Debating the News Headlines: Oil, ESG, EVs and Greenwashing
This week on the podcast, Jackie and Peter try a new format discussing and debating a number of recent news headlines, including:
- Citi Says Oil May Collapse to $65 by the Year-End on Recession (July 5, 2022)
- Video of Stuart Kirk, HSBC head of responsible investing at the Financial Times Moral Money Event Video (May 2022)
- Mining Industry Warns Energy Transition Isn’t Sustainable (July 3, 2022)
- EV prices soar, as one exec warns of market “collapse” if they don’t get cheaper (July 5, 2022)
- Clean Energy Canada’s report that compares the total ownership costs of electric cars to the gas equivalents, titled The True Cost (March 30, 2022)
- Deutsche Bank raided by authorities over ESG ‘greenwashing’ claims: We’ve found evidence that could support allocations of prospectus fraud (May 31, 2022)
- SEC is Investigating Goldman Sachs over ESG Funds (June 10, 2022)
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It all started over coffee. Jackie and Peter have worked together for a long time so they would connect over coffee and chat about newspaper and magazine articles. So, while this episode is the start of a new format to be used in the podcast from time to time, it’s really the continuation of an old habit – coffee, conversation, and headlines.
Peter started the conversation with an article reported in Bloomberg:
Citi Says Oil May Collapse to $65 by the Year-End on Recession (July 5, 2022)
“Citi, which is City Bank, says ‘Oil may collapse to $65 by the year end on recession,’ says Peter. “In other words, recessionary fears are going to drive down demand, and therefore the whole oil price is going to collapse. So what do you think of that?”
“I was surprised that this made such a big amount of news because it wasn’t new in my view,” says Jackie. “Ed Morris has been quite bearish for a long time; he’s had price outlooks in this range already. So anyway, I was just surprised about the reaction from that perspective.”
“Ed’s a veteran and I know him, he airs on the cautious side,” Peter responds. “I guess I can buy into the notion that if demand really falls off hard, that the price of oil could go to 65 bucks. I wouldn’t bet against it, but you got to think a couple steps ahead because if oil goes to $65 on the volatility, the ability for supply to come back on after the recession gets even more encumbered.”
Another headline in the conversation was brought up by Jackie:
“So this made a lot of news. It’s not really an article, but HSBC executive Stuart Kirk was at this Financial Times Moral and Money event where he said some pretty controversial things. There were some really controversial comments like central bankers who have nothing else to do now that their bank jobs are gone, need to invent climate change as the next big threat. And he’s tired from hearing from all the nut jobs out there that are telling him it’s the end of the planet. His main argument was that climate change is just one risk that investors face, and it’s being blown out of proportion.”
Says Peter “If you haven’t watched this video, you should watch it. It’s only about 15 minutes long. It’s basically his presentation that he gave to this elite group. What’s striking about Stuart Kirk’s presentation is its candor, it’s brashness, say outright lack of diplomacy in terms of how he talked so openly. Although I didn’t agree with everything he said, I think full marks to actually raising some really important issues that if you listen below what the headlines picked up on and what he was actually suspended for by HSBC, he said some pretty important things that I think needed to be said.”
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Episode 162 Transcript
Disclosure:
The information and opinions presented in this Arc Energy Ideas podcast are provided for informational purposes only and are subject to the disclaimer link in the show notes.
Announcer:
This is the Arc Energy Ideas podcast with Peter Tertzakian and Jackie Forrest. Exploring trends that influence the energy business.
Jackie Forrest:
Welcome to the Arc Energy Ideas podcast, I’m Jackie Forrest.
Peter Tertzakian:
And I’m Peter Tertzakian, and welcome back. So Jackie, I don’t know how long we’ve been doing these podcasts. I know we’ve done over 160 podcasts now over the course of the last, oh, say three years, and the whole idea started because, well, we’ve worked together a long time, and back before the pandemic, you used to come into my office, sit across with a coffee, and we used to just chat about events, headlines, and so on. And so I thought we’d shake it up this week, and we’d try a new format.
