Gabe Rissman 00:07
Hi, everyone, and welcome to YourStake, Your Story. We are a video series focused on best practices around ESG. And really focusing on the financial advisor experience and what your challenges are and what's out there and what you might be worried about thinking about excited about. Today, I'm really excited to be speaking with Zack Stein, who is the co founder of carbon collective. Zack, really glad to have you on.
Zach Stein 00:34
Thanks so much for having me again.
Gabe Rissman 00:36
So do you want to start by sharing where you're where you're calling from today?
Zach Stein 00:40
So I'm in the Bay Area, right near Berkeley in a small town called Albany. It's a beautiful day, and we got a little bit of rain yesterday, some are expected and in this kind of drought-ridden region. I'm very happy about that.
Gabe Rissman 00:54
Thanks a lot of sense. And is that where did you grow up? Is that a recent move for you or
Zach Stein 01:00
I've been in the East Bay for about the past 10 years. So moving between Berkeley and Oakland, and now in Albany, and I grew up on the peninsula. So over near Stanford near Palo Alto, and it was there I actually have known my co founder, we first met when we were four years old, our dads went to Stanford together. So I have many fond memories of us playing in his backyard and things like that. And so it's pretty cool to be able to work with that person.
Gabe Rissman 01:26
Would you ever have guessed that you would work together?
Zach Stein 01:31
You know, like, who knows what these things is? I like the phrase life is only linear in the rearview mirror. And yeah, we actually fell out of touch. He had a pretty interesting childhood when he was 10. His parents pulled him out of school, and they bought a sailboat. And they sailed around the world for five years beginning in the south of France. And they ended up in New Zealand. So I visited him in the Canaries, and in Tahiti during that time, but but kind of after that, we lost touch a bit. And we actually only ran into each other. Post College, I was living in Berkeley, and I was really into pickup basketball at the time. And I was crossing the street coming home. And this guy who was on a bike at the crosswalk, we're just staring at each other. I forget who said first, but I can tell when James Zack. And so yeah, after that, we started hanging out again. And it became clear that that we wanted to work together.
Gabe Rissman 02:39
That's amazing. And were you were you both in different jobs. And you decided to leave to start something together? Or what was that? Like?
Zach Stein 02:47
Yeah, I've had a very winding entrepreneurial path. I've been in sustainability for the past 10 years, post college, I did an urban farming fellowship in Berkeley, this was in 2011. That kind of opened my eyes up to the realm of sustainability, but through the lens of our culture, and our food system. So I actually with some of those fellows, my first job, my first real business was a worm farm. So we literally sold shit for a living. It was a pretty fun business was really interesting, very labor intensive. It's good for a 22 year old. And James. He's an engineer by training, he went to Olin College, which is a great small engineering school. And so he was working at an alternative energy startup that just happened to be like three blocks from my apartment at that time. So yeah, our paths I kind of through my urban farming path, what got increasingly into indoor farming, and ended up meeting someone who was developing some novel sensing technology for it, brought in James with it didn't work out with the first guy that was really our first company in 2016. And then, you know, raised from top tier VCs, to really get that to take off, we couldn't get the technology to work for it. Ultimately, it was a very hard technical problem. And we set out at the beginning of 2020, with this kind of broad mission of how could we build better tools that can enable individuals to collectivise their climate impacts. So we didn't set out to build and invest in company but it was through a process of product discovery that we really saw that this was a both a place that individuals were really running into not having things that it portfolios that met with what we need to do to solve climate change. And looking at from a top level down for us to solve climate change. We fundamentally need sustainable investing to massively scale. If we're to be on track towards doing so. And what Wall Street is selling today. Just it's not whatsoever aligned with that reality.
Gabe Rissman 04:56
Well, I'm excited to dive into that. I think that'll be really fun. I should have brought up the pickup basketball though is it? Do you play one on one and if you have a disagreement, you do a little game one on one. Then you go with this strategy, or
Zach Stein 05:17
I'd be amazing because I would definitely win more arguments. James is an incredibly, incredibly talented human. And basketball is not one of those talents. I am not whatsoever talented in basketball either as a five foot nine Jew who you know, likes to imagine I'm much taller and stronger than I am. I don't know if you know, basketball, basketball that Well, I operate like I'm like, you know, six foot five power forward. And then like I like to rebound and set picks. But I just don't have the height for it.
Gabe Rissman 05:50
I definitely know the prototype. I play a lot of Shabbat basketball. And it's a very common, very common thing. So you fit right in.
Zach Stein 06:02
Next time I'm on the East Coast, let's get a game together. i It is there's nothing better than good pickup.
Gabe Rissman 06:08
Yeah, I'm with you. And one more one more thing before diving into that? It's a really great question. And I think that's really cool. Also that didn't know you're going to build an investing company looked at the problem first and led to that. So it'll be fun. But first, why did you want to be an entrepreneur?
Zach Stein 06:28
I it's a hard question to answer. I've never, I've never really had a real job. I've basically only worked for myself in different ways. And kind of made my own way of doing so. So it's almost like it's the only thing I've known to some extent. And I think I am completely addicted to the learning that it forces that is just what is and I'm sure you've experienced this, it is so fulfilling, to be able to look back and be like, Wow, I am a different person than I was a month ago, or a week ago, the things I can know the things I can do, the ways I'm able to talk about things, just all of that it's like the best grad school you could ever go to. And so again, it goes to that phrase of life is only linear in the rearview mirror. So it's like, I don't exactly know where that's necessarily going to lead. I have ideas for it. But there's like, at least for me, I have some level, it's an act of faith that so long as you're learning and growing, that you're on the right path with that. So I kind of didn't follow that on almost like that level into what I'm doing now. And it's a really cool job that I get to do now.
Gabe Rissman 07:43
That's really amazing. And so now I'd love to dive in, you have this question. And this problem, how did you realize and find that investing was the main I guess, blocker, which also allows it to be the big opportunity to create impact?
Zach Stein 08:00
Yeah, so we took ourselves to school. So on the top level, we're like, okay, we, you know, we're smart people who have followed sustainability stuff. But there's much smarter people in the climate world. So like, let's read everything with that. So I think, in q1 of 2020, which is when we started, we probably read like 30 books, James and I both love audiobooks, we blitz through them. So we always say we had this shared ongoing dialogue with it, as we were refining and refining from that top down. And then from the bottom up, we are starting to put together what are the different ways that we could address kind of that mission of how do you build better tools to collectivise climate action. And there the thesis was, is that as you know, for especially, you maybe on the East Coast, it's not quite as clear yet, but especially here on the West Coast, like climate change is here. You know, the fact that fire season is now a thing, when I growing up in the barrier, it never was the fact that every year now, from August through November, I think there's a fairly high likelihood there'll be smoke in the sky, and might feel a little bit in danger. Like that is climate change that just did not exist in such regularity before. So that so much of the problem right now with climate change, and climate anxiety is that we just get left caught at the top of the emotional cycle. But that is we're just like, This is terrible. And it's like, it's only supposed to get worse from here. And the news is doing a much better job of coverage covering all of the negative aspects of that. But it does it say Okay, so what do I do? It's basically just leaves you hanging off, while you're one person who is part of a global system that is run by fossil fuels with like very, and, you know, governments that are filled with kind of fossil fueled corruption and corporations that run on these things. So what do you do within that, and there's a lot to do and again from a theory of change, perspective, we looked at this very closely and asked ourselves like, how does the world actually change? Because when we were starting carbon Collective, we ended up doing 120 interviews of people in our networks that around us who experienced climate anxiety to understand where it took them, and where they got blocked, which was how we got to investing. And we often there's, you know, one thread that some people fell into was this thread of just anger. Or they would say, It's not my fault. It's corporations and governments, and they're the ones who should fix it. You know, I'm just one person, why am I being this guilt being put on me? And like that, that anger is so justified and at the same time, it's okay. What we haven't heard from that anger is what is the counterproposal of how does the world actually change? How does the government change? How did those corporations change, if not, for enough people saying enough is enough, and changing the status quo. So that kind of framed everything that we are doing? And we got to investing by using this book that we were given after our very first product test, we put together this whole mock up of what Harvard it could be, and as all this clickable prototype and everything, and after our first one, the guy was like, no, look, this was a good test. But really, what you should be doing is, is the Mom Test. And we're like, what the Mom Test? I don't know, have you? Have you heard of this book? Explain it. So the bomb test is a way of interviewing a potential customer to understand if you should build the product you're thinking about. And it's a it's a way of doing so by you're just digging for previous actions, and that previous actions are the best indicator of pain, and that someone needs something for that. So for us that what ended up being we were kind of talking about different categories of climate actions. And it was that it's probably similar thing that your clients experience, which is people looked at the Blackrock ESG fund, they looked under the hood. And so that's like, why is this in here? I don't get this, how is this actually making change? I have this sense. And I also know by studying this, that the only way we solve climate change is to our investor our way out of it. And I want to make sure I'm participating in that. But what's out here being labeled as sustainable our ESG doesn't actually fit what the experts are telling us that. So it was that gap that became clear of saying, oh, we need sustainable investing to massively scale to fix climate change. But sustainable investing broadly is not whatsoever aligned with that it's actually a broken system. And so that's what led us into say that sustainable investing is not a box to be checked, necessarily on an investment out. But that we actually there is a new company that is needed in this space to come in and really help start changing that narrative, by holding what is the world where we solve our most pressing, environmentally sustainable issue, which is climate change, what does that look like? And then how do we work backwards to today, the world that we have today, and then leverage what we have today to then work that, whereas so much of today's investing, and this is, you know, where products like yours really help with is saying with ESG, it's like, alright, let's picture that today's world, and then create a slightly less bad version of it. But that's it, there's not actually that tracking towards the future. But we need that. And we need to if we do not collectively imagine it, and invest in it and build it, then there's no chance that we're ever going to get there. And we're unfortunately, just on a path for catastrophic global warming, where if we continue on