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The Only Way Is Ethics Edition
00:57:10
Slate Money on the CEO council disbanding, companies’ responsibilities to shareholders, and impact investing
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The following podcast contains explicit language.
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B
Hello and welcome to the Only Way is Ethics edition of Slate. Money Producer Dan Schrader is loving this title, so this is. This one's for him, your guide to the business and finance of the week, which this week is all about CEOs resigning from sundry business councils in protest at various presidential feet in mouths or possibly just outright deliberate nazism, one or the other. We got a bunch of feedback from you lovely people on our email slatemoneylate.com, when Anna and I had a fight about B corpse and what am I called, a fight?
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A
No, it was a spirited debate.
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B
Spirited debate.
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A
I had to basically separate you two. It was, it was brutal.
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B
The weird thing was that, like, after the show, yeah, we did come at each other with guns and knives, but we both survived. And so we're both here to keep on, keep on fighting that fight. We are going to talk more about whether public companies can or should be ethical, what the role is of CEOs and all of that kind of thing. We have an issue back to be the cold hearted capitalist.
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C
That's me.
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B
We have Jordan Weissman, who's going to apparently know something about politics which might be useful this week.
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A
Yeah. And continue holding you two apart. And the mediator.
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B
This is the really exciting thing. We have the one and only Julia Shin.
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D
Hello.
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B
Hello, Julia. Who are you and why are you here? We just turned up and you were here.
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D
Well, thanks for letting me in. I work at Enterprise Community Partners. We're an affordable housing organization where I lead innovation and impact investing.
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B
Okay, so that's the other buzzword which we're going to be talking about is this thing called impact investing, which I've been burrowing around for a few, the past few years. At one point I was going to write a big article about it and I never did. But it is a thing and people do it and people get really excited about it and we're going to try and work out what it is and whether it makes any sense. So. But yeah, I think we do need to start with CEO councils and whatnot. This was all kicked off by Ken Frazier, who's the CEO of Merck. Now, this was a genuinely. I mean, he's a very fat cat CEO like all of these guys. But like by the standards of fat cat CEOs, he did something quite brave.
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C
Also, because this is Merck, if you're looking. Their biggest customer is the US government.
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B
Their biggest customer is the US Government. He is deeply embedded with, with American health care policy. He really really wants to be able to influence the debate about health care in as far as he possibly can. And before anyone else stood up to, like, you know, make a stand about Trump's equivocations about Nazism, he resigned from his manufacturing council.
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A
Yeah. I think it's also should be noted here, he's African American. I mean, you can't. It's very, very difficult for a successful black CEO to stand by and keep advising a man who equivocates on white supremacists. It's just. I mean, personal dignity comes into play at some point.
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B
And he did actually use the word personal in his statement. Yeah. And this is the. And. And as we all now know, his resignation was followed by two or three other resignations, until at some point, Steve Schwarzman and Jamie Dimon and everyone else get on the phone and say, okay, fuck it, we're all just going to resign. We're just going to disband this thing because this is not working anymore. But so Frazier leads the way. Then they all. All do it. Frazier talks about his personal feelings about what Trump says. But then the statements all start coming out and they're less personal and they're more about, like, our company stands for this and that and the other, and so we cannot, blah, blah, blah.
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A
Yeah, well, you got Under Armour, for instance, and their whole shtick is rebuilding the city of Baltimore. So you can't really maintain a relationship with a city like Baltimore that's in the process of removing its confederate monuments while also advising Donald Trump. Then you have.
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B
Although. Although, again, it's an interesting one. Under Armour's single greatest asset is a chap named Steph Curry, who is extremely opposed to Donald Trump and a friend of Barack Obama and was always putting pressure on Kevin Plank, the CEO, to resign from this council.
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A
Absolutely. And then eventually you get Campbell soup, which is like, once you've lost big soup, that's it. You've lost America. I mean, Donald Trump, even during the first meeting of this council, was like, made this thing. It was like, you guys make great soup. You know, that was the one thing anybody remembered. And then eventually Trump just said, okay, I'm calling this whole thing off. So no one. He said, so that no one else has to feel any pressure. So you had this, you can't break up with me. I'll break up with you. Weird dynamic. And then eventually, the administration also got rid of its infrastructure council as well. And the idea being that I think these councils have become a vulnerability for the administration. It gave people an opportunity to performatively say fuck you to the White House. And they just didn't want to deal with that.
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B
So the question which I have for Julia is if I am a CEO of a public company, and I am deeply offended, as most people are, by Trumpian equivocations, then to what degree should my personal feelings play a part in whether or not to stay on these councils? And to what degree should I be thinking about the best interests of my company? And to what degree should I be taking the temperature of my board and asking them what to do? How many different interests am I sort of weighing up here?
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D
So, you know, let me just first start by saying I'm not a CEO, so I don't have the insights of a CEO. All the factors that they have to weigh in in making those kind of decisions. Right. Having said that, though, I can't imagine that the CEOs acted unilaterally on a personal term. I mean, I'm sure they're advised up the way zoo by their boards and their legal teams and their marketing teams and et cetera, that helped the CEOs to weigh in, not just their personal views, but certainly to reflect the values of the company.
