The Collapse — Episode 1: What Everyone Should Be Talking About at Davos
January 20, 2023
By Gregory C. Beier, Susarb
** Lightly edited AI generated transcript **
Hi, my name’s Greg Beier.
I’m the founder of Sustainability Arbitrage, or Susarb for short.
And this is really a kind of a very special and different kind of podcast about climate and sustainability, because so much of some of the media work around climate is to either raise awareness to the problem or is to talk about standard solutions and or I guess you could also include denialism, which is a big, big part of it.
But this podcast really is different in two respects.
One, I think it’s really important that everybody start to assume now that we’re going to almost certainly have a collapse or very serious catastrophes in the near future. And that’s really been made super clear by a December 1st, 2022, article, “We looked at 1,200 possibilities for the planet’s future. These are our best hope.” in The Washington Post by The Washington Post climate team that worked with the Potsdam Institute of Climate Impact Research.
And they looked at 1200 vetted United Nations IPCC climate models. And the thing that really got me was when they talked about carbon removal, if they worked with only reasonable assumptions, there were no — as in none, no paths, to keep the temperature from going above 1.5 degrees Celsius by the end of 2100 that didn’t include some kind of overshoot, which means, going way above 1.5 or and then they had higher overshoots, which was 1.8 to 2. So that just really stopped me in my tracks. I mean, not 1 out of 1200 models using reasonable assumptions could get you there.
So, it’s therefore reasonable to assume that we’re facing a collapse. And that’s what kind of pushed me to call this podcast The Collapse. And for us to really start talking seriously about that because I mean, I think people generally get it, but we’re not quite there. So that’s, that’s the first part of The Collapse podcast is, is to really view the prospect of a collapse essentially is a certainty if we keep doing what we’re doing.
The other problem, though, is that so many of the solutions that are being proposed, like the carbon tax and things like that are, people kind of keep trying to make something work which hasn’t really worked. And, and I think some really fresh ideas are needed to bring make things move. And for example, just today I was listening to John Kerry with his interview with Francine Lacqua, and I heard John Kerry speak at a number of climate finance events. And he’s a great guy. He’s done tremendous work to raise awareness around climate, both as secretary of state and as the climate envoy for President Biden. But today he was saying we need to get the private sector on board, we need to start using government money for first loss and all that kind of stuff. And I just kind of feel everybody’s just sort of trying to work the system, but we haven’t really had fresh ideas.
Okay, so here we are.
My name’s Greg Beier.
I’m the founder of Sustainability Arbitrage, and I am basically a total nobody.
But I do think that I’ve had a couple of pretty good ideas and I’ve put them on the website susarb.com/activist.
And the reason I put them under the activist heading on susarb.com. And by the way, my name is Greg Beier. That’s B E I E R, Greg Beier. It’s sort of an unusual spelling for a last name, which is German. And so more vowels and consonants, but so you can Google it and find it easily.
But it’s under the activist heading because institutional investors, particularly asset owners, meaning like pension funds, endowments who have really long-term investment horizons and represent enormous amounts of money, hundreds of trillions of dollars.
They have huge incentives to get climate right, or they’re all gone.
And either, for their beneficiaries or the institutions that they manage money for or clearly have are supposed to be around for the long term. And if these piles of money go away, they’re (the beneficiaries like families and universities) are going to go away, too.
So, it’s really the asset owners that have the right incentives to make the right moves. And also, asset owners aren’t really competing with anybody. So, they also have incentives to be really transparent about what they’re doing, both to their boards and to their beneficiaries and to the regulators.
So, I’ve put these four ideas under the heading for them.
And that’s why I called this episode of the podcast “What People in Davos Should be Talking About.”
And the reason I say that is because I’m listening to the BBC reporting on, and I love the BBC, when I listen to BBC reporting on Davos, pretty much my sense of it is that the only really big idea that’s coming out of it is that we need to do carbon removal through technology. Scrubbing the air. And while that’s a great idea and I hope it works. And also planting a lot of trees.
The truth is we don’t really know if it’ll work. How much energy it’ll take to get it to work. And so, there’s a whole bunch of stuff that’s, that’s complicated there.
So, here’s my, so my big ideas, the following and there’s four of them for ideas, and they’re kind of born out of my experience.
