Making Sense of Sustainable Finance with Jon Aikman and Dr. Sean Cleary

Jon Aikman, Portfolio Manager, at ReSolution Investments and Dr. Sean Cleary, Chair of the Institute for Sustainable Finance, at Smith School of Business at Queen's University join us for a deep dive concerning ESG, the intended and controversial unintended consequences of ESG, ways of thinking about the definition and implementation of ESG investing, impact or sustainable investing, from the angles of both risk management and investment opportunity, and the key differences between top-down (passive) and bottom-up (active) ESG investing. We also get into their unique perspectives and examples of how investors, and the advisors who serve them, can meaningfully approach ESG, SRI, or impact investing, for those wanting to know how they can align their investment strategy with their personal, or institutional views, values, and desires.

Read the transcript

[00:00:00] Pierre Daillie: Hello, and welcome to Raise Your Average. I’m Pierre Daillie, Managing Editor at My co-host is Adam Butler of Resolve Asset Management Global. And joining us today are Jon Aikman and Dr. Sean Cleary, our conversation will revolve around the controversial intended and unintended consequences of sustainable finance and ESG and all of its corresponding aliases impact investing, SRI, green or whichever ESG term you like.

Jon Aikman is President and CIO at ReSolution Investments. He’s also the founder of an artificial intelligence consulting firm, Nord AI analytics started in 2019. Previously. Jon was CIO and portfolio manager at Pinnacle Wealth Brokers, and was the winner of the Portfolio Management Association of Canada Award for Performance in 2018.

Jon has a law degree from Queens University, an MBA from the University of Oxford. And has completed advanced certificates on Artificial Intelligence and FinTech from MIT. Jon is a Chartered Investment Manager and qualified lawyer in Ontario, England and Wales.

Dr. Sean Cleary is the executive director of the newly established Institute for Sustainable Finance based at the Smith School of Business at Queen’s University, as well as the founder and director of the Master of Finance Program.

He holds a PhD in finance from the university of Toronto, an MBA and the Institute of corporate directors designation. He is a CFA charter holder and is a current member of the CFA society, Toronto advisory council, and a former member of the board of directors of the Toronto CFA society and the Atlantic Canada CFA, where he was serving as President.

[00:01:52] Disclaimer Announcement: The views and opinions expressed in this broadcast are those of the individual guests and do not necessarily reflect the official policy or position of advisor or of our guests. This broadcast is meant to be for informational purposes. Only nothing discussed in this podcast is intended to be considered as advice.

[00:02:12] Pierre Daillie: Jon Aikman, Dr. Sean Cleary. Welcome to the show. It’s great to have you both and very excited to chat with you today. Thanks very much. Thanks.

[00:02:20] Dr. Sean Cleary: Happy to be here.

[00:02:21] Adam Butler: There’s a lot of pedigree on this panel. We’re going to have to be on our best behaviour.

[00:02:25] Pierre Daillie: There certainly is .

So to kick things off. Why don’t you both give us a little bit about your background and how you ultimately got to the sustainable finance space and what you’re up to these.

[00:02:47] Jon Aikman: Sure, Sean, why don’t I start? You’re more interesting than me. So I’ll I’ll tell everyone down right now, but I guess my start to finance, obviously I began as a lawyer and I went overseas, went to London and started working for some of the large investment management firms. So I guess I’ve had a long interest in ESG before it was known as ESG.

I guess we just started thinking about kind of moral investments in some ways, a long time ago, which became socially responsible investments or different things like, like that. And that’s developed in a big way to a number of different kind of categories of investment. My experiences in In studying impact investments at, teaching as well at at Queens university and an impact investments course was a really an eye opener.

And as well as investing as a, as an investment manager running an alternative credit portfolio you started to think about some of the larger issues and the sustainability issues that, that we have to confront today because we have some really big and profound environmental, and as everyone knows social and governance issues.

So I guess I came at this from a little bit of a different perspective but I’ve arrived in the right time. And with that I think that there are some really important investment decisions made and really interesting and attractive investments in in yes. Whether we’re just trying to avoid some of the foreseeable climate risks for the future, or we’re trying to tackle certain certain other types of problems and look for good opportunities for the future.

ESG is something that will be, I think the story for the next 30 years is going to be the general trend about how we tackle some of these larger issues like climate change and how we invest is changing. So I also am sit on part of a pension and endowment for a university, and that’s really interesting to see the way institutional thinkers institutional investors are thinking about investments for the future.

Now that said, I think that there are lots of things to discuss in that ESG could create bubbles in certain sectors, for sure. But I do think that it is a major trend going forward and it is really. That we get it right, and pay attention to sustainable finance. So with that, I guess I turn it over to, to Dr. Cleary.

I can tell you that he was wiser in this regard than in that. In fact, I was that he was a forward thinker and as I was grappling with the implications of artificial intelligence in finance, he was really focused on sustainable finance and was in, is clearly a leader in Canada and internationally, and has has written a lot, has spoken a lot on that.

So for my part, I’m really glad that you’re here today and it’s really it’s really great to see you and have your insights on on sustainability and congratulations on developing the ISF, which is a huge development for Canada globally on sustainability.

[00:06:28] Dr. Sean Cleary: Look well, thanks Jon. It’s I feel like I should leave now.

I know, and I would say it’s been an interesting journey setting up the Institute for Sustainable Finance with Smith School of Business Queen’s University. So we’ve formerly launched this just under two years ago, November 19th, 2019, but we’re we’re in the background working on things for about three years and I think what’s interesting.

And you touched upon it is just the conversations that I have these days versus those that I had two to three years ago. So when we even started to set up the Institute for sustainable financial, it was on a call this morning. And the most common question I get is. Got asked was how do you define sustainable finance?

And I can say that I probably don’t get asked that as often anymore, all those did mean it does tend to mean different things to different people, depending on their perspective, but it’s really come charging into the mainstream. And and I think it’s affecting the ways that institutional investors are looking at things because clearly they tend to have the longer tails, especially pensions.

So they’ve probably been a little bit ahead of the curve and looking at these, but if you look at asset managers and the movements that are going on in the retail market, too, it’s, these are questions that investors are asking their advisors. And also, if we’re on we’re in the middle of a major transition, which we are, if we do get some net 0 20 50, or whenever we get.

That’s going to change the structure of a lot of industries and a lot of companies. And as an investor, those are important trends to be aware of you. You want to know the trend and you want to identify where you want to be on that trend. Do you want to be ahead of it? Do you want to be on it or you certainly don’t want to be too far behind it.

Great. So I think it’s driving a lot of the conversations today and so we, the Institute for sustainable finance I forgot to mention, but we are we were set up as Smith school of business, but we’re a collaborative hub reaching spawning across academia industry and regulators with the mission of promoting sustainable finance considerations in mainstream finance.

And we pursue that mission on four pillars, research and education. Which you normally associate with universities, such as Smith school, business, Queens university, but also collaboration and outreach because these questions and getting the right questions in providing the right educational opportunities and focusing on the right research questions, because it’s it’s a growing area requires a lot of conversations with others.

And also part of the research and education is getting our research out there to people that are interested. So it’s been a busy three years and the momentum just seems to be growing in the area. And of course now I’ve switched from mainstream finance to sustainable finance world.