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B
Okay, so let's actually make those kind of decisions. Let's stop right there. And then. This is something which we have heard a lot about in all of the statements that came out from all the various CEOs, was they start talking about the values of the company. And they seem to, you know, this is something which CEOs love to talk about is the values of the company. Anna, how do you feel about this idea that corporate entities can and or should have values?
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C
Despite what you may think, I do think that companies do and should have values. And I'm not surprised that this was the way that many of these statements were phrased because, you know, if you, when you get your annual and your quarterly reports, the first like 50 pages are essentially going over their company values. Like, this is something they really push hard. It's part of the actual financial value of the company. With this particular instance, I think it's interesting because the speed with which it happened suggests to me that I don't think boards were involved as much as more normal types of situations just because of how quickly it happened.
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B
So one of the things which struck me about what we know about the discussion between the CEOs when which led up to the panels being disbanded is that the sitting public company CEOs were basically the people. People like Jamie Dimon were basically the people saying, enough already. We can't even with this anymore. We need to break this thing up. Insofar as there was a voice of dissent, it was coming from people like Jack Welch and people who used to be the CEO of a public company but isn't anymore. And the advisors to Trump who are still advising him are generally private business people like Carl Icahn or Tom Barrett, rather than the CEOs of public companies. And of course, Trump himself was never any part of a public company. He was only ever the CEO of a private company. And so it seems to me that there's something about going public which forces you to grow sort of public spirited values in the way that private companies don't. Is that true?
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C
Yes. Because other people own you. You, you are not the only person who owns this company. You do have shareholders that have ideas about how this company should be run in that. And part of that is what the company represents. And so I'm not surprised that many of the leaders of publicly traded companies said, we cannot be associated with this.
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D
He also, also the steward long term. I mean, you may not be there for the long haul, but the company is. And you're supposed to be stewarding the company for the long term. And long term means not just immediate value maximization. It may be and it may.
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B
Well, how does that explain why that's different between public and private? Are you saying, are you implying that private company CEOs maybe don't have such a long.
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D
But I think there's a storytelling and messaging aspect to a public company that may not be there for a private company or be as immediate. And that storytelling, I think also has to do with being able to articulate what your values are and how you connect with the public, both the consumers as well as the shareholders.
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A
I do think the public profile is just bigger for a lot of these corporations too. I mean, you know, Coke Industries has lots of consumer facing brands, but a lot of people don't connect to them, don't connect to their paper towels. With Coke, you know, you know, they people politically, you know, that name means something, but the brands themselves don't. So I think that might just be part of it is that, you know, Campbell's Soup really, in the end, maybe it only really values soup sales, but it still needs to market itself. And it's such a big name that these controversies might be more likely to attach themselves to something like Campbell's.
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C
Right. And I think it's also important that if you look at how a company could be damaged by this, a private company. Yes, you could have customers who are less apt to shop, you know, purchase goods from that company, a publicly traded company. It's much easier for this to negatively be reflected in their share price. So that's also doesn't surprise me.
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B
So, okay, so wait, let me just come back to you there because it's actually a good segue to our next segment, but I want to really ask you about that right now is what do you mean by negatively reflected in the share price? Are you saying that the CEOs were worried that if they stayed on the council, then somehow that act of stay, staying on the council would produce some kind of a public backlash which would result in their share price falling and that was a sort of very financially self interested reason to leave the council?
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C
Potentially, yes. And I don't think that's necessarily, you know, saying, oh, it's self interested as though that's a bad thing. I mean, part of it is, yes. I mean, you are the steward of a company and if people are now connecting your company with something they find absolutely reprehensible, that could definitely impact, you know, your bottom line and potentially moving forward could impact it significantly.
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B
And I, yeah, I, I disagree with that. But Julia, I mean, like, do you, do you think that's true? Do you think the company's bottom lines are affected by this kind of, you know, how warm and fuzzy they are?
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D
You know, that's an empirical question. So I bet there's studies out there. But I think what comes out throughout this conversation is that there, you know, there's a consumer behavior and there's a consumer boycott potentially of the product, depending on the issue at hand. And then there's a shareholder behavior. And from a shareholder behavior perspective, you know, shareholders are, I mean, they're not quite owners. The managers are not employees of the shareholders. But you know, they are the fiduciaries of shareholder interest. And to the ext that the shareholders are unhappy about what you're doing, you may not immediately translate into a price lowering of the stock price in the market. But certainly you have a constituency as a manager who is not happy with your performance.
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B
Yeah.
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C
And you could also have employees who are less likely to want to associate themselves with that company. There are longer term impacts.
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A
And like you were saying, Felix, like in some cases, some of these companies are very obvious ways that you could lower their sales. I mean, Under Armour is, you know, they sell basketball shoes among other things. You can't sell basketball shoes and advertise using black athletes if you're supporting a president that is Backing white supremacists, essentially, or giving, you know, giving aid and giving comfort to white supremacists.
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C
I also think that in the age of, you know, the Internet and what, you know, you can do to shame a company online in a much easier fashion now than you used to be able to. I think also a lot of CEOs are much more cognizant of this now than they may have been 10, 15, 20 years ago.
