This transcript has been edited for clarity.


Dan Carreno, ethos ESG

Welcome to The Ethos ESG Podcast, where we aim to elevate our investment expertise by sharing the latest resources and developments related to sustainable and responsible investing. I'm Dan Carreno and with me today is the one and only founder of ethos ESG, Luke Wilcox. Luke, how are you today?

Luke Wilcox, ethos ESG

Hi, I'm good, Dan. Thanks for having me. It's great to be here.

Dan Carreno, ethos ESG

Also with us today is co-director of ethos Impact Australia, Amelia Fradley. How's it going on the other side of the planet there?

Amelia Fradley, ethos ESG

It's a bit warm today. It's going great. It's lovely to be here with you, Dan and Luke.

Dan Carreno, ethos ESG

On the agenda today, we're going to do an ESG roundtable. We will go around the horn, and each of us will share something that we have learned or read in the last couple of weeks. Then to close the podcast out, well have a US vs Australia showdown in ESG Trivia, which I'm very excited about. Before we jump into our roundtable discussion, I would like to remind our listeners that this content is being brought to you by ethos ESG, a financial technology firm that provides values-based investing tools, impact-focused marketing, and ESG research capabilities to a wide variety of investors. With that being said, let's start our roundtable discussion. Who would like to go first and share something that's come across their desk?

Luke Wilcox, ethos ESG

Something that I read recently that was really interesting is an article fromGreenBiz, which covered the alphabet soup of ESG abbreviationsand all the standards that are out there. Theres a movement towards trying to harmonize these various standards to make it easier for investors of all stripes to understand what is being reported by companies. And what was really interesting for me is there is growing momentum to standardize what companies are reporting from a values-based investing perspective. A lot of the standards are still about financial risk and not as much still about impact or values alignment. A lot of the standards internationally are starting to consider values alignment or impact. For example, in Europe, they're starting to consider double materiality, which is basically risk and impact together. It's still quite tough to understand are these standards? Do they really make sense? For financial advisors, it can be tough to understand. Should I care about SASB or TCFD, all of this alphabet soup that's out there? From my perspective, we really need, need these standards to ensure from a corporate reporting perspective, we start to get the same information, but most investors that I know don't care about what's being reported or alignment to some framework. They just want to see a credible impact assessment or values alignment assessment to understand how their portfolio is doing on causes that they care about. That's going to be really interesting to watch and hopefully help move the needle towards the impact side.

Amelia Fradley, ethos ESG

Do you see that more impacting advisors, retail investors, or fund managers?

Luke Wilcox, ethos ESG

Immediately, it has an effect on corporations and asset managers who are interfacing directly with corporations. If I'm a corporation, I have to align to many different frameworks to provide the information that a lot of fund managers and others are asking for. On the financial advisor side and investor side, I don't care about any of these various frameworks. I just want to know how well aligned my portfolio is to my values.

Amelia Fradley, ethos ESG

Is that increased transparency something that corporations, in particular, shy away from? Is it looking from your perspective and your work in the area that they're actually eager to be more transparent?

Luke Wilcox, ethos ESG

Some corporations are being very transparent when they do well on ESG scores. It's somewhat about the incentives. If I'm a company and I perform well on ESG, I have an incentive to report and vice versa. There's a lot of selective reporting, given there are no requirements. But transparency, I think, is becoming more of an indicator of good corporate citizenship. A lot of asset managers are seeing transparency as an indicator itself. Is this company being transparent? If yes, that's a sign of good governance and commitment to ESG.

Dan Carreno, ethos ESG

Amelia, what's on your desk this week?

Amelia Fradley, ethos ESG

One of my hobbies, I suppose you could say, is following the developments of case law on ethical matters. Some are against insurance companies; some are against the Australian government for failing to disclose ethical concerns. Yesterday, we hada bit of an update on one of the cases brought by Anj Sharma. In that case, a group of teenagers took the federal minister for the environment to court to establish whether or not they had a duty of care. They concluded that there was a duty of care. We'll see if it appeals to the higher court, but following in that line, there's been a lot of duty of care aspects for people who are responsible for either providing protection or investing people's money. The really interesting thing is that they are all in a common law system, which means that they are applicable all over the world. Anybody that uses common law. So its just as applicable in Australia to New Zealand or Canada. So, we're seeing really global impacts as people demand better. One of the judges in the case said that the impending climate crisis will largely be inflicted by the inaction of this generation of adults in what might fairly be described as the greatest intergenerational injustice ever inflicted.

