Vishal Hindocha: Hello, and welcome to another episode of the All Angles podcast. In this episode, we talk to Bob Eccles. Bob is an irrepressible font of knowledge when it comes to things about measurement, how to think about mandatory materiality and has been in the thick of, what he calls, the ESG culture wars, of late. Trying to weave the line between left and right, as well as public and private, on how sustainability is really playing out. Some of the most interesting moments of this conversation that I think people will get a lot from is Bob’s insight into how do we rescue ESG or sustainability effectively from the culture wars? How do we move forward? Is ESG even worth saving in the first place, or should that be left to the extremes? Do we have more to agree on than disagree on? And what is the disconnect right now between investment reality and the political sphere or in the zeitgeist?

Bob also has more than one piece of practical wisdom advice and some homework for our listeners, which you’ll have to listen to the end to hear about too, as well as some really interesting perspectives on where we go from here — and his call to the action to the industry to be more involved, particularly on the realm of things on the environment, as well as DEI. Thank you for listening to the episode.

Disclosure: Neither MFS nor any of its subsidiaries is affiliated with Robert Eccles. The views expressed are those of the speakers and are subject to change at any time. These views should not be relied upon as investment advice, as securities recommendations, or as an indication of trading intent on behalf of any MFS^® investment product.

Vishal Hindocha: Welcome to the All Angles podcast. I’m Vishal Hindocha, the global head of sustainability strategy at MFS. And it is my great pleasure and delight to welcome Bob Eccles to the first episode of season two. Bob, welcome to the All Angles podcast. Thank you for coming here.

Bob Eccles: Vish, good to see you, and thanks for the invitation.

Vishal Hindocha: I'm genuinely thrilled to be here, Bob. We've, like many people in the industry, obviously followed lots of your work starting from all the work you did on materiality — that was when you first entered my consciousness — and we began speaking to some of the work you've been doing with SASB, the ISSB, the Value Reporting Institute — and now in the thick of the culture wars, which we are going to get into. Bob Eccles is a visiting professor at the Saïd at Oxford University, and can deadlift 410 pounds, he just told me. So, I'm suddenly very afraid sitting opposite at the table from him right now. Bob, welcome. Thank you for being here. And I just butchered your introduction, so maybe you could give the listeners a brief potted history of how you got here and how you got curious about the things that you are working on today.

Bob Eccles: Before I do that, let me say, you're giving me too much credit on the deadlift. You're a second dan black belt, Vish, and you could take me out in a New York second. All I've learned how to do is move a bunch of iron. And I think I told you earlier that I'm trying to learn the Turkish get-up.

Vishal Hindocha: Yes.

Bob Eccles: Which is harder than getting a PhD, so I'm not sure that's going to happen. So, history, gosh Vish, I turn 72 in May. How much time do we have?

Vishal Hindocha: As long as you'll give us for this, but about 30 minutes of listener attention. So yeah, maybe in-

Bob Eccles: So, let's do this in a minute.

Vishal Hindocha: ... In a minute or less.

Bob Eccles: In a minute. So, it's a shaggy dog story. I was a pure math and history major at MIT, and then I got a PhD at Harvard, and I taught at Harvard Business School for many years, and I retired. And there's a theme through there of measurement. I'd always been interested in measurement. And first it was internal measurement in companies. My first book was on transfer pricing, wrote a book on investment banks when I was an associate professor. So, I got interested in the capital markets and then got interested in corporate reporting, because this was way back — this was the late 1980s, early 1990s — and nobody was really talking about this. And I started looking at so-called non-financial factors. It wasn't called sustainability. It was before the GRI was formed. And that journey eventually took me to where I am today in the capital market.

So, I was reporting as this interface between companies and their investors as these non-financial factors became more important, as standards got developed, and we can talk about that. I think initially, the corporate community was probably a little bit ahead of the investment community, but there was still a lot of whining, "We're doing all this great stuff in sustainability and the investors don't give us credit." Vish, people like you. And I go, "Well, I'm really sorry to hear that. Let me look at your deck for your investor presentations." And maybe there was a token slide about ESG something. It was all financial information. Then, 5, 6, 7 years ago, the switch flipped in the investment community. I wrote about this little piece in the Harvard Business Review called “The Investor Revolution: Shareholders Are Getting Serious About Sustainability.” And that happened when you folks started to realize that this was relevant to return. And it isn’t every sustainability issue, it’s the material ones, and we can talk about that more later. There’s a difference between Global Reporting Initiative and the Sustainability Accounting Standards Board.

