 Welcome to the panel that I think probably is one of the biggest questions for a lot of companies and investors going forward private equities role in high emitting assets in particular when companies would like to reduce their emissions profile when they just truncate a particular business and sell it off to a private equity firm to make themselves look better. Is this greenwashing or is this moving toward a better future. I am so glad to introduce an incredible panel that we have for us today. I'm Lisa Brahmoytz with Bloomberg Television. First I want to just welcome you. Hi, Banga is joining us. He is a partner at CDR which is a private equity firm after 33 years at Unilever focused on sustainability. Cyrus Tapuera Vela with the president and chief executive officer of State Street global advisors a very vocal in trying to get to the bottom of how we can more accurately assess emissions as well as how to grapple with them as we face the climate challenges. And Robert Eccles, he is a professor of management practice at Said Business School at the University of Oxford. Formerly a longtime Harvard University professor and an incredible deadweight lifter as we were just learning. Thank you all so much for being with us. I want to start just by painting the picture of why private equity firms have such a key role in accessing high emitting assets from other companies. Cyrus, can you lay the scene for us? Thank you, Lisa. So I understand why this phenomenon is happening. I guess it's right to start with why are there sellers? The reason there are sellers is quite simple. You have publicly traded companies who are facing a lot of pressure from their shareholders in terms of reputation, their ESG scores, the need for disclosure and the cost of disclosure, and ultimately a higher cost of capital. So what these companies are doing, some of these companies are doing, is taking these away out, which is what I affectionately call brown spinning, a different version of green washing, which is, let me just get rid of this asset, let me get it off my balance sheet, let me sell it to somebody else, and that's where the private equity investors come in. There are many private equity investors who look at these assets and see an attractive rate of return. And the irony here, Lisa, is that when these assets get sold from publicly traded companies to private equity owner, real emissions remain constant, or in some cases may even increase depending on the type of owner. Here's an amazing set of statistics. So there was an analysis done recently of data disclosed to the EPA that suggests that today several private equity firms are amongst the top 10 methane emitters in America. Despite the fact that in terms of production, they're much smaller than some of the well-known fossil fuel heavyweights and giants. This was a study done by Ceres in partnership with the Clean Air Task Force. The 195 smallest producers were responsible for 22% of the total emissions. So that's the punchline. Why does this happen? You have publicly traded companies with a different set of pressures, and you have private equity owners who see an attractive rate of return, who don't have the same pressures, whether it's disclosure as a cost of capital, and there's a market being made here of brownspin. So, Professor Eccles, Bob, I'd love your take on whether this is private equity firms looking to make a quick buck in terms of picking up distressed assets at cheaper prices at a time when we still need carbon emitting types of businesses and industries, or is this something more that perhaps private equity firms are taking more of a role of dealing with and trying to figure out how to create a better and more sustainable vision for these businesses? It's a good question. I think you can go both ways. I mean, Ceres wrote a nice op-ed piece in the FT a while ago where he explored the counter hypothesis, which when you look at private equity, they have complete control. The holding period is fairly long. So this could be a place where these assets get cleaned up. I think there's a couple of things that need to happen for that to take place. Number one, Ceres mentioned the problem of data. So you need standards on carbon reporting. You know, I'm doing this big study of private equity. I've talked about 70 GPs and LPs, and it's admittedly the largest LPs, some of the more sophisticated GPs. And everybody talks about two things, carbon and DENI. Some have more carbon data than others, but you see that there's an inclination to recognize that they need to be responsible for this. But I think what you also need to have is pressure from the LPs who give these GPs their money. So if all the LPs are focused on is just the pure financial returns and not expressing concern about what the carbon emissions are that are being produced as these returns are being generated, then there's an incentive problem. And so what you see happening with the LPs is they're starting to evaluate their GPs around their policies. Ideally, you'd be evaluating them in terms of data, and I can't talk about who they are, but there's two exciting initiatives going on out there to try and address this problem to basically create a platform by which portfolio companies and private equity firms could be reporting on carbon, and a few other key ESG topics that would be made available to the GPs would go into database to be benchmarked and would be made available to the LPs. So if you could get that kind of transparency in