Lukas Strobl: Welcome back to Amsterdam at Morningstar Sustainable Investing Summit 2024. I’m here with Kunal Kapoor, CEO of Morningstar, who just delivered our opening keynote. And Kunal one sentence stood out, and that is that the persuadables have been persuaded of sustainable investing, and the skeptics remain skeptical. The thing is, yesterday the skeptics swept to power in both chambers of Congress and the White House. Do the advocates of sustainable investing need to change tack?
Kunal Kapoor: I don’t think so, and I think the important thing for us to think about is that it’s not just about the E, the S, or the G. And really what we’re talking about is trying to find data and build databases that people can find and use in a useful manner, to measure essentially what is the financial materiality of the actions they’re taking, and how should they think about that. And I think we can all agree that it’s okay to disagree on some of the data points, but the important thing is to find the things that matter and build those into portfolios. So for example, you might live in a certain community, either here in Northern Europe or somewhere in the US or in the UK. And you may want a portfolio that represents the industry in your community, and you might want to lean hard into buying local and emphasizing local in your investments. You can do that through ESG data and should not be controversial. Now there are some things that people will find different viewpoints on, and my view is it’s all good, because that’s what makes markets. We don’t have to agree on everything.
Strobl: So customization will become more important as package deal ESG might be a bit more of a blunt instrument for many people that it needs to reach?
Kapoor: Yeah, I call it personalization and the importance of expressing our preferences. You have certain preferences in life, I do have certain preferences. I think for us to be more engaged investors, if we can express our preferences in a portfolio, that’s terrific.
Strobl: Now, before this whole campaign, before yesterday, even in 2023, BlackRock’s Larry Fink famously said that he would stop using the term ESG, saying it had become weaponized, and arguably it’s become more weaponized since. Does this acronym need to be taken apart or repackaged to survive the next four years?
Kapoor: I think the important thing is you need to find the data that matters to you and think about how that helps you build a portfolio and get the kinds of exceptional results that you might be looking for. And so I worry a little bit less about what the acronym needs to be or what it may evolve to. And what I think about is how do we just make sure the data is useful, comparable, and up to date on a consistent basis so people can make investment decisions and do them in a way that resonates with them personally. And as I said earlier, what makes markets is people can look at the same data, come to different conclusions, and I’m totally fine with that.
Strobl: Now on the corporate side, obviously there is a bit of a cultural shift as well in the US with the political climate going forward. Do you expect an increase in “greenhushing”, so far more of a niche term, but companies talking down or even hiding their sustainability efforts to acquiesce to political demands?
Kapoor: I don’t think so. And the reason I say that is because the companies that are doing it are often doing it for financial long-term reasons. No one questions an insurer when an insurer makes a decision about whether they want to be in a coastal market or not because they can’t price policies and the potential for claims based on changing weather patterns. That’s sort of a normal business decision. And so I think every company should be looking at what are the things that make it more valuable and what are the things that ensure that it has a great culture, that its people are engaged. And so even issues like pay parity, I think are very important in many companies. They have nothing to do with greenhushing. I think if you are looking at making sure your workforce is equally motivated and that they’re fairly compensated, data like that is incredibly useful. There’s no need to hush it up at all.
Strobl: So making it material will be key going forward?
Kapoor: Yeah. I think you hush it up if you don’t know what you’re doing and you’re just doing it because you’re trying to check boxes. And I think really companies need to figure out what’s actually useful, what drives our results, what makes our employees feel engaged, and so what makes the enterprise more valuable.
Strobl: Thanks so much, Kunal. For Morningstar, I’m Lukas Strobl.
Morningstar, Inc. licenses indexes to financial institutions as the tracking indexes for investable products, such as exchange-traded funds, sponsored by the financial institution. The license fee for such use is paid by the sponsoring financial institution based mainly on the total assets of the investable product. A list of investable products that track or have tracked a Morningstar index is available on the resources tab at indexes.morningstar.com. Morningstar, Inc. does not market, sell, or make any representations regarding the advisability of investing in any investable product that tracks a Morningstar index.
