YouSaid · the spoken record

Michael J. O'Leary

lines on the record: 35
first: 2017-05-08
most recent: 2017-05-08
sittings or episodes: 1
sources: podcast

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“And so it continues a steady march upward. I heard someone say recently that in Europe increasingly, if you're an asset manager, it's just table steaks for participation. I mean, if you don't have an ESG strategy and you're not considering these things, you don't have a business. And that might be an exaggeration, but I don't think it's wildly off the mark. And I think the rest of the world is moving in that direction too.”
2017-05-08 · Goldman Sachs Exchanges · The Metrics that Matter: A 'Mainstream' Approach to ESG · IDENTIFIED FROM THE TRANSCRIPT
“I heard it said not too long ago that ESG is a slow moving, unstoppable train. I'm reluctant to oversell it because I think a lot of the things in the virtuous cycle we've talked about today are things that are happening slowly, but they're happening surely. Since I've been following the trends in ESG integration, there's no question that where we've seen changes in focus, changes in resources, changes in assets, they've all been over time incrementally positive. And I think that continues. There's a lot of things driving it. We see regulation. We see stewardship codes. We see governance codes at ramping. We're seeing reporting and disclosures increase more and more. And we're seeing demand from individual investors to big institutional asset pools asking for this more and more.”
2017-05-08 · Goldman Sachs Exchanges · The Metrics that Matter: A 'Mainstream' Approach to ESG · IDENTIFIED FROM THE TRANSCRIPT
“It's a mosaic approach. It can give you a good idea of how a company is performing and engaging with ESG risk. It can raise red flags and tell you, okay, these are some areas I need to look further into and understand better.”
2017-05-08 · Goldman Sachs Exchanges · The Metrics that Matter: A 'Mainstream' Approach to ESG · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, whole sectors, for example. So there's things like that. And so it's a little bit clunky for us. There's kind of two things I would think about in terms of why ESG is such a great category. It's an ideal category for active management. One is the customization angle. If a client comes to an asset manager and will tell you this is what I care most about on the ESG spectrum, I care about global warming. I care about emissions. I care about female diversity. And I don't like state-run enterprises. It could run the gamut. It could be a very broad spectrum, but I think in a lot of cases, it's going to be highly customized. And so I think that's just very, very difficult to do in a passive way. The other reason why I think it's such a good active category is the data is imperfect. It has tons of imperfections. We've talked a lot about what those are.”
2017-05-08 · Goldman Sachs Exchanges · The Metrics that Matter: A 'Mainstream' Approach to ESG · IDENTIFIED FROM THE TRANSCRIPT
“I think it's challenging to do ESG in passive effectively. Now there's some things that you could do at a basic level, but ultimately in passive you tend to be screening for some very basic things. Maybe you're doing kind of a low carbon screen, and they can tell you something, but maybe what it just tells you is a bunch of companies have certain business models or they're doing business activities that just aren't that carbon intensive.”
2017-05-08 · Goldman Sachs Exchanges · The Metrics that Matter: A 'Mainstream' Approach to ESG · IDENTIFIED FROM THE TRANSCRIPT
“So this guide was designed for the active investor, but we're obviously hearing a lot in the asset management space about the rise of passive investing and how index funds are thriving during an era where it's really been tough to outdo the benchmark. So what's the relationship today between ESG integration and active management? And as this space evolves, do you see ESG becoming a more common resource for passive vehicles as well? I mean, there's been some news around that recently.”
2017-05-08 · Goldman Sachs Exchanges · The Metrics that Matter: A 'Mainstream' Approach to ESG · IDENTIFIED FROM THE TRANSCRIPT
“For sure. And that's kind of our point. The GS Sustain research process, we're not ESG specialists. We're looking at companies' ability to sustain long-term returns on capital, and the way that they do that is by having strong competitive position, strong competitive advantage, access to long-term growth, and good governance and risk management practices and managing their ESG considerations over long periods of time. So we're thinking about it from a longer-term investment perspective, but we think that increasingly mainstream investors got to realize that this is just more information, again, that they didn't have already. And it's just part of to kind of silo it into, okay, well, I'm a fundamental stock researcher, or I'm actually an ESG stock researcher. This really shouldn't be two different things. It's all part of the same holistic view of a company, and the information's out there, and work trying to make it easy to use and easy to control.”