the private markets like we're getting the transparency that Cyrus talked about in the public markets, I think it would be a big deal. So, Cyrus, I know you want to weigh in on some of the surveillance and oversight, but, Vindi, as the representative of private equity voice here, I do want to get you in here because there is a question about how private equity firms are positioning themselves in some of the internal turmoil of how to be sustainable while also dealing with businesses that perhaps have grown outdated based on the sort of carbon emissions. What's your sense of how well private equity firms are doing, albeit not yours because you don't invest in these assets, in terms of being a good actor in this space? Look, what I would say is this, private equity is on a journey. And actually, that's pretty much what public companies also are on in this whole space. So it's not just private equity which can be singled out for not having adequate information, disclosure, and so on and so forth. This is all a recent, let's say, in the last three or four years, suddenly everyone's got really concerned with carbon. And I think one of the reasons for that is that we've started seeing a lot of these personal climatic issues. Wherever you live in the world today, you're faced with some sort of climate change. So it's suddenly become real. And I think that is adding to the pressure on public companies which are regulated. So there's a regulatory pressure for disclosure. Private equity companies are not regulated to disclose thus far. But what Bob just said is very, very much true. Listen, our limited partners, our LPs, are really keen on understanding what private equity firms are doing in the whole space of sustainability. So I think this journey is going to move very fast. I'd just like to pick up one other thing that Cyrus began with and the point about putting these assets out of public disclosure, so to speak, so that private equity firms can make a good return. If that is happening, and I'm sure he has seen that, it's something that's not going to last very long. And let me explain why. See, private equity firms make money, of course, from the cash flow, but they make money on the way out when they sell those assets to another party. Now that buyer of a private equity asset is an intelligent buyer. It's either the public markets or it's another private equity firm or whatever. And if in five years, the carbon situation of that asset has further deteriorated, I think we would have to think very hard about what the actual returns might be. So if this is happening, I would argue this will not last very long. Cyrus. So Mammy's point about the industry is changing. It's changing very fast. You talked to these people five years ago. It was this kabuki dance, ESGDDQs, and nobody cared about it. The last two years, people are getting serious. His point on exit is absolutely right. The other point I'd make is as an industry, private equity that says we're not going to invest in these high emitting assets. That's a little bit like public companies doing what Cyrus was talking about. Oh, we're going to be net zero. We're going to sell this stuff. I don't get it, right? That's being irresponsible. Someone's going to hold those assets. The industry's got $7 trillion in a human. It's got $3 trillion in dry powder. It's a huge industry now. And I think private equity needs to step up. Cyrus, I know you want to weigh in. Go ahead. Lisa, I want to build on Bob and Vin these points, which is, I think when we talk about private equity, we're making it sound like one homogenous group, and it absolutely isn't. There are asset owners who invest directly in private equity. Think the large Canadian pensions. There are very forward, thoughtful private equity firms as GPs. There are lots of what I'll call mid and smaller private equity firms who I would argue are much further behind on this journey, some of whom may not care to ever get on the journey. But I do agree with Vin that it's not like all of private equity investors don't care. But there's a significant enough group of the small to mid-sized who I would argue are most active in this space. And Cyrus, to your point, I mean, there was this recent study that came out today from the APEX group that showed that 21% of almost 400 private equity firm members who were interviewed say that climate change is incredibly important, is an imminent danger to all of us. And yet less than half, fewer than half of these people who are surveyed actually disclose or even have a tracking mechanism for emissions. This really raises a question about surveillance, about oversight, about quantifying what we're looking at. And I'm wondering, you know, Vin, I would like to go to you because you were saying that they will be good actors because otherwise it won't be profitable. Well, how are we seeing that reflected in actions when you see this disconnect in terms of measurement? Well, I think one of the things is there is, to Cyrus's point, perhaps a mental block with some private equity firms, because they think of themselves as transitional owners. They're owners of an asset for a five, six, seven year time period. Actually, and they think, hang on, climate change is a very, very long-term issue. It's a big problem. What can we do in five or six years? Most people are making commitments about 10 years down, 15 years down, 30 years down. Actually, the click, the real switch is that when a private equity firm buys a business, it