraint, so you have a carbon budget of embedded emissions in your 314 00:26:03.240 --> 00:26:08.559 portfolio on the PATHI side, you can do it by having the index evolving 315 00:26:08.799 --> 00:26:14.119 to deliver a carbon result. So the progressively, the index is going to 316 00:26:14.319 --> 00:26:18.000 be focused on companies only that are in line with the carbon trajectory that you 317 00:26:18.039 --> 00:26:22.720 want to have, but it's going to be automatic. Where on active management, 318 00:26:22.920 --> 00:26:25.720 what you do you're going to define a carbon budget. So let's say, 319 00:26:25.720 --> 00:26:27.559 for instance, the seal too intensity of your portfolio is one hundred by 320 00:26:27.759 --> 00:26:33.000 nine nineteen. You want it to be at seventy by two twenty five and 321 00:26:33.200 --> 00:26:37.960 thirty by two thirty and you're going to make active debts under that budget. 322 00:26:37.720 --> 00:26:44.400 So you're going to choose companies based on the transition passways you'll believer credible at 323 00:26:44.440 --> 00:26:47.519 the end of the day, you will deliver the same results in terms of 324 00:26:47.559 --> 00:26:51.200 carbon footprint reduction either active on the passive side, but you're going to do 325 00:26:51.279 --> 00:26:56.200 it differently, and probably on the active side with much less biases and potential 326 00:26:56.279 --> 00:27:00.799 impacts on performances than on the passive side. That is going just to evolve 327 00:27:00.839 --> 00:27:07.240 automatically. That's what fundamentally differs between the two techniques. On transition and going 328 00:27:07.279 --> 00:27:14.480 forward progressively, what we'll see more and more is less and less generally as 329 00:27:14.559 --> 00:27:22.200 g integration and more and more focused ambitions, and notably integration of alignment constraints 330 00:27:22.200 --> 00:27:26.720 into the portfolios. If all the commitments that have been taken by the financial 331 00:27:26.759 --> 00:27:30.920 community and asset owners in particular our nets, this is the future of responsible 332 00:27:30.960 --> 00:27:33.720 investments. Well, Jean Jaques, it's a great way to end it. 333 00:27:33.839 --> 00:27:38.279 Thank you very much. We learned a lot and it's good to see that 334 00:27:38.319 --> 00:27:42.400 there is some real work being done behind the headlines. Thank you very much 335 00:27:42.400 --> 00:27:45.000 for coming on the show. It's been great having it. Thank you very 336 00:27:45.079 --> 00:27:48.680 much. Thank you so much for having me. It was a pleasure. 337 00:27:48.359 --> 00:27:52.839 Solaurn. We were actually all on the same page, which is a bit 338 00:27:52.880 --> 00:27:57.200 of a surprise to me. Yeah. The first thing is I'm absolutely discombobulated 339 00:27:57.640 --> 00:28:04.119 by the alphabet soup of all those standards, reporting rules directive. It's heavy, 340 00:28:04.359 --> 00:28:08.400 heavy, heavy, and I can understand that well, especially the polluting 341 00:28:08.480 --> 00:28:12.359 companies are not very happy with that level of scutting in. Yeah, without 342 00:28:12.359 --> 00:28:17.240 a doubt. The question that sort of was remain on my head, which 343 00:28:17.279 --> 00:28:19.920 I want to ask you, is really, to the fossil producers just leave 344 00:28:19.960 --> 00:28:25.400 Europe and deal list and go to the US or go to Asia when push 345 00:28:25.480 --> 00:28:30.240 comes to serve and if they want to be in a gener or lax environment, 346 00:28:30.359 --> 00:28:33.640 they should not even go to New York. They should go to Texas. 