But the most important of one came to me in the August of 2021, and it was written up in an article called “ESG Data is a Public Good. Let’s open it up. Published on Impact Alpha on November 29, 2021. And, and by the way, great help from an editor there to clarify my thinking. And so, uh, thank you very much to her and to the team as we were also publishing something just so different and edgy. So, thank you to that. And it was then republished on the, uh, Chartered Alternative Investment Analyst Association site and GreenBiz.com, which I thought was sort of interesting to get the word out.
So, here’s the big idea.
The big idea is that it really all started with a conversation with a professor whose two classes I audited at the Harvard Kennedy School. His name is Richard Parker and is really truly one of the best economic well definitely one of the best economics teachers going and I was very lucky to get to know him while I’ve been based in Cambridge, Mass. In the Cambridge area of Massachusetts.
So, the question that I was asking myself was, what is the disclosure that’s needed for by companies?
And I was writing a letter to the SEC and it’s on the susarb.com site and you can Google my name in the SEC and find the same letter that I wrote. But the point is, is that the more I thought about it, in terms of disclosure, the more I started to realize that everyone’s putting all this pressure on companies to disclose so as to make the markets work.
But the reality is we need the big fund managers and the big institutional investors to disclose how they’re thinking about it. And that’s the key thing that’s missing in this, in this big transition, is that information.
So, the idea that I kind of had is a combination of what in today is called a 13F and that’s something that started in the seventies to increase public confidence in the market. So, every quarter, at the end of every calendar quarter, institutional investors have to publish their stock holdings right within 45 days at the end of a calendar quarter.
And also, in the fixed income market when the new Treasury bonds are issued, there’s something called “when issued” trading and when “on the run treasuries” are coming up for auction, you’ll have the when issued market will get active.
And so, the idea that I sort of came to what I call Full Market Disclosure, which is essentially a blend of when issued trading and 13F’s, is that each institutional investor would disclose their sustainability analysis or their climate analysis for a security on a transaction-by-transaction basis.
Now, the benefit of doing this is that if a lot of institutional investors started doing, started doing this, we would have a ton of data about how everybody’s thinking it.
So, in terms of disclosure, you really have to focus on three things to make it quantitative. You need to have the raw data disclosed. You need to have the algorithms, in other words, how the raw data is manipulated, disclosed. And you need to have the output of the algorithms or how it’s how it’s manipulated, disclosed. That’s on the quantitative side.
On the qualitative side, I also think it would be helpful if people just simply wrote out what their analysis is and how that’s influencing it. And then and then in some cases you have blends, and you can also include, in your process how you’re blending all this together and making your decision.
It’s a lot of people the project, the catch to doing this is that a lot of people in the sustainable investment business aren’t really investors. They’re sustainability types. They’re people interested in the environment. So, they think that these tools and metrics that they’ve developed are really their edge and the reason they’re in the business.
But I, I think that that’s a mistake and I think everybody just needs to open up about what they’re doing because, at this moment, nobody in the business can agree on terms. What is sustainable investing? Is it ESG? Is it climate? What is impact?
I mean, nothing is happening, and everybody is stuck.
And while I was writing this piece for the SEC, it became really clear to me that things are getting much worse, much faster than anybody who was studying the climate 30 years ago thought would happen today by now. And so, stuff that people thought might happen by 2100 if it got really bad is starting to happen even now.
So, the pace of change is accelerating, it’s getting worse faster than anyone thought.
So, my thinking is let’s just start disclosing because maybe my guess is we only have 10 to 15 years to make a meaningful difference in the markets.
And after that, my guess is, climate shocks could start.
And once the climate shocks start, the financial markets are going to be out of business because their opportunity to make a change will be over.
They’ll start moving to command and control economies and that sort of war time footing and the opportunity to make a difference through investing will be over in terms of bringing about a sustainability change.
So let me go back a little bit to this. The first idea, which is this disclosure, Full Market Disclosure. And so, I call it Full Market Disclosure because I thought if everybody treated their analysis of sustainability of climate as a public good because it’s in our interests that we all get this right and this is a really, really complicated problem.
And the only way we can solve it is if everybody just puts it out there, what they’re doing.
