Transcript: Daniela Gabor on the Drawbacks of the ESG Boom

(Bloomberg) -- It's no secret that ESG investing has become a big business with tons of money flowing into businesses and funds that claim to care about environmental, social and governance concerns. On this episode of Odd Lots, we speak with Daniela Gabor, a professor of Economic and Macro-Finance at UWE, who’s been critical of the space.  

Tracy Alloway:
Hello, and welcome to another episode of the Odd Lots podcast. I'm Tracy Alloway.

Joe Weisenthal:
and I'm Joe Weisenthal.

Tracy:
Joe, how many ESG press releases do you get in a day, would you say…

Joe:
Half of my inbox. You know, I don't like making fun of PR people too much because it's sort of cheap, you know, journalists always whine about PR people, but half of my inbox is cryptocurrency experts who want to tell me about cryptocurrencies and the other is people who want to tell me about some sort of thing with sustainable investing, a.k.a. ESG.

Tracy:
Yeah. I kind of love how it's two extremes of the barbell, right? It's cryptocurrency taking up a bunch of electricity and then at the other end, sustainable finance. But I wouldn't necessarily blame the PR people because there is this huge industry that has cropped up and grown around ESG. For those that don't know, it stands for environmental, social and corporate governance. And I think we've had something like $500 billion worth of money raised by companies and governments for ESG projects. We've had more than $800 billion flowing into ESG funds. And as our inboxes can attest to, we've had hundreds of new ESG funds launched recently.

Joe:
There is certainly a lot of money in it. And you're right. We can't blame the PR people. It's not their fault that there is just so much money, marketing, funds. They're just going, you know, doing what the clients say. It's really not the PR people’s fault. There is a very big push behind all things ESG, both on the private side — companies wanting to make themselves eligible for ESG investing, green bonds, etc. — just a huge part of this sort of a finance conversation right now.

Tracy:
Yeah. But I'm kind of glad you brought up the cryptocurrency parallel because just like the crypto market, ESG is relatively new and it's sort of finding its footing. And there's been quite a lot of talk about how to align incentives, how to get definitions right. What exactly is a green investment? And in many ways there's a lot of disagreement and it's still kind of like the wild west.

Joe:
Totally. And you know, there's still like, there's a lot of ambiguity, it seems like. I mean, part of it is like, well, how much do you want to invest with your values? How much is it that using certain ESG screens you can actually do better, because in theory, a company operating with more sustainable practices could, or should, according to some practitioners actually deliver better returns. What are the trade offs? But I don't think any of these answers are settled science by any stretch.

Tracy:
No, but today in order to offset all the press releases that are floating out there, we are going to be focusing on — I don't want to say the downsides of ESG, but maybe areas of potential improvement. That's probably a good way of putting it. And we are going to be speaking to Daniela Gabor. She's a professor of economics and macro finance at UWE Bristol, and also a very vocal critic of ESG on Twitter. Daniella, thanks so much for coming on.

Daniela Gabor:
Thank you for inviting me.

Tracy:
So I guess my first question is what's the purpose of ESG? Because it sounds kind of obvious, like we're going to pour a bunch of money into good or green projects that are going to change the world. But is it that you're supposed to be investing in good companies or is it that you're investing in companies and then trying to engage with them to change their behavior?

Daniela:
So I would say that my interest in ESG comes from observing the broader political context in which ESG investment as a reason in which this wall of ESG funds that you just described has sort of come about. To describe the political context I would like to start with a quote from a private equity lobbyist that was discussing the Biden infrastructure plan. And he said something along the lines of this is a very traditional government in spending on infrastructure plan. It's like an old funded-through-the-government approach. And what we were expecting was Biden to put private finance in the driving seat, to partner with private finance through private public private partnerships (PPP), and to tap into the huge pools of capital, particularly ESG capital, standing by and looking for sort of sustainable investments in sustainable projects.