2017-05-08 · Goldman Sachs Exchanges · The Metrics that Matter: A 'Mainstream' Approach to ESG · IDENTIFIED FROM THE TRANSCRIPT
“No, and I don't know that we found a good way to track it, but the question would come up about oil spills or accident rates for sure in a company's culture of safety if you're an oil company. It would come up for a tech company, a very reasonable question, which I'm sure is asked all the time is how are you doing in your battle for talent against all these other Silicon Valley competitors that you've got to go up against every day? So these things really are coming up. It's just maybe not noticed all the time.”
2017-05-08 · Goldman Sachs Exchanges · The Metrics that Matter: A 'Mainstream' Approach to ESG · IDENTIFIED FROM THE TRANSCRIPT
“I think it's going on in a lot of different places. When I think about what we hear from companies, from boards, there are increasingly companies that have sustainability committees on their board. There are companies that feel like they think the right way to do it actually is not to have kind of a siloed board, but to have it be integrated, and they make sure that it's a regular topic in their board meetings that everybody has to speak to and address. We've seen it show up more and more in management incentive compensation plans. So that's one of the metrics that's showing the strongest growth in terms of adoption in those incentive plans over the last five years has been some kind of environmental and social metric such that people are actually being paid for their performance on these metrics. So we're seeing that for sure. We sometimes hear from directors of sustainability within corporations that they're frustrated that sell site analysts on the earnings calls or at analyst days or whatever are not asking questions.”
2017-05-08 · Goldman Sachs Exchanges · The Metrics that Matter: A 'Mainstream' Approach to ESG · IDENTIFIED FROM THE TRANSCRIPT
“So, no doubt some of the increase in data and disclosures in the space has to do with companies competing and copying one another. I certainly saw that in the metals industry. Do you see reports like yours would show clear links between certain factors and long-term success playing a role in future boardroom deliberations? Are companies moving more toward integrating ESG into their business practices?”
2017-05-08 · Goldman Sachs Exchanges · The Metrics that Matter: A 'Mainstream' Approach to ESG · IDENTIFIED FROM THE TRANSCRIPT
“And again, this is a policy. It's something that's hard to measure, so it's one of those areas where there's not great quantitative metrics out there right now that we have, or at least that's reported in any broad way, such that we can compare companies. But this policy metric would include things very specific to communications tools to help companies improve their business ethics. It includes whistleblower, ombudsman, hotline website resources. So it at least suggests that there's some amount of activity going on, and it appears to have had desired positive effect on companies who have those practices in place.”
2017-05-08 · Goldman Sachs Exchanges · The Metrics that Matter: A 'Mainstream' Approach to ESG · IDENTIFIED FROM THE TRANSCRIPT
“That's one of the cases, I think, where you can see an intuitive linkage with value destruction. One of the ways that we can help mainstream investors understand why they ought to be paying attention to this is because they've all had that moment where you wake up and there's a headline and there's been some nasty event, some controversy or something else that knocks your stock price down. And a lot of times it's not just a one-time event. Most of the time, those companies continue to underperform thereafter or the cleanups a long period of time or it harms their reputation in such a way that it continues to impact their business for years to come. That's one of the areas that you had to have PMs list incidents that they woke up to that ended up hurting their companies and having them have to kind of rethink is this a company or a business I really want to own. It has to do with ethics. It has to do with bribery cases.”
2017-05-08 · Goldman Sachs Exchanges · The Metrics that Matter: A 'Mainstream' Approach to ESG · IDENTIFIED FROM THE TRANSCRIPT
“You also know that business ethics improvement tools were among the only policies, that's something that's measured by the binary yes or no in your model linked to outperformance. Why do you think that was, that showing that you actually have ethics improvement tools in place led to some alpha?”