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D
And there's another element to this, if I May. There's the CEO's role as the financial stewards of corporate, the corporate leadership in this country. But there's a second element of, you know, CEOs in some ways being used for political purposes to further the president's agenda. And I think that's probably where the personal aspect of the decision making might have come from.
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B
And I think you did see that the more right wing the CEO, the more likely they were to want to keep the councils going. There was this kind of aspect of just personal political belief there. You're absolutely right. But let's move on to this question of shareholders because this is a really, really fascinating part of the world. You can argue about the effects of consumer boycotts. My general opinion as consumer boycotts is they very rarely have any real impact on businesses. I think Anna's absolutely right that the effect on employees is much more important, that if employees really believe in their company and believe that their values are aligned with the company's values and they're going to be better employees, and in the long term, that's going to really help the company and you want to create a kind of virtuous cycle there. And rather than having employees just kind of like grumble about how their CEO is sitting on these Trump councils all the time. The really interesting question for me, and we've had this question a few times over email, is the shareholders, and is it important for investors who have moral feelings and beliefs and value systems to try and express those views of the world in the companies that they buy shares in? Is it important to try and not buy a stock in companies you disapprove of? Is there any way at all in which failing to buy stock in companies you disapprove of or divesting yourself of those companies has any negative harm, has any negative repercussions on those companies? I'll come right out and say that my opinion is that divesting is great and you should do it if that's something you believe in, but it will have no actual effect on the company. You don't do it to punish the company, but you do it just because it's a moral thing that you believe in.
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C
Right?
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D
You know, I think the area where I work, which is impact investing, what makes impact investing great, is not that it's a nice theory that we ought to do or the shareholders or investors ought to do, but we are actually seeing investors getting interested and they themselves are asking that their dollars investments go further than just financial.
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B
So we're going to come to impact investing in the next segment. We're going to have a whole segment about that. But let's just stay for the time being with like public equities. We were actually talking earlier about this question of whether it's even possible for investing in public equities, just buying a stock which is publicly listed on the stock market to have an impact. So according to BlackRock, which is like this monstrous multi trillion dollar money manager, you can make an impact just by buying public equities, is that right?
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D
That's right.
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B
So tell me about what they've done and whether you buy it.
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D
From my understanding, they actually bifurcate the world in three different ways under impact investing. One is even outside of impact investing, they also do sustainable investing. So sustainable investing and impact investing. But in the impact investing world, what they do is, look, there's negative screening of stock, so that's the divesting. So you don't invest in stocks that you don't think are companies that you don't think are doing good in the world. And then there's the ESG which is a little bit more detailed. It's screening to some extent, but it's also.
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B
What does the ESG stand for?
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D
Environmental, social and governance. But not just looking at the output of what the companies are engaging, but how they're engaging it, the process through which they're doing what they're doing. And then there's the impact, which is more deeper, intentional. Look at which companies are going beyond what they ought to or what they can be on financial return to actually address some social issues.
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B
And this is the term of art is double bottom line, double or triple? Triple bottom line. Because you can never have enough. You never, never have too many bottom lines.
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D
The distinction between them being double being you're looking at, you have an intentionality towards both a financial return as well as social impact. The triple also adding the environmental impact.
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B
And then so it seems like there's this gradation, right? You start with a simple negative screen like we are not going to invest in the evil people and Then there's a much broader screen saying we only want to invest in well governed companies with good values. And then you have a positive screen saying we only want to invest in like companies which are really making the world a better place. And then I guess maybe even one step beyond that is what we were talking about a couple weeks ago with the B Corps and the, and the companies which have really constrained themselves in terms of saying we always need to pay attention to these various different things. And we, you know, there are certain things we won't do, we can't do by, by like the way we are governing ourselves. And I guess Anna's idea was that B Corps, if you go that far are going to be like hobbled. They're going to, they're never really going to be able to compete well with everyone else. But your idea is that if you have this, you know, at least one step less than that and you have this double bottom line or triple bottom line outlook that that can actually be good in terms of financial returns, right?
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D
Absolutely. I mean B Corp. I think they're great in the sense that they've set the bar quite high. They set the bar quite high around transparency, they set the bar quite high around performance and they set the bar quite high in actually measuring impact. So if you as an investor really want to be comfortable or go farther in your due diligence to make sure that there's sort of a stamp of approval that the company you're investing in is actually doing what they say they're doing, then you may be willing to pay for the costs that are associated with that kind of, that level of certification and that level of due diligence. It really depends on the manager and the organization to determine how far they want to commit to publicly that they would. They, their whole existence is going to be around this.
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C
Right. Because I do think that when you're talking about private companies, again, I think the B Corp. Model and private companies completely fine. When you're going into the public markets, the public markets are structured in such a way that there is a specific way that companies are valued in the public markets and that has to do with growth and profitability. That is, I mean investing in the stock market is a short term bet on long term growth. That is how it works and that's the understanding when you seek equity financing. So although I do completely agree that when companies are considering, you know, their overall strategy, issues of governance and sustainability and reputational risk, all of these things are factored in. So when people talk about maximizing shareholder value. That doesn't mean like this isn't a false choice between profit maximization, like completely don't care about anything and being like a hippie commune. You know, there, there is in fact something in the middle. That is what most companies actually follow.