So then, investors started engaging more with companies around these issues. And then the sustainability stuff was tied into the timeframes, because it doesn’t really happen over the next quarter year. So, it was pretty exciting. A lot of things started to happen. You had the International Sustainability Standards Board — I’ll talk about that more later — probably got established. And here we are today. And then about a year ago, to cut to the chase, these culture wars erupted in the United States, and I’m like, “Wow.” So, you’ve got people on the right that hate ESG. It’s like, “What do they think ESG is though?” It’s a pernicious, progressive strategy to impose ideological and political views that they couldn’t get through the ballot box. Mike Pence always likes to say this, his letter to the Wall Street Journal. They actually weren’t the first to hate ESG, as you know.

I published a piece about the International Sustainability Standards Board, a little piece with Bhakti Mirchandani, my friend, 1300 words in the Harvard Business Review I posted on LinkedIn. I’ve never gotten so much hate mail in my life, “Bob WTF.” And I told you... And it’s the I question mark SB . “It’s not true sustainability. It’s only ESG.” And like, “Okay, I get there’s a difference between material risk factors for value creation and making the world a better place and that’s important. We need to talk about where the line divides between the public and the private sector.”

And so, here we are. Ten years ago, you’d go, “ESG.” Nobody knew what it was. You’d explain it. They said, “Oh well, it’s like philanthropy and you’re going to lose money.” No. I do some research. George Serafeim’s done a lot more, if you focus on the material issues. Not everything — the material issues, they’re industry specific — on average it’s five or six. When you look at SASB’s industry classification system, as you know, 11 industries, 11 sector, 77 industries, and it’s related to value creation.”

But now it’s like, “Well, we hate ESG because it’s not true sustainability. It’s not system level change.” ESG was never about the positive and negative externalities of a company’s products and services. That’s important. It’s the operations and activities that keeps the world from becoming a worst place. It’s managing the material risk factor. And you’ve got the positive and negative externalities that need to be dealt with, and the investment community can do some, [and] the corporate community. This narrative, I think, has been damaged enough. The public sector is failing, so the private sector’s got to step it up. And that’s, I think, part of the problem. So, you’ve got the far left saying, “The private sector isn’t doing enough. BlackRock got to get out of all the fossil fuels.” Well, I don’t think that works. I think you need engagement, not divestment. Then you’ve got people on the right saying, “Oh look here, they’re involved in public issues. It’s none of their business. That should be left [out] of the political process.” Now we have this major kerfuffle, this entertaining ESG culture war that’s been going on, when you think about it, really not all that long.

Vishal Hindocha: No.

Bob Eccles: Not even a year.

Vishal Hindocha: Not even a year. So, I want to come back to the topology and the culture war — just maybe a step back. And it’s exactly the topic that I was hoping that we could unpack a little bit with you today, Bob, because you seem to be in the middle of this in more ways than one, in terms of who you are speaking to and some of the work that you’ve been doing to reconcile views on different sides of the political aisle. So, I do want to get there. But maybe a brief step back, why do you think ESG or sustainability has been so supercharged and has become such a political weapon for both the left and the right, especially in the US? It’s not entirely in the US. It’s not an entirely a US phenomenon, but it does seem particularly disproportionate here in terms of what dominates the airwaves. And so, just curious, given your purview, why is that? Why has it become a political football?

Bob Eccles: It’s a good question. I don't really have the answer to that. I mean, it would be a great doctoral dissertation someday. When you look at it, I can understand how things like abortion and gun rights are mobilizing to people who have those political views. Supposedly there's this guy, Andy Puzder, that I’ve read about a little bit. He gives himself credit for starting this. You’ve got something called the American Legislative Exchange Council. You’ve got the Heritage Foundation. You’ve got the Heartland Institute. You’ve got the State Financial Officers Foundation. Somehow, ESG, and it gets mixed up with woke. Like I say, “ESG.” I think material risk factors. They say, “ESG.” And they say, “Woke.”

Woke is just a new way to call people a name. They used to call them liberals with derision. You’d call them progressives with derision. Now we say they’re woke. I don’t understand how this acronym is going to have long-term legs for mobilizing the base.

Bob Eccles: How they’ve picked ESG — this thing that almost had no recognition whatsoever — and made it famous, that’ll be something to unpack over the years.

Vishal Hindocha: History will tell.

Bob Eccles: But as I said, I don’t think this has got infinite legs.