And the way in which this complaint was framed — that Biden chose old-style government investment instead of a partnership with private finance — signals to me the importance of thinking about the rise of ESG and what is the purpose, how should we think about its limitations through the lens of what I call macro finance regimes. That is the configuration of policies and institutions used by governments, central banks and private finance to design the low carbon transition. That is a transition towards a low carbon economy.

And I would guess since 2015, the year of the Paris Agreement, and also the year of the Addis Ababa financing for development conference, we have seen what I would describe as two broadly distinctive macro financial regimes that promise to generate investments in the order of about a $5 to 7 trillion annually that are necessary for the low carbon future. And there is a big finance regime and a big green state regime that we often discuss as a green ‘New Deal’ kind of arrangement.

So when private equity companies and asset managers were complaining to me that Biden had abandoned this big finance regime that was dominant until then in global policy forums, like the G20, the United Nations, in multilateral development banks, the conference on climate change, global investor for sustainable development alliance, which was a consensus that private finance needs to be in the driving seat for us to achieve the ESG and decarbonization commitments by 2030...

Joe:
I want to stop at this point cause I just want to really make sure we stress it. And this is super interesting. And so what you're describing is that for years there has been this consensus among leaders that when they set out to say like climate goals or other environmental goals, that there was a big role for the finance industry —  for private money to be employed, directed in such a way that it goes towards investments in all these areas, whether it's technology or something like that. And perhaps some of the anxiety now, as we think about when, I guess you could say maybe Green New Deal thinking, although there is no Green New Deal, but Green New Deal thinking is much more about ‘let's just have public spending invest in this.’ And it's sort of like, I guess you could say it sort of cuts out the opportunities in some ways for private financial profit. Exactly.

Daniela:
Exactly. I mean, it doesn't necessarily cut them out because you could say, well, you know, private finance could still buy the bonds issued by governments to finance the green carbon transition. It definitely sort of goes against this idea that private finance needs to be in the driving seat — an idea that that comes with ESG push over the last five to seven years.

Tracy:
So what's the implication of that? Are you suggesting that as more of these projects are undertaken by governments, does that mean that the ESG pool is going to start shrinking or there's going to be fewer opportunities? Or is it still just going to keep growing as we described in the intro?

Daniela:
That's a very interesting question in the sense that it very much depends which avenue governments will decide to take, whether they go for big public investment, which I somehow doubt. I think the Biden infrastructure plan is somehow an oddity in in high-income countries, I would guess especially after the Covid-19 crisis, because we still rely very much on this powerful macro fiction of the last 40 years that governments have limited fiscal space and that they should not rely on independent central banks to maintain borrowing costs low. Then the idea, the question becomes if governments cannot produce the trillions in green investment, these have to come from somewhere else and that will be private finance.

And that's where you get the sort of back-of-the-envelope calculations that you described earlier. And they run something like this: you have 30 $383 trillion in financial assets worldwide around a hundred trillion belong to institutional investors and asset managers and probably 30 trillion, more or less, have already a sustainability label attached to them. So $5 to 7 trillion annually, it's not that large, but what it requires — and I think this is very important to bear in mind — what it requires is for public finance to crowd-in private finance. In other words, for the state to help private finance invest in infrastructure projects. And this is I think an important political project that goes hand in hand with the rise of ESG, because it says that when the state has to de-risk investments, particularly infrastructure investments, for private finance, and that goes in two steps. One is to allow private finance to identify sustainable asset classes via ESG metrics, and then to de-risk private flows into these ESG sort of sustainable assets, right?

And to give you the example of the G20 infrastructure as an asset class, which the Biden administration is already supporting through its, uh, international climate finance plan — the idea in the G20 infrastructure as an asset class is that the private sector does not build ports or high speed trains or renewable energy plants or hospitals, because there are very important risks to projects’ cash flows. There might be insufficient demand. There might be currency depreciation, climate risks, fossil fuel subsidies for the poor. So what the state needs to do is to step in and to de-risk public private partnerships — so these partnerships between the state and private finance — by assuming risks that demand falls or that future governments might increase policies like minimum wages or new climate regulations, such as an increase in carbon price. And I think this to me, this turn towards the state as an instrument of de-risking for private finance explains to a significant extent the dramatic growth that we have seen in sustainable finance products in the last year. It’s a global political appetite for a market-driven approach to development and to climate.