And now it’s everyone’s just everyone I talked to was talking about cop 26 these days. And it’s interesting that a lot of the headlines in the newspaper cop 26 as well. So it’s not. And, three years ago, it might’ve been a page on when page seven, B seven of the report on business, and now it’s right on the front page.

So I think that’s reflective of the fact that people are recognizing it’s very important.

[00:10:20] Adam Butler: So sustainable finance. Obviously I think people are starting to gain a better understanding of what it means to think sustainably, but I’m curious about how you map the Venn diagram between sustainable priorities and finance.

Obviously finance, Fritz, and we had been about raising capital and allocating capital to productive projects. So how do you guys see the ISF in terms of, bringing together best practices in sustainability with what is traditionally a fairly conservative sector like finance?

[00:11:00] Dr. Sean Cleary: Yeah, that’s a great question.

There’s a Canadian Expert Panel for Sustainable Finance was convened in 2019. And Tiff Macklem was one of the four members on there. And Andy Chisholm and Barb Svan were both in our advisory board were two of the other three members. So they had they had what I thought it’s a rather lengthy definition, but I think it captures the spirit of it with that.

It’s about capital allocation, about risk management and about financial processes that integrate sustainability considerations into those, traditional finance areas, right to finance is about allocating capital and managing risks and developing securities and the processes that help to do that.

And so I always think of sustainable finance to me is about integrating both environmental and social considerations into your decision-making process to promote both a more sustainable future for us, but also economic prosperity, because I don’t think those two things are as mutually exclusive as some people at one spot there.

I think with change, of course, some things don’t benefit from change, but there also comes a lot of opportunity. And actually it’s interesting when Jon was mentioning earlier and getting involved at AI in finance and FinTech, right? That was a major adjustment to the financial markets to have to recognize this as now, part of our day to day business.

And I think for the large part, people recognize that now, and it’s been integrated into a lot of outbreaks.

[00:12:47] Jon Aikman: So

[00:12:48] Pierre Daillie: what are your thoughts?

[00:12:51] Adam Butler: Yeah, obviously. Integral in, in virtually every facet of finance and investment management, sustainability. Do you think that sort of just pushes out the definition of risk management to further carpets, a broader range of different risks or other dimensions to sustainability?

Relative to finance that are not properly captured under risk management.

[00:13:24] Dr. Sean Cleary: And I think that’s part of it and that’s probably traditionally how sustainable finance started to become accepted. It was viewing it as if we don’t do our due diligence on environmental social factors and clearly governance factors is something that the mainstream financial markets address over a decade ago and really.

We really need to pay attention to the quality of our boards of directors and the shareholders and other governance factors. And then it started, with the attention on all the, take the insurers, they can’t ignore all the damage that climate change is already doing to their bottom line.

And then when you start looking at pensions with 30, 40, 50, or tails, and they start looking at infrastructure investments, if they’re not paying attention, they it hits their radar right away. It’s like not only mitigation of climate change, but adaptation factors are important too. So I think buildings and infrastructure are maybe an example.

It’s easy. It’s quite obvious to you. So I think it started to make its way in there, but then, and I think correctly, That recognizing that also would change, comes opportunity. And I always think of risk as the flip side of opportunity, right? If there’s risks to one company, that means it’s opportunities for other companies, if there’s risks to one investment there’s opportunities.

And the idea is not to restrict the universe, but to put a broader sustainability lens on the investing universe. And I think there’s a lot of empirical evidence that shows at least from the early returns that the, you know those investors that focused on these things did better.

And, it’s hard to, it’s always hard to quantify some of those stories, but there’s certainly not much evidence that they get worse. And if you just think of it logically, how can looking at more information, unless it overwhelmed you. But if you look at more information and you do so strategically, how can.

Make your investment performance works, right? It seems like it has to be a good thing. Like I said in, was it just overwhelms you it’s so what you do is you devise strategies to deal with that new information,

[00:15:57] Pierre Daillie: I think, I guess for both of you Dr. Clary and Jon for me, I for me, it took me quite, I have to admit it took me quite a while to tackle the word sustainable and get past the initial biases of what that word actually entails.

Like what it what it actually means. And, I think initially I thought the word sustainable pertain to, natural resources and the sustainability of, reserves whether it was fossil fuels or metals it encompasses that as well. And then, the context of the word sustainable.

I think Jon, it’s interesting that you wrote a book about the failure of Lehman and, if we’re talking about the sustainability of financial markets, there were behaviors going on in financial markets that were unsustainable. And you could say, was it the previous regime of financing and leveraging and, investment banks being involved in the way that they were, the way that investment banks were involved in markets, you could say that was unsustainable.

And that came to an abrupt end because it was unsustainable. But that word has so much abstraction and it can be used so specifically. And and then at the same time, so ambiguous. That I almost feel like that’s part of the problem is that is the solution. It’s that universal word that can be used to describe all of these different situations.

And at the same time, it can also be the cause of biases that prevent people from taking a deeper dive and learning about sustainability and learning about ESG because of those biases that get created by the ambiguity of the word itself. So I was wondering if you could comment on your thoughts on that and if there’s a better way to get through, for example, two advisers on the true meaning of sustainability and the, what as the most Frank definition of sustainability,

[00:18:26] Jon Aikman: it’s an excellent point.

You’re right. There is no universal definition. We have the UN SDGs or sustainable development goals. There are 17 of them, right? Everything from no poverty, no hunger to sustainable cities responsible consumption, peace, justice, and strong institutions. Like you should really look at what is driving some of these goals and the things that we’re headed for.

It, you’re making a very sophisticated point about these kind of laudable goals that lead to some strange conditions and positions ultimately leading to some, real crises points sometimes. I think it’s useful to remember that the spark that started the global financial crisis really had to do with subprime mortgages and subprime mortgages were largely driven driven by government policy.

Government policy to solve other social issues like too much incarceration reduction in taxes, things like that. So there was a real government incentive to support putting people in homes. They couldn’t enforce afford them rather than not putting them in homes at all, to increase the tax base and to increase it, to solve certain social situations.

And then if you add onto the fact that the financing arm for purchasing that like who ultimately owned those assets really were semi governmental organizations with the goal of improving and increasing home ownership in the United States. That was the foundation that spread and metastasized through the global financial markets, along with some errors in terms of the ratings agencies, miss, miss marking certain assets as AAA, which in fact were quite.

But that’s about financial innovation and trying to solve a specific problem through financial innovation. So I agree that there are these really important areas for people to think about in terms of investing in the obvious example and the one that, that pensions as they from where I sit, I can see, they spend a lot of time thinking about stranded assets and worrying about some of these assets.

And sometimes a lot of the talk of sustainability resolves to a question of, do you want to invest in fossil fuels or not? University of Toronto asset management, just categorically decided to exit from fossil fuels and divest completely. That will be a real question mark about whether that’s a good financial decision or just a political decision in that regard, it has not been the that’s not.

Traditional industry response to any of these things, because, fossil fuels the oil industry and related industries to oil make up a huge proportion of, the TSX and the S and P. And so you really can’t afford to really restrict your portfolio by 30 or 35% of the entire market and that, so it takes some sophistication to think about it.