Vishal Hindocha: No. So, we are in... And I see the spectrum, and even within one side — and we were talking about this just before we began recording — that there are now cracks beginning to appear and people asking interesting questions, even from within the right or within the political left in the US. You do some interesting work across both sides. I’d just love… Bob, what are you doing about this given your platform, given the history that you bring to it, given your focus on measurement, and you’ve been involved in some of the most important developments of how sustainability has gone mainstream? If you think about that, your history that you just gave, what are you doing about trying to resolve this into a more constructive debate?

Bob Eccles: Well, it’s interesting, Vish. People live in bubbles.

Vishal Hindocha: Okay.

Bob Eccles: We’re in Massachusetts. Welcome to my democratic liberal bubble. So, I wrote a piece last summer — great title — Grift Capitalism: The GOP’s Brilliant Strategy for Ripping Off Ordinary Americans. The woke crowd loved it, right? I get an email from this good friend of mine named Dan Crowley, who’s a Republican. I’ve known him for years. We go way back, down in DC with a firm called K&L Gates. He writes me and he says, “Bob, read your piece. Disappointed. Why put fuel to this rhetorical fire?”

So, we get on the phone and he says, “Bob, sustainability, importance of the capital markets, absolutely fundamental. So, what you have to understand is if you say sustainability to a Republican, they think AOC, Green New Deal, Europe, used to be a part of Europe, you’re not anymore. Europe, Marxism, and they don’t like it.” I said, “Well, I don’t think about it that way, but I get it.” So, we both agree that ESG... I mean, it’s really pretty simple. It’s about material risk issues that matter for value creation. So, the first thing we did is we wrote a little piece for the Harvard Law School Forum on corporate governance called, “Turning Down the Heat on the ESG Debate: Separating Material Risk Disclosures from Salient Political Issues.”

That’s important, right? Because these things are being confounded. You can even believe in climate change as a Republican, but not like the way the Biden administration is going about. Fair enough. That’s a public policy debate and we should have it. That’s a separate issue from whether the SEC has the authority. I think it does, and not everybody agrees, to issue some standards for climate reporting — which is not even a question in the rest of the world — but it’s part of the culture wars here. So, we did that. Then, we did a little webinar, sponsored by his law firm, K&L Gates, called “ESG isn’t ‘Woke,’ It’s Capitalism.” We did another webinar that was sponsored by the bipartisan policy center called, “Where Does the ESG Debate Go From Here?” And I’ll talk about more of that in a second. And then most recently, you should know, we wrote a piece for Harvard Business Review called, “Rescuing ESG from the Culture Wars.”

And it’s interesting, as I’ve gotten outside of my bubble through Dan, I’ve met other Republicans. I did an interview with Greg Goff, who’s on the board of ExxonMobil, you can see that. I mean — this cracks me up. So, here’s a guy, he’s a really good guy, he was the CEO of an oil and gas company. He’s a Republican. He lives in Texas. He donates to the Republican party. Mike Pence whining about the Engine Number One campaign, and I knew all about that because my friend Charlie Penner who was driving it goes, “Put three environmentalists on the board who are undermining the company from within,” and I’m scratching my head. First of all, I thought environmentalists were good. “Greg Goff is undermining ExxonMobil from within.” Gee, I don’t think so. If you look at what’s happened to ExxonMobil’s stock over the last year or so, since he’s been on the board, that’s why I think this thing doesn’t have long legs.

The disconnect, the reality of what’s going on, and some of these claims are being made. So, I’ve met Greg, I’ve met a really interesting guy named Rich Powell, who runs a — what he calls — center right organization called, CLEAR Path, focused on climate change. There's a gentleman at the bipartisan center called Tim Doyle, who was on the podcast I referred to in a minute. So, what I find is interesting, you’ve got the Freedom Caucus crowd, right? You’ve got the far right over there and you’ve got the far left over in my side. And that’s this one level of discourse. Then, there’s people that we basically agree. We can disagree about whether something’s material or not, but we’re not disagreeing that ESG is about material issues that matter to value creation, that companies should be paying attention to, that investor[s] should be paying attention to.

And let me, just as an aside — if we have time before we talk about some of these other things that the culture wars — when we came in, I told you about my newest piece. It'll be published before this podcast goes out, so it’s okay for me to talk about it. I love the title, “A Tedious and Boring Analysis of Two Items in ExxonMobil’s 2022 10-K.” “Bob, why would you do that?” Okay. So, here’s ExxonMobil, and it’s an oil and gas company, and it’s at the center of these culture wars, between the rights saying, “Blackrock’s undermining America’s energy industry and it’s also woke.” And this and that. Well, just as an aside, ExxonMobil publishes a sustainability report and it’s organized in terms of environment, social, and governance. Do I think that they’re going to quit doing that? No, I don’t think so. Do they have a commitment to getting to net zero for scope one and two? They do. Do they talk about — you know how they do.