Joe:
This is super fascinating already. I mean, I'm thinking, you know, one of the themes that we talk about on this podcast a lot is are we sort of like entering a, I guess, post-neoliberal period in thinking about the economy, and we've talked about it a lot with monetary and fiscal policy and this idea of handing off control of the economy from the technocrats at the central banks to the politicians in the government. But we haven't really explored it from the climate angle, but it really is the same conversation. It really dovetails with this very nicely, this idea that yes, there were these climate priorities that many large governments and large companies had set out, but it was very much done within this framework of ‘yes, but it's, we're going to turn it into a market opportunity.’ And so this choice to de-risk the projects of sustainable finance for the private sector is what is this sort of like seed or the kernel for what is this omnipresent boom in, I guess, ESG investment vehicles.

Daniela:
Yes. I would very much agree in the sense that I think if you trace — the importance of ESG in general is that it is a private taxonomy for identifying green or sustainable assets, and in a sense, distinguishing them from dirty assets, right? There are a couple of issues to consider there. I think one is that, although we tend to applaud in some ways, the fact that technocratic central banks are at least working closer with governments in order to design say the green transition or to respond to the Covid-19 pandemic, to me the question is when government technocrats sort of takeover, do they take over to design public investment in green infrastructure and green industries, or do they take over to design and to negotiate de-risking in public private partnership contracts? And there are very different fiscal implications for both.

And in one of the papers that I've written on what I call this ‘Wall Street Consensus,’ I look at the hidden fiscal cost of de-risking, and they can be quite significant. We have examples in the European Union. We have examples in countries in the global south, like Nigeria or Ghana, where we can see that sort of relying on the private sector to drive the sustainable agenda, doesn't mean that the state is not putting fiscal resources on the line. It is in a sense. And the risk to me there is that it sort of privatizes profits and socializes loss.

Tracy:
Daniela, can you explain that a little bit more? How does the government de-risking the space actually result in fiscal expenditure?

Daniela:
So let me give you the example of Ghana's Sankofa offshore gas project, where the state signed a public private partnership contract with a couple of French companies. And in that, in PPP contracts, there is a very clear specification of who assumes what risks. And the state assumes, for example in this contract, demand risk, in the sense that it guarantees a level of cash flows for the private investor and for the private operator.

In the case of this Ghanian project because the state agreed to de-risk demand, in other words to provide a guarantee, then according to the IMF, it now pays about 500 million annually for battery power generation capacity that it cannot use because the infrastructure, the grid is not performant enough to sort of absorb this.

And there are many other examples in PPP contracts everywhere because the logic is if you want to direct or to escort private financing to sustainable assets, you need to change the risk-reward profile, right? To align it better with their preferred risk reward profile. When the state says, okay, I will guarantee a certain level of demand I will pay, or if a future government decides to, for example, increase minimum wages, or if it decides to put the carbon price, the state absorbs some of the risks of the private investment in order to guarantee a constant stream of cash flow.

Joe:
Well, why is this not just a problem of making these guarantees better? Demanding more, setting the standards for what the projects need to accomplish? I mean, it seems like it's easy to imagine bad projects where the state comes in and creates some buffer, de-risks it for the private sector, and then the private sector doesn't deliver. Why not just get better at making sure the private sector delivers better if it's going to be eligible for the backstops of the state?

Daniela:
I think that's a very legitimate question. And historically the critique towards this de-risking PPPs has come from the empirical reality in the European Union and in countries around the world that have used PPPs for infrastructure investment,

Joe:
Wait, sorry — remind us what PPPs stand for again?