And then you look at, on the other side, you say let’s avoid these risks. Let’s avoid these problems that are foreseeable in terms of climate change and government regulation and taxation that are going to come. On the other side, there are these great opportunities which might be in, Evie or or other sorts of certain technologies associated with that.

So I think it’s starting to think along those lines, but but we’re in the early days of this, I think it’s very important to be aware. The bedrock of finance, of making decisions that are creative and what isn’t, what’s an NPV project, is getting harder and harder to think about because we have to take on both of these kind of hard empirical science aspects, like climate change and how much carbon goes into the atmosphere on one hand.

And then on the other hand, you have to think about social issues and these other other areas where there isn’t a good, answer to the question of what CSG, when you combine something that is categorically different on both sides. And it’s, it just, it explains why ESG ratings are all over the place and that it’s not easy.

It also explains why that the bulk of, Eng ESG investing has been focused on equities because there’s so much data in terms of what’s available for. Now so that leads to a strange position of, yes, there’s this big focus on equities, but the ESG opportunity in fact, could be much larger in certain other areas, which would be maybe some of the alternatives and other things.

When we’re really thinking about how do we apply the sustainability goals and what are the investment areas that we really need to think about? I think that the alternative spaces is a really attractive, interesting space for doing just that. Because ultimately if you’re, you’re a small investor on a gigantic company and you want to make some sort of ESG improvement, almost impossible, but if you’re, you’re involved in more of an activist strategy then you really maybe have the opportunity to turn the dial on certain investments in an important way than to help them think about.

What improvements in ESG really mean is really the, one of the underlying underpinning challenges is, do we just say, I only invest in companies like apple or Tesla or something like that or do I try and invest in companies that maybe aren’t doing well, but that can turn the dial and improve their position significantly through innovation and paying attention to some of these sustainability goals.

Like one of the most fascinating areas is just boring, old concrete, and some new technologies associated with that with like carbon carbon injection and certain developments from the technological perspective really may hold a lot of value for the future because, just some of these industries like steel, oil, and gas, and in.

Are really very large emitters and those are things we can do something about. So I see a great opportunity in some of those spaces and yet maybe the places where people have focused historically, I think a lot of them are tapped out to some extent in the valuations, maybe reflect a lot of high expectations and turn it in terms of ESG.

[00:25:42] Pierre Daillie: Yeah. Nick

[00:25:42] Adam Butler: TVFC movement is motivated by a desire to be sustainability, to the greatest extent possible to free market forces. I think one of the challenges that we have in financial markets and we’ve chatted about this Jonny and other forums, but if there perhaps a misalignment of time horizons where investors and managers and.

Stakeholders in the that’s in process are incentivized on our horizon on the order of one year or the five years. And on the very outside need, maybe 10 years or a little longer in the case of certain institutions, but the extra analogy that are rides from invested in many long-term global projects are expected to pay off on the order of a decade that in some cases, centuries.

And I know that Yesi is motivated by a desire to leave as much of this as awful to pre-market. But to what extent can we lead this to Cree markets versus combining free markets with regulatory policy as well, and then just getting to ISF, what role does ISF play guiding. Investment principles.

And then also helping to inform regulatory policy around the world.


[00:27:28] Dr. Sean Cleary: we that’s a tough question, but we clearly we do objective relevant research and provide education. We don’t actually control capital ourselves but we definitely are involved in the conversations and contribute to those conversations in terms of research that’s important.

Educating education is huge too, because cause we need to train the next generation in the, a lot of the existing generation, how to answer these questions that are coming up and. And if they can’t answer them, if you can’t answer them, they’ll go across the street to someone who can answer them.

I think there was a survey by RAA Canada, responsible investment association, Canada in 2020 and said that 75% of retail investors wanted to know more about ESG and only 26% of them had it, had that conversation with the retail advisor. Quite frankly, either, either the advisors are assuming incorrectly those types of things that aren’t important to them, or they’re just not comfortable enough having those conversation.

So I think that tells you that the future is now, and we can’t keep waiting because the next, the next generation is going to be even more focused on these and time is running out. But back to part of your question about policy. Th it’s a transition that, that the private sector is leading in some regards, you see the pensions demanding better disclosures and TCFD to task force for climate related financial disclosures and Saxby, which is sustainable accounting standards boards, all eight pensions sign that statement in November and then gave to the large 10 largest similar statement to the sec in the U S and you don’t see them banging together that often for things.

So there is a lot of pressure, but as you’re alluding to, it’s hard to start devoting our capital to wards longer-term solutions like transition minerals could be a, an opportunity for Canada, right? And until in, clean tech and in the carbon capture and storage and hydro. But until there’s a little bit more policy clarity make no bones about it.

Most of the capital has to come from the private sector, but the public sector and think of infrastructure. I mentioned before most, a lot of the infrastructure decisions are dictated through policy. The private sector can’t can drive only so far. So there needs to be, and we just finished a report on update of that Canadian expert panel report.

And that was one of the key messages to come out. There needs to be more communication between the public sector and the private sector, because this is a key strategic transformation. It’s not going to happen overnight, but it’s already in progress and we need to do it properly and we need, everyone to know what’s going on, six that’s how you unlock the private capital. And when people have a vision of what it’s going to look like in two or three or five years,

[00:31:00] Pierre Daillie: That’s a great point. Yeah. I I want it to just go back a few steps because I just to talk about the unintended consequences of a little bit of policymaking and Jon, you mentioned that the, the financial crisis in, weight was set off of course, by subprime and that subprime, the birth of subprime was, an ESG initiative in disguise, it was meant to, reform social justice, criminal justice provide, provide some social reform for, in terms of home ownership and the kind of backfired, right? I think that when, we get a lot of mixed commentary from advisers in our audience.

Some of it is angry, right? Some of it is this anger about how policy-making is, threatening to hollow out the energy sector for one. And so we ended up seeing, we ended up looking at unintended consequences quite a bit. And when you look at, other unintended consequences potentially of ESG, one of those is the inflationary pressure that it is signaling to put on metals, for example, on the metal, on the metals market and on, right now on natural gas.

And that inflation in general is going to victimize the most vulnerable quintile of the population because the cost of energy for one becomes untenable. And then of course, There’s the corollary argument. That’s the cure for high prices is high prices but the, so there’s a lot of, you can tell something’s definitely moving forward because there’s a lot of controversial views on it on one side, a lot of anger and dismay about what ESG actually means.

And then on the other side, you’ve got the ambivalent, who don’t care either way. I don’t think much of ESG or they just think it’s a marketing ploy. And how do you overcome that problem of, the unintended consequences? Another sort of unintended consequences?

I don’t know if you’ve I brought it up in another another conversation, which was the the movie Anthropocene where the. Coal mining in Germany is highlighted and that they’re literally tearing up Germany to get lignite, to power their electrical utilities. And this is because 10 years ago or thereabouts, the Fukushima event happened.

And German politicians decided that they were going to mothball half of their nuclear plants. And so now let the, literally, they’re not only are they tearing up the rural countryside of Germany, but they’re starting to encroach on towns and villages and eating up the land underneath the towns and villages.

And the, so there’s this scene in Anthropocene where these harvesters or these lignite harvesters are digging out, acres and acres of land each day and destroying the German countryside before. There’s no power. So now Germany has the highest, some of the highest emissions problems as a result of making the decision to mothball nuclear and then they’re running up against shortages.