And in part, I was inspired by Eric Schmidt, who had come to Harvard, and he was giving a talk at the Kennedy School. And he mentioned something called, the reason why social media worked is because of the network effects, the power laws of network effects.
And so basically, the more people that get added to a network, the much greater the power of the network, it increases geometrically. And so that’s a huge difference.
And then and so I think that is basically why Davos is starting to fail, a forum like Davos can never really solve these problems. They can kick networks into gear, but they’ll never, ever have the network effects of getting so many people involved to really work out and solve all these micro problems.
And so if you take of all these institutional investors started disclosing with some reasonable delay. And my guess is everybody should start at the longest possible delay, say, a calendar quarter and the longest of which could be 92 days and add 45, which was the 13F time. So, let’s just say 137 days. And then and then on a transaction-by-transaction basis, start disclosing that and then people can decide how to tighten it up from there and, and shorten that time.
And we would just we would create this enormous amount of data and all of these and so all these sub networks would immediately form. And, uh, and that would create a real hive of activity. And I think there would be this Full Market Disclosure journalism would kick in and it would just really completely change the face of finance almost overnight. Of course, it would.
And so, the real power of this and the reason and the only way I think this is ultimately going to work is the fastest thing that can change is human perception, like pricing.
And that’s the reason why fundamentally all the climate stuff has failed so far is that we haven’t really focused on the real time pricing of climate risk.
And I think this Full Market Disclosure approach, which I’m doing a poor job of describing in this podcast, but I just want to get it out there and start the discussion is the key because at least it makes it concrete. And then there’s some very interesting effects.
The way I proposed it is that an institutional investor with $1,000,000,000 or more of assets has, discloses their climate analysis or their sustainability analysis. The whole analysis. And the more information they provide, the better.
Now the key is, is that you’re not required to do the analysis right, but if you have done it, you need to disclose it. Right.
And if asset owners start doing it themselves and they could just put up all their analysis, I mean, all the members of GFANZ, who right now I don’t think are accomplishing much of anything.
So, the easiest thing that they can do, which is free, is just to simply post all of their sustainability, climate and finance analysis. Bang. Just put it up.
And then if and then, of course, Bloomberg and Reuters are going to go crazy and everyone’s got to figure out how to organize it and make it available, because that’s what these organizations do.
And of course, it should be free and open to everybody. But the key is that the organizations who are posting it are all regulated institutions who have large incentives, to be straightforward about what they’re doing right. And the professionals are regulated who do it and everything else. So that’s what keeps spamming out of the system.
I do think that we will get institutional investors who will just kind of put a boiler plate report or rubber stamp, kind of a generic cookie cutter analysis just to have something up. Right. To be in vogue.
But what will happen, I think, once this analysis starts going up is that the market will put a premium on thought leadership and that will drive a really big increase in the quality of the disclosure in the analysis.
So that’s my sort of initial take on sort of Full Market Disclosure and why I think it’ll work and why I think it can work so quickly.
And, and the analogy I like to use is that it’ll be like the Berlin Wall coming down when communism ended and the whole thing went off without a shot being fired. And the Soviet army went back to, just pulled out of Eastern Europe and everybody just left and the whole thing was done. And I think that’s like the fall of communism. And so, everybody just had agreed, and they knew it was over and they did it.
And so I think by getting all this data out and having all this real time transactions and having continual updating and all these networks forming and all this reporting going on, that’s the missing thing that will change the perception really quickly globally, because it is all totally open and available and everyone can look at it and the large institutional investors keep updating it transaction by transaction by transaction, and everyone will be able to see how this is evolving.
And so many different things can be worked out, how it can be looked at in so many different ways, and I’ll save that for another podcast. I’m very happy to get into all of that. But I think I think this what I call Full Market Disclosure or sustainability, Full Market Disclosure, or climate Full Market Disclosure, I think that’s the key.
And I haven’t heard anybody anywhere talk about doing anything like this. And so, what’s exciting is that there really aren’t any barriers to entry to doing it. And the institutional investors have the incentives. They have the data.