Daniela:
Public private partnerships, right? It is the kind of arrangement — that BlackRock, for example called for the Biden administration to use in order to involve the private sector in infrastructure investment. And the experience with PPPs in Europe and elsewhere is in general experience of a lot of very high cost for the state. In other words, that it would have been cheaper if the state did it by basically spending directly as the Biden administration plans to do with its infrastructure plan. So that's one issue. It has been very costly for the public purse. And I guess the second issue is as you describe Joe, well, maybe we can find a better way of governing these projects to make sure that the distribution of risk works better.

And the World Bank has done all sort of efforts in that direction. But to my mind, we haven't had yet a successful or many successful examples where — particularly in the global south — but also in Europe where these distribution of risks works better for the public purse. That's one thing. And the second one, which for the European audience perhaps it resonates better, is that once you organize public services through PPPs, then basically you're saying that the users have to pay a fee in order to access them. And that is the case for highways. That is the case for trains, but it's also the case for health services, for education. For nature as an asset class, the idea is to use these PPPs everywhere. So in a sense, there is also a question of the public good here. Whether the governments around the world are not equipped to provide or to meet the social contracts with its citizens, by providing good quality public services through public investment, as opposed to imposing user fees and de-risking PPP investments there. The more important, sort of the bigger issue — and this brings us back to the way the topic of ESG is — I think there is also a question of systemic greenwashing that arise with this kind of de-risking paradigm.

Tracy:
I wanted to pick up on exactly this point, because you mentioned this idea of the technocrats stepping in and de-risking ESG and Joe described how one of our big themes for the year is this idea of a bigger role for the government in terms of fiscal stimulus and everything else, but another theme or a subtheme of that I should say, is that the devil is in the details, right? And even if you agree that the government should actually do more, designing that policy can be fraught with loads of disagreements, and it can be very difficult and maybe even not as efficient or productive as it should have been. So how is that playing out in the ESG space?

Daniela:
I would say in the ESG space it plays out, and I think the devil is in the technocratic detail, it’s very important. It's crucial, is who decides, or according to what rules or taxonomies (we call them taxonomies in this space) according to what taxonomies do we decide whether investments and products are green or dirty. And there is broad agreement in regulatory circles that industry-led ESG approaches open the door to systemic greenwashing. That is in a sense, maybe if I give you the example of Total — the French oil and gas company — because I think it's a powerful example. If you take Sustainalytics, which is one provider of ESG ratings, Sustainalytics rates Total as having ESG risks at a medium level. It rates Exxon at high and Chevron as having severe ESG risks. And if you look at Total, well you'd say well it has a nature-based solution unit that promises to invest in natural carbon sinks in order to sequester CO2 from its operations, right?

However, if one looks closer at what Total has been doing over the last few years, then this ranking of medium ESG risks, looks to me a lot like greenwashing. For example in Congo, Total wants to exploit the oil there. And it says, well, in order to compensate, we will create a natural carbon sink of 40,000 hectares. But this involves first destroying a local natural savannah ecosystem and replacing it with non-native trees, I think Acacia trees, that can be commercially exploited. So if you're an institutional investor, right, then you hold Total shares or bonds, you can say, well, this is a company that is carefully planning its transition out of fossil fuels because Sustainalytics ESG ratings tells me so. But what I see is that Total probably uses its green finance ratings in order to... as a cover to burn more fossil fuels while destroying local forest for commercial exploitation.

And I think that brings me to the idea of this double materiality that regulators discuss when they talk about taxonomies of green and dirty finance. And the idea of double materiality is that the climate crisis poses risks for institutional investors, right? And in this case, Total looks less risky for the institutional investor because of its Sustainalytics ESG rating. But when that investor decides to include Total in his portfolio, what he does in fact is he lends to a fossil fuel company that is worsening the climate crisis. So Total’s actions in Congo are making the climate crisis worse. And that is the idea of double materiality that has been at the core of regulatory debates. And I don't think it can be solved by relying on private metrics like ESG. It needs a public taxonomy. It needs the technocrats to say this is green, or this is sustainable, and this is not.