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B
So, but, but, but what you're saying when you talk about companies being valued according to growth and we're just going to like slowly back into our previous argument just for a minute here is this idea that if, if what you're doing is in some ways hobbling growth or anti growth, if it means we're going to grow slower or maybe not at all, then that basically makes it impossible for you to be a public company.
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C
Right. I mean if you're a public company, a, if you're a public company that in theory has, is not growing yet somehow is able to keep up with all your costs and generate enough cash to pay off your debt and do all these things, then I don't even understand why you would want equity financing. That makes no sense.
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D
Well, I think there's an assumption there that I would like to question a little bit. Just because you are a mission aligned or mission oriented company doesn't mean that you are not growing.
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B
Right.
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C
I completely agree.
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B
We all agree this. But I'm just, I'm. I'm going to come out and say there are lots of reasons why you might want public equity even if you're not expensive.
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C
So if you're not okay in, if you buying a stock, if I buy a stock at a certain price, if that stock does not increase in price, my investment has not grown.
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B
Right.
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C
That is how investing in the public markets works.
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B
Yes, I understand that.
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C
Right. So my point is that if you are a publicly traded company, people are buying your stock with the expectation of growth. That is how it works.
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B
Okay, wait. And I want to stop you there because I genuinely honestly think that if you come out and say I am a B corp and I don't value growth very much and if you're trying, if you're expecting growth by some other stock and we are a profitable company and we make profits and we will dividend out the profits to our shareholders and we like having a public listing because it allows us to provide liquidity to our managers and you know, gives us a sort of benchmark, we can see how we're doing in terms of various things. But like some people will want to buy that stock and other people won't like if it has a stock won't increase.
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C
So you won't want to hold a.
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A
It may. It may, yeah.
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C
If your value of your dividend is not increasing, if the value of your profits are not increasing, you are valued in a certain way in the equity market.
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A
You're assuming that it will still have a value.
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B
Like the value of a constant dividend stream is non zero. The stock will have a value, but.
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C
The value will be declining.
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B
But okay, so you have this stock and you know, the, the dividend is what it is and the real growth is what it is and the stock price goes up or it goes down and people can, you know, buy and sell it according to whether or not they think it's going to go up or go down. But I still don't see how that is like this positive. Like why can't you do that? As long as the people who are buying the stock are walking in with their eyes open and understanding that this is a value based stock, what's to prevent them from doing that?
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C
This isn't an issue of when investors coming in them being like hoodwinked. It's simply a matter of when you accept equity financing. You are accepting that you are going to be valued in a specific way. Because this is what you investing in the stock market is, which is investing in something now with the expectation that it is going to be worth more later. And again, equity financing is more expensive. And the reason people, if you are a company that is generating sufficient cash flows to meet all your needs, it doesn't make any sense to me why you would even want equity financing.
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B
Well, maybe you don't. Maybe you just have a listing, you know, like Spotify is talking about. Without taking any equity financing at all. You have a bunch of shareholders, some of them want to sell. And the obvious place to sell shares is the stock market. So you create a listing which allows people to trade stock between each other. Even if you're not taking any equity financing.
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A
You treat the stock market as what it actually has become, as an opportunity to cash the fuck out rather than opportunity to raise any money. Which, I mean, that makes sense.
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B
And to be absolutely clear about this, the overwhelming majority of stock market activity is people trading shares between each other, not companies raising equity capital.
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C
Of course, but the reason that someone is going to buy a share in a company is because they have an expectation that that company is going to be worth more in the future. Otherwise your investment does not increase in value and it does not keep up with the rate of inflation. So thus that's not an investment.
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A
I want to. So there's something about your outrage that's been puzzling me since the last episode. And I want to see if we can work through it here. I can't tell if you're angry at companies for not these companies for not trying to grow faster and trying to kind of abide by these, or if you're ticked off that they're trying to. Or if you just think that what they're doing is absurd. I can't tell if you think they're doing something morally wrong or if they're just doing something that's kind of silly.
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C
Yeah, I mean, it's, it's. It's more the latter and it's not. So. Look, I, again, I, I support the values of B corpse. I'm not saying that I think it is. It is bad to care about like, paying your workers well and supporting the. My issue is that again, if you're coming into the markets and you're going to say that I'm going to restrict myself in all these ways that none of my competitors are, you are almost certainly going to see your price decline in value unless you have, again, an expectation of growing through some other means. And so I think that I don't unders. I don't believe that this model works in this market.
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D
Can I posit. I think there are cases, examples where that could theoretically work. Right. So in. Certainly in a less competitive industry or market where there's actually room for you, to you as a company to pay, you know, something that's beyond, you know, the bare bottom that's required by profit maximization in order for you to thrive.
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B
Or like Ford Motor Company famously did that.
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C
Right. Of course, the $5 a day. So then people have money to buy their cars. Yes. Again, when you're talking about maximizing share value, again, this isn't about like exploiting your stakeholders to like squeeze out every penny. It really isn't. A lot of the companies that you look at that are most highly valued right now pay their employees very well.