So, all the stuff that triggers, right? It's not going to go away. But here's the fun part, I looked at their 10-K. I like to do boring things. Vish, as I said, I wrote a 370-page book on transfer pricing. In fact, I met my wife on a blind date and I spent the whole blind date talking about the book, but that's a story for another day. And I just looked at Item 1, Business, Item 1A, Risk Factors, six pages. And I compared that content to the nine issues that the sustainability accounting standards board would identify as material for the oil and gas exploration and production industry. Every single one of those is in there. So, the 10-K is financial materiality. It's an official filing document. So don't tell me that ExxonMobil is being pressured by the woke to go put something in a 10-K that they don't believe in. It's just not true.

That's what I mean, the disconnect between a lot of this rhetoric and what the reality is. I mean, here it is, those nine things are in their 10-K, because they realize they're important. Here's what I think is going to happen. So, in this webinar, the Bipartisan Policy Center sponsored, the first 15 minutes was an interview with a Republican congressman, Bill Heisinger, who's from Michigan. And he was interviewed by Tim Doyle. And they talk about FTX, and this, and that, and some of the scores don't make sense and the AI stuff. And I get all that.

Heisinger goes, "Look, I'm from real estate. Location, location, location. Materiality, materiality, materiality." "Yeah, that sounds right to me." So, his little session ends and the moderator, Michelle Mellenbach, she turns, she said, "Well, Bob, why don't we start with you? Let's talk about the history of ESG and how it started, and how we got here." I go, "No, I'm not going to do that. I'm going to respond to Congress,” and Heisinger is coming. Oh my God, what's he going to do? I said, "I couldn't agree more." And then, in the pieces you've seen that Dan and I wrote in the Harvard Business Review, Bill Heisinger and Andy Barr from Kentucky have sponsored a bill in the house called the Mandatory Materiality Requirements Act. It was introduced in the Senate by a senator named Mike Rounds from South Dakota with seven other senators.

And I've read these bills. They're not long. Maybe they get longer when they go through Congress. It's above my pay grade. It's all very sensible stuff to me. It's like, "Okay, it's material. If investors think it's important." And blah, blah, blah. So, as I said, you're going to have this layer of discourse and a lot of passion and fun and these hearings and political theater. Then you've got rounds — Heisinger, Barr, Dan Crowley, Rich Pile, Tim Doyle, Greg Goff. I mean, we're not that far apart. We're in alignment on the basic concepts. That's where I think we're eventually going to land. It may take a couple years, but that's the reality.

Vishal Hindocha: So, that's quite a reassuring message actually, because actually what dominates the airwaves probably are... Just like in any other topic are probably the extremes of things. It's very hard for the neutral to be the most interesting thing for the average reader to read. Everyone wants to read one side or the other. But you think that there's enough common ground, middle ground, around things like mandatory materiality, and other core concepts about the long-term value creation, and this has to be part and parcel of it, that we can rescue ESG from the culture wars. Can we rescue ESG from the culture wars?

Bob Eccles: So, I parse this a little bit differently. I mean, I do think that eventually economic reality intercedes, as you know, from talking about Indiana. And you clued me to that, they passed this bill, and then this independent agency in Indiana says, "Well, if you do that, we're going to lose $6.7 billion in our pension system over the next 10 years. That doesn't make sense to me." And you're seeing pushback within the red states on some of these anti-ESG bills. So, reality of investing, reality of returns — I mean, that will eventually win out. Will ESG survive? Maybe not.

Bob Eccles: And as you said, I mean, it's always much more entertaining and newsworthy when people are screaming about stuff. It's like, "Okay. So, Bob and some Republicans are having a civil conversation and they're agreeing.” Well, that's pretty boring. Right? I mean, what's the news value in that? So, I'm going, "Look, I don't care what you want to do with ESG. It's really pretty simple. It's material risk factors. It's positive and negative externalities. It's the difference between ESG integration, as we've talked about with Carolyn [at] IMPACT. A lot of these funds [are] being marketed as Impact funds when they really aren't. And you've got FCA and other groups that are working on that. And then you've got sustainability. You need to think about that at two levels of analysis. You've got the sustainable value creation, capability of a company in terms of strategy and capital allocation, and then you've got the sustainability issues that you need to think about for society.