So they’re buying electricity from France, which is nuclear, which sort of defeats the whole purpose in the first place of having mothballed nuclear, except that it displaces the nuclear problem, in France. But so you’ve got all these policy-making decisions that have an equal and opposite reaction, just like the law of thermal dynamics.

You, you have this equal and opposite reaction that’s happening with every substantial policy decision. And maybe, maybe I feel like maybe the focus of ESG should become technical. The technology focus, as opposed to let’s cure all these social problems and let’s cure these environmental issues and let’s fix governance.

You almost want to, I almost feel sometimes if you have this political spearheading of the ESG term and the intentions are wonderful, right. But sometimes the road to the road to hell is paved with good intentions. And so I w I wonder, what, what your thoughts with, how either of you handles those sort of controversial feedback, those items of controversial feedback from, the pushback.

[00:36:42] Jon Aikman: There are several things to unpack there and it’s it’s probably the hardest question I’ve ever been asked. I think. But let me put it this way. Are you right about technology without question? You’re right. And it’s not, it’s a little bit more on the line here. I think that there is a reality of global warming and there’s a real problem with the oceans and the implications of that.

If we start to see a dead or deadening ocean with increasing temperatures, such that oxygenation just doesn’t really work anymore, and you have large portions of the ocean that are in fact dead. That is foreseeable. If we keep on the current path, there are, as an example, there are plastic islands.

One is floating around the Pacific. That is the size of Texas. Now there are seven of them globally. There are, there’s a massive, real problem with the environment without causing. It’s a massive problem, in fact, entirely correct. When you point out that some of our solutions to this will lead to further challenges in that regard, we want to build these turbines, the wind turbines, and we want infrastructure spending.

We just had, we had a $1 trillion infrastructure bill in the United States just passed today. The S and P was up 0.02%. It’s entirely, it seems priced into the market where there’s no bump for a gigantic piece of spending. So you are absolutely right. That I think technology is really a key portion of it.

I think I still think we need to get our heads around all these different goals and going in different directions that in its worst. That ESG can be seen has a form of green escaping or just a, good marketing to get to people. Certain regulators have taken that problem really seriously.

And the sec and Europe the European regulators have come down hard on managers that, that are pretending to be sustainable, but really actually aren’t doing that. So I think that has to be driven like the you’ve got to get the bad actors off the field to some extent. But to your point, yeah, I think we’re going to have to hone down all these diverse things that would be great to do, but maybe won’t turn the dial or maybe pointing in a different direction than we would hope.

And so some of these goals like net zero by 2050 and others, and that’s a very specific one where either there were, we’re not going to be. And it’s probably not going to be sufficient for companies to go out and buy carbon credits to cross the line. I think that people are going to be looking very closely.

There are lots of companies today that consider themselves net zero. Not because they aren’t large emitters, but because they can afford to buy those carbon credits. There’s a certain amount of arbitrage going on internationally and we do have a really complicated system and look the it’s more intractable.

When you think about the nature of those emissions, if you just focus on the carbon emissions and the relative size that that China plays in that versus the United States or Europe really fundamentally challenging to deal with a developing emerging market and trying to get them to pull back on all the heavy industries, which in fact have been, they’d been relocated to China before.

They were able to operate efficiency because they didn’t have the same sort of environmental protections and regulations associated with that. So now we want to say, by the way, shut those down now that you built those plants, that’s going to be a really a tough political call, but to, to the solution, to any international problem.

And you’re right, it’s like nuclear weapons, right? Like it doesn’t matter that where the nuclear weapons are, the United States can say no more nuclear weapons on our shores, everything, outside of Bermuda is fine for nuclear weapons that doesn’t solve your problem.

You have to get together and agree on the rules of the road. So closing off some of those externalities, those free lunches that people are having, where like dumping into the oceans and, looking for, the international arbitrage situation of which country can we go to such that they won’t care that we’re doing.

This, these toxic chemicals into the into the ocean. Those are things that we we have to come together and agree on some of those and the only way to get something good out of that, I think is by, by doing kind of what a cop, 26 is trying to do, which is establish rules of the road.

And because we’ve had a certain lack of leadership from the traditional sources in some ways it’s been more uncertain than ever that, that Europe and the United States and other locations develop their own rules in some ways, or have them in transition as we speak.

And then the question will be what, I take call it professor Cleary’s point is makes a lot of sense in the normal course. It should make sense to. To invest in clean companies that don’t destroy the earth, that don’t do horrible things to people that don’t, toy companies that don’t use lead paint are better than quick companies that do that should be simple for us to get to, but as we start to really see the overall performance, like I think we’re in too early in this in some ways that some of these issues that we’re going to have to address are going to require investment.

And the two big areas you’re going to have to think about for investment are what, how are we going to invest in these technologies to get them to the next stage? Because venture capital is not going to get us there. They, that is the wrong model. They are going to be, they’re going to be flippers.

They’re going to get you up, turn you into a unicorn, and then they want out that’s good for your market share. That’s good for your returns, but that is horrible in terms of building. Big kind of infrastructure like technologies that are going to be transformative on the world to give them the time and the research that is needed to to get them to that next level, such that you can develop some of these great new technologies that that are gonna really help and help, not just in an economic sense, but also in solving the problem sense of, get hitting our emissions targets and also looking at, the temperature issues in particular, like it’s really great that we’ve set these targets, but we don’t know whether those targets are in fact going to be exactly right.

And we don’t know what the impact will be or what the unintended consequences of some of our behaviors in fact will be. We know that those are the things that I think we’re going to have to think of as a really important part of this, because this is it’s pretty clear that if we listen to the the, the big thinkers in this area.

And then David, Attenborough’s looking at the destruction of the natural world. We’re in the midst of certain profound extinction events. And we may need to change our targets to address that it may, they may be that we write down that it’s a 2% target or one a half percent or whatever it is. But in fact, if that is really devastating for the world and not a world that we want to live in then we’re going to have to adjust that and we’re going to, and so I think that people need to be ready for continued change in this area, which is what I think from a, from an investment perspective means that you’re going to have to be on top of this on a continuing basis.

And watch out for the big risks, as well as watching for some of those big opportunities, because I know that Evie was a big one and that’s been one of the past, there are more coming through. They may not sound that sexy, but they’re fantastically interesting when they have broad scale and scope for some of the new technologies are coming up because some of them are definitely developing and coming forward.

[00:45:30] Adam Butler: So let’s go there. Could that be a large segment of listeners are gonna are here for the investment implications and Sean, you mentioned some specific examples of what might be near term or intermediate term opportunities for investment where in-depth may be able to generate outside returns and also then are in the direction of sustainability.

And long-term thinking if I recall one of the. Sector your segment that you mentioned one transition metals. Did I get that right? Or transition middle? What maybe do you want to start there and maybe provide a few other examples of interesting potential areas of nothing?

[00:46:19] Dr. Sean Cleary: Yeah. And I would qualify that these are pretty early on, but if we look at the development of the V power market then we’re going to need the minerals, the metals that go into producing those batteries.

And we are, jumping on China as well ahead of us already. In that regard, I wrote, on the flip side they have, they’re still building coal mines there. So we’re ahead of them in that at least. But they’ve taken a very concentrated effort and you now see announcements by Biden and by Canada that th this is coming forward.