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A
Can I, Can I ask a question about just coming back to kind of what blackrock's doing and all that? Are we going to ever reach a point where there are just enough of these funds that are looking for warm and fuzzy and good companies that there'll be a premium just because there will be like mutual funds running around just screening out everyone else and just looking for basically some B corps and some base and some basically decent regular corporations? Like, is that just a fantasy or could that actually happen?
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D
I think that's what we are seeing happen. You know, BlackRock is not in the business of actually doing this just because they, they're good minded. I mean, they may be good minded, but there's also a business purpose behind it. And I think what they're capturing is the interest of the investors who are, who are looking to do more with their money than just to get financial return and where they think, you know, either because their cost of capital is lower or they're willing to sacrifice their returns in order to actually get that impact, or where they truly believe that they're getting both the impact and financial return or they can get both the impact and financial return in the same investment. That remains to be seen. But what we are seeing in the trend of growth, at least in the impact investing space and call it ethical investing space or value based investing space, is that it's the investors who are interested in doing it. Where we have still work to be, work to do is actually make matching up that interest with actual truly impactful investments on the ground.
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B
And I guess the one question which I started with, which I'll end with the same question, is if I care about more than just being ethical in my investments, but I actually want to make a difference with my money. Is there ever a sense in which buying a publicly listed stock can do that?
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D
I think so. I mean, Etsy could be a good example, right? So right now it's being talked about. But it's not the only example. You know, there are companies whose whole mission or purpose is, you know, not just profit maximization, but their business model is very much intertwined.
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B
I understood that. But I guess my question is more narrow. Let's say I buy a share of stock in Etsy. How does me buying a share of stock in Etsy from someone else who owns that share and is selling it to me. How does that help Etsy?
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D
Well, it certainly helps in the, in the case of an ipo. But you're talking about when the shares transfer hands from investor to investor, which is right, 100.
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B
I mean, this is what I'm doing, right? When I'm investing in Etsy, when I'm buying shares in Etsy, like I feel like all I'm doing is, you know, I'm making, if I buy a show of Etsy from Anna, who's decided that it's going down, then either I'm making, you know, if I'm, if I make it, I might be making her richer because she bought it when it was like, you know, $5 cheaper. I might, you know, be I could.
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C
Have bought it at the IPO but.
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B
Like either way, this is just a sort of transaction between consenting adults, me and Anna. Right. Can I really feel in any real way that this purchase is like my money going to Etsy and helping to make the world a better place?
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D
So there's I guess both a very micro perspective and a macro perspective. And the macro perspective is going back to earlier point is that the more investors actually invest in companies like that, we actually create a market that's a little bit more ethical, that's more, that's expecting more of the companies and hopefully modifying their behavior so that we have more instances of managers being able to say, you know, these things are not consistent with our value and therefore will be, will not be. We will be refraining from doing this or we'll be doing something else.
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A
Yeah.
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C
And as an individual, you're not going to have a huge impact. But you could argue that if you have just like any stock, I mean, if you have like significant demand for this, that is then going to just like anything, it's going to push the price up.
- [32:16]
B
Yeah. I mean, I'm going to just posit here that buying the stock doesn't change the share price. Now, I mean, let's assume that like individual transactions, you know, are just transactions. The share price moves for whatever reason the share price moves, which is probably to do with like corporate earnings and global interest rates and any number of different things, you know. But the me buying or not buying the stock, especially since I'm just little old me, is not going to meaningfully have any effect on the share price. If the decision whether or not to buy the stock does not change the share price, then, which I think is a fair assumption nearly all of the time, then is there any way in which I can believe that I am improving the world by buying the stock?
- [33:10]
A
Is that a fair.
- [33:11]
D
I don't know if that's a. Yeah.
- [33:12]
C
I don't think that's necessarily a.
- [33:14]
A
If you have firms like BlackRock, like throwing money at stocks that people wouldn't ordinarily buy because of that.
- [33:20]
C
Are these stocks people wouldn't ordinarily buy? If you look at some of the stocks that are actually included in those, I don't know if we would all consider those.
- [33:26]
A
Well, theoretically, if some of them are stocks people wouldn't ordinarily buy, you're creating a, you're creating a foundation. You're create. You're booing it. Right. Like that price has. You're. There is a pool of money chasing those stocks that wouldn't ordinarily Be. And that's adding to the price, regardless of.
- [33:42]
B
Yeah. Okay, so have we at least. Okay, have we at least then come to this consensus that buying the stock only really makes the world a better place insofar as it improves the share price and insofar as an improved share price, you know, helps managers continue to do what, you know, the good things? I mean, it seems pretty tenuous to me.
- [34:10]
D
Well, it may be tenuous, but the two things you just mentioned, you know, is essentially influencing the market and influencing the behavior of corporations. I mean, if you take those two things, that's a pretty big influence. Right. So, and going to the micro point, we talked about the macro, how, you know, individually you might not make a difference, but together you can make quite a bit of difference. But then the micro point, if you're supporting the purpose of the corporation and the work and the vision and the activities and decision making of a corporation that is actually acting in an ethical way or a mission aligned way, or in other ways, you know, you're also helping them to raise capital much more cheaply, potentially, but you're also helping them to influence their behavior or support their behavior as they go out and act as an anchor institution within the communities where they reside through their employment of the employment base and other stakeholders in the communities that they serve. Which is a wider point. Right.