Peter Tertzakian:
And so to our audience, that’s what we’re going to do, we’re going to try the format where I’ve found two or three articles that I’m going to give Jackie a sneak peek, and she’s going to do the same with me, and then we’re just going to let it roll.
Jackie Forrest:
Yeah. Talk about the articles.
Peter Tertzakian:
Talk about the articles.
Jackie Forrest:
Peter’s trying to get me off all my notes.
Peter Tertzakian:
Yeah. No notes, no script, we just share your article, and away we go, unvarnished.
Jackie Forrest:
Okay, well, let’s start with your article.
Peter Tertzakian:
Okay. Well, I am going to start with an article that was reported in Bloomberg, it was reported on many different sites, but basically the headline said, “Citi” which is the Citi Bank. Says, “Oil may collapse to $65 by the year end on recession.” In other words, recessionary fears are going to drive down demand, and therefore the whole oil price is going to collapse. And indeed, based on this headline a few weeks ago, it did go down below a hundred bucks, but then recovered. So what do you think of that?
Jackie Forrest:
Yeah, well, and there’s been lots of volatility since, up and down. First of all, I was surprised that this made such a big amount of news because it wasn’t new in my view. Ed Morris has been quite bearish for a long time and maybe this particular press release or whatever was new, but he’s had price outlooks in this range already. So anyway, I was just surprised about the reaction from that perspective.
Peter Tertzakian:
Well, Ed’s a veteran and I know him, he airs on the cautious side and yeah, I guess I can buy into the notion that if demand really falls off hard, that the price of oil could go to 65 bucks. I wouldn’t bet against it, but you got to think a couple steps ahead because if oil goes to $65 in the volatility, the ability for supply to come back on after the recession gets even more encumbered. And so it would be really a very tough signal to the producers. And I just think it would, again, would be an even more volatile set up on the upside.
Jackie Forrest:
Yeah. Well, and the other part, but if you actually read the text, so we were allowed to share the articles, just not our thoughts on them, but if you read the text, he has a, “I don’t outlook for $45 by the end of 2023. So it’s 65 by the end of this year.” I can get the 65 by the end of this year if we do have a recession. However, I don’t think that it’s very likely we get down to $45. So as you say, even if we did, that would mean less supply investment and eventually demand comes back, and we are in a worse situation, but here’s my argument why I don’t think it gets down that low, into that $45 level. It’s because the market is just so tight right now. We have these very low inventory levels, very little OPEX spare capacity.
Jackie Forrest:
We have the constraints on non OPEX supply, and we talked about the oilfield services sector, not having a lot of capacity, and in fact that investors aren’t letting companies in North America and other Western companies reinvest. And now we’re talking about Russia maybe supplying less than it did before, maybe to the range of two million barrels a day.
Jackie Forrest:
So with that tight fundamental situation, even if you had a recession, which may cause a loss of two million barrels a day if it’s mild, or maybe as much as three or four in a deeper recession for a short period, I still think the market fundamentally still looks tight, even with that loss to demand.
Peter Tertzakian:
Well, not only that, but a recession is not a formula for society to switch to alternatives safe. For example, buying new vehicles because by definition, recession reduces the amount of money in people’s bank accounts. So when the economy comes back post-recession, there’s been no switch made and the supply is still tight. Again, I don’t think I would bet against the 65, but I think the probability is quite low given what you just said. I totally agree. Supplies are very tight. There does not seem to be, in the near term, a resolution to the conflict in the Russia Ukraine thing.
Peter Tertzakian:
Okay. So what do you have for me?
Jackie Forrest:
All right. So this made a lot of news. It’s not really an article, but we will put a link. By the way, we will put links to all of these articles in the show notes. So this made a lot of news that HSBC executive Stuart Kirk, he was actually the global head of responsible investing for HSBC. He was at this Financial Times Moral and Money event in May of 2022, where he said some pretty controversial things. And maybe I’ll just give a summary of some of his talk. There was some really controversial comments like central bankers who have nothing else to do now that their bank jobs are gone, need to invent climate change is the next big threat. And he’s tired from hearing from all the nut jobs out there that are telling him it’s the end of the planet.