So I think, with Canada and here’s something. This provides ESG. This is an example of ESG factors providing us an opportunity because we can produce them some of those minerals cleaner than others, and certainly with less of the social issues that go on at others. And, hopefully the governance of some of our companies score well on that regard too.

So I think that’s like an interesting example of, taking the opportunity out of this. And I think it’s, it’s it’s well recognized. I would say there’s still early stage opportunities, but they sh you know, if we develop the market correctly, and this is where back to the previous conversations it’s about doing things correctly, too, right?

Like it, if we don’t develop it correctly, maybe we miss out on. That opportunity or part of that opportunity. And that’s why we need to have the regulators and the private sector and the suppliers of capital all having their voice heard. And I think those are important considerations.

We need to really open the lines of communication better so that the everyone hears what the other parties are saying is important to them. Yeah.

[00:48:25] Adam Butler: Jon, any other ideas to add to?

[00:48:31] Jon Aikman: In-depth I think that’s right. I think traditional investments in terms of equities, if you’re for active management, there’s real opportunity there.

If you’re just looking for access, there are lots of quality ESG ETFs to think about and let someone else who’s focused on that. Think about what yes. G means and just allocate that way can be a relatively easy way. For advisors to think about getting access to this there’s everything from when I think about ESG, I don’t think about it as like you would immediately know whether it’s whether a business was ESG or not just by saying it’s Evy, you could have really horrible businesses that are electric vehicle businesses, because they’re so destructive that they use horrible labor practices.

They do all the things like that. I think what’s really important is to think about to understand that each area that be white want to invest in so there’ll probably be more emphasis on biofuels, renewables. There’s going to be more focus on water resources like that. Health care is going to be important.

Everything from oil and gas. I know that people think that’s like the antithesis. We could have a really big change in some of those oil and gas companies that, that really could turn the dial in some important ways. And if anyone can do that, I think it’s, I think it’s those areas because they have the capital and they have the determination and they feel the hit more than anyone else.

And then, everything from looking at FinTech or new developments in certain areas, I think are really important for us to think about new sustainable apparel companies and other things like that. New companies that are looking at packaging. Very interesting. Sustainable packaging is a huge problem.

Just the proliferation of plastics and the need for certain alternatives. It’s not easy right now, but if you can get in on some of those opportunities, that’s massive, right? That is a biodegradable plastic. They exist. They just aren’t developed in the same way. So I think that there are lots and lots of investment areas to really think about and to focus on in the traditional markets.

But I would say that the thing that I would expect more than anything is that I would expect more inflation in some of these sectors that are considered hot from an ESG perspective and that and that we are seeing significant inflation and significant money printing associated with that as we’ve talked about, that if the, even though the S and P is up pretty much a hundred percent year over year since the beginning of the pen money printing is up more than 400% in terms of just the United States alone in terms of

So you have a massive amount of capital that’s come forward. You have, we know that inflation for the fast four or five months has been at least 5%. And we know that the risk-free rate is much closer to zero or in many locations. It is in fact negative. So on a real return basis, what I think that advisors should be focused on is looking for inflation adjusted investments that are that are suited to the new economy that are reflective of kind of some of the ESG factors.

And to that point, I think. Some of the technology areas clearly are doing better than others that have seen that uptick, the traditional areas for inflation, hedging gold has been a disappointment in that regard. But then again, other metals there’s been significant uptick there.

And then also think about the new areas and areas of technology to think about when we’re thinking about that. It’s something to look at crypto investment and crypto assets and really alternative investments because when we’re dealing with a difficult situation, a difficult changing rules, that’s a really great opportunity for investment managers to recognize that when you have an inefficient allocation of capital, because they can make investments that, that capitalize on that.

So I would be looking very carefully at certain types of venture cap. Private equity, private debt infrastructure investments, for sure. And thinking more broadly about their investment horizon, because we tend to put people into into really liquid investments, but there’s a liquidity premium and illiquidity premium that can be gained from thinking more long-term and not in the traditional locations.

So I think that, you should be really looking at fixed income alternatives in today’s market that, that can beat inflation are a very attractive option and they exist, but they may not be the same as a or as easy as investing in your trip, traditional AAA bonds or things like that.

Yeah. There’s

[00:53:53] Adam Butler: an interesting path dependency to the transition. And we’re seeing some of the effects of that right now. The fact that you’ve got, for example, university of Toronto, when you see similar outcomes, Major pension in the United States and other institutions within Canada in another jurisdiction where they’re divesting of companies and industries that do not serve the sustainable agenda and the longterm.

But the consequence of that, of course, in the short term is that there is a dearth of capital for the investment in expanding production. For example petrochemical dates, interview resources, and then also how to think about expanding the capacity for the production of other transits and metal. I’m thinking about this.

The pork would be international energy. It’s either came out recently, which highlights that electric vehicles are maybe six times more minimal. Internal combustion engine vehicles. For example, the battery for one Tesla model three could take 56 kilograms of nipple, 70 kilogram of COBOL, almost 70 kilograms of bank.

Didn’t need that 85 kilograms of copper. And what it means that you need a 40 fold increase in the production of lithium and nickel. At 20 times, it got copper, graphite, cobalt, et cetera. On then we were able to physically mine in 2020, right? So there’s this interesting transitionary period where I know we need to look to the future and in terms of where investing attack and regulation and policy that provides for a sustainable future, but then also providing a path to allow it to transition without.

Eliminating the input to production that currently serve the global economy. From the ISF perspective or from the perspective of ESC advocates in general, how did, how do you view the sort of path the Pandanus or asynchronous nature of when these technologies are sustainable? Tech is able to take over versus needing to in-depth in legacy facets of production in order to sustain growth in the intro.

[00:56:39] Dr. Sean Cleary: Yeah. I’m glad you asked me that Adam. Cause I’m getting the impression here that when we’re talking about ESG integration and investment, that we’re not talking about the same thing. Cause, cause in my perspective, it is mainstream looking at all of your investments, not just looking for. Transition minerals or when, renewable energy and then getting rid of anything, that’s not hitting this trend.

Clearly we need financing for those things. But integrating ESG considerations is not just about that. And it’s not just about divesting. In fact, most investors don’t divest, or maybe they do it quietly, but they do engage a lot. And that’s the thing about the investors that stay in those industries is then that they have an impact on a lot of, they do, it’s an opportunity for active management, but I think Jon mentioned it before.

And I think there is a survey RBC does this survey of institutional investors every year. And last year, two thirds of those surveyed said they used ESG integration because they thought they could generate alpha. And in. You’ve all been in business for a while. You can generate alpha the best, if there’s something that everyone else isn’t paying as much attention to, or there’s not widespread information, that’s why small stocks for awhile and so on and so forth. And that’s why we had quant strategies evolved. And then as soon as everyone got the same information and recognized that they starved those arbitrage opportunities disappears.

And I’d say, we’re getting close to that point because there’s an information lag, which is why investors and those big pensions and the BlackRocks and Lyft, and everybody’s demanding better information. But as long as there’s a bit of an information void that creates an opportunity, it also creates a risk, right?

