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Well, the change in
administration after the
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November election led many to
expect big changes in various
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areas of government, with the
impact felt in numerous areas
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outside of Washington, DC. One
area to focus on is that of ESG.
00:00:15
Where do each of those
components stand at this moment,
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especially as we approach Earth
Day here in 2025? Pleasure to be
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joined by Vit Henisz, who is a
Vice Dean and Faculty Director
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of the ESG Initiative here at
the Wharton School. He's also
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Professor of Management. Vit,
great to talk to you again. How
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are you? - Doing well. Pleasure to
be back with you, Dan.
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All right. So when you think of ESG
right now, where do you think
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things stand at the moment?
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We're in the midst of a big
shakeout, and a really important one.
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The tides have turned from
this being kind of all things to
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all people, and popular, and a win-
win, to a much more critical
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perspective. I think in some
ways that's helpful. A lot of
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the greenwash is going away.
Doesn't make sense to claim
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you're doing something that
you're not doing. But there's
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also a lot of concern around
what does it mean to advocate, to
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be out there as an ESG leader?
To be putting your neck out?
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And could you get a boot on your
neck if you do demonstrate
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that kind of leadership? So
we're really seeing people
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staying a little more quiet. A
lot of the hard work is still
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going on. And I think in the
end, counter-intuitively, we'll be
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better off for having had this
shakeout.
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But it's not pleasant
in the midst of it.
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You and I talked a while
back about the investment
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component that has been brought
into ESG. Where does that stand
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at the moment? And obviously,
the dynamics of where the global
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economy is right now may be
factoring in as well.
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Well, there's still a long-term
financial interest in being
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attentive and taking into
account environmental, social
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and governance information. I
think it's really important, just—
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I mean, as part of this
conversation, let's just level
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set what we mean by ESG. ESG is
the systematic inclusion of
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financially material
environmental, social and
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governance information as part
of an investment or strategy-
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making process. Why would you
want to leave any financially
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material information out? I
mean, at some level, it should be
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in there. So there is still
investor interest in this. But
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some of the idea that it
generates quick returns, or that
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it's easy, or you can just buy
some off-the-shelf data, or that
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it always outperforms, that never
held up. And it's been exposed,
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and people are nervous. So fund
flows are coming out of ESG
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funds, because there's a lot of
concern about short-term
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performance, about who's
actually doing the hard work,
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and who's safe to invest in. Was
the firm I was invested in just
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engaged in greenwash? So there's
a lot of concern and
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trepidation, but the long-term
impact of bringing more and
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better information into your
calculation and being attentive
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to things like the climate
transition, those long-term
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factors are still there, and
there's still a lot of capital
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who's interested in
this space.
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So because we have Earth Day
coming up, let me have you focus
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on the environmental side specifically
when you think
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about where things stand.
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Well, look, Earth Day doesn't
change the importance of the
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climate transition or of climate
information, right? I mean, the
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fact that we're already at or
exceeding a 1 1/2-
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degree warming scenario, that
highlights the importance of the
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E. E, S and G are all factors
that have been left out. E is
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probably the easiest to measure
and the most visible when we
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look out our windows, when we
walk to work, or when we face
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some of these extreme storms
we're having. I just jotted down
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some statistics before we
started. For 25— sorry— for 25
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years, from 1980 to 2004, we
averaged $9 billion insured
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climate losses a year globally.
Nine. From 2004 to 2020, it went
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up to $23. From 2020 to 2024, $27.
Last year we had $28. These are
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billion-dollar losses. So we're
seeing extreme weather. We're
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seeing extreme storms. That's
not changing, and that's why
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there's so much attentiveness to
the climate transition. Earth
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Day draws our attention to it.
It draws our focus on it. But 27
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times a year, last year, we read
about a billion-dollar loss
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caused by extreme weather. That
should be keeping our attention
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well beyond Earth Day.
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And I was going to say, if
you're talking about those types
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of losses in the scope of a
company and their bottom line,
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things would change real fast.
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Well, you know, they are
affecting companies and bottom
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lines, right? You know, we're
seeing more worker accidents on
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days of extreme weather, when
wet bulb temperatures get up
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over 100 or 110. We are seeing
more companies whose supply
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chains are being disrupted
because you can't access a
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canal, or you can't access— you
know, your facilities have been
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flooded by a typhoon in Asia. So
companies are being affected.