347 00:28:33.680 --> 00:28:37.759 Texas is going to open their stocky change with their own rules, and 348 00:28:37.920 --> 00:28:41.039 well it's going to be Texas babies. So I mean, I think there 349 00:28:41.039 --> 00:28:47.319 won't be any ESG criteria whatsoever. The problem I see, and it's really 350 00:28:47.319 --> 00:28:51.880 a US problem, is that the US is the biggest financial market in the 351 00:28:51.920 --> 00:28:57.960 world. Now when you look at fossil fuel investment versus energy transition investment, 352 00:28:59.240 --> 00:29:04.559 and there was last months a very interesting report by the IEA. Europe and 353 00:29:04.680 --> 00:29:11.079 China invest four times more in the energy transition than in fossil fuels, but 354 00:29:11.200 --> 00:29:14.839 in the US they invest more in fossile fuel than the ind energy transition. 355 00:29:15.279 --> 00:29:18.720 At the end of the day, all those debates is always linked to oiler. 356 00:29:18.240 --> 00:29:22.119 That's true, and that's actually E. Yeah, if I be really 357 00:29:22.119 --> 00:29:27.359 clear on E, and that's about environment and the ESG, and that's actually 358 00:29:27.359 --> 00:29:32.480 what I'd like to see going forward, because I have no problem investing an 359 00:29:32.480 --> 00:29:37.960 e FONT that actually is actually even quite activist in terms of investing in some 360 00:29:37.000 --> 00:29:41.279 of these fassil fuel companies and then trying to force change and stuff. I'd 361 00:29:41.319 --> 00:29:44.359 love to do that, but it's very hard to find them. And then, 362 00:29:44.400 --> 00:29:45.799 as I said, when you mix in the S and g in it 363 00:29:47.039 --> 00:29:49.279 more, just as I said, it becomes as you say, it's an 364 00:29:49.279 --> 00:29:52.880 alphabet soup. But I think it's just it's just a mess. Well, 365 00:29:52.119 --> 00:29:56.680 Job, as usually your dreamer, and I'm going to give you two numbers. 366 00:29:56.359 --> 00:30:00.759 On average, if you take Big Oil, only four percent of their 367 00:30:00.839 --> 00:30:07.440 capex goes for green stuff four percent. But if you take the two trillion 368 00:30:07.799 --> 00:30:12.400 of green investments, less than two percent is made by big Oil. So 369 00:30:12.480 --> 00:30:18.599 in fact, these are parallel universe and really trying to make Big Oil go 370 00:30:18.759 --> 00:30:25.039 green. I think it's wishful thinking. Yeah, probably right enough, And 371 00:30:25.119 --> 00:30:26.240 listen, at the end of the day, we haven't needed them up to 372 00:30:26.319 --> 00:30:30.519 now. The reality is we are in a transition where these guys have huge 373 00:30:30.759 --> 00:30:33.920 power, and you'd like to see them sort of begin to move at least 374 00:30:33.960 --> 00:30:37.759 in this direction. Right, Okay, Yeah, maybe I'm just dreaming, 375 00:30:37.839 --> 00:30:40.839 right, Yeah, you are, you are, But it is a pleasure 376 00:30:40.880 --> 00:30:47.559 to talk with a dreamer. Job. It was a great conversation with Jean 377 00:30:47.640 --> 00:30:49.920 Jacques. You really know what he's talking about, so, yes, jeez, 378 00:30:51.359 --> 00:30:55.079 or asset management is managed by sales people, so that was a bit 379 00:30:55.119 --> 00:30:57.240 of a relief. God, all right, my friend. Well, I 380 00:30:57.319 --> 00:31:03.359 enjoyed that conversation. We thank Dly Piper for supporting our show. Thanks guys 381 00:31:03.799 --> 00:31:11.599 and Joe, I talk to you next week. The forwarders thank you for 382 00:31:11.680 --> 00:31:18.279 listening to Redefining Energy. Don't forget to rate the show and subscribe on Apple 383 00:31:18.319 --> 00:31:22.240 Podcast, Spotify, or the platform of your choice.