Because you’re holding securities and assets in your portfolio. And if you don’t have the full picture of. Then it creates, a risk, whereas if you can assemble that full picture creates new opportunities. So I think for generating alpha, it’s probably one of the best areas out there.

It’s a bay, but for the very reason that it’s very frustrating to those involved in it, that there’s lack of good information, but we’re seeing pressures. Like we saw an announcement from the CSA a week or two ago about movement to integrate TCFD reporting, and those types of things that’s coming on the heels of the institutional investors and the general public for better inflammations.

And the funny thing about that is that will be beneficial to the companies, even though it will be a bit of a hassle. It will be a hassle for them. The first. But understanding where they are, where their carbon footprint is, where their strengths are and their governance structure and their social issues.

Those are the things you want to know ahead of time. Because the funny thing too, and I was going to mention COVID earlier having these conversations, everyone said once COVID hit, that was going to be, nobody was going to be paying attention to ESG factors at all anymore. And in fact, it was just the opposite because they said, wow, a big systemic risk that everyone knew was a possibility since stars that we didn’t have to quickly prepare for hits us and nails us.

What does that sound like? Hit slate, climate change. And. Annual review. We’re getting monthly reminders of the effects of climate change, with flooding. And I used to love to go to Toronto island two in the last five summers. You couldn’t get over there. And it’s just getting warmer.

So these are nothing, these types of what we call isolated events and wildfires are unlikely to get less frequent since we’re continue to get warmer, even if we get to 1.5 degrees or two degrees. So the world is changing, whether we like it or not. And and I think the pragmatic thing to do is to start thinking about that and planning, slid, and that

[01:01:03] Adam Butler: he’ll be back.

It’s funny because the game theoretic, there’s some games, theoretic challenges. We’re seeing some of this play out where you have it under reaction, over reaction effect. For example, at the moment, you’ve got the cop 26 meetings happening that symposium, and they happened to be taking place at a time of skyrocketing energy pipe globally.

You’ve got to map at that point gas crisis in Europe, you’ve got out of China shutting down the electrical grid or phasing in and out different regional electrical grid, which is impacting the production. And the is good at the same time at the top, the 26 meetings are happening and you can see some of the effects of the timing in the policy response that’s coming out of the added symposium where, you know, sadly the org, I think from one perspective, sadly, they’re walking back along to the policies on.

Reduction on the reliance of coal of adduction on the rebel under the wire itself carbon based energy sources, because they’re recognizing the impracticability of instituted these anti carbon based fuel policies to aggressively before we have effective, scalable substitution. We have this very delicate policy stance at the last symposium.

It guided global companies, in the petrochemical industries to reduce investment. And we see these in the cap ex numbers over the past decade, where year in, year out global coal and oil and gas exploration production. Each year out of invested, lasted less and lack of cap ex and now that’s resulting in food for that reason.

And a variety of other reasons in a math it’s sliced in energy prices at exactly the wrong time for the current symposium to try and set policy guidelines going forward. So it’s really hard to account for all of these potential interaction effects and path dependency. So I think we need to pick up a very nuance and template approach to how we think about this.

And then again, the university of Toronto with some other localizations taking. And I think Sean, you spoke to this, right? The opportunity here is not divest, but rather guiding then in the necessary sectors of the economy in order to perpetuate global growth and meet its shorter and intermediate term objectives, while also.

Guiding industry onto a path of sustainability, right? Yep. What are your thoughts on how to best thread that needle under from the conversations

[01:04:11] Dr. Sean Cleary: you

[01:04:11] Jon Aikman: guys are having? On the, on that issue of divestment, look, I agree with Sean that this is not, there is no good or bad ESG company there factors we have to take into account and we’re going to have to pay attention to now more than ever.

And if, when you look at a nuanced risk management approach that incorporates ESG, it’s not to say that every single thing matters. There’s lots of, there’s lots of investments where the key consideration is not greenhouse gas emissions. It could be something else. It may be human rights. It may be your product design, life cycle, things like that.

There are, I would encourage people to get from initially or. ’cause he SG is really just about in sustainability. It’s just about integrating that into your investment decisions, to avoid obvious risks and to, to look for these good opportunities for the future. And that’s really about capital allocation is about just that we’re not changing the nature of the game at all.

We’re just adding a more nuanced approach to recognize that, Hey, the world is changing. Governments are changing. You have these big international governments coming together to think about these things, to set standards, and we need to be aware that the next thing that comes after they get you to agree to do this.

And they’re getting many of the big investors to agree to do just that, to follow the UN principles of responsible investing or other kind of benchmarks to of. The next step is regulation and taxation for people. Don’t they want to encourage people to aim in the direction that they want to go to.

But to to your point, is it obvious immediately th there are going to be real challenges going forward. I personally am not a fan of divestment. I think that is a terrible idea that these are important areas to invest in. People still drive cars, they still need to heat their homes.

They still need all the ancillary products that are associated with this the plastics that make medical devices, or all sorts of different products. I think that you can’t just walk away and make this a political decision. That to me is not investing. And when people do make political decisions, then I think that whenever people are making non economic decisions, purely for political.

Then that’s maybe it’s short-term trading opportunity. So when you see that happening and you see a lot of people walking away from a certain industry that they considered to be dirty or bad in some regard, and could put that in quotes that’s probably an area that you’d want to pay attention to.

So as a contrarian you might want to go along, go with the flow in certain regards and say, yeah, clean companies that do good things, follow ESG criteria. Yeah. That’s a good, that’s a good company in general. But if there are these kind of unloved gems for whatever reason, then that can also be a, from a contrarian perspective.

You can take that perspective and invest for that. Now that will require as you pointed out at him, a different liquidity profile in terms of investments, and you’re going to have to suffer through certain period of time. When it may take a certain amount of time for people in Germany to recognize that there are these horrible consequences associated with their kind of categorical decision focus, Shima, horrible disaster, horrible, entirely manmade disaster by the way.

And probably isn’t even over. But to then take it to the extreme that you want to now say, no, no nuclear is not not viable at all. And we need to move away from this. Yeah, that’s a, that’s probably the wrong lesson to take from it. More improve your safety and security associated with some of these important energy decisions in these important industries.

But to some extent you can feel that the baby may be thrown out with the bath water on on some of these as an investor. I think that’s usually that can be a bad thing initially for investors, but it’s often the. That we recognize that there’s a baby and that we have to take steps to to address that.

But to, to the larger point of is the environment changing from a finance perspective, without question, what people are allocating to is changing and the cost of capital, clearly people are trying to provide incentives to give certain projects life. And then and with that, maybe the learning lesson is with this whole sustainability area, you probably do need to rethink your your investment horizon, that liquidity that you need for your investments and try drawing out and extending it to over a longer period of time so that you could look at rare earth metals or some of the other, semiprecious metals that are important from a certain perspective and not necessarily look at it day by day, but take a strategic.

Viewpoint to recognize that there are these imbalances and that it may be that, that these are, are unloved right now or that the, in the future, there’s this huge opportunity that just hasn’t been recognized yet re rare earth metals there. Aren’t making more of them. They take an incredibly long time to develop a a working functional mind and that these are the types of things that will be truly, vastly more valuable for the future.