- [35:15]
B
I think that's a really good point at which to move to the much more direct way of using your money to make the world a better place. Right. Which is this thing called impact investing, where like, I want my investment to have a direct impact. And so I give you, Julia, my money and then you take it and you make houses and people get housed and the world is a better place. And you're doing that with my money. And this is. And it's not just you, obviously, there are corporations and cooperatives and various entities around the world who are seeing people come up to them and say, like, what you're doing is really good. And it's not only good, it's also profitable. And I want to give you my money so that you can make money and make the world a better place. And this world is the world of impact investing. This seems to me much more reasonable as a kind of idea. And you can argue about whether or not the returns on impact investing would match the returns you could get in other asset classes. And that's frankly a slightly boring question. But the idea that you can use your money to improve the world, I think is a very attractive one to a lot of people. And yet it's not easy to find these opportunities to invest in these things. Why is it so hard?
- [36:50]
D
Well, part of the reason that is because impact investing is a relatively new area. It's a new, I would like to call it a new emerging class or emerging industry. It's been out there for maybe a decade or so. And, you know, finding impactful investing by definition means that you're not just doing something and you're, you're diligencing more than just a financial return. You're diligencing for impact as well. So it does require additional diligence. And to the earlier point, you know, right now, they are not readily available publicly traded impact investing vehicles that are out there. So what you're doing essentially is investing in essentially private markets and smaller projects that are embedded within the community, or really addressing and targeting projects or issues that are very pertinent to the communities where they arise.
- [37:47]
A
I'm curious, you know, I'm not super familiar with how impact investing works. Like, just like, how so?
- [37:54]
B
Well, why don't you give us your own.
- [37:57]
A
Like, how does the, what, what's the chain like, how does somewhat, like, how does the money flow into the community?
- [38:02]
D
So impact investing is actually a very broad term and it's now been defined. And there's the industry's definition is it's any investing that has intentionality around both the financial return as well as the social return and social. And depending on double or triple line, you can be social and environmental.
- [38:21]
A
Okay.
- [38:22]
D
Right. So it's the intentionality of the investor that matters. And there's another element of impact investing which is, you know, it's a bit of data based. So you can't just say that you are an impact investor and not really track the, the, the impact of the, the work you're doing, social impact of the work you're doing.
- [38:41]
B
So, so it needs to be quantified. Yeah, but, so like, but as I say, let's, let's use your own institution as an example. I'm, I have, you know, say, $10,000 that I want to invest in an impactful way. And I hear Julia Shin on the Slate Money podcast, I'm like, she sounds like she's investing money in an impactful way or could use my $10,000. So then what happens? I come to you with a $10,000 check, and then what happens?
- [39:08]
D
So we enterprise community partners, we are in affordable housing. So our mission is to end housing insecurity in our generation throughout the country. But we're not just about that. We are also connecting families to opportunities which we believe starts with a roof over your head. So I don't want to speak specifically about enterprise and our products on this podcast, but I would like to say what I can say is that affordable housing is an investable area where you can actually invest in affordable housing that are going up in your own neighborhood.
- [39:45]
B
So you're basically helping, you're paying to build these houses.
- [39:48]
D
That's right.
- [39:49]
B
And then once a house is built, it generates rents and returns and you can get a return on your investment.
- [39:55]
A
So is the idea that like your typical developer is going to be hell bent on putting up as much luxury housing as possible and eking out if there's like some affordable housing requirement, they're gonna put as little of it as possible into their building. Whereas you're looking for opportunities to say get more middle income housing put up and you're looking for people who say I want to fund more middle and low income housing. Is that right?
- [40:17]
D
Our mission is to actually help to build low and middle income housing in this country. So we will actually do projects where the housing either is built or preserved for low income families.
- [40:31]
A
Okay.
- [40:32]
C
And I have just a question too because as I said, this is not an investment space that I'm very familiar with because I imagine that you have a pool of investments that that would be seen as socially good but would attract capital naturally. Like if you had certain types of renewable energy that now can actually be very profitable. So any investor would potentially want to invest in that. And then I imagine you also have issues where are essentially market failures. And I guess I'm wondering, and again I just don't know are, have you found that you can essentially use still use markets to address things that were market failures.
- [41:09]
D
So that's where I think affordable housing is especially interesting because inherent in the asset class is an asset class that I think could be commercial. Right. So there's risk adjusted return profile to affordable housing that makes sense and that could actually work in a traditionally traditional based portfolio. So from we actually have and as do others now, which is very exciting, private equity, affordable housing, real estate funds investment that institutions can invest in and as well as ultra high net worth investors and hopefully soon, you know, retail investors. Those are investments that we don't actually say this is impact investing because you are actually foregoing return and doing good. We are able to say we think you're actually going to get risk adjusted commercial returns while doing good by helping to build affordable housing in the communities.