Jackie Forrest:
So his main argument was that climate change is just one risk that investors face, and it’s being blown out of proportion, that HSBC and his group spends all this time on climate yet there are other risks in the near term that are way more important for investors like inflation, interest rates, recession. Also says central banks aren’t spending enough time on these issues either. They’re worrying about climate, which is 20 years off when they need to be worrying about the more significant events that are right in front of them. So that was his argument, that climate is overblown, and it’s just not a risk to investors as being portrayed.
Peter Tertzakian:
Yeah, if you haven’t watched this video, you should watch it. It’s only about 15 minutes long. It’s basically his presentation that he gave to this elite group. What’s striking about Stuart Kirk’s presentation is it’s candor, it’s brashness, say outright lack of diplomacy in terms of how he talked so openly. Although I didn’t agree with everything he said, I think full marks to actually raising some really important issues that if you listen below what the headlines picked up on and what he was actually suspended for by HSBC, he said some pretty important things that I think needed to be said.
Peter Tertzakian:
So he talked about selection biases and the statistics, and that you need to be telling the whole holistic story. He talked about the risks of excessive disclosure requirements and how debilitating those can be on the company and the economy ultimately. And I think he said something really important that again, was not picked up, the idea that the oil demand’s going to fall off quickly and that therefore when oil volumes fall, then price falls and profitability falls. And he basically said, “No, that’s not true.” And I’ve said that for a long time. Well, if you go from a hundred million barrels a day down to 75 million barrels a day of demand, that doesn’t necessarily mean the profitability of the industry falls or the price falls. In the near term, it would. So the initial shock and awe, but as the world adjusts on the way down, then price and profitability adapt based on the economics of the industry in terms of the broad economy.
Peter Tertzakian:
The test of that was the pandemic, where we had a very abrupt fall in demand and the price fell quickly. But then of course, it rebounded when things came back. So I guess my broad comment is he said a number of things that I think needed to be said, and unfortunately the way he delivered it, he got suspended. And I think he eventually quit as a consequence, but I think some of these things need to be said more because if we’re ever going to get to things like net zero and meaningful reduction in carbon, we have to be honest about the current situation. And he brought some honesty to the debate and the discussion.
Jackie Forrest:
Yeah. Well, I will say, I think this idea that his group is spending way too much time on reporting instead of moving on the opportunity of doing stuff, we’re spending all this time reporting and then we’re not actually investing maybe as much in decarbonizing and actually solving the problem. Now we’re going to come back to that. I think there is some need for reporting and there’s a lot of greenwashing out there, and I think that’s unfortunately something that’s needed, but the fact that we’re spending all this time accounting for it and not doing stuff I think is an issue. I would argue though, he talked about the fact that the markets are efficient, and they’re already pricing in risk and argues that public company, the cash flows or whatever, that the stock market is valuing them on are in a short timeframe, in less than 10 years, five to 10 years.
And so, things that are 20 years out really don’t matter, and this is all overblown because of this. I disagree with that timeframe because I do think there are things in the next five to 10 years that could change the value of some of these companies. If there’s a bunch of physical climate risk, let’s say a bunch of flooding in coastal areas and you happen to own a lot of property there, that’s going to affect the value of your company, and it may not all be factored in today. And he talked about, “Well, Amsterdam does just fine below sea level. So what’s the issue? We adapt. Humans always have.”
Jackie Forrest:
And I do think we will adapt. However, there may be some lost property value. And even if we do figure out a way to make all these coastal cities not flood, there’s going to be a cost associated with that that may affect the cash flows of some of those businesses going forward. If there’s huge taxes associated with the levies and the dams and things that are needed.
Peter Tertzakian:
Well, I agree that’s the short term effects and localized effects, but I think what was highlighted for me and what Stuart Kirk was saying was actually that we tend to get either caught in conversations about the short term and ignore the long term or talk excessively about the long term and forget about the near term effects much as the near term effects of the war in Ukraine and the security and affordability issues, and also get caught up in local issues versus global issues. And so I guess we need more Stuart Kirks from, delivering the message more diplomatically I would argue, so that we start to have more holistic conversations about how we’re going to deal with all this.
