The Future of ESG and Impact Investing with Michael Meehan

Michael Meehan, Co-founder, Canoe Carbon, Forum for Impact, and former CEO, GRI discusses the future of ESG and impact investing on Alan Olsen‘s American Dreams Show.

Transcript:

Alan Olsen

Michael, you have a remarkable story. And for the listeners here, can you share your background and how it got you to where you are today?

Michael Meehan

Sure, sure, sure. Well, I’m a bit of a one trick pony, I have to I have to admit. So I’ve been in climate ESG finance for, gosh, over 23 years. So way back in the late 90s. Got my start in technology, so actually invented one of the first carbon management carbon trading systems. So almost unbeknownst to me, so at the time, it was only ours and one some put together by one of the one of the large software firms that was sold to will shell. So we moved that from Canada down to Silicon Valley in the early 2000s.

With some investment, we grew it into quite a successful company, sold it at another company in Silicon Valley during that time, which I also sold. So as a Silicon Valley was seven years. And then after, after a while at the golden handcuffs on work for anybody after we got acquired the second time and started working with groups like the California Senate, oh, what now is a B Corp, there wasn’t a B Corp back then. It was actually interesting work. It was looking at fiduciary responsibility of directors.

So this beyond financial returns, do rigor for this day and age. But back then it was the only one of its kind in the world. And then through that I got asked to be part of a a group of CEOs that would go into the White House every, you know, every five, six weeks, to advise the administration through the White House EQ on, on, on climate finance, it was so really interesting time and through that group, I got asked to go over to Amsterdam, and run this group called the GRI.

So a Global Reporting Initiative, sort of sounds dry, right standards, that sustainability standards and so on. But these things are used throughout the world. On 1000s, and 1000s, of companies to sort of understand and communicate their commitment to various sustainability issues, climate, gender equality, I saw that GRI had actually just released a whole standard around worker, workers compensation, inequality, and so on. So it really touches everything.

But the real meat and potatoes of what GRI does is it works with different governments around the world to insert sustainability metrics into policy. So China’s Belt and Road strategy has impact baked into it. Maybe not human rights, but a lot of other areas. Because Jira, I’ll put it there. And so US government, Canadian government, European governments, that organization work with a lot of them. So it was an exciting time. Develop monster sustainable development goals with that group.

It’s very, very visible and very busy job, that’s for sure. I stepped down, but seven years ago, and since then, I’ve been live in London, England, on the outgoing chairman of the UK Sustainable Investment Finance association. So all the major pension funds, banks, sovereign wealth funds, you name it, asset managers, not just that are in the UK, but operates through the UK. So it’s a big group assets under management, that group is over 11 trillion. And then I focus most of my time on boards.

So I sit on boards of a few different ESG funds. One in Canada focuses on the impact of blue economy, another one that focuses on climate, so carbon investment, we invest in carbon offset projects around the world. And I also donate 25% of my time, and resources to nonprofits and academia. So adjunct professor and sustainable finance at my alma mater year in Canada. And I sit on the boards of several different nonprofits, the knowledge impact network.

So still busy, but I’ve only really done one thing, which is really around impact of climate finance. And yeah, oh, I should mention one more thing. We also co-founded years ago, a group called Forum for Impact, and it’s a group of investors high net worth individuals, family offices around the world. And we meet all over the world to discuss impact and sort of engage the unengaging climate at Asus. So we take no remuneration for this. This is really just for our own networks.

Our shared network is a boat 500 Now, and we just met in the Bahamas with all of the ministers and Deputy Prime Minister and so on to talk about Blue economy. We met in Zurich this year, Singapore will do monitoring the New York coming up.

And yeah, it’s been a really rewarding experience sort of engaging my own network around focusing their investment in technology and time to hopefully not too much of a long intro but had my fingers in a lot of pies but I really only and I’m a supremely unsuccessful musician as well.