Dan Carreno, ethos ESG

Yeah. If I could quickly chime in with my take on this. Not to sound like too much of a downer, but I think it's becoming more and more apparent that our global leaders are not acting on this issue, and our global politics may not produce a system that facilitates action on an issue like this. I think as we continue to see this problem spiral and people become more and more alarmed, you're going to see a lot more people looking towards the courts to try to address the issue. We've already seen a massive increase in the number of climate-related lawsuits over the last few years. I think that is going to go parabolic. So, it's a huge risk to companies and brands. And to round out the conversation, the thing that has come across my desk recently is an article that was published inFinancial Planning, titled The Rise of Direct Indexing.In 2021, $362 billion flowed into direct indexing solutions, and the whole industry is anticipated to grow about 12% a year over the next five years. This reminded me of back in the late nineties when people said separately managed accounts were going to displace the mutual fund industry. And of course, that never really ended up happening, but I wonder if this time it is a bit different. Because now we have this enormous growing values-based investment industry. So, now the value of creating your own portfolio, your own index, it's more than just tax optimization. It's really about aligning my values and my portfolio. I see direct indexing as having a different growth path than separately managed accounts, largely because of the interest in ESG. So, I'm curious what you guys think about that.

Luke Wilcox, ethos ESG

If you combine direct indexing with the growth of financial technology, I think that makes it easier and enables faster growth. I think there's certainly the interest if we can get the right tools and the right data in place to make that both easy and accessible. I think the sky's the limit for growth there.

Dan Carreno, ethos ESG

As time goes on, people are going to start demanding investments that are tailored for them. Because they're used to having that experience in every other facet of their lives. We have music playlists that are tailored for us by Spotify. Video lists from Netflix. I think especially for those younger generations, millennials and gen Z, they're really going to expect that same degree of customization when it comes to where they put their money.

Amelia Fradley, ethos ESG

Absolutely. It's apparent whenever you get into an ethical thing, whether that's what you eat or what you wear, everybody has their own way of approaching it. And we are expected to be able to access our version of that in any field. Having the ability to do so in investments, I think, will become more expected.

Dan Carreno, ethos ESG

Well, moving on guys, thank you so much for your feedback. Let's just take a minute for a quick round of ESG Trivia. Ready? All right. So the first question is in honor of Women's History Month, and it's a multiple-choice question. According to Equileap, the leading provider of gender equity data, what percent of companies published data on their gender pay gap, which is the difference between the median earnings of men and median earnings of women. Is it A) 5% B) 17% or C) 57%? Luke.

Luke Wilcox, ethos ESG

I'm gonna go with B) 17%.

Dan Carreno, ethos ESG

Correct. Another question here in honor of Women's History Month. According to a recent UBS report, the portfolios of female investors have outperformed those of men by an average of 1.8% over the last three years. What is one reason that the report cites for why women tend to be better investors than men?

Amelia Fradley, ethos ESG

One common reason that women tend to be better investors is they are a bit less flighty. They tend to be a little less panicked if there's a market turn. So, they're better long-term investors.

Dan Carreno, ethos ESG

Absolutely correct. The report says that women, on average, are less emotional investors than men, they tend to be more disciplined, they avoid more speculative investments, and they tend to trade less. Also, women investors are two times more likely to consider ESG factors in their investment decisions. All right. So last question. This is another multiple-choice one. The non-profit organization, As You Sow, recently assessed the carbon emissions of 55 companies that have made net zero commitments, and out of the 55 that they assessed, how many of them received an A grade for their efforts so far? Is it A) 3 companies, B) 17 or C) 41. Luke?

Luke Wilcox, ethos ESG

Only three companies.

Dan Carreno, ethos ESG

Yes, that is absolutely correct. Well, guys, thank you so much for coming onto the podcast today and sharing your knowledge and insights. Thank you for tuning in today, and we will be back soon with another episode of The Ethos ESG podcast.


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