Jackie Forrest:
Yeah, no, I agree. And I do like the point that he made and we maybe didn’t highlight this enough with that human ingenuity seems to solve problems and has in the past, and why would we think this is different? And therefore, these companies aren’t going to be worth nothing in the future. And it’s true. Things are never generally as bad as people predict. So maybe in this case, let’s hope that’s the case and human ingenuity helps save the day here.
Jackie Forrest:
So more balance in the conversation, and I agree that it’s worth listening to that. There are some good messages in it. However, I do think that the reporting is required and we’ll get into that maybe a little bit later in the podcast. Is we’re seeing more and more examples of greenwashing, and so there is a requirement I think, for some reporting and some continuity in what people put out there and yeah, it’s a lot of work.
Peter Tertzakian:
Yeah. Some, I think what he was saying is that if it’s excessive, then it defeats the purpose.
Jackie Forrest:
Yeah. We spend all the time reporting and not doing stuff.
Peter Tertzakian:
That’s right. That’s right. Okay. So move on. I got one for you here. OilPrice.com reported on July 3rd an article, Mining Industry Warns Energy Transition Isn’t Sustainable. So this was an article that there aren’t enough precious metals, vital metals, critical minerals like copper, lithium, cobalt, et cetera, to be able to handle the surge in demand from electric vehicles, to be able to fulfill the transition, arguing even the force transition because internal combustion engines are going to be banned by 2035, which is not all that far into the future. And then there’s of course, ESG concerns about the metals and minerals coming from Africa. And so what do you think of that? Do you agree that basically the transition isn’t sustainable because of the lack of critical minerals and the poor ESG profile of where these minerals come from?
Jackie Forrest:
Yeah. And it went on, I’d just add to say, we’re just going to be beholden to corrupt dictators in Africa who we’ve seen with the Congo, nothing’s changed there as we get more and more cobalt. My thoughts are there’s a whole series of articles around this. There’s no way electric cars are going to grow to the extent people think because of the constraints on the minerals. And I think that will be a constraint, but I think we should all remember back to Stuart Kirk, humans have a lot of ingenuity and when the market wants something, people find ways to innovate. A.
Jackie Forrest:
Nd I think what’s different about minerals and metals when it comes to batteries is they’re not just oil or gas where that’s the only product that we’ll do. There’s a lot of opportunity to change the metals that are used in these batteries. So we’re seeing, for example, as a reaction to cobalt being expensive and people not wanting to support dictators in Africa, but you’re seeing other materials be replacing the cobalt. For instance, manganese is being used. There’s the development of other totally different batteries like sodium ion batteries that could-
Peter Tertzakian:
Lithium iron phosphorous.
Jackie Forrest:
Yeah. That are materials that are much, much more available. And there’s dirt batteries. If we get these solid states, there’ll be ceramic batteries. So I guess I look at and say, you know what? People are going to innovate when they find out that one metal is too expensive or impossible to get, they’re going to find other combinations of minerals and metals that will achieve the same thing. That’s one thing you can do with batteries that you can’t do with oil and gas. And I also think there’s a big move to move more production on shore in various jurisdictions. Like in North America, now there’s a big push to how can we produce more of these minerals in our own country?
Jackie Forrest:
So this idea that it’s all going to come from Africa, I don’t think that’s the case. First of all, it’s totally not sustainable that much supply could come from one continent anyway. So I think you’re going to see more diversity in where you get it from and then what you use, and therefore, I don’t know if it’s going to be the issue that people think.
Peter Tertzakian:
Yeah. I don’t think this is an article that we disagree in all that much. I think that the innovation in the battery space is going to surprise people. I’m certainly fairly bullish on what we’re going to see there. It takes time, there’s a lag. So I think in the near term, there are issues and you’re going to see more headlines like this. But as we migrate to solid state batteries, new battery chemistries, the economies of scale kick in, and those price signals go out to the mining companies, which it already has to bring these critical minerals.
Peter Tertzakian:
It’s going to take 10 years to sort itself out, maybe 15, but in the context of setting ourselves up for the next many decades, I think we’re going to look back and say, okay, yeah, it was a problem for several years, but the world was able to innovate around it and reduce its dependency upon the minerals that are the most problematic.