2017-05-08 · Goldman Sachs Exchanges · The Metrics that Matter: A 'Mainstream' Approach to ESG · IDENTIFIED FROM THE TRANSCRIPT
“Are the companies that showed outperformance over long periods of time? The companies that outperformed on policies, the companies that were just really good at disclosing you and telling you tons of stuff, most of it vague, actually underperformed on average. So in our test, it suggested to us that you shouldn't give a company credit just for being great at disclosing. It's giving you hard data metrics that imply that there's real accountability there and performance that you can measure and benchmark. Just like we would with anything else as an investor with financial metrics. And there's kind of this third data type that we identified and also tested, which is called targets. And target is still, like a policy, is kind of a binary metric. Does a company have a target? Yes or no? But the difference in a target is that it actually tells you that the company, or it implies anyways,”
2017-05-08 · Goldman Sachs Exchanges · The Metrics that Matter: A 'Mainstream' Approach to ESG · IDENTIFIED FROM THE TRANSCRIPT
“Yet, for sure. And so that was one that stood out employee turnover was another one that showed relatively strong and consistent performance across sectors that we thought was pretty interesting. And bring me to kind of another point in terms of our testing, which I think is worth mentioning. We talked a lot about a vague nature of environmental and social policies and how that kind of tended to dominate the data that's put out there by companies. But what's growing faster are actual quantifiable metrics, something that you can actually put a hard number on. And so female representation is a great example of that. You can put a real number on that. Greenhouse gas emissions, lost time injury rates, training hours. There's a growing list of hard metrics. And that's what matters for the stocks. That's where we found the real relationship with outperformance. The companies that performed better on hard metric”
2017-05-08 · Goldman Sachs Exchanges · The Metrics that Matter: A 'Mainstream' Approach to ESG · IDENTIFIED FROM THE TRANSCRIPT
“Whether it's different factors for different sectors, and to get this right, we think you really have to do it in a tailored way. I mentioned some of the differences, whether it's quote-unquote a softer business versus a harder business. There would be different things to measure for sure. Some of the takeaways, though, that we found were actually consistent across very different sectors, diversity, percentage of female employees at a company was actually something that worked very well across almost every sector and somewhat of a surprise. The relationship was actually stronger in heavier industries, basic materials, industrials, and utilities where there might be a temptation to kind of cast that aside as something that maybe is not so important if it's maybe not more of an intellectual property driven sector or a sector that someone would think of as kind of a talent-driven sector. But it tells you something about the culture of the business.”
2017-05-08 · Goldman Sachs Exchanges · The Metrics that Matter: A 'Mainstream' Approach to ESG · IDENTIFIED FROM THE TRANSCRIPT
“So, when you were looking for outperformance, that third factor, that third question, how different were the kinds of factors that you came up with across sectors, you know, consumer retail versus industrial, or were there some commonalities?”
2017-05-08 · Goldman Sachs Exchanges · The Metrics that Matter: A 'Mainstream' Approach to ESG · IDENTIFIED FROM THE TRANSCRIPT
“The stocks, and if these elements of environmental and social performance actually do have an impact on how well a company is able to perform, how competitive they are, how successful they're able to be, it ought to show up in their operations, and it ought to ultimately have some influence on their stock prices, and that's what we found in our study.”
2017-05-08 · Goldman Sachs Exchanges · The Metrics that Matter: A 'Mainstream' Approach to ESG · IDENTIFIED FROM THE TRANSCRIPT
“Do business on an ongoing basis. And what do we actually have the data for? There are some data points that we'd really like to have, and it's just not available. It's just not there. So if only one company in 20 in your global peer group actually reports data, it's nice it says something good about that company. But as an investor, if you can't compare it with their peers, you don't actually even know if that's necessarily good performance or bad performance. And you can't see kind of what the trends are in the industry. And so there's not much you can do with it, which brings me to the third point, which is looking at historical relationships with stock performance. There is enough data now that we can start looking over long periods of time. And when I say long periods, it's three to five years, so it's not extremely long, but you can look over these multi-year periods going back five to ten years as far as you can get the data. And look for some relationships with”
2017-05-08 · Goldman Sachs Exchanges · The Metrics that Matter: A 'Mainstream' Approach to ESG · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, yeah, exactly. And so you might have three or four good metrics to measure a company's ability to attract and retain talent. You might have five or six metrics about a company's efficiency with how they use resources or about a company's waste and emissions of greenhouse gas or other toxic chemicals, whatever it is that's happening as a basic part of their industry and affects their ability to”
2017-05-08 · Goldman Sachs Exchanges · The Metrics that Matter: A 'Mainstream' Approach to ESG · IDENTIFIED FROM THE TRANSCRIPT
“Right, but what is it telling you? It's telling you about maybe the toilets in office buildings. It's not fundamental to a company's ability to be successful. It might tell you a little bit about it, but in terms of the kind of rank order of things that really matter, what you'd really care about in that business is a company's ability to attract and retain the best talent, a company's ability to manage his reputation, its customer and community relations and regulatory relations. And so those are what really matters. When you think about, say, resource intensity, those would obviously be metrics for heavier industries, you know, for basic resources or some kind of manufacturing that is water intense and where a company's ability to manage its water is a key component of its cost. It's a key ability for a company to have competitive advantage versus its peers. And so it's just asking that simple question, what is actually material to the company's ability to be successful? So that's the first step. The second step is really a data.”