When we’re trying to to address these, the needs of Evie and also the Dan celery products where remember that this is a technological revolution that is happening at the same time as an ESG revolution. Can’t the underpinning of a lot of this is that we have these new technologies that are really transformative and they’re transformative in the sense of they’re displacing old industries, old jobs, the way we do things in a fundamental perspective.

We have robots that are doing many of the jobs that were the humans were doing before. And those robots are also working on this are beneficial from a sustainability perspective. So there’s always this balance that we’re going to need to tease out. Because if we just thought about answering the question of, should we have fewer cars on the road from a certain perspective, you’d probably say yes, but then you said but what about the consequences of that?

What about the consequences to the economy into jobs and people where you have the U S United States alone? So before 20 million people there, their direct job is driving. Now you have, you maybe have the technology to be able to implement this, but are we ready for the knock on effect of that from a social perspective?

And then you think on top of that, You’re working in, we have to, we, and then we realize, oh, but we have to agree on all this. And we have to get these policies through. And we work in a democratic system for the most part in the Western economies, such that when a poor year, four year term used.

Thinking long term, it’s pretty difficult when you’re doing that. And then look at the reality, largest infrastructure bill ever passed since FDR and the S and P is effectively flat for the day. Now that’s breathtaking and not for what happened, but for what didn’t happen, it’s really remarkable.

And then with all of the big challenges that are looming I, I think that, sustainability is super important to focus on. I don’t think that there are easy answers, but I truly believe that active management it, if there’s any area that you want to focus on to get active and after active management, The implementation of ESG factors is one of the areas that it is so important because people need to be watching this very carefully on a regular basis.

And it’s not just because someone did well, last year on their ESG had actually could be changing this year on an ongoing basis. And it’s, and those are the things that people are watching for carefully.

[01:12:55] Pierre Daillie: Jon, I would tend to agree with you on, in terms of ESG investing that this is a it’s the active side.

That’s really going to be able to find an unearthed, the opportunities as opposed to the passive side. It seems to me on the passive side, there’s a lot of shareholder engagement from the likes of Larry Fink, for example and, but it’s very generalized and it’s it amounts to a very generalized call for ESG reform.

And then. That’s where you get because of an attempt at standardizing ESG, you end up with, the green escaping or greenwashing that’s happening systemically where it’s happening. It’s very, it’s not widespread, but it seems to be that, that it’s fairly easy to jump on the the green bandwagon or the ESG bandwagon just by, meeting the minimum requirements, adding diversity to your board or starting initiatives to clean the environment around your, your properties and or around your production and, or, any other sort of, social or environmental or governance reform.

On the active side, I found in conversations with portfolio managers who are active ESG managers that there was far more interesting conversations happening at the active level on the bottom upside. So where you have passive, where passive is more of a top-down approach to ESG on the active side, really, you have a bottom up, more bottom up stock by stock or company by company mentality.

And one of the interesting, I think one of the interesting stories to come out of the conversation was, with regards to a mining company who had and I can’t name the mining company, but it was surrounding the issue of some of their indigenous staff and needing to go on their annual hunt.

And so this one particular mining company said, okay, go on your own. And when you’re done come back and resume, right? And that singular sort of not permission, but that, that, that company opting to give their employees, their indigenous staff employees, that flexibility to leave without facing the threat of unemployment, made a huge difference in their turnover and the turnover of their, their retention as well is what I’m getting at.

But that same active manager could then go to other mining companies in their portfolio and say, Hey, is doing this. And it hadn’t, it had a massive impact on their retention, their turnover of their staff. They let their indigenous employees go on their annual hunt and come back when they were done.

And their indigenous employees are far more happy there. Far more likely to be loyal to the company far more likely to enjoy their jobs more because they don’t feel like they’re being blocked from doing things that are very important to them culturally. So that, that sort of active management feedback mechanism was incredibly, at least in my estimation, it was incredibly valuable that, an active portfolio manager could have that conversation with one company and then carry that over to the next or to the others and share that same feedback.

And then likewise, it could be something company B’s doing that goes back to company and say, why don’t you try this? And so those little individual, tips and sharing of policy decisions at the company level, as opposed to at the, political level Would have more impact than sweeping changes.

Sweeping policy changes might have unintended consequences, but company by company, you might have more impact if you were sharing knowledge across a portfolio.

[01:17:37] Jon Aikman: Yeah. And it goes to this idea of stewardship and engagement. Yeah. We are stewards of capital and you want, our investee companies to do the right thing.

There are ways to do that. But there are ways to engage and to talk to them about specific issues. But as you say, it’s not always air quality or energy management. It could be labor practices or human rights or health and safety that are really meaningful to a particular company. And in all of those dimensions are ESG considerations.

Yeah. To, to your point. Yeah. But the concern that I would have about categorical approaches to things like that saying I divest I’m out is to really is to make a political decision when what you really want to see is a more sophisticated approach to making things better and helping get there and monitoring for these issues.

Yeah. What, if you invest in a toy company, you may think what does that have to do with ESG? But if it, again, if it covers those toys with led paint, you’ve got a big problem. And that is an ESG problem that the health and safety of your customers is really important. And so that’s why taking on some of these larger issues, whether this is the, the task force on for reporting or for Saxby or others, some of these multinational organizations that are impacting things, they’re not asking.

To, to divest. They’re asking you to be thoughtful and about your investments and to add something new to it, to consider these sustainability factors. And when you really look at what they’re asking you, what they consider to be material risks in different sectors, I think people will change their mind about what sustainability is, and really think that, what, living in a world where we do take these things into consideration is better companies that don’t categorically.

Just tell people to get lost and have labor unrest and strikes and things like that versus accommodating people to, go on their annual hunt, by the way, general motors does that with, deer season. And that’s, that was a negotiated term of their their collective agreement.

Just making those kinds of the, those easy ones. No, I think it’s important. And to your point, technology and investing in technology for the future, thinking about active management in a more sophisticated way, and just and taking a longer viewpoint are things. These are the really key considerations to just really understanding what ESG means and why it’s important for us to go forward with us because these mandates are not going away.

What, there’s really good statistics on how important it is to certain investors that we consider these things for the future. And the wonderful part for many advisors to think about is people are making non economic decisions in this way. So in some respects, they’re not going to be as focused on performance in the same way.

As they would be if it was just a purely financial model that you’re running, that people want a better world and it’s, they feel like they’re making investments that are encouraging that, or with investing with sophisticated managers who are encouraging the right decisions to be made, then they will be more receptive to that, to those returns that, that do reflect that rather than the purest question of who’s the highest performer in my sector and, maximizing financial returns at all costs.


[01:21:38] Pierre Daillie: yeah, I had, or, sorry, go ahead. Go ahead. If you wanted to respond directly, I just wanted to go back to something Jon had said earlier, which was, you mentioned, for example, I love one of the areas that I personally love about some of the more selective ESG opportunities are in the areas of new innovations.

And you mentioned. Where, cement companies are taking our seat, sequestering, carbon dioxide which is captured in the cement and it actually produces a technologically better cement, more, more resilient cement, but there’s, that, so that’s one sort of alchemy. That’s really interesting where, you’re taking carbon dioxide and turning it into an element by combining it with other carbon atoms to make cement stronger.