Alan Olsen

Well, you’ve done a lot of remarkable things in yeah They happen to change the landscape of this world. I like to dive in, though impact investing. How do you define it? And what distinguishes impact investing from traditional social responsibility?

Michael Meehan

Yeah. So I’ll be the first one to say, I think the terms that we use around this type of investment are ridiculous, right. And I think practitioners are, you know, some of the practitioners are default themselves. But I don’t believe that there’s any such thing as sustainable investment, or sustainable business, there’s just business and investment. And, you know, the, the fact that GAAP accounting rules, and traditional finance ignores a huge swath of risks for an investor or for a company.

That’s why sustainable investment exists. So I, my goal, my life goal is to run myself out of a job because I don’t feel that we should really be thinking about this as a separate thing. It’s really all just the same thing. So these are just risks that we don’t take into account in traditional finance. That being said, there is a difference between ESG and impact and sustainable investment, social investment.

So the idea behind impact is you got an outcome in mind, right, I want to promote gender equality in Sub Saharan Africa, right. So every investment that I make is going to work towards that outcome. And even though it sounds like playing with words, that focus on outcome is what defines impact.

So, and I work with a lot of family offices around the world, what I always advise is, focus on the outcomes First, figure out what impacts will get you to that outcome, and then invest in those impacts or partner for those impacts. These are all impacts, you need to know, right? Whether you’re investing in them, or you’re trying to avoid negative impacts, whatever. But if you have your eye on the outcome, that’s important, very different than like a pension fund, right?

A pension fund, that’s a very, very different type of investing. So that’s morally ESG, investing where we’re like, do no harm, right? You got 5000 companies, your portfolio is like, Ooh, no tobacco, right. So there could be all kinds of negative impacts inside that portfolio. But it’s just so huge, that it’s very, very hard to police, that kind of thing. Impact Investing is much more active, you’re after specific. I hope that makes it. So

Alan Olsen

let’s move into current transit with impact and ESG. Investing. And, you know, how has that changed? The landscape changed over the past few decades, and what it used to be.

Michael Meehan

Yeah a pendulum, of course, right. So way back in the day, there were no standards are no frameworks and so on. And, and again, the purpose of these standards and frameworks are for companies and investors to understand and communicate their commitments to certain sustainability issues, and then report that back to either their LPs or report back to the shareholders order this wherever the stakeholders are.

But the purpose is to create better companies to create better investors create better investments, right, but you know, where all the risks are. So when JIRA I started, I want to focus too much on Jira, because it’s one of many frameworks and standards, but it was sort of a blanket standard. And that’s why it was created. Now over the years.

DRI and these other emerging standards, it became a bit of an acronym soup, the GRI, CDP Galis things and they are different, they’re all very different, they all focus on different things. But as an investor, or as a business person becomes very, very difficult, because there’s just too many out there. And it also became this accounting, exercise or PR exercise.

So there’s a pendulum that swings within this investment community, that you’ve got lots and lots of data, you know, because everybody’s using everybody’s reporting, and at least for big companies, and so on. And as that pendulum swings this way, you get a lot of investor calls to say, Oh, hey, we want this regulated, we want this, you know, would be shouldn’t be voluntary. We need some policing this, and so on. And as it goes from, you know, I’m a company, I want to know where all my risks are.

So I can create a better company. I’m an investor, I want to know where the risks are, or the portfolio where the opportunities that I’m not tracking right now, that’s the purpose of the ESG side. But as it goes sort of this way, and becomes an accounting exercise, you start to think, well, these companies are really not saying they’re saying a lot less because they’re putting this out to the public to say, hey, great outlook, a great we are on climate.

Meanwhile, they’re not going to talk about how poor they are on, say human rights, right? So you’re getting a lot less information, better quality information, but as an investor, you’re getting a lot less. And then once you go to like a regular regulatory, if that’s regulated, then you’re getting a tiny veneer of information. Right? Very, very high quality because they have to be truthful on that point, or they’ll be deep The siddur suit.