Jackie Forrest:
Yeah. And the other thing I’d say, which is very different than oil and gas is that once you have these minerals and you’ve created batteries and you have an inventory of them, you can recycle them and reuse those minerals. It’s very different than oil and gas where you burn it and then you need the same amount, next day. So I think that’s the other dynamic that as you go out in time is going to really reduce the demand for these minerals.
Peter Tertzakian:
Okay. Well, I’ve got one that is related to that, and that is an article that was in Green Car Reports on July 5th, 2022. And the headline reads, “EV Prices Soar as One Executive Warrants of Market Collapse if They Don’t Get Cheaper.” So the article is about an interview with a manufacturing executive of Stellantis, which was the old Chrysler. And the executive basically says, well, EVs today still cost 50% more to manufacture than internal combustion engines. And again, we’ve got this mandate coming up in many countries, certainly in Europe, here in Canada as well, that by 2035 or so, internal combustion engine is going to be banned. And therefore the executive is warning that it’s going to be very difficult to fulfill the market. And especially if the prices are too expensive of these cars.
Jackie Forrest:
Yeah. I’m skeptical on this one too. You’d hate to be in my mind having to read the newspaper, being skeptical of every article, but I just don’t see it. The numbers are showing that people are buying EVs even more this year than last year. Hey, I just got the latest numbers for Canada, and in fact, in the last quarter, electric vehicles accounted for 8% of new vehicles sales compared to 5% last year. We’re laggards here. Europe and China are even higher in terms of their growth rates. So people are still buying them. I actually looked it up, my why that I bought at the end of 2020, which I still love is now worth $15,000 Canadian more if I were to buy the same car today. So yes, there’s been escalation.
Peter Tertzakian:
That’s the point isn’t it? It’s so expensive. Who has the money to pay $15,000 more even for a used electric vehicle?
Jackie Forrest:
But people are buying them more than they were last year. And I’ll put a link to this, Clean Energy Canada put out a paper that compared the total cost of ownership of different models, the combustion engine equivalent to the electric car equivalent, and this was in March 30th when oil prices were in the over a hundred dollars range, and they concluded that with the exception of one model available in Canada, that in every other case, the EV was still cheaper than the combustion engine. Because guess what? Combustion engine vehicles are getting more expensive too. Have you checked out the prices of them, and fuel prices are high.
Peter Tertzakian:
Yeah. Okay. So the whole notion of doing full cycle economic analysis, people don’t sit around the kitchen table and do that for the most part, unless they’re financially adept or-
Jackie Forrest:
Or they read this paper.
Peter Tertzakian:
Or they read this paper. There’s actually academic papers that basically say people don’t price in lifecycle costs of things that they buy, they just look at the sticker price today. And basically this is what this article is saying, these things are too expensive. Yeah, people are buying them. I would argue it’s people with money who are buying them. There’s a whole segment of society right now, as we know, that don’t have a lot of money because of inflation. And I would just say, yeah, EV sales collapse is probably all auto sales are going to suffer as a consequence of what’s going on right now, not just EVs. But EVs will have to get their price down because they still are too expensive. And as much as you and I can afford and love them, we’re talking about a very broad base substitution that needs to happen if we’re going to hit emission targets and this target of not having any internal combustion sales by 2035.
Jackie Forrest:
Yeah. Yeah. Well, I would just say though, I think people are getting sticker shock when they go fill up their gas tank and it’s $200 a tank and they’re starting to think, well, maybe I should consider. And I get for the certain segment of the population, they’re not probably buying new cars either. But for those that are looking at a new car, I do think that the EVs start to make a lot of sense.
Peter Tertzakian:
Well, we talked about Citi Bank, $65 price collapse earlier. Now I’m not a believer that it’s going to go there in the short term, but over the course of the long term, I would argue that 65 to $85 oil is where it is. And that introduces a price at the pump for gasoline and diesel that actually historically is shown to be affordable for people. And so I think that EV prices do have to come down. Now further to the battery conversation that we just had, I do think they’re going to come down. I do think that they’re going to come down in price, but it’s going to take time. And that the adoption is until then going to be limited to people that are more flush with money and can afford it.