And you, so you can actually permanently sequester carbon dioxide in the cement, and then you have other companies like carbon engineering, for example, where, they have these gigantic fans and they’re sucking the carbon dioxide out of the atmosphere in the, maybe in the middle of the desert and they’re turning that into fuel, they’re turning that into biofuels by again, combining it with other carbon atoms and then liquefying it or making solid fuel and. There’s other technologies, similar ones where carbon dioxide is when I think the problem is that while those opportunities are, can be exciting to contemplate.

They’re not getting the kind of capital that they should have. One complaint I heard was that, these companies were coming up at a time when the marijuana phase was in, in a boom, were where all the capital was going to marijuana companies to, to weed.

And so it was impossible to raise money for ESG companies while that was happening. While, all the capital was being sucked away by weed. And you have competing interests too, right? So these companies can be very exciting opportunities to contemplate that, that a company can build a fan array that collects carbon dioxide and turns it into gas.

Or diesel or, some other biofuel and, or turns, captures carbon and turns it into algae. Those types of situations should be getting more attention, but they’re competing with, they’re actually competing with, the whatever’s the fat of the day, or they’re competing with technology stocks.

They’re competing with Bitcoin, they’re competing with so many other, more sort of manifest opportunities that are, writ large in the market and writ large on, on things like Reddit. And they’re not able to, they’re not able to raise those incremental amounts of capital.

And that’s where I think ISF Dr. Clara, comes in very it comes at a very interesting time in the evolution of ESG and that’s that there needs to be definitely more education, more focus on the capital market and learning. About how to find and identify these opportunities or how to value these opportunities so that they can properly finance them.

And not be led away by the nose by whatever’s hot that day or hot that year. Otherwise, the ESG sector, which solves very long-term problems is going to have a very hard time competing with companies that solve immediate problems or solve for immediate immediacy in terms of, the immediate opportunity that they provide to investors.

So it’s very seldom that investors can look 10, 15, 20 years out and say, yeah, this is where I want to go because of the impact that’s going to have 20 years from now, but it’s much easier to say if I buy a Tesla, it could become, double what it is now. For whatever reason or if I buy Bitcoin, they coin.

How does the the ESG marketplace compete effectively against whatever the short-term fat is for capital?

[01:26:12] Jon Aikman: There are structural challenges with getting certain investments. Like there, there are certain types of what if you move over from financial only to responsible investments, to, to sustainable investments where you’re considering both risks and opportunities.

And then you start to go into impact investments and thinking about giving up certain financial returns. And then you even go further than that. You end up in charity types of areas like that but there can be where you’re focusing on impact investments. Where there are certain technologies that aren’t going to be economically viable in the same way or competitive with other certain certain forms of investments.

But in a way we have to maybe think about what we, what would make that viable. And do we believe that ultimately there are going to be certain there’ll be certain government support or tax breaks for some of these companies that do solve specific problems like that transform that kind of business to make it more, more viable.

There’s nothing there’s no easy solution to short, short-term thinking and short-term profitability versus a longer term view on something that doesn’t appear to be that, that that sexy or in the market. But in fact, if we think long-term, it may be that some of these things that are hyped and then drop in value.

And I think cannabis is one of those examples that, look, there’s been an incredible growth in. In, particularly in Canada in terms of the development of, PR of the cannabis market. And now we have consumption of alcohol and cannabis and other, certain recreational kind of things like that.

So that, that amount, according to stats, Canada is now greater than the amount that people pay P people spend on their personal health care. That’s amazing when you think about it, that they’ve actually jumped ahead in the middle of a pandemic, like personal health care is an important when we’re dealing with this massive health issue.

So I, I don’t know that there’s an easy solution to the question of, should we be in, should we be investing in just what’s hot or being is there a lot of FOMO going on probably ultimately in the lungs. If you can really solve some of these big challenges in an economic way.

And that makes sense with, or without government support, because definitely a couple of things for sure are coming taxes on on emitters and certain ones, certain companies are going to be increased, tariffs and things like that are coming in. And then benefits for some of these other companies that are going to be supportive, which will greatly improve their profitability picture are also likely to come forward.

Governments have shown one thing during the pandemic for sure. And that is they have no problem printing, more money to allocate to to prop up certain businesses. And as this goes forward, I think we’ll see that, that the direction of that tilts heavily towards ESG so that you have a secular trend away from the past where you know, that if we looked at, looked at the top companies in 2001 or even 2000.

And you’d likely see lots and lots of the the oil producing companies at the top of that list. And now that’s not so that we have dramatically changed in terms of evaluation in the market and that, that trend is likely to continue for those reasons because

[01:30:05] Adam Butler: respectful, sorry.

No, I’m just trying to be respectful to you Dr. Cleary’s time, and we’re at an hour 40 minutes here with lots of productive coverage of the topic, but I want to suggest that maybe we put a pin in it here and say something for discussion. And I know our next

[01:30:30] Dr. Sean Cleary: meeting of the mindful.

[01:30:31] Jon Aikman: Thank you very much, Adam.

And Dr. Clary, thank you very much for Thank you.

[01:30:37] Pierre Daillie: Thank you to you both as well. Thank you, Jon. Thank you, Dr. Cleary, maybe I feel okay. Jon. Jon can answer. Jon last question, would you rather spend a week in the past or spend a week in the future

[01:30:50] Jon Aikman: and the future and why? I would definitely have to go weak in the future?

Because there are there are so many things that are coming forward. I, I, as much as I think it would be fascinating to go into the past, go and see certain developments historical or even prehistory and see what the world was like, 65 million years ago or something like that. I think that would be fascinating to see some of that. But also I th I’m hopeful for humanity and I’d like to see what we come up with for the future.

And I think that we are going to tackle these. As long as we recognize that it’s that it’s, that some of this is his life and his life is on the line in certain areas that we are in an extinction event. But I think that there are going to be wonderful opportunities and there’s a wonderful opportunity for ingenuity to kick in.

So I think I’m very hopeful for the future, and I believe that we are going to solve a lot of these problems. And I do think we’re going to solve the climate problem as well. And I’m hopeful for what humanity can develop. So I would love to go into the future and see what we come up with rather than that, and into the past necessarily know where we’ve been.

So hopefully that makes sense. Awesome.

[01:32:23] Pierre Daillie: Thank you. Thank you very much, Jon. Thanks

[01:32:27] Dr. Sean Cleary: Adam. Thank

[01:32:27] Jon Aikman: you.

Listen on The Move


Where to find our guests:

Jon Aikman on Linkedin
ReSolution Investments / ReSolve Asset Management

Dr. Sean Cleary, Chair, Institute for Sustainable Finance, Smith School of Business, Queen's University
Institute for Sustainable Finance, Smith School of Business, Queen's University

Where to find the Raise Your Average crew:

ReSolve Asset Management
ReSolve Asset Management Blog
Mike Philbrick on Linkedin
Rodrigo Gordillo on Linkedin
Adam Butler on Linkedin

Pierre Daillie on Linkedin
Joseph Lamanna on Linkedin


"You don't have to be brilliant, just wiser than the other guys, on average, for a long time." Charlie Munger

Welcome to Raise Your Average, our deep dive journey into learning from the people and process behind the world of investing. Through conversations with leaders in the investments game, we peel back the layers of the onion on how these holders of the keys to the kingdom allocate their time, their energy, and their dollars.

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