inherits a certain level of growth and margin. And inherently, typically it tries to improve that. That's how it creates value. In the same way, if it inherits a certain ESG or carbon footprint, and in five years time, it's taken actions to reduce that, it will create value. And I think that is increasingly being perceived by certainly many private equity firms. They're beginning to think like this. And if they can make that journey in five years, look at it this way. If that capital goes somewhere else after every five years, private equity could have a pretty important revolving impact on these assets all over the world, on carbon emissions all over the world. So Bob, in addition to being an incredible deadlifting champion and having a long history with that, you also are considered the foremost expert in integrated reporting, a leader in this area, how companies track sustainability. Do you think that private equity firms are doing their best or moving at the pace that they should be in order to accurately report and assess some of their emissions profile? So the leaders are, you know, the laggards aren't. I mean, Cyrus' point about, you know, it's not a homogeneous group, I think is accurate. Just to kind of emphasize a point, Vinnie made, I think that the private equity model doesn't sort of integrate ESG's big part of its core proposition, the way it's happened in public equities. This business model can't survive and continue to generate the returns that it has in the past. On the specific point around reporting, one thing we haven't talked about that's important is there are things called regulations. So the SEC hasn't taken off the table that, you know, the rulemaking that they're doing on climate disclosure wouldn't apply to private companies, unlikely, but they could say this. What is clear is that in the EU, the CSRD, the Corporate Sustainability Reporting Directive, that's not public private. That's basically based on size. So if you are a portfolio company or just a private company, not in a private equity firm, the CSRD is going to apply to you. It's going to cover 50,000 companies. So you're going to start to see, I think, regulations that are going to be putting basically requirements on private company, including those owned by private equity firms to start disclosing on carbon. One thing that's been interesting in the study we're doing, kind of a surprise to me, is that when you talk to the GPs, they're evaluating the portfolio companies that they're thinking about investing in around different sort of scales of maturity. The private companies are going to them saying, not only do we need your capital, we know we need to deal with this. We know we need to deal with carbon. We need to know we need to deal with DNI. The GPs have got the capabilities and the capacity to help them do that. Ten years ago, I don't think that was the case. The millennials, all the things we know about, there's pressure on the private companies themselves that I think, you know, create an opportunity for the GPs to help them, you know, kind of raise their game. Well, and this brings me to Cyrus. I mean, you're the president and CEO of State Street Global Investors, nearly $4 trillion of assets under management, and you are becoming one of the more vocal members in this disparity between some of these assets moving to the private sector. How does your interest sort of play out in terms of how you're sort of affecting the scenario as an investor of a lot of passive assets? Index and active assets. And I think it starts with this notion that if publicly traded companies are trying to get things off their balance sheets at any cost, then you're actually, they are destroying value for my underlying investors. That starts for us. It's about the value that we believe and to build on Vinthy's point. We believe that there is a broad spectrum. I think we have to think about this problem as something that we're all going to be living with and using fossil fuels for many, many years to come, like it or not. We've got to get away from this binary brown versus green. Again, to build on Vinthy's point, there are shades of brown. And I agree with, I think there's actually probably more value to be created by going from dark brown to lighter shades of brown and necessarily just the green to brown, the brown to green and one felt smooth. So we think it's about building a universal level of disclosure and reporting that is used as Bob described in the EU for all assets regardless of private versus public and then measuring and holding whether it's publicly traded managers who trade in publicly traded securities or GPs to the same standard, which is something asset owners can do and should do. And this raises a really interesting question for Vinthy. I mean, given the fact that there is a reputational risk for private equity firms, especially with their increasingly sophisticated investors, if you take on some of these very brown or dark brown types of companies to use Cyrus's lingo, that sort of maybe discourages them, but given your focus and sustainability during your time with Unilever and beyond, this is an incredibly important role to actually deal with the assets that currently exist. So how should a private equity company go about maneuvering this potentially reputational hazard? Well, look, I think that actually private equity is quite ideally suited to manage businesses that require a technology transition. And that's what we're discussing