- [42:05]
C
Can I also, because I read an interesting Anecdote where someone was saying there was a particular bond they were using and it was to help women in a certain area. But they said if they called it a high yield bond, people were totally cool with it. But if they called it like a female empowerment bond, people are like, I don't know, I don't think I'm making very much money.
- [42:22]
B
This is the same as organic wine. People prefer organic wine in taste tests. But if you put the word organic on the label, that brings the price down. So people make wine organically and then don't say that it's organic on the label.
- [42:37]
D
I hate to say it, I think, but there is that perception around impact investing that you are actually giving up something when you're actually engaging in impact investing, that you couldn't possibly achieve both the returns as well as social impact. And part of what we are doing in the space is trying to prove out that thesis and saying, well you can. And this, this is how.
- [42:57]
B
So the, so the big question I have, well, you know, because we've received this question via email a few different times, is for people who don't have family offices, for people who don't have 7, 8, 9 figure sums at their disposal, but for, but who at the same time are kind of disgusted by both the opportunities of the current, you know, securities classes and also just they want to actually make a difference with their money rather than just throwing it into a mutual fund. What should they do? What can they do right now?
- [43:35]
D
So I mean obviously the easiest way for retail investors or is to actually go through a financial advisor who can and encourage ask that financial advisor for opportunities to invest in the market. That's probably the way that when you.
- [43:54]
B
Say the market you mean public equities. Again, we go back.
- [43:56]
D
Public equities, public equities as well as impact investing. So there are opportunities available.
- [44:02]
B
So what kind? So let's really drill down on that. What kind of impact investing opportunities are available to normal people and where can I find them?
- [44:16]
D
So this is getting a little bit technical, but there are, for example, debt issues issued by institutions called community development financial institutions. These I explained to my children that these are banks for the poor. And there are CDFIs in every community in this country whose job it is to actually make loans to businesses that commercial national banks will not necessarily make loans to either because they're too small or they're too risky in the sense that they don't really have that much in assets or they may be new. And CDFIs have had a 30 year history of very low defaults. And they are many of them, especially the national ones such as us, have what we call impact notes that we actually issue and that investors invest in at rates, depending on who you are, you might believe are below market or at market. You know, given the default history, I think we cannot make an argument for either way. And many of us, or I should say a few of us, are starting to get S and P ratings and trying to target, tap into capital markets so that we can actually get publicly listed debt instruments. But that might be an easy way to be introduced to the work of for example, community development or investing in your own backyard. What we call place based investments. If you happen to be interested in investing in Detroit, for example, there are investment notes out there where that targets that specific area or other areas around the country where these notes are offered.
- [45:51]
B
So that's the one place where I can just go on the Internet, type in cdfi, maybe in my own neighborhood, and find a way for me to be able to invest my own money in something which will make a difference on the ground.
- [46:09]
D
Again, I don't know if you. So that you do need a few resources in order to identify these investments. Unfortunately, I think we are at the stage where the easiest way is to do it through your financial advisor.
- [46:23]
C
Because I would also imagine that some of these investments are going to have very specific and bespoke risks that people do need to understand and also potentially liquidity issues that people just should understand before they're investing in a product.
- [46:36]
B
The reason why I am hesitant to, to sign on to Julia's like talk to your financial advisor thing is number one, I just generally don't like financial advisors. I don't think they add a lot of value. But number two, there's been a huge amount of, there's been many, many studies of financial advisors where people have gone up to them and say, I want to invest, I want to do impact investing, I'm interested in CDFIs, these kind of things. And overwhelmingly the response from the financial advisor, even if their institution has products available, which is often not the case, is oh yeah, you don't want to do that. They tend to poo poo it. And often the financial advisor is actually the real bottleneck in the whole process. You have real demand from the CDFI side for capital. You have real desire on the investor side to give the capital to the CDFIs. And then in between them you have these financial advisors who are like, I don't know it, I don't understand it, I Can't recommend it and who are actively dissuading their clients from investing in.
- [47:45]
D
That's precise. That's challenge of private markets. And that's given that that's where a lot of impact investing currently plays. That is one of the challenges of impact investing. There is no clearinghouse or market exchange where all these investments are available for you to go and say, okay, I want to invest in A, B and C and D because they are made available for you online where you can actually start investing directly. We are working on that as an industry and there are some options that are currently available still, you know, developing and they're not New York Stock Exchange and it will probably take a long way to get there. But those are the things that we are working on from an infrastructure point of view, given the emerging growth and the interest that's, that's growing around impact investing.
- [48:31]
B
And the other thing I will say, which is actually genuinely easy if you're okay with low returns, is just take out a certificate of deposit from your local credit union.
- [48:46]
C
Absolutely.
- [48:46]
D
And then can I just segue a little bit to this thing called donor advised funds? I know you are opposed to the.
- [48:55]
B
I have one myself.
- [48:56]
D
Right. But that's one way to sort of leverage an institutional investor of sorts by using your donor advised account to ask your donor DAF provider to look into and due diligence on your behalf and hopefully on behalf of other similarly interested DAF donors to diligence and identify these opportunities so that they can be instruments that you as a donor can invest in.