So there’s a Pentagon that goes back and forth between regulation and voluntary disclosure back and forth. And recently, you’ve seen a really interesting political veneer to this or lens on this, which is never existed, at least in my 23 years. And that’s where, you know, large funds and funds of funds are starting to look at, well, gosh, you know, we could be sued for calling ourselves an ESG fund, that’s more of an American thing, you don’t see a lot of that outside of America. But still, it’s very important.

And one of the advisory boards I sit on for a very large fund in the US. Remember, I was at their board meeting a while ago, and the board was split halfway down the table on, hey, we’ve got, you know, over 200 billion in AUM, we have a responsibility to do, you know, to focus on impact, sustainability and human rights. And so you got the other half of the table, it’s like, we can’t mention that thing, because we’ll be sued, but each state’s Right. And, you know, my advice is always the same.

It’s like, look at it, it’s like that, you know, the old doctor’s advice, if it hurts, when you do that will just stop doing it, stop calling it an ESG fund, because it’s not helping anybody to call it. But still use as many pension funds in America do still use those metrics to be able to guide your investment, doesn’t matter what you call, it doesn’t matter what you call the sustainable fund and ESG runner just to fund you’ll be a better fund.

De risked and more attractive to many, but focusing on impact and ESG and sustainable metrics.

Alan Olsen

So when you look at the current trends today. Do you see any, anything that stands out with impacting issue investing that you find most promising.

Michael Meehan

Well, you know, promising and concern, right? I mean, it’s not a minnow, what? Well, I’ll start with the negative, right, is with any trend in investment, you get a bunch of people jumping in and know absolutely nothing about it right. Now, this can be well meaning reinventing the wheel.

Right? You see this a lot with statutes around finance, you know, that you’ll have, you know, a couple of very well known, you know, investors and philanthropist jump in and basically recreate the will that other people do it for 20 years, kind of making more of a mess. Whereas, but it will meaning, right?

It elevates conversation gets more people involved, but also brings a lot of people that aren’t necessarily in it for the Well, I would say the right reasons, looking to capitalize on a trend, right, and this is why you see ESG investing is, you know, the biggest thing and then you read the next day, you know, she is on the rocks, and it doesn’t matter. It’s a trend that’s been going up like this.

What I do see on the positive side is and this is, you know, pretty much the area where I work in almost exclusively now is what are the actual impacts on the ground. And years ago, you didn’t see the impact on the ground, you saw the impact on the boardroom, for sure. You saw a lot of activity around gender equality and climates and, you know, engaging communities and things like this, you saw action, but you didn’t see the results were now you definitely see, you definitely see them.

So I don’t want to go into specifics. But, you know, one of my why is that those family office events I host, we had a recent one we had, you know, a big multinational eco tourism company coming in that are dedicated to impact for decades.

And to see them coming into a region that needs development, and the amount of work and diligence around, you know, say a 250 $300 million investment to actually move the needle on climate, on blue economy, on hiring on gender equality and lifting people out of poverty and engaging local communities on OECD countries. It’s pretty wild. And so the trend years ago is that was here and there.

And now major major brands are actually the rubber is hitting the road now on all of that activity over the last 20 years. So super interesting to see it actually working. But still challenging because you know, that also attracts you know, investors that number one might be well intentioned but don’t really know what they’re doing. But also number two, those that are really just trying to capitalize on a trend which never works out and in fact

Alan Olsen

has standards, like the Global Reporting Initiative. GRI and other framework contribute to the credibility and effectiveness of impact. Investing sunlight

Michael Meehan

is the best disinfectant right? And I mean, even though I was co CEO GRI, I wasn’t particularly happy with the, you know, GRI becoming a standard, right? Because standards are again, like, like we were saying before, be careful what you wish for, right that to move everything towards regulation results in less disclosure, even though it’s at a higher quality, less disclosure, not more. So it’s not just one thing.