here. If there are businesses, for example, which need to go through a technology transition from high carbon to a low carbon technology, then it's pretty hard to do that in the public markets because transitions like that are costly, they're volatile, sometimes they're double running costs, and it's very hard to carry your investors with you through that kind of journey in the glare of the public markets with quarterly reporting. On the other hand, private equity actually could take more purposeful action and drive that change, the transformational change, more appropriately in that space. So it is possible. And I think that is a role it could certainly play. I'd like to pick up this point about reputational risk and value for a second. You know, we're at the stage today when a quote-unquote bad actor is penalized very heavily on value right now. Look at what happened to the stock price of Rio Tinto. So bad actors, for whatever reason, mistakes are made, the penalty is very high. I think we are at the beginning of the stage where good actors will get rewarded for good action on ESJ and all these things. We're at the beginning of that stage. But I'm very confident it will come and companies will get a higher embedded premium multiple for being good players. They will get that. So it brings me to a point, Bob, that you were talking about earlier, when you were talking about visibility and the role of regulations and the fact that there are some potential discussions about having similar regulations for the private sector as there are for private companies. Do you think that that's the way to go or do you think that Divindi's point really could be a market-based solution because of the sophistication of some of the end investors? So I think you need both. I mean, I'm all for having regulation on private companies for carbon and, you know, the big universal owners. I think Cyrus might agree. I'll let him speak for himself, the big asset owners, because all that carbon's going out there in the air and it adds up. And because of the size of the industry, as I indicated, I think they want to know what it is and they want to have it. It's important, you know, kind of comparable metrics. So you need to have standards. I think the big advantage the private equity has that Divindi was talking about, it just goes back to the basic model. They control the asset. They can easily get rid of the CEO if he or she isn't doing a good job. They pick the board. Look at what engine number one went through to get three people on the board of ExxonMobil, you know, State Street and other supporters. I think that's great. You've got in private equity a business model that enables you to do the transformation Divindi was talking about. If they had the data, they had the standards and they had the tools and they have the incentives with, you know, the LPs, as we were talking about being an important part of it. Theses of this article that I'm writing based on this research is that actually private equity, it may sound funny to those who think that the Gordon Gekos of the world, they can jump public equities in terms of sustainability, including carbon. So Bob, just to follow up on that, the path from being responsible to being the most profitable or actually being the most financially successful, is that already a drawn line or is that something that has to continue with the evolution of ESG standards in the broader investment community? So I'm not sure when you say a drawn line. What do you mean by that? Well, basically, is that already a given in terms of this direct line from acting responsibly and being the most profitable or is that something that has to come with time as, you know, we sort of adapt to a more sustainable investing framework, more broadly globally? You know, I don't understand. Yeah, I think the narrative is pretty much accepted. I mean, I have right wing, you know, fellow citizens of the United States that still think that climate change is a hoax or is philanthropy or something. But no, I mean, the big investors get it. I mean, you know, Cyrus is investing real money. What they're looking for is clear views on materiality and they're looking for better information, just like we've got standards for accounting information for financial information. For people to do a better job of ESG integration for constructing passive products, they need better information. And that's why I think having a global standard for carbon is a really important place to start because if you don't have the right information, it's hard to make those investment decisions. But, you know, people don't see this as a trade-off anymore. Cyrus, do you feel like you generally have the information that you're looking for to make educated decisions on who the responsible actors are? I mainly focus and invest in the publicly traded markets and I would tell you it's come a very long way, certainly on the equity side. We're not there, we're not home yet. It is a journey, but we are way, way further along on equities and I'm quickly catching up on debt. I would say, particularly on the private side, it's still a mixed bag. Again, I think the players we're talking to today, as well as the folks who Bob is probably engaging with for his research, tend to be at the larger end who tends to be at the more enlightened end of the spectrum and do continue to worry about a mid and small-sized private equity folks who don't have the same motivations where, you know, arguably, if they