So, let’s just everybody put it out there and see where it takes us. I don’t think it’s a negative, especially for the asset owners who have fiduciary obligation to be transparent. I think maybe they’re afraid because they tend to be on the more conservative side. So perhaps some of the Scandinavians or some of the Dutch who tend to be in the more Avant Garde or maybe some of the religious, uh, institutional investors, could take the lead, and really drive the change. But I, I’m, I’m quite certain that once it starts to happen, it’ll go and then there’s going to become this big opportunity to become the leader in the space.
And so once the asset owners do it, then the asset owners can put pressure on their service providers, their asset managers to do it, then the brokers do it, and then that feeds into the private equity funds and the venture capital funds, and then the regulators get on board and then the whole thing gets formalized and bang, it’s a business and the benefits are, this would, this would, I think, filter out through the OECD very quickly.
And that’s, how the global pricing would change through this pricing change. And having so much rich data happening in real time, it’ll create this incredible, what I call like a gravity field of energy, and it’ll just change pricing and it’ll also change politics.
And because we’ll start to have a lot of hard information to assess and so many complex changes have to occur so quickly simultaneously.
We really need good data to make that work.
Now we come back to the next idea, which is making ESG data public good. Some people have been talking about this for a little bit, and I learned about that as I had been writing about it. And people have been generally sort of, thinking this is something which needs to happen. But I think the simplest way is that once you have all this disclosure going on, then it will become clear what data people are using and either free substitutes will emerge or if we’re going to use the paid data or the ratings or however you want to call it, all that stuff needs to be opened up immediately.
And that’s what’s really killing price discovery in the markets right now is that in addition to all the fund managers keeping their notes secret because they feel like that’s their secret sauce, I, I think that proprietary data, proprietary models, and proprietary ratings, some of which you actually have to sign NDAs even to look at, which I think is just so nuts.
And so, if we know what data everyone needs, then big organizations like GFANZ can then say to their members, hey, everybody should chip in, literally a 10th of a basis point or a 20th of a basis point. And we could put together pools of money which could then be organized and, and used to pay the ratings, data, and model providers.
And look, these buyers have a lot of power, and they could basically just have a buyer’s strike.
And I also think once the regulators see what’s going on, they’re going to realize that that the most important thing that has to happen is the real time pricing of sustainability, uh, and climate in real time in financial markets. And I think they can then mandate that as well.
So, something like this I think is on the horizon.
So, you have an opening of the pricing, you have an opening of the data and that would do that. Those two things right there, I think would be by far the two most significant things that could transform and accelerate sustainability, because then, I spoke at a conference in the spring and I was talking with somebody who’s a really devout supporter of Donald Trump, and this person was of the opinion like, totally disagreed with me on sustainability stuff, on climate and the role of the UN in all these things, but completely agreed with me that we need more data. And that’s the key.
And, and again, like I said in Full Market Disclosure. Nobody is required to do the analysis in a certain way. And that’s the problem I think that we’re getting into and finance right now. Is that now people are starting to think like there has to be these taxonomies and all these standards. I think the best thing is just to open it all up and let the market figure it out.
And there’s a real risk of committees screwing it up, so let’s create an outlet for people to have an opinion and for that opinion to be heard. And all of these things that are going on with article eight funds and nine funds in the EU, and funds are getting downgraded for the greenwashing claims.
I think that all of that is completely unnecessary if everyone just disclosed what they were doing. The market would very easily be able to classify what funds were doing what, and if that was changing without even, it wouldn’t require much regulation because it would just be perfectly obvious.
So, solving like greenwashing in the investment business would do a lot to increase public confidence in the funds that they’re investing in. And also, it would give fund managers a lot more confidence to actually do these strategies without worrying, worrying about getting sued and all that stuff.
So, I just think that there’s a much better, simpler, cleaner way to solve the whole problem. And as again, as I alluded to earlier, from my perspective, we only have, ten or 15 years to get this right.
And if we don’t get it right, all these sustainability businesses are going to be worth zero.
When the climate shocks start, the markets won’t be able to make a difference, and the volumes will really start to decline precipitously. So, everybody, what’s the point? Let’s just, open it up and go for it and try to solve the problem.
And so many of the owners of these ESG data providers, MSCI is a is a big, big one by itself. And then Morningstar, what they own, Sustainalytics and the FT and Bloomberg, and everybody’s got their thing.