And we really need sort of a, you know, a broad approach that regular regulatory is one piece standards or another piece, but really the value, I think, because it again, I believe that there is no, there’s a false dichotomy, right. But a lot of people think well impact if I invest in impact and sustainable investing, then I have to sacrifice returns. Literally not true. It’s never been true.

But it’s been the sort of trope that’s been going on for years and years and years, the value is in the Voluntary Disclosure exercise that GRI does, right and that many others do as a framework not as a particular standard. That helps create better companies, it helps create better funds, it helps identify risks that you do not see in traditional finance, right?

Because traditional finance is not geared towards, you know, what’s the gender of makeup of your board? What is your, you know, what’s your pay gap between the highest and lowest paid people in your, in your, in your organization, that’s all this is, this is creating a better company a better font. So the value I feel with GRI and with all of these other standards, as well, is understanding and communicating your commitment to important issues in order to build a better organization.

And once you turn into standards, well, then you’re kind of becoming a bit of a, you know, for accounting bodies. And for certain types of institutional investors, you need to be able to compare apples to apples. Right? So that’s the value of standards when you become a standard, that, you know, if you’re a big pension fund, well, you know, I can look at this and this and this, and these three companies, I’m evaluating on the same plane, for sure.

Which is valuable, again, another piece, but I feel that we chase this thing around standards and this thing around this movement to regulation, which is important. But we do so sometimes at the expense of what this is really for, which is creating better companies and funds.

Alan Olsen

Can you share some successful stories are case studies about impact investments.

Michael Meehan

I mean, all kinds I mean, which, which, which layer of the blended finance layer cake do you want to focus on, I mean, you could focus on, you know, about 40 trillion in assets around the world have signed on to sort of net zero targets, right. And these are net zero targets that cover all kinds of climate focuses on you know, blue economy, focus on energy folks. And you have the sort of flywheels in impact that spin out all kinds of real success stories.

I mean, I was, you know, I always think of like a now, right, used to be run by this guy named Francisco Sorachi. He’s a fantastic guy. And, and that it was like, it’s the thing was, second largest, it’s large, Italian energy go, big utility. And, you know, it’s burning coal, it’s burning, you know, fossil fuels, just, you know, dirty as a, you know, in Europe, and under the skies direction, totally transformed, to transform the organization all into renewables and others.

And Francesco now has moved on to, you know, to head up all kinds of sustainability led sustainability organizations around the world. And he has, he showed shareholders of a very, very traditional energy company, that you can not only do better for the shareholder returns, by chasing renewables in the right way. But you can have a transformative impact on not only on Italy, but abroad. And other energy companies have used that example. Default, especially now that we’re in this this area of energy transition.

So I moved back to Canada, just a year, year and a half ago. And I was away for about 20 years. And I was blown away by where certain markets have evolved and others hadn’t. So like carbon, right, so climate change, so we read in The Guardian, yeah. You read the front page of The Guardian, he like, oh, yeah, carbon offsets are, they’re shifty. They’re not it’s a trillion dollar market worldwide. Now, certain aspects of that because it attracts bad actors are going to be problematic, right?

You’re investing in a forestry project in Indonesia, where nobody knows who’s working on what, why as can be problematic, but you’re investing in to an algae technology or direct air capture technology that is, you know, scientifically proven bricks and mortar, well, all of a sudden that becomes, you know, a much better investment. There are hundreds of success success stories in the climate finance space. And when I left North America 20 years ago, that market was not even a billion.

And now that markets a trillion dollars worldwide, voluntary space is probably 50 million 50 billion, sorry. And I would expect that that’ll be 1015 times the size in the next, you know, next few years. So there’s a lot of success stories, but there’s every success story and impact comes with, you know, you know, especially an impact without, without proper guidelines in places. You need to know where to look. Because just jumping in with not knowing where you’re gonna go with is difficult.

We talked a minute ago about ecotourism, right, eco tourism used to be a tiny little niche. And now I think it’s one and a half trillion or something dollar market around the world. There’s entire brands based on it. Like six senses expense has been around for ages. It’s Southeast Asian, eco tourism, you know, sustainable brand. But IHG? You know, the one of the largest, you know, for I think the acquisition was 300 million or something. But it’s because they need it in their brand. Right?