can pick up these brown-spun assets of the right distressed prices, they don't even need to have an exit per se. The exit may just be running it in a fairly polluting way for the next five or 10 or 15 years and getting your money back and then some just in the course of that lifespan. Ultimately, I believe that change will come, but, you know, we don't have the luxury of time here, so we do need to make sure everybody gets on board on this sooner rather than later. Cyrus, what was the response like to your Financial Times article? A lot of folks wrote to me and said, gee, I hadn't thought about this. I think people have been so focused on the greenwashing aspect that this brown-spinning aspect that's been a little bit under the surface here. In fact, all that folks have looked at is, oh, good, my publicly traded portfolio is looking better and better. And I think until asset owners start using this integrated, it doesn't matter if it's my private portfolio, my public portfolio. Here is my entire portfolio and here are the emissions of it. I think we still have a ways to go here. Elizabeth, just real quick. I mean, with Cyrus, he put his finger on a really important point. We need to think about transition financing. You can't spend your way to green. Everything can't go into an article later, an article-mind fund. I mean, it looks good. You know, you look good. You feel good about yourself. There's all these, you know, dark and brown assets that they need to transition and we need to make that a respectable thing to do and we need to have the tools to do it. We need to have stewardship. We need to have data. And people are ducking that issue when it comes to the SDGs. They're ducking at big time. When you say ducking, who are you talking about? Are they the private equity firms? Are they regulators? Who? I think it's the regulators. I mean, the EU taxonomy doesn't really have much to say in my point of view around, you know, okay, there's an article later, an article-mind, these are sort of good funds. I think a lot of the, any investor that's basically going down the divestment path to get to net zero, I think they're ducking it as well. I think the exclusion that people are doing in a variety of industries, you know, the normal-send stocks and oil and gas, I don't think that helps very much because you can clean up your own portfolio if you're small enough, but you're just passing the problem on to someone else. That's another public, you know, it's another public firm. It's a private equity firm. And I think people need to kind of set back and say, you know, are they really, do they really understand what they're doing at a system level? Because that's what the big asset managers like State Street and the big pension funds care about. Vindi, from your perspective, having spent 33 years at Unilever, having really run the sustainability effort there, then going to the private equity firm where you currently sit, what was your sense of the biggest misconception of how private equity operates and what would you like to see in terms of coverage from regulators in order not to necessarily face potential reputational damage to do the dirty work that needs to get done? You know, I think first of all, at the point I'd like to make is that our investors are limited partners. They really get this. I take so many calls from them and these are detailed calls. They really want to understand what are we doing as a firm? What are we doing in our portfolio of companies? They're really interested. And by the way, they're also learning. They're also learning how to measure. So this is a really complicated problem. This is not a simple problem. I mean, Bob touched upon it earlier about metrics. There isn't a standard methodology around the world. So, you know, and yet when you want to measure these, these are companies that are operating across geographies. Most of them are international companies. So this problem has to be really tackled step by step. It's a journey. I think there's enough. I feel there's enough push from the investors. They're the key here. There's enough push from the investors to actually drive this. What we need to do, every player in this needs to do his or her bit. You know, I'll give you one anecdote. So in Unilever, 15 years ago, we looked at the impact of the company on the environment. And this was done at actually at the World Economic Forum and it was done across the FMCG industries. And what we found was that only 2% of the impact on the environment happened within the company's factories. And 50% happened in the supply chain and the balance happened in the front end when the consumer used energy to use our products. Wow. So when you think about that suddenly, well, actually if you reduce carbon in your factories, you're only solving a very tiny part of the problem. You've got to work right through the whole supply chain, which means you need to partner with everyone in your value chain. So I think metrics are an important part. Partnership is a really important part here. Thank you to all of you. Unfortunately, we could continue for another hour or more. This is such a complicated issue. You distilled it all perfectly. I just want to thank the panelists, Cyrus, Bob and Vindi, all for taking the time. We really appreciate it. Everyone can share their feelings, thoughts, impressions on social media or as well as the top link. There also will be additional programming there. Thank you so much and have a wonderful day.