People go, "We got to save the planet." Now you're going to save... The planet's been around 2 billion years. Last I knew, we had another 2 or 3 billion years to go before the sun goes nova. The planet will be fine. It'll change. Maybe we'll have dinosaurs again. The issue is society. And there I think — when you cut beneath the crazy stuff, on whatever extremes, I mean, as I talked about earlier, very legitimate issue to talk about is — what's the role of the private sector? And what's the role of the public sector? And so, I think you've got an interpretation by some people on the right to things like Climate Action 100 are imposing a liberal agenda on companies. And they're anti oil and gas. I would argue, well, I don't think that's true. I think they're looking at this as universal owners. They're concerned more about beta than alpha. And that issue is a nuance that we really haven't gotten into in this debate. So that'll come later. But eventually, I mean, not eventually, just day by day, these funds all have a fiduciary duty.

I mean, if you read carefully, fiduciary duty, they're not doing things out of a political agenda. I mean, they've got beneficiaries that the over [FK(2] turned to. And what's ironic is how fiduciary duty has even become loaded, to say, "It's a non -pecuniary." Well, they're asserting that material ESG factors are non-pecuniary. That's an assertion. It's not a fact. So, they say, "It's non-pecuniary." I say it is. They say, "You're violating your fiduciary duty if you take account of material risk factors." I say, "You're violating your fiduciary duty if you don't." Then I say, "Go read my piece. If you can get past the title, ‘A Tedious and Boring...’ Blah, blah, blah. And you tell me which of those nine issues that SASB classifies, not as ESG, it's environment, social, capital, human capital, business model innovation, leadership and governance. You tell me, which of those nine issues don't matter to value creation for an oil and gas company? We're not hating on the oil and gas companies. They need to transition, I think. They could be transitioning faster. That's my view." If we could have the discussion at that level, then I think it becomes more constructive.

Vishal Hindocha: Much more constructive. I'm tempted to go back to your first date with your wife, but we're not going to do that just yet.

Bob Eccles: I'm surprised she married me, to be honest.

Vishal Hindocha: You said that you were into really boring things. I just thought what a relief that she must be really into boring things too if your first date was entirely about a book on measurement.

Bob Eccles: But I think she felt sorry for me. I went to MIT. I didn't have that many dates.

Vishal Hindocha: Oh. It's worked out well.

Bob Eccles: How it goes. It's worked out great.

Vishal Hindocha: Yeah.

Bob Eccles: It's worked out great. Here we are.

Vishal Hindocha: So, actually on the public versus private, though. So, you said — actually when you were giving your background — it's really interesting, you felt that at the moment that you entered this, the public sphere was probably ahead. Or the corporates, sorry, were at least ahead of investors. And then, something's happened over the last 6 to 10 years, let's say, where investors have got very much really interested in it and has become the dominant agenda item probably between us and many of our clients. Do you think that the private sector is doing enough in this space? I laid down the gauntlet for you, Bob, and said, "What are you doing?" What's your view on how investors and everyone in the value chain from... I know you do a lot of work with corporates as well as different types of investment houses. What's your view of where we could maybe step up or what would be your challenge back?

Bob Eccles: The phrasing that you used is interesting and it belies where you're coming from, Vish. Doing enough. Doing enough, defined how? Doing enough to save the world? That's a separate question from doing enough to make sure that they can earn long-term returns as a corporation than they can as an investor, right? And my casual view — because I'm not an expert — is that, if you take a particular sector like oil and gas, which is very controversial, it's not clear. It's not clear, because they need to transition. And look, I'm not one of these, you're going to turn off the fossil fuel companies. I mean, the IPC says, by 2050, 95% less coal, 60% less oil, and 40% less gas, that's still a lot. We're going to have fossil fuels in the economy for a long time. Do I think that boards are engaged the way they should be? No.

Do I think that investors are engaged with companies and they're having a conversation around strategy and business transformation, and transformation? I think there could be more of that, to be honest. I think every industry is going to need to transform. I've got a dramatic example of that, as you know, my client, Philip Morris International, my controversial tobacco company client, they're undergoing one of the biggest business transformations that I've ever seen to get out of the cigarette business. So, they can transform, then I think every company can transform.