- [49:27]
B
So if so, for those of you who listen to Slate Money and who have a donor advised fund, which you might do, since we've talked about them before on this show, take your fund provider and say, hey, look into impact investing. It's good. So let's have a numbers round. I feel like we should always end with the numbers round. And because Julia, you're the special guest this week, you can start with your number first.
- [49:53]
D
So 8.3 million.
- [49:55]
B
Okay, what's that?
- [49:58]
D
Not surprisingly, I'm going to come back to housing. So recently HUD published a report that said 8.3 million families are at risk of losing their homes. These are families who are currently paying over 50% of their monthly income on rent. And the number actually cuts across various geographies and various groups. It can be rural, urban, different racial groups.
- [50:27]
B
And is that number going up or going down?
- [50:30]
D
The number is unfortunately going up in part because rents have been rising faster than wages across the country. And there's despite the Work of good work of organizations such as ours and others around the country. There's a decreasing supply of affordable housing in this country.
- [50:49]
B
My turn, your turn.
- [50:50]
A
My number's 1 million. Sorry, I just gotta look from Anna, I don't know why for some reason 1 million set her off. $1 million, which is how much James Murdoch is donating to the Anti Defamation League because I guess he feels that apparently feels the need to take a stand and fight Nazis. Even though he's got like, you know, his family's company has Tucker Carlson going on air and talking about how slavery wasn't maybe so bad cuz the Native Americans did it and Plato had slaves. I don't know, this is like some weird Jew Washing of 21st Century Fox. But it's attempt, I guess it's an attempt at corporate responsibility of some sort.
- [51:30]
B
Well, it's interesting because it's very clearly a personal donation. Murdoch, Rupert Murdoch famously is very uncomfortable with charitable giving. He used to get very annoyed at his mother when she would give money to charity. He had a problem with it.
- [51:45]
A
So perfect.
- [51:47]
C
His Ebony's are Scrooge.
- [51:49]
B
James Murdoch, he made a point in his email about this that he normally doesn't talk about his charitable giving. Right. Like he has given money to various organizations over the years. And I think the interesting thing here is not so much the million dollars, although it's a nice big happy round number, but the fact that he made it public. Well, that's why I can. And you can say that on the one hand it's like some kind of reputation laundering, but on the other hand I think what he's quite explicitly doing is saying like the easy thing for me is to give them a million dollars. It's actually the thing which I want to do beyond that is to actually make this public. I don't know if that's how, how like admirable that is, but it, I'm, I'm all in favor to be honest.
- [52:42]
A
I mean, I think the really admirable thing would be for him to tell Tucker Carlson to stop being a fucking douche on air. That would be really admirable.
- [52:54]
B
Talking of lucrative entertainment numbers, My number is $722 million. $722 million is the amount of money that Wolf Warrior 2 has grossed in cinemas in just the past three weeks. That's a kind of world record in terms of how much money you can make in, in the cinemas. And Jordan has this puzzled look on his face going what on earth is Wolf Warrior 2? I haven't seen Any reviews?
- [53:31]
A
China's deadliest special forces operative settles into a quiet life on the sea. When sadistic mercenaries begin targeting nearby civilians, he must leave his newfound peace behind and return to his duties as a soldier and protector. Okay, so this is like classic. They got me back in kind of.
- [53:48]
B
This is. This is the Chinese Rambo, and it's this make China great again kind of fantasy of this Chinese warrior beating up pirates and Westerners.
- [54:02]
C
Must I have seen Wolf Warrior 1 or.
- [54:05]
B
You don't need to have seen Wolf Warrior 1. This is not really a deep character arc kind of film. It's mostly just blowing things up. But it's $722 million in three weeks, which is amazing. All domestic, all just in China. Just wait until it comes out in New York City.
- [54:25]
C
So my number is 17 million. So if we're somewhat this week talking about a failure of moral authority in the United States, I would just like to bring up Yemen, because this is like, it is in fact the largest humanitarian crisis in the world right now. Like, there are 17 million people that need food aid. There are 5,000 people a day who are contracting cholera. There are 500,000 children who are severely malnourished. And not only do I feel like this is an issue that is just not covered very much in the US but also US Policy currently is not only not making it better, but actually making it worse because of our support for the Saudis.
- [55:13]
B
And this is a classic case of the only aid which can possibly help here is international governmental aid. This isn't a case of like, make a donation to the Red Cross and we'll send a food bucket to Yemen. Like, that doesn't work for a million reasons. You need the international community to solve this. And this is where US Soft power and leadership has always historically played an incredibly important role. And weirdly, that seems to be MIA right now, shockingly. But yes. On which depressing note, we will bring this episode of Slate money to an end. I feel like we always end on a depression, but, you know, we'll try and do better next week. Many, many thanks to Julia Shin for coming on this week. That was awesome to have you.
- [56:03]
D
Thank you for having me.
- [56:05]
B
And many thanks as well to Dan Schrader for producing. And also I should mention that you should check out Dear Prudence, which is another Slate podcast. It's hosted by Mallory Ortberg, typically with a remote guest co host, and it posts on Tuesday mornings. And it's basically the online advice column turned podcast, which is like two great tastes which go wonderfully together. So check that out@slate.com Dear Prudence, keep your emails coming@sleepmoneylate.com and we will talk to you next week on Slate Money.