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But you're right, Dan, that the—
it's not easy to fix climate
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change for any one company. It's
impossible, actually. Takes
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companies and countries working
together. And that is harder
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today, and that is a real
problem with the current policy
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environment. It's much harder to
get the coordinated action among
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governments, companies, across
industries, to navigate and
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achieve a slowing down of the
global warming that we're
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experiencing.
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So because of the dynamics we have
here in the United States right
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now, then, maybe does the focus
go more on the state and local
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level in terms of maybe trying
to make some effective policy
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change? Because at times the
federal level just— it becomes
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too much of a mess for a lot of
people.
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Well, we are
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seeing some leadership on some
of these issues. States like
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California and New York are
pushing forward. But we're also
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seeing some states moving in the
opposite direction and saying,
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"You know what? You can't include
this information. If you include
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this information, you're in
violation of state law and state
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policies." We're seeing that more
in states like Texas and
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Florida. So you know, states
having the right to go their own
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way— you know, you'll see more
extremes on both sides. And
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there's some concern— including,
I think, importantly, in the red
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states, where the state banking
associations and some investors
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are saying, "Wait a minute, why
can't we include this
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information? You know, this is—
this is affecting our state too."
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I mean, think about the state of
Florida. If you couldn't
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incorporate environmental or
climate-related information into
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your investments in real estate,
that wouldn't be really smart
00:06:23
real estate investing if you
didn't take into account sea
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level rise and hurricanes that
are hitting the state of
00:06:29
Florida. That same argument
applies more broadly to state
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of Florida pension owners. So I
think we're seeing pushback
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among asset owners about whether
it's a good idea to rule this
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out. So there is more variation
at the state level. It's not all
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good. It's not all in a way
that's more informed than the
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national policy. Some states are
actually being more retrograde
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and restrictive than even the
federal government.
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How then do you look at the
future around ESG?
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Well, I think in the long term,
I'm confident that we'll better
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price financially material
environmental, social and
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governance factors. The
financial incentives to do so
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and to avoid ignoring it are
just too great. But over what
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time horizon, and what does it
look like from here to that?
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What I'm really concerned about
is, in the short term, firms are
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going quiet. Even the firms that
are doing the work or trying to
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figure this out aren't sharing
as much. They're not talking as
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much about what they're doing,
which makes it harder to
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understand who are the leaders?
Who do I want to invest in, or
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who are the leaders in adapting
and being resilient, and who's
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coming up with the new
technologies? There's just much
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less sharing of information. And
I worry— and also some sense
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that if we do share, if we do go
out and talk about what we're
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doing and how we're trying to
make progress, we might be
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punished. We might be targeted
for some sort of political
00:07:50
retribution. That means, in the
short term, especially in the
00:07:55
United States, we're going to
move much less quickly towards
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investing in the kinds of
technologies that could enable
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the climate transition. Because
we're already in a 1 1/2-
00:08:04
degree scenario, and we're
rapidly accelerating that, the
00:08:09
consequences of waiting, the
consequences of delay are going
00:08:12
to be many more of those billion-
dollar losses that I described
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earlier. So you go from $27 a
year to $30 to $35 to $40 a year. I
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mean, we can't predict exactly
what, but the trend
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is pretty clear. And
that's going to have real
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consequences. So I think
eventually we'll get there. The
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financial reasons to do so are
really strong. But it may be a
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much rockier next five to 10 to
20 years before we do that. And
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it's not going to be as
coordinated, as you mentioned.
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Different states are enacting
different policies. The European
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Union is doing one thing. The US
is doing the opposite. Asia is
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working on a set of policies.
What is China doing? China is
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continuing to double down in
electric vehicles and pollution
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reduction. We might cede some of
the potential leadership in the
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space to the Chinese economies
and the Chinese peer companies.
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Is that in the long-term
interest of the US and its
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competitive advantage?
I don't think so.
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Vit, always great to talk to you.
Thanks very much, sir.
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All right, it's a pleasure, Dan.
- You got it.
00:09:11
Vit Henisz, Vice Dean,
00:09:13
Faculty Director of the ESG
Initiative, and Management
00:09:15
Professor here at the Wharton
School.