But you need the will, and you need the capabilities, and you need the leadership. And my concern about the culture wars right now is that it's spooking people. Right? So, there's a little bit of the "Well, let's hit the pause button." I don't think, as I said, companies are not going to quit paying attention to climate and DEI, but maybe they're going to talk about it a little bit less. And then the investors are nervous about collective engagements and things. And so, that's one of the question marks that we're looking at now. And, I have some views on that I can share later.

Vishal Hindocha: Great. We've talked about some of the challenges and some of the things that you're involved in, but I always come away from our conversations, Bob, quite uplifted, because you're always quite optimistic about lots of things. What are some of the opportunities that you see for our industry and how sustainability will unfold in the near term?

Bob Eccles: I'll give a little pitch for the International Sustainability Standards Board, I think supporting that, because you need to have quality disclosures on sustainability information, like with financial information.

So, for me, there's a big opportunity. And in a curious way, just like I think these culture wars are a potential teaching moment in what you get in the house hearings, is we can all get real. And so, I think the investment industry needs to say, "Listen, we want to be heard. And we'll come and meet with you, however you want to do it." It'll vary by jurisdiction. And be more proactive. You guys right now seem to me to be a little bit reactive. And I think that's a mistake. I think you need to be reaching out, because as you said, Vish, you've got the extremes, and it's entertaining, and there's the cacophony, and you're playing to the crowd. But if you're going to get this discussion with the sustainability pragmatist around materialities — separating materiality from positive and negative externalities — you need the companies to engage and you need the investment community to engage. And I'm feeling a little bit like, people are going, "Well, I don't want to be the whale that pokes its head up and gets harpooned."

Vishal Hindocha: Yeah.

Bob Eccles: That analogy. So, that's my pitch to the investment community.

Vishal Hindocha: I like it. And I think, in terms of reaching out to the pragmatist, one of the things I hope for this podcast, actually an idea that I adapted or took from one of my early mentors, Roger Owen, who we've spoken about, but I need to introduce you to at some point, he introduced this concept to me of ending something with wisdom, which is an acronym for What-I -Should-Do-Differently-On-Monday. So, if a practitioner's listening to this, this mostly goes out to the investment community, right? What would be your advice for something that they should do differently on Monday? And as you think about that, one thing that I've took away from our conversation is your very poignant point on stepping outside of your bubble. Right? So that moment where you reached into the K&L Gates and your friend who introduced you to the other side and…

Bob Eccles: Hold on, they reached out to me in fairness.

Vishal Hindocha :... Yes, yes.

Bob Eccles: They reached out to me. Right?

Vishal Hindocha: And I do think stepping out of our bubble to acknowledge and respect different opinions just increases our own knowledge base, but also the nuance with which we then apply some of these things, and it allows us to right size some of our arguments. So, that's a practical piece of wisdom that I'll be thinking about in terms of how to expand that. But is there anything else that comes to mind for you, Bob, something that as practitioners, we can think about doing differently on Monday?

Bob Eccles: So, I mean, during climate week, I was at a couple of conferences in New York, and I was talking a little bit about my GOP outreach campaign as Dan and I were talking about. I said, "How many people..." This is a sustainable finance conference. This isn't like a Greenpeace gathering. I said, "How many people in here are Republican?" No one raises their hand. And, in a pick, when there was three people, they were in the back of the room. I said, "You're in the back of the room. It's where you belong."

Vishal Hindocha: Yeah.

Bob Eccles: We all had a good laugh. That illustrates the problem. So, go make friends with Republicans, with Tories, if you're talking in a UK context. And what's interesting is that they're out there. I mean, I have a very good friend who's at a pension fund, who I'm having this conversation in New York with dinner and I say, "Well, I need to meet more Republicans." She goes, "I'm a Republican." I just assumed she was a Democrat, because she was in California. Shame on me.

Would be a really interesting exercise for people, when they go back to their job the next morning, whatever morning they hear this, imagine that you've been called in to a house hearing on ESG. And, some congressman says, "Mr. or Ms. X, can you please explain to me how you're using ESG in your investment process?" That would be a very good exercise to go through, how you would explain it as a portfolio manager, how you would explain it if you're on the stewardship team, how you would explain it if you're the ESG center of competence, if you're the CIO, how you think about that across asset classes, across capital allocation. Be able to come in and make the argument for why this is related to value creation, why it's important for delivering long-term returns to your customers. And take responsibility for being able to make the case yourself. Don't just let your CEO get beat up and your CIO get beat up.