Joe:
I just want to very briefly, this is so weird, ‘cause I have like this very brief story, which is I studied abroad in spring of 2000 in Geneva. And that was like the peak of like neo-liberal optimism and the world is all going to be great and NGOs and stuff. And I actually did a little paper for my semester on tensions that would emerge between at the time, the Kyoto Protocol about climate change and the convention on biological diversity and exactly what you described. And I never thought I would think about that little paper that I wrote at the end of my semester of my sophomore year in college about that. But I'm glad to see that actually 21 years later that is actually relevant. And I kind of understand that tension between de-carbonization and damaging sort of natural ecosystems. I guess that's just a comment. But thank you for bringing that up. I never thought I would think about that again.

Tracy:
Thank you Joe.

Daniela:
Yeah. So I guess regulators think about this on a sort of more sustained basis, but maybe you should send them your essay Joe.

Tracy:
I’m going to come in with a question now which is…

Joe:
Please, please.

Tracy:
… Actually I'm just going to repeat my first question ‘cause I think this gets to the point Daniela is making about, you know, the need for someone to decide what actually is green and what isn't. I think it comes down to confusion over exactly what ESG is supposed to be. So getting back to that first question, is it supposed to be that you're investing in good companies or projects or is it supposed to be that you're engaging with, you know, maybe polluting companies in the hopes that they change their behavior? I don't think we've figured that out yet.

Daniela:
I think it depends who you ask. Right. I think for governments and regulators in general, the idea is — and you can think about the European Union sustainable finance initiative and the taxonomy that comes with it — the idea is that they would like investors to think about the ways in which their lending to companies may have an environmental impact or may reproduce or accommodate corporate practices in a sort of social and governance areas that are not aligned with the public standards.

So to my mind for regulators, it is important to accelerate the shift in financial flows away from carbon activities towards green activities. Now, what does that mean in practice? And that goes to your second question, is, should we rely on, on these investors to sort of try to discipline corporations? I think that's a more difficult question to answer because it is true that we have seen experiences here and there, and there is a lot of public pressure from civil society organizations to make sure that for example, BlackRock flexes its muscle in order to make sure that the companies where it's a shareholder, or where it hold shares on behalf of its investors, improve their practices.

But to me, the question that raises then is if investors have to assess the ESG behavior on the basis of private ratings, is it possible to have arbitrage in the sense of you can go and choose a high ESG rating from whichever provider gives it to you, and there are some perverse incentives in there and then you don't have to do very much, right? And as somebody who believes that the climate crisis is very real, I am concerned about the idea that we have to rely on private financial institutions in order to drive our climate agenda and to ensure that corporations go towards low carbon activities.

Joe:
Awareness of climate change, discussion of climate change these days is at extraordinary levels, is just talked about all the time, literally every day pretty much, how much of that has been driven by the fact that profit motivated companies have had an incentive to put this out in the public consciousness? I mean, you mention BlackRock, you know, there's numerous companies that see big dollars in this, had it not been for the huge profit motive, could it be possible in your view that in the year 2021, we wouldn't be talking about climate as much?

Daniela:
I think we have to recognize that the private financial institutions have taken on the sustainability agenda in a sort of comprehensive way … It has been surprising, but I guess sort of the bigger public pressure comes from, you know, young citizens everywhere in the world, mobilizing in the Fridays for Future and governments responding to this public pressure to act on climate.

So I wouldn't say that it is the private financial sector that sees profit-making opportunities that has been driving it, but they certainly are responding to what they see as a future where the state might possibly become much stronger in flexing its green regulatory muscle and here is where the question of greenwashing becomes even more important because I can see that in the near future, governments will go away from, or will move beyond what we have now as the status quo, which is in the central banks task force for financial disclosure, for example, the status quo is we have to ask for disclosure of climate risks and for disclosure of exposures, okay, but I guess a year from now or two years from now, if you look for example, at the European Central Bank who is undertaking a review of its monetary policy operations, you could see a state that says I'm going to increase capital requirements on dirty assets you're holding, or I'm going to subsidize green assets by reducing capital requirements or reducing haircuts on the collateral that the banks are using in order to borrow from central banks.