2017-05-08 · Goldman Sachs Exchanges · The Metrics that Matter: A 'Mainstream' Approach to ESG · IDENTIFIED FROM THE TRANSCRIPT
“What really matters to accompany operations? What really matters to this company's ability to be successful in its industry? And it may sound really simple, but when we look at a lot of the kind of ESG resources or rating services or things that are kind of out there and commonly being used, we view them as kind of the kitchen sink approach, where you kind of collect anything and everything that might have anything to do with a company's environmental and social risk profile. But that might include looking at the water intensity of an investment bank, right?”
2017-05-08 · Goldman Sachs Exchanges · The Metrics that Matter: A 'Mainstream' Approach to ESG · IDENTIFIED FROM THE TRANSCRIPT
“When we looked at the large ESG databases that we had access to, you're dealing with somewhere between 400 and 800 individual metrics. So it's an insane amount of data. It's messy. The disclosure rates are inconsistent. They're very kind of idiosyncratic things being reported by companies that their peers aren't, or things that are very industry specific. Very, very daunting, I think. For the mainstream investor, the investor that hasn't historically leveraged ESG insights in a significant way to bring it on board as part of their investment process. And the way that we kind of narrowed it down from this kind of chaotic universe of hundreds and hundreds of metrics was in three steps. First, we're trying to find real investment insight for the mainstream portfolio manager. And so the first step is really just asking the question.”
2017-05-08 · Goldman Sachs Exchanges · The Metrics that Matter: A 'Mainstream' Approach to ESG · IDENTIFIED FROM THE TRANSCRIPT
“self-reinforcing. So when you and your colleagues undertook this analysis of the environmental and social factors related to equity outperformance, you were a washing data. How did you narrow your focus to what really mattered”
2017-05-08 · Goldman Sachs Exchanges · The Metrics that Matter: A 'Mainstream' Approach to ESG · IDENTIFIED FROM THE TRANSCRIPT
“I heard that talking to an investor recently who had a portfolio company that was a small oil field services company and they were very concentrated investors so they get very close to these companies and sometimes take board seats but essentially what he learned in that process was that if this company wasn't able to show large oil company X its impeccable ESG credentials, they would”
2017-05-08 · Goldman Sachs Exchanges · The Metrics that Matter: A 'Mainstream' Approach to ESG · IDENTIFIED FROM THE TRANSCRIPT
“I used to work at a company that began its investor presentations with their safety data because I was a huge priority for the firm. And while the investors, I don't think, really paid a heck of a lot of attention to the numbers and the metrics, they were interested in seeing how well we could manage to a definable set of.”
2017-05-08 · Goldman Sachs Exchanges · The Metrics that Matter: A 'Mainstream' Approach to ESG · IDENTIFIED FROM THE TRANSCRIPT
“that is driving the E and the S catching up in terms of its focus and its ability to be analyzed is that the E and S risk landscape that we face now is just much more significant than it was if you think about even five or ten years ago. Companies are bigger, they're more global, industries are more concentrated, so companies just have a bigger environmental footprint. When things go wrong, they can go wrong at huge scale. When you think about employee and customer relations, corporate reputation, social media amplifies everything, both good and bad about a company. And everyone with a smartphone, of course, is now a reporter. So these risks are just a lot bigger than they used to be. And so the onus for companies to be engaging with them and managing them and telling their investors how they're managing them is just a lot higher.”
2017-05-08 · Goldman Sachs Exchanges · The Metrics that Matter: A 'Mainstream' Approach to ESG · IDENTIFIED FROM THE TRANSCRIPT
“Well, I think investors have just been thinking about governance longer, and the data is all there. There's no mystery. About the number of independent directors a company has on its board, investors know that information, it's well disclosed. It's easy to compare one company against another in terms of common governance practices. In the environmental social world, on the E and the S vectors, there's some things that are changing though that are kind of helping ENS get caught up. And for one, the data sets have come a long way, so there's just a lot more data available. Companies are disclosing more. The kind of data also is getting better. So what's growing faster, even though it's off a smaller base right now, are actual quantifiable metrics that give you something that's specific about how a company is performing on a particular ENS topic such that it can be compared to their peers. So you can see how well they're actually performing, whether their performance is getting better or worse. The other thing I think that's going to be...”