And I think a lot of people get that we need to open up to data. But because they have financial incentives to try and make money from it, we’re in this perverse situation where everybody in the sustainability business says, oh, well, the oil industry has to change.
But then so many people in the sustainability business are trying to make money with the same kind of model of centralized control of a key resource, which in this case is becoming data.
It’s sort of the same sort of perverse incentives, and we’re creating negative externalities with this big blowback whereby even using it, it becomes destructive.
So, I think the only way out of this is to open it up. Okay. So that’s the that those first two ideas.
Let’s create sustainable Full Market Disclosure of sustainability that’ll, that’ll create real time pricing of sustainability and create like the fall of the Berlin Wall and massive, massive change and movements in the markets.
And so, stuff that Secretary Kerry was just talking about today at the World Economic Forum, it the markets will move because they’ll have the data and then it will be clear and obvious to everyone what we’re going to do. And then all the data becomes open, and mechanisms are found to pay the people, to keep collecting data or free alternatives or generated and, bang, we have this enormous flush of data through the markets.
And that will do a lot to change everybody’s view on a lot of things. Perfect.
So, then we have an issue, one of the things that I think has become very weird over the last 30 years since I’ve been in finance is that, like I started at an investment bank thirty years ago in research, nobody really nobody worried about like, intellectual property, non-disclosure or non-compete. You showed up, you went to work, and if you wanted to move on, you could do it. And that was fine. So, the same thing. We need to get back to that, especially for people who work in the pricing of sustainability or sustainability, analysis, research, investing, etc. with climate, because I feel like a lot of talent and ideas right now is either bottled up or could get bottled up. And we’re in this sort of like, like last chance to make sustainability work in the markets.
So, I think it’s time to remove, we need to free up the talent. And I think sort of my thinking is and I’m not a lawyer, but my thinking is that, with the exception of, providing basic, confidentiality for clients, all these other restrictions that have become commonplace, particularly with the rise of private equity, they need to go away for people involved in sustainable finance and climate finance, because we really just need to get the best ideas and most innovative ideas out there.
So, time to tear down the non-competes, the NDAs and the and these all these crazy IP agreements. And it’s just it’s nuts. So, then we have like a lot freer talent, which is interesting because that’s something that actually, Eric Schmidt had he when he spoke at Harvard, he said, why? Why is it that Massachusetts doesn’t have Googles and Apples here? And maybe it’s just because, the employment agreements are too onerous and in California is it makes a little bit freer for that, I’m not sure.
But that’s just something which came to my mind.
Okay. Point four. So, this is this is kind of a bit of a break from what I’ve been working on.
But it’s something that’s so unusual and I haven’t heard anybody talk about it that it just seems so obvious. So, here’s the big idea. It’s basically that or, we have to start, how do we prepare for a collapse? Right. And if it’s going to happen, what are some of the things that we can do and especially as investors to make to make things, keep from totally falling apart.
So, one thought that I’ve had is around software. Most software that controls everything that we use today is proprietary. And if things start to fall apart, like they did around COVID and let’s say, the Internet goes out or over-the-air updates aren’t available or all that kind of stuff. Maybe it’s time to require software running on things to be open, totally open source or free software is another way to describe it.
And so, like, for example, just imagine, equipment in a hospital and imagine if you went to a hospital and for some reason it just stopped working. Like, the point of going to the hospital has just gone down because of all that specialized gear there, which can really do a lot to help you. And, so I think as investors, we need to start, demanding that, that all the hardware be run on open software and open-source software and or free software and that software that at least if there are glitches, we can fix it and it’s going to take time to switch everything over. So, a friend was telling me that medical equipment typically has a three-year lifespan, so it turns over every three years. So at least if the planning starts going into motion, then we can start turning stuff over. But just like, there’s just so many things now that are controlled with software, particularly proprietary software. So, it’s going to take a good ten, ten, 15 years to swap everything out. So, I think the move to open software has a lot of power.
And then the other interesting thing is if you if we’ve got behind that in earnest, I think there’ll be two other interesting developments.
One, one of the benefits of software is that you build common tools. So, our software will get dramatically better because we won’t have so many engineers building the same basic tools across so many pieces of software which are all proprietary. So, we’ll have a lot more talent available to solve other problems or even just make the software so much better. So that’s number one. So, we’ll get common libraries, right? And that’s supposed to be one of the whole points of software, computer science, 101.