So in a sense, the rise of ESG is not simply about profits, but it's also about a strategic positioning to respond to what I think is very possible, a future where the central banks in particular and regulators are taking the question of greenwashing more significantly, and the question of green carbon bias in their own operations more seriously, because that's a future where if you are not able to provide some sort of green label for the assets that you're holding, it might be much more expensive to hold them, or you might end up with a lot of stranded assets.

Tracy:
So how do you actually build a consensus around green labels and the actual definition? Because it does feel like we are in this weird moment where a lot of governments have recognized that climate change is a concern  and clearly something needs to be done about it, but there does seem to be very, very little official consensus around what exactly those policies should be and what a green investment should actually look like.

Daniela:
Yeah. So that is a trillion dollar question in some ways, because it points to the political difficulties in agreeing on say a global level. But even if you look at the European Union or the European Union level, the European Union for a while thought of itself as a leader in the green finance agenda, particularly because the Trump administration wasn't interested in participating, right? So they said, okay, we'll come up with a public taxonomy, the sustainable finance taxonomy, this will identify activities that are sustainable. And then we will use, we'll take these at a global level and create some form of coordination that says, this is a public standard of green, and it's not supposed to be a public standard of brown because the European Commission has sparked the question, oh, sorry, what is, what are the activities? It sort of doesn't deal with it for, for now, but at least it says this set of activities are green.

But if you look at the political debate, the negotiations around the European taxonomy over the last couple of years, your question Tracy becomes very relevant because what we have seen is conflict between member states of what kind of activities should receive the label green and most recently civil society organizations that were involved walked out because the European Commission at the pressure of several members states said that it was contemplating including natural gas, which is a fossil fuel, as a sustainable activity. And that is sort of stretching it by miles in terms of credibility of of a public taxonomy. And that is a strategic opening, I guess, for private ESG ratings because, you know, at least private finance can produce some ratings and some risks. And if you have in-house ESG desks and most large institutional investors would have them, you can do a lot of due diligence. So I'm not very that there will be a sort of global public standard.

Joe:
This is super interesting to me. I mean, I keep seeing in this conversation parallels between thinking about sustainability and climate and the environment with the discussion of say, like inflation and labor and the handoff from central banks to governments. Because, you know, I'm thinking about like, one of the critics of sort of post-Keynesian economics and people will say, well, you know, maybe the traditional models for forecasting inflation are really terrible, but at least we have models. At least we have models. And at least we have something that on paper looks very elegant about some trade off between employment and inflation.

And it kind of feels like there's like something similar going on with thinking about sustainability, where you can say, okay, well, the private sector’s matrices for thinking about what's sustainable, they don't really work or they're not very good, but at least they exist. And at least there is something on paper that everyone can look at. Whereas when we tried to like get to something that's like seemingly more democratic, we know that the existing models don't exist, but, sort of, governments have a harder time even putting something on paper, even if what the private sector makes doesn't work. Does that make sense that? That parallel?

Daniela:
I mean, it does, to me, in the sense that this is in the case that you described around inflation, we are seeing sort of old orthodoxies dying kind of slow for our taste. Whereas in the sustainable finance space, there is a new orthodoxy emerging, but the political momentum or the ability of elected politicians to provide public solutions is not, has not sort of materialized yet.

So to me, in a sense, the question of will we have a lot more ESG over the next years. Yes, definitely a lot more. There will be, I guess, better, at least for the European Union, the European Union now has a directive for disclosure where if you want to sell the financial product as environmental or social, you need to provide a narrative of what they call principle adverse impact (or PAIs). I think it's quite funny that they are described like that, but what they say is, well, you need to convince us that your ESG product are truly ESG. So there is more scope for sort of monitoring closely the extent of greenwashing. So you don't buy ESG ETFs that have Chevron or Total in them. But whether that is ambitious enough or the scale of the low carbon transition, I am a bit skeptical.

Joe:
Right.