2017-05-08 · Goldman Sachs Exchanges · The Metrics that Matter: A 'Mainstream' Approach to ESG · IDENTIFIED FROM THE TRANSCRIPT
“A lot of investors, a lot of mainstream investors are quite familiar with the G of ESG governance, and they already incorporate various attributes that fall under that governance umbrella into their investment decisions. Why is governance perceived as further along in being an investable concept than environmental and social factors?”
2017-05-08 · Goldman Sachs Exchanges · The Metrics that Matter: A 'Mainstream' Approach to ESG · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, or if they're even being effective and having success at what they're trying to manage. And so the risk is, of course, the temptation potentially for a company is that you put out a beautiful 100-page report about your corporate social responsibility behavior, and it says a lot without really telling you anything. light on measurable performance and what ultimately might be largely a PR exercise and that's what's sometimes described as quote unquote greenwashing. So the risk is of course and I think this is one of the big challenges especially in the early days but I think it still is is that you take a company saying a lot about what they're doing in ESG as your data point or as evidence that they're actually being successful or that they're actually a leader amongst their peers when it might be very vague and not really comparable. And that's what still today when you look at the ESG data points the database”
2017-05-08 · Goldman Sachs Exchanges · The Metrics that Matter: A 'Mainstream' Approach to ESG · IDENTIFIED FROM THE TRANSCRIPT
“Well, I think the big challenge is that there's no consistently followed set of standards for ESG data the way that there is with financial data. So that means that companies have enormous degrees of freedom in terms of how they conduct their ESG reporting. And the result is non-standardized data. It's hard to compare. It's kind of a random walk. And it tends to be very heavy on policy. It's yes or no data. There's a way you could think about it. So a company is telling you, yes, we have a policy to prohibit bribery. Or yes, we have a customer safety policy or a data privacy policy or an energy conservation policy. What it doesn't tell you is what they're actually doing underneath the policy.”
2017-05-08 · Goldman Sachs Exchanges · The Metrics that Matter: A 'Mainstream' Approach to ESG · IDENTIFIED FROM THE TRANSCRIPT
“One of the more interesting findings in this study was that focusing just on the company's reporting or transparency of ESG policies was actually correlated with underperformance, but it was performance on ESG factors that was actually material. In other words, the reporting itself around of having a policy in place doesn't seem to be that value added, but it's the performance against specific data that makes a difference. It seems like if you're not careful in the space, some ways of using ESG data could be detrimental. What are the common pitfalls that you've seen amongst investors that are using this data in less constructive ways?”
2017-05-08 · Goldman Sachs Exchanges · The Metrics that Matter: A 'Mainstream' Approach to ESG · IDENTIFIED FROM THE TRANSCRIPT
“To starting to develop in house expertise, and we're seeing more and more kind of household names in terms of asset management here in the United States build significant internal resources in terms of ESG specialization. Our message with this report is that those two activities shouldn't be too different activities, they shouldn't be siloed. Environmental and social data just gives you more information about companies that you didn't already have. And so there's no reason why the mainstream portfolio manager can't do both.”
2017-05-08 · Goldman Sachs Exchanges · The Metrics that Matter: A 'Mainstream' Approach to ESG · IDENTIFIED FROM THE TRANSCRIPT
“The root of ESG investing came from ESG specialists, folks that wanted to invest behind a certain set of values, wanted to focus on the ESG aspects of their companies. And as a result of that emphasis, rightly or wrongly, got a reputation perhaps for underperformance or at least of putting returns secondary to ESG considerations. Now this has evolved over time meaningfully and it started to creep its way into the mainstream. And when I say mainstream, I just mean investment managers who kind of historically weren't spending a lot of time on ESG topics in a lot of different ways. So that would include taking third-party ratings on ESG into consideration over their companies. This is basically using outsourced experts to do it for you.”
2017-05-08 · Goldman Sachs Exchanges · The Metrics that Matter: A 'Mainstream' Approach to ESG · IDENTIFIED FROM THE TRANSCRIPT
“Derek, you've written a report that outlines how you see ESG in terms of its impact on the way in which portfolio managers should assess investing. Where are we today in terms of ESG being an investable theme for mainstream investor? That is what kind of data is available? What are the tools out there that put that data to use? And how do returns compare against more common benchmarks?”
2017-05-08 · Goldman Sachs Exchanges · The Metrics that Matter: A 'Mainstream' Approach to ESG · IDENTIFIED FROM THE TRANSCRIPT