I think everybody in the investment community — you folks own this. I mean, I can write my little pieces and make friends with Republicans and that on this and that. In the end, I don't matter that much. What matters is the people that are doing the work, they need to be able to make the case for themselves. And so, I think, every one of your listeners needs to give themselves that little homework assignment, and be prepared, and then have them write me. And since I know Republicans, I'll give them their name, I'll send their name into the committee and maybe I can get them some visibility in Washington DC, their 15 minutes of fame and make them famous. How's that?

Vishal Hindocha: There you go. What a brilliant call to action. Some homework. So, a way that I want to end every podcast episode is with a secret question. So, I've reached out for some homework too.

Bob Eccles: Could I say one other thing we talked about?

Vishal Hindocha: Yes. Yeah, please.

Bob Eccles: What I think the investment community needs to change, as opposed to what they should do to change. I think you need more gender diversity in terms of people who make capital allocation decisions. And I'll start with this in a personal way. My favorite eldest child, Charlotte Hamill, who's a partner in a fixed-income hedge fund called Bracebridge Capital in the same building complex where we are, Vish, now. We talk[ed] about this. I've talked about this with my friend Shu Dar Yao, who advises venture capital companies. 1.9% of new venture capital money went to women-owned firms. When you look at the investment community, you see a lot of women in sustainable investing in the stewardship groups and the ESG groups.

When you look at it at the portfolio manager level, you look at people that are allocating capital. My daughter has a big book in trades. It's a very small percentage. And it's a tricky problem, because when I talk to my daughter about it, she goes, "Look, we're a woman-owned firm. We'd like to hire women. 80% of the CVs that come in are from men." So, it's already a smaller pool. So, I mean, what do you do to fix that problem? You can't just come out with a quota system and say, "We're going to have 50/50." You're still going to have to be hiring for talent. I also don't buy this thing, "We can't find competent women." There's competent women. I joke with my daughter. So, I was a pure math major at MIT. She was an applied math econ major at Harvard. I'm the master brain and she's the apprentice brain. She's got a seven-year-old daughter called Thora, who's the apprentice, apprentice brain, says, "I have a computer in my brain." The girl rocks it at math. She goes, "I'm going to run a bank when I grow up."

Now, maybe she picked that up because of what her mom does. Although the oldest daughter is a reader and she's probably going to be mayor, because she's got great political skills. Most girls don't have the advantage of having a mom who's in the investment community, who's allocating capital. So, I think it's important to somehow get that. And it's an issue that I think you guys need to address as well. How do you get a more proportionate distribution of men and women? And then it gets even harder when you get into racial minorities, right, in terms of the people that are really making those capital allocation decisions. I think that's a really important thing to fix.

Vishal Hindocha: Definitely. And this is an issue I've thought about a lot actually over the last, I want to say, 10 or 15 years. And one of my "Aha" moments or moments of learning was that, essentially in order to fix that problem of that pipeline of talent coming through, all the research suggests that any child, girls, and I think minorities in particular, need to be exposed to a STEM career by the age of eight or nine.

Bob Eccles: That's probably right.

Vishal Hindocha: In order to even have the mindset, and the desire, and the ambition to really pursue the right subjects and to get into the right places. So, there's one thing of how do we swim more upstream to get to and deliver either financial literacy or that role modeling that you're talking about at a much earlier age. And there's some interesting work that we've been doing. And actually, some of our clients I've been speaking to that are really interested in this space are doing phenomenal work on it. And I'd love to actually bring them to talk about that work here, because I think that would be illuminating for lots of people.

But there was one interesting thing that came to mind as you were talking about the 80/20 in terms of 80% of male applicants to a particular role. So, Amazon was opening up a big base in the UK a few years ago, about 3,000 jobs that they were creating. And they actually did a really interesting AB test on the type of language that they were using in their job descriptions. And they found that the traditional types of language about demanding certain levels of experience or certain qualifications or certain things, just some of the language lent themselves more to women in particular, but also ethnic minorities ruling themselves out of the position, when almost semantically exactly the same thing, phrased slightly differently was opening up a whole different turnout for exactly the same job, exactly the same level.

And so, because they were opening 100 jobs at the same grade, they were able to properly AB test it. And now, they've come up with language that is less prohibitive for specific groups to think that "Actually, I don't fit that narrative." And there are some interesting kind of findings around how to maybe attract a broader pool of talent to the organization. So, I totally agree we have a pipeline problem, but I also think there is some small things within our power that we can do to open up that field a little bit more. But yes, I…

Bob Eccles: Didn't know that. That's interesting. And that's encouraging.