Tracy:
Well Daniela, it's sort of been a disheartening subject to talk with you about but I suppose it is an important topic and this idea that even if we agree something needs to be done on climate change, we haven't actually agreed on the individual policies is very, very critical to actually doing something about it and getting it right. So thank you so much for coming on!

Daniela:
Thank you. It was a pleasure to bring not so good news, but there is always optimism.

Tracy:
Some reality!

Joe:
That was great. That was the best, most interesting conversation I've had about ESG ever. In all seriousness, and it's actually really helping me think about this. And I really do think the sort of like parallels and the expectations of the last several decades and how that's informed our thinking on financing climate initiatives, is just like a very useful framing. So that was great.

Daniela:
Thank you.

Tracy:
So, Joe, I think the fact that we managed to have an interesting conversation about ESG is sort of an accomplishment in its own right, because a lot of these takes are really repetitive though, and sort of make the same point over and over and over and are very press release-y. But you're absolutely right. There are tons of overlaps between what's happening in ESG right now and that big theme of, you know, the handover to governments overall.

Joe:
Yeah, just thinking about this expectation that's existed for so long that markets must play a role. That like sure governments can have initiatives and goals and endeavors and all that stuff, but that, you know, ultimately markets must be our vehicle to get there and how embedded that is. And then when you like, sort of like, okay, we're going to address climate change, we're going to have this a backstop then for market investors, and then we're going to have this burgeoning moment, it really makes sense why ultimately that led to our clogged inboxes basically.

Tracy:
Yeah. And in the meantime, it does really feel like we are sort of in this awkward phase where we have a patchwork of regulations, which leads to a bunch of different incentives. And I have to say one of my favorite examples of that I think it was from Citigroup back in 2019, maybe? But they were looking at funding costs for European energy companies, and they found that they were on average more expensive than U.S. energy companies because European investors cared more about ESG and were punishing the European energy companies. So that's like a skewed outcome, right? The U.S. energy companies who are doing less for clean energy get rewarded while the European companies who are actually trying to do something end up getting punished because Europe and the U.S. are sort on different speeds or different levels when it comes to ESG.

Joe: 
You know, one of things when we talked to Stephanie Kelton about MMT and one of the points she made, which I think is very powerful, is not that like, it changes the politics per se, because different political factions have different priorities, but we can have a more honest debate if we sort of recognize that the constraints on government spending aren't what we were told.

And so you could sort of like tell this story — and Daniella basically said — it where if everyone believes that, okay, there is this sort of like strong limit to what governments can spend, then you basically have to create a big role for private capital in financing sustainability initiatives and private markets. But if you remove that expectation and you sort of say, you know what, the government actually has a lot more fiscal flexibility than we thought, you can start to conceive of investments into sustainability, into climate, that are totally public-focused where there's not as much fear of like, oh, well, where's the money gonna come from?

And I do think you see the shift then, which you know you get from like the sort of like the ESG thinking to the green, new deal thinking, which is very much about just put it on the government's balance sheet and you could see then why private actors would be very anxious about it. You know, there's BlackRock on one hand and then there's Greta the teenager talking about climate on another hand, but you could kind of make the argument that it isn't this sort of like continuous thing. It's actually a very big break in sort of rethinking it. And this sort of Greta vision is much more threatening to all the money in this space.

Tracy:
‘The teenager talking about climate’. That's how you describe her?

Joe:
Yeah well, I mean, like, it does feel like it's a break, right? It’s a different thing than Larry Fink talking about it.

Tracy:
Yeah, no, I totally agree. And the interesting thing now is going to be to watch what actually happens to the ESG industry in private finance that has cropped up. So, you know, do they partner with governments in the way that Daniela was describing, or do they start shrinking and these hundreds and hundreds of new funds find themselves squeezed out by public investment?  

Joe:
Or does some fund just pay Greta a bunch of money and we get a Greta ETF?

Tracy:
Uh, that would actually work, wouldn't it. You could even have ‘GRETA’ as the ticker, huh? Yeah. Okay. Well on that note, uh, should we leave it there?

Joe:
Let's leave it there.

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