It’s not, they’re not doing it because they, you know, because they love sustainability. But doing it because it’s a great investment, because it brings people to the table. There’s all kinds of different success stories. So the world has evolved. I mean, we I don’t spend my days convincing people to do in fact investment anymore, right? It’s I spend my days now, while placing my own bets, but helping other people place bets in the market, and avoiding the risks that are there.

So those risks are getting smaller and smaller each year, which is a good trend.

Alan Olsen

And Michael, I got one final question here. biggest barriers to growth of impact in ESG? Investing? How can they become How can it be overcome?

Michael Meehan

Yeah, that’s a good question. Well, you know, being back in North America, I’m gonna say politics. bizarre to me that this has become a political issue. I remember the early days of climate change, and carbon markets, I was in DC, and that I was speaking on stage. I remember, it was myself. And it was like, head of the UN commission, a bunch of us on there that you know, we all just some extent more than others, we all were talking but I remember the blogger on stage.

Yeah, a blog, he has like completely no credibility whatsoever. And he is a climate denier. I remember the first time I ever came across a climate denier. But this is this false sense of everybody knows what they’re talking about. Right. And I remember where it happened. I was like, this is weird. I hope this isn’t a trend now 20 years later, you know, it’s become a political issue. So that that hurts the market, generally, right. Now, of course, like I said, there’s ways around that. But the political aspect is a challenge.

I don’t know, you know, other than voting, I don’t know how to how to fight that one. But the other challenge, I think, is, you know, just being being able to identify where an impact provides the greatest outcomes, and where, you know, that were good areas to avoid. And by jumping in, without knowing what you’re doing, you know, it can be very, very easy to go down the wrong path. So there are more and more people who are educated in the market that can that can guide.

But going in alone, I think is a difficult thing. And you see less and less family offices and private investors going on these days. But I think that’s the education and you know, engaging the unengaged on climate, which is sort of my purpose in life. That, I think is the biggest challenge. You know, that, you know, people don’t just make up their own path, you know, there’s, you know, to be able to choose the right areas and choose way back from the market stuff.

Alan Olsen

Your family offices that are interested in becoming part of your program, where would they go to get more information?

Michael Meehan

If it’s just meeting with other family offices, you know, that’s why Forum for Impact was started, it was actually started because suddenly advisory boards to our family offices, and, you know, they were like, hey, the younger generations taking over with it, or wants to take over the family office at some point in the future. You know, they care about climate change, gender equality, and some of the principles are Kingston’s things.

It’s more that they it’s more that they that they don’t want to bet 3generations of wealth on something right? So one of the real estate, oil and energy, and they go, Well, you know, what are the pension funds in London doing now? It’s like it was two things wrong with that. Why ask me why even pension funds, don’t hire advisors to do this go out and meet with other families that might be a little further along the journey than you. Right? That mean, two became five became announced, like 460 family offices.

So the idea is to engage with each other, to be able to feed to, to be able to move the needle on what’s important, and the impact. So that’s on one that’s on the Forum for Impact side.

And on others, I mean, you know, I do a lot in finance, right, where you got public finance, you got pension funds, you have VCs, there’s a lot of deals, and a lot of projects around impact, that have, you know, all the different layers of layer cake to help de risk these types of investments, where family offices can participate at their level, to be able to, you know, with several other investors to be able to do amazing things.

So, yeah, so I’d say those are the two sort of more unique ways to engage, engage with other investors as part of a larger consortium funds that do that, or just engage with each other outside of investments, just to connect with others in the family office community that might be just a little further or sometimes a little further behind than you are to be able to find community. So in open both ways.

Alan Olsen

Thank you, Michael it’s been a pleasure having you this day on American Dreams.

Michael Meehan

Thank you very much. Thanks for having me.

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