Vishal Hindocha: ... Yeah.

Bob Eccles: I mean, because that's a very fixable thing.

Vishal Hindocha: Exactly.

Bob Eccles: Right.

Vishal Hindocha: Yeah. And there are some really good people that are thinking about, how do you do blind CVs, or how do you write certain job descriptions so that they actually open up to the right kinds of talent pools that you're really interested in. So, really fascinating stuff. And I agree with you that DEI is also a massive issue for our industry. So, as I was saying, homework for a previous guest was to write a secret question for you, Bob.

Bob Eccles: Okay.

Vishal Hindocha: So, it's in the envelope. So, can you open the envelope and read the secret question?

Bob Eccles: Whoa.

Vishal Hindocha: You will also get the chance to write a secret question for the next guest.

Bob Eccles: Ooh.

Vishal Hindocha: On the All Angles podcast.

Bob Eccles: Turn about is fair play.

Vishal Hindocha: Yeah, exactly.

Bob Eccles: Is this a strength test or something?

Vishal Hindocha: You did say 410 pounds, so I gave it the extra strong adhesive.

Bob Eccles: But that's like deadlift, isn't it? Oh, "Is ESG enough to get us where we need to go? If not, what else is needed?" The answer is, it's most definitely not.

Vishal Hindocha: No.

Bob Eccles: Enough to get us where we need to go. As I said, it's about material risk factors for value creation. It's not about positive and negative externalities. Let's not try and make ESG be more than it is. And that's legitimate criticism from the left to say, don't think that ESG is going to save the world. I mean, in one of my posts on LinkedIn, I had some guy who was from Texas, a ranch hands and said, "ESG is a socialist conspiracy." And then I had some activist in Toronto say, "Basically, when the world ends from climate change, ESG will be at the head of the parade."

So, in fact, like I said, let's not even talk about ESG. Is it enough? If not, what else is needed? What is needed is to have clarity in products, whether they're ESG integration products. Carol talks about ESG investing, the term should go away. It's just investing. It's a factor like all these other factors that you folks worry about, right? Which is legitimate. Impact is different. You need to have clarity on that. And then, I think we need to, rather than have these very broad discussions that tend to get politicized, I think we need to talk about specific issues. And when you talk about language and recruiting, I think you're going to have a better time having a bipartisan conversation by talking about energy security and the energy transition than Al Gore fulminating on about how the world is going to end, that doomsday scenario thing. It just doesn't play.

So, let's have a candid conversation about the energy transition. Let's have a candid conversation about systemic racism, without getting into the bugaboo of critical race theory and all that. Let's have a candid conversation about nuclear [power]. I supported a lot of people don't. I understand there's differences of opinion. I think if we could take this down to what are the specific issues that need to be addressed, rather than it's some broad label of, "It's ESG. It's sustainability." We're going to make a lot more progress in that regard. And in the end, the extremes are going to rattle around. But when you look at legislation, and you look at regulation, at least in this country, we've got a pretty strong two-party system and that's it. It's only going to happen in a bipartisan way.

Vishal Hindocha: Yep.

Bob Eccles: And that's why I think, although it's maybe less dramatic — and it's less sexy, and it's less entertaining to be having these pragmatic conversations — we all need to be focusing on how do we identify the issues that need to be addressed, as Dan and I said, separate out material risk disclosures from salient political issues. And when we say ESG integration can only do so much, what else is needed? Let's identify those areas where it's really a political public policy question and let's have the discussion around that.

Vishal Hindocha: That's great. Brilliant. Thank you, Bob. I'm tremendously excited actually by that answer of thinking about "How do we break it down to the nub of the core issue,” rather than getting lost in the broad space of ESG. I think that's actually a fantastic way to think about it. Bob, thank you so much for your time, for your insight, for your wisdom. You've been extremely generous with us today and our listeners. Thank you very much for joining us.

Bob Eccles: Good Fun. Good to see you. Take care. Cheers.

Vishal Hindocha: Cheers.

Bob Eccles: Bye.

Vishal Hindocha: So that was Bob Eccles. I think he set us an interesting challenge for the homework that we have to do, to think about what it would be like in front of the house hearings, to think about what message that we want to send and how as investors and members of the investment community, we do actually need to probably step up and own more of this conversation. I appreciate him bringing that challenge to us. So, again, thank you for listening. Good luck with your homework and let us know at allangles@mfs.com, how you get on with it. And maybe we can share some notes.

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