And two, as you know, everything went proprietary. And then, once all this software is open and people can look around and see what’s going on, I think this is going to create really unique and interesting opportunities for a kind of micro markets and micro data because we’re going to be able to reach in and see how things are being formed, how data is being shaped. So, these are just some interesting ideas. I can’t say too much beyond that, but I think I think something really interesting is going to happen there.
So, these are four really kind of big ideas and quite totally contrary to what everyone’s talking about, but I think for sure the first idea, which is Full Market Disclosure. Institutional investors disclosing their climate slash sustainability analysis / ESG analysis on a transaction-by-transaction basis with, some delays starting at about 137 days and then getting shorter, and everyone has to kind of figure out where that is.
But let’s at least get the disclosure started. That would have an enormous impact on markets and get people starting to think really seriously about what they’re doing and really improving. However, once thinking about it, so that’s my big sort of my four points.
And I’m sure after I’ve put this down, I will definitely have a lot of other things to add. But here’s the first cut, the first shot of putting it out there. You can find me on Twitter @gregbeier. Greg Beier. Same on LinkedIn and same on Instagram. And thank you so much for listening.
And I do think that so basically, like in my mission statement, I say that our goal is to end the climate and biodiversity crises and poverty right through building a substrate in markets of data and standards and ending these big problems in the next 20 years. And I think the reason I think 20 years is realistic is because I just think that we all just need to get on the same page of music but we’re all looking at so many different things. What we can’t, we aren’t even putting anything of what we’re thinking out in the open.
But I think once we put our thoughts out in the open about how we’re considering these problems as investors in a concrete form, I think that will that everyone will just kind of snap into it and that will just dramatically improve the quality of your analysis in pretty much real time. There’ll be some delay for the disclosure, but the markets will really get it into gear.
And while everyone initially would be hesitant thinking, they’re giving away all their or their secrets, the benefit of the overall improvement and the functioning of pricing of sustainability in real time will be it’ll be like a quantum leap for the markets. It’ll be something completely different.
And that’s the thing that we’re missing at the moment.
So, and by the way, I think it makes sense for a couple of institutional investors to give it a shot and or four to try some limited programs. And really, what do we have to lose?
I mean, we’re facing or facing, the likely development of overshoots, of going well over 1.5 degrees Celsius. And I just don’t think we have nothing to lose, and I think we have everything to gain. So, let’s give it a go.
And I have a lot of thought and a lot of working on material, which I’m happy to share with everybody and let’s give it a try.
Full Market Disclosure.
ESG data is a public good.
Let’s free up the talent and then let’s go to let’s open up the software.
I think these four things would do an enormous amount of good for everybody and would dramatically change our likelihood, improve our likelihood of coming together and figuring out how to solve the climate problem. Because remember, the power of human beings when we cooperate is really something.
But we need to have like that real super granularity. So, like a lot of self-organization and network formed groups can spontaneously and organically arise. And as long as everybody keeps, pumping out what they’re doing, I think that that feedback and that continual group learning will have an enormously positive effect and really change the dynamics of everything.
So, I hope to start having other people on the podcast. This is me just getting it out there on the very first shot. And I think I think these are the kinds of ideas I wish that people were talking about at Davos, because I think that I think that these are concrete.
I think especially the Full Market Disclosure by institutional investors.
These are totally implementable. It’s essentially free. We can do it right now.
And my thinking is this change could. You know, we, all the institutional investors across the world could be doing this within 12 to 18 months. So is this something that can happen really fast and could change, totally change the face of the markets. And so that’s my thinking. We could make it happen in a year. It could happen that quickly.
It would be like the start of the Eurodollar market or the start of the foreign exchange market. It could be just something which just happens really fast. And I’m really confident that people in the investment business can turn this on and make this work. And there’s so many talented people who would understand how to put this problem together and solve it. But let’s at least give it a shot.
So, thank you very much. I will be back with more discussions on these four ideas.
And thank you for listening to the first episode of The Collapse Podcast. What everyone should be talking about at Davos.
Okay, thank you again and take care.