Jackie Forrest:
All right. Next topic and the last topic for today. This is a very fast paced podcast. Is I wanted to highlight actually two separate articles, but they’re a theme where we’re starting to see examples of firms being looked at by regulators if they’re misrepresenting the green attributes of what they’re selling. So the first one, Deutsche Bank, rated by authorities over ESG greenwashing claims. We found evidence that could support allegations of fraud. And so this was a May 31st article and it was in Fortune, but there was a number of articles written by, and one of the quotes from the article said, “The company had supposedly misleading statements in its 2020 annual report where it supposedly said more than half of the group’s 900 billion of assets under management were invested under ESG criteria.” And people saying, is that really the truth that half of your money is invested in things that would be considered positive with ESG?
Jackie Forrest:
The second article is the SEC Investigating Goldman Sachs. And this is a Wall Street Journal article that basically says, “The SEC is investigating Goldman Sachs over ESG,” funds sources say. So this is one by an anonymous source, but it basically says that there’s at least four funds that they were marketing, these are mutual funds that are said to have ESG or green in their names and have those types of attributes where they maybe don’t.
Jackie Forrest:
So I think it really speaks back to Stuart Kirk, doesn’t like the reporting. Well, it is pretty important if you’re marketing something that’s deemed to be green or ESG friendly than it actually is. Now that’s easier said than done because it’s not always that easy to define what is good in ESG these days. If you look at those sustainability analytics type people that rate these companies, they sometimes have very differing views on if a company is good or bad on its ESG criteria these days. But I do think we’re going to see more reporting requirements and hopefully more consistency in how companies are making these claims.
Peter Tertzakian:
Yeah. I think actually this is sweet of headlines that you’re going to see and hear about a lot more, and it is very significant, and it’s just the start. And so why is that? I think as you alluded to, Jackie, it comes to the heart of what is green. And so there were a whole bunch of funds and financial institutions that had in their mind, a certain definition of what kind of company was green, what kind of company therefore that could be funded or not, or could be included in a fund portfolio.
Peter Tertzakian:
So when you think about it now, what’s happening is these funds are getting sued or the institutions are getting rated, the SEC is investigating them. So you’re a fund manager and you think, well, what am I going to do? If I’m a fund manager, I’m going to be ultra cautious now about what I invest in, which means that the universe of what I invest in terms of what is green is going to shrink dramatically. I’m going to be so cautious probably that I’m only going to be able to invest in a handful of stocks that may be truly green.
Peter Tertzakian:
Even Tesla is now not considered green.
Jackie Forrest:
Yeah. Here’s a very interesting thing and it gets to this definition, but the S&P removed Tesla from its ESG 500 Index. Well, they kept Axon in and that made Elon Musk pretty angry and apparently he tweeted about it. But what they said is, “Well, Tesla may be playing its part in taking fuel powered cars off the road. So it may be doing well on the E, the environmental part. It has fallen behind its peers when examined through a wider ESG lens.” So it’s not doing so great on governance. And there’s a lot of issues on the social side as well if you look at some of the issues with their employees and things like that.
Jackie Forrest:
So this is where I get to. When you look at these rating agencies and there’s a number of them out there that say is a company good or bad on it’s ESG, some of the issue is they may be good on one element of E, maybe the E in this case, but terrible on the G and S. And depending on how they rate or weight those attributes, they can get very different outcomes.
Peter Tertzakian:
Well, yeah, and who’s rating them? This is the thing is that there’s no standardized way of measuring some of the qualitative aspects of ESG and even the quantitative aspects of the E, environmental things like emissions is not concretely established how you measure.
Jackie Forrest:
Right. People do it different ways and they get different numbers. Yeah.
Peter Tertzakian:
So there’s all these different agencies that are giving ESG scores that are quite different from each other. The portfolio manager decides to invest in a certain stock or a bank decides to lend to a certain company based on whether or not they’re ESG by picking a rating agency. And then they find out that, oh, no, that’s not green. It’s not compliant with ESG or greenwashing. And then of course, as I said, you retrench and say, well, okay, pause. What am I going to invest in? And you’re going to be ultra cautious because you’re going to be scared somebody’s going to come after you with a lawyer, or you’re going to be rated by the police. I think this is really bad news for sustainable investing.
Jackie Forrest:
Well, maybe it is a catalyst though to fix some of these problems and one solution I see or one problem I see is the E, S and G, they’re companies, some of them are good on one and bad on the others. Maybe in the future, it actually evolves to funds that are good at E or ones that are more into governance and social. It’s hard to find companies that are good at all three.
Peter Tertzakian:
So what you’re saying, there’s going to be funds that are just based on E differentiation?
Jackie Forrest:
Yeah. If there’s one that’s a climate fund and it only cares about your climate impact, other ones that are more on the social and governance aspects, and you would buy a fund that’s more on doing responsible investing in terms of social and governance issues.
Peter Tertzakian:
Right. This is going to affect all the constructs that financial institutions and policy makers are trying to put into place with all the net zero alliances and so on that are being put into place.
Jackie Forrest:
Okay. Well, those would be the E guys. The climate focused funds.
Peter Tertzakian:
I know, but they’re definitely got the S and the G in it too and how you unravel all of this now that you started to attempting to ravel it. I just think it’s really bad news because at the end of the day, all the confusion and the fog is going to create a sense of fear amongst those who lend, invest and others, and it’s-
Jackie Forrest:
Well, it may affect the demand for these types of products too. Because if the consumer, a lot of these problems are because you’re marketing to the average person saying it’s ESG friendly, and they’re not sophisticated enough to know if it is or not. If it gets out there that you can’t trust these companies, it’s going to affect the demand for these types of companies as well and maybe their ability to raise capital and things like that. If they’re today hoping that by being ESG friendly they’re going to have a lower cost of capital and more access to money, they may not.
Peter Tertzakian:
But would you agree that the universe of what is going to be classified as truly ESG compliant or green, let’s call it as a broad term, is shrinking?
Jackie Forrest:
Yes. Yeah, for sure. And I think that probably has to happen. It’s a bit of the wild west in that-
Peter Tertzakian:
But if it’s shrinking and we’re trying to decarbonize the broad economy, that’s not a good thing. You’re going to hear a lot more about this, and it’s my prediction, and it’s going to be problematic because there’s going to be more confusion, more volatility and fear in terms of what we invest in, what we can and can’t. A lot less agreement on what is ESG compliant or what isn’t, especially now we’ve got, of course, energy security and energy affordability issues. It’s going the wrong way.
Jackie Forrest:
Well, I’m more optimistic, and this is a whole other topic, but there are a number of proposed regulations coming. The securities exchange commission in the US, which regulates public companies and the Canadian Securities Administrator, which is a a similar role, and the EU are all developing better rules around how you categorize this stuff. So back to Stuart Kirk, I don’t want to make a whole bunch more work for people, but I feel like some of this stuff we’re going to get clarity and more rules and more consistency in how companies are represented.
Peter Tertzakian:
Look, I feel that the whole greenwashing issue needed and needs to be solved if that’s the right word, but more rules, more regulations creates tighter and tighter universes for what can be lent, what kind of company can be lent to, what kind of company can be invested in. And then on top of that, there will be the fear, as I said, of being rated or sued. So it’s going to get even tighter. And that goes counter to solving broad based economy wide issues.
Jackie Forrest:
Right. Well, and at the end of the day, does this result in more money being spent on decarbonization, which is what the end goal is, or does it actually reduce how much money gets spent on it? You’re arguing that maybe it reduces the-
Peter Tertzakian:
Well, I think it para-
Jackie Forrest:
The ability to do these
Peter Tertzakian:
I think it paralyzes the sources of capital is really what’s happening. We’re entering into a period of paralysis.
Jackie Forrest:
Okay. Well, on that happy note, we’re going to have to come back to that one another day, because we’re out of time. We are going to try this new format out a few more times so give us some feedback on it. If you like this podcast, please rate us on the app that you listen to and tell someone else about us.
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