Episode Transcript
Speaker 1 00:00:22 Today we're speaking with James Katz, founder and c e o of Humankind Investments. He's talking to us today about how close we are to a cleaner electric grid. Thoughts on the first 100 days of the Biden Harris administration, and the future of divestment and exclusion based rules. James, welcome to the podcast.
Speaker 2 00:00:41 Thanks so much for having me.
Speaker 1 00:00:43 So before we get started, tell us about what makes humankind's quantitative approach unique.
Speaker 2 00:00:49 Sure. So at Humankind Investments, uh, we do a lot of work into, and we do a lot of research into how all these different socially responsible concepts relate to one another. Um, and that's something that I think is quite different from what happens in many other, um, research shops. So very often I think you would have a client come and say, oh, you know, I don't like tobacco. Can I have a portfolio? No tobacco? And you'd say, okay, great, sure, here you go. Um, or another client might say, oh, I really care about climate change. Can you gimme a portfolio that that relates to that? Um, and manager could say, yeah, sure, I, I can do that. But how many managers can, can even try to answer the question, how many cigarettes smoked equals one ton of carbon emitted? So just to give, you know, that basic example, that's a, that's what we're trying to do at humankind investments.
Speaker 2 00:01:41 We're spending a lot of time trying to make these different issues comparable, and we think that that provides a, a pretty big benefit because very often I think clients are even confused from the start about trying to figure out which issues should be prioritized in a socially responsible portfolio. And if we can't make these different issues comparable, we can't have an answer as to which issue is sort of more important than another, or how they should, they should be weighted, um, in a portfolio. So what we do at, at Humankind Investments is we try to put a dollar value on every impact that a company has on humanity. So we look at value for investors, value for employees, value for customers, and value for society. We try to put a dollar value on all these different impacts of profits, economic concerns, but also the value of human life. And, you know, are these products making people sick or are there byproducts of, of the production process that are maybe polluting the air, causing increased medical bills for, for whatever reason. So we try to put a dollar value on each of those different impacts. We add them all up, and then for each company we end up with what we call a humankind value, which is meant to represent the total value that a company creates for humanity. Um, and then we, we wait the, the companies in our portfolios on that basis.
Speaker 1 00:02:55 So when you're doing that work, are you using, say, the G R I framework, are you using sassy standards? Is this completely proprietary? How does that, what do you take in, in terms of those external frameworks and standards versus what you're doing that's very unique to you?
Speaker 2 00:03:11 Um, it's pretty proprietary. So we, we look to the scientific literature to see what the, the researchers have found in terms of the impact of all these different issues. So there's all kinds of research on different economic and social impact of, say, climate change, tobacco, breastfeeding, substitutes, wage theft, you know, you, you name it. We, we kind of put, we put a dollar value that that in part comes out of what the scientific literature is saying. So we try to find the most cutting edge scientific research. We look at the impact that, that scientists have found, and then we try to make, we have to do some additional processing so that the issues can be made comparable. What we find is after having done that work, you end up with something that I think is, is really, really unique.
Speaker 1 00:03:55 Great. And I know obviously comparability is a huge tenant, very important tenant, especially when you're looking, um, at an industry, making sure that the measurements, the metrics there are comparable. Let's talk a bit about, um, your thoughts about exclusion, divestment. Many investors are the belief that it works better to really partner with companies to understand what their strengths are, understand what their plans are, as opposed to investing or using exclusion based rules? What are your thoughts there? Do you tend to lean toward one or the other? Do you think it's very situational?
Speaker 2 00:04:27 Sure. Well, I would say if, if a company, if, if an investment manager, say they have their hands tied by a particular mandate, they can't, they really just can't divest. Certainly voting the shares and, and engaging with the company is the only thing I think that you can do if you want to try to push some sort of socially responsible agenda forward. And I think that's better than nothing, certainly, but, but I do think that like, by holding a lot of these companies, uh, shares, it could be that progress is being slowed. So in many cases, what we find in our research is that there are certain companies that have a, a net negative humankind value, which means that on the whole, they're essentially destroying value for humanity. That means after we take into account all the good stuff, the profits, um, employee salaries and benefits and, and even the value of the products and services, to the extent that those are positive at the, you know, at the end, at the end of the day, we, we, we crunch the numbers and it, when we've determined that every year value for humanity is being destroyed.
Speaker 2 00:05:18 So for a company like that, uh, it's kind of hard to justify holding, um, tho those shares if you can, if you can divest. And I think, I think that if, if the CEOs of these companies see that their share price is dropping because people are divesting there, there may be an additional incentive to there to actually get the company to, to, to really, you know, enact change in, in a much, in a much quicker way than a sort of more diplomatic engagement might otherwise.
Speaker 1 00:05:42 So do you think that companies who have plans to definitely have a definite plan for making, um, a change transitioning by 20 40, 20 50, is that a quick change in your, in your mind in terms of how a company particularly a, a large or a global company could make a change to their climate objectives?
Speaker 2 00:06:01 Oh, man. Well, so I, I have, I have thoughts on this. I think the metaphor that I would use here is imagine you, you're living in a, a suburban, um, environment. Your neighbor is, is dumping trash into your backyard. Um, every day your neighbor comes over and dumps their trash into your backyard, and you, you tell your neighbor, Hey, can you, can you stop that? And the neighbor says, I pledge by 2050, I will be able to completely stop throwing trash into your backyard.
Speaker 1 00:06:24 Not apples and oranges. Not apples and oranges. James <laugh>
Speaker 2 00:06:28 Not, no. Well, I mean, if they're, if they're giving apples and oranges, I wouldn't be so upset. But if it's trash, then, then we have, then we have a problem. I mean, I think, you know, I do think it's comparable in the sense that we, the, the companies that we're talking about very often are sort of dumping trash into our air, right? Sort of into our lungs, into our food, uh, into the products, um, that, that we purchase, right? These are things that are happening on an ongoing basis. I think it's just that we're not, you know, normally I think we wouldn't expect a neighbor to dump trash into our backyard. So that feels kind of, you know, kind of like a, a surprising thing. But should I think we should be surprised when companies sort of do the same thing to us? I think we, I think we should, that should be a very displeasing and upsetting experience, just as, just as upsetting as it would be if our neighbor was dumping trash into our backyard. So, so I think that we should be holding companies to a higher standard look, I think if they're setting a goal that's better than nothing, but I think they, that they should really be trying be, they should really be speeding up these timetables significantly speeding for myself, I guess I'm not interested in having trash dumped into my backyard for the next 30 years.
Speaker 1 00:07:29 Very good, very good. I, I know that, um, goals have been very important, not just for the corporate sector, but also for the government sector specifically. As we look back over the first 100 days of our, um, new Biden Harris administration, how do media perceptions of corporate behavior impact a company's performance? A new offering from Refinitiv is market psych analytics, a tool which analyzes corporate sustainability related news and social media in near real time by filtering through a vast collection of news and social media content, and analyzing articles about environmental impacts, sustainability and government stewardship. The complex AI engine measures emotional and financial language, so users can look over time to see the negative and positive swings of assets. The data is published every minute, every hour, and every day to learn more. Visit refinitiv.com.
Speaker 1 00:08:35 And there's been a lot of conversation about electric grids, um, electrification, electric vehicles, EVs, including infrastructure buildout that would really support having more EV stations in terms of the progress that we've seen to date with the electric grids and the cleaning cleaner electric grids. Would you say that we've made tremendous progress, and you can use the same trash in the backyard analogy. Um, are, are, would you say that we are from a government perspective, a public perspective falling behind in the way that you've just communicated that the corporate leaders in some cases are falling behind?
Speaker 2 00:09:10 Um, I, from a, from an electric good perspective, I think there's a lot more work to do. Some of the shortcomings of the renewable energy sources that we're hoping to rely on are that they can kind of, um, they can be unreliable in certain aspects, right? The wind isn't always blowing and the sun isn't always shining over the, uh, we know wind, wind turbines and, and solar plants that, that we'd like to use, having major investment into, um, an electric grid that could actually store this energy, um, when it's not being, you know, when, when it's not being used, could actually then allow the sustainable energy production sources to be, to actually work for the whole country in the sense that even when the sun isn't shining, if you've stored enough solar energy, um, you can then tap into that storage during times when, let's say the sun isn't shining, or if you've stored a bunch of wind energy, um, you can then tap into that energy when the wind isn't blowing. And, and, but that does require a huge infrastructure investment, and I think the Biden administration is doing the right thing, at least by talking about it. I, you know, I think it still remains to be seen to what extent, um, this, this big infrastructure investments actually going to happen.
Speaker 1 00:10:12 And do you see that there's a role for the demand? So, you know, you talk about there's a need for it, but do you think we are educated enough as investors and even as retail investors as well, as well as institutional investors, are we educated enough on what needs to happen to really demand those things at this point?
Speaker 2 00:10:29 Well, my, my, my, uh, my dad always had a saying, which is, uh, like, for better, there is no limit. So, you know, I'm sure we could, we could always do better in terms of advocacy, spreading the word education, getting people to, to understand what issues are at play here. So yeah, I, I would, I would certainly say that there's room for growth in that, in that area, but it seems to me like there's been, certainly today more so than ever, as far as I, as far as, uh, I can tell much more support for this than I've ever seen. So I think we're on the, we're on the right path, um, but hopefully we'll, we'll get there sooner rather than later.
Speaker 1 00:10:59 Great. And in terms of really making this relevant, uh, the need for a cleaner electric grid, I know that the cryptocurrency space has been just seeing tremendous energy lately, if you will, in terms of the, um, rollercoaster ride. I would love to get your thoughts. We talked about how the crypto space could really benefit from, um, this cleaner energy grid, and so I would love to get your thoughts on how the two, um, how does that happen? Just talk us through how that happens.
Speaker 2 00:11:29 Sure. Well, the, the big issue, um, with cryptocurrencies from a socially responsible perspective is that they, they take a lot of energy to, to conduct the transactions that, that they need to do to like work as a decentralized currency. So Bitcoin currently, um, uses massive amounts of energy, and because the energy grid is, is dirty still, right? We're just dependent on fossil fuels significantly. Um, for, for our energy, that means that using Bitcoin, let's say, instead of the traditional financial system would be a step down from sustainability perspective because we would be using much more energy to conduct all of these transactions. There's, there's all these, you know, bitcoin mining operations that take so much energy to, to solve these problems that then show kind of this proof of work. That means that these transactions are secured and that people cannot trade, um, bitcoins and have them sent around the world. That, that computational spend is so energy intensive that in many, that really anything that's super energy intensive when you're coming off of a dirty grid is, is sort of less sustainable than something that takes less energy. So cryptocurrencies is compared with the traditional financial system, it seems, is currently less sustainable, which actually I think Elon Musk realize that just this fast weekend when he made the announcement that he would no longer be accepting Bitcoin, uh, because, because of the climate concern, despite him actually having been a big booster of, uh, of cryptocurrencies in general.
Speaker 1 00:12:54 So, such great information here, James, from really talking about holding corporates accountable, um, and you, her analogy about trash in the backyard, very interesting as well as the, um, heading in the right direction around educating ourselves, educating each other around the benefits of Clean Air electric grid and, and making the demands as well as how it impacts very relevant topics like cryptocurrency. James Katz, humankind, thank you so much for joining us.
Speaker 2 00:13:21 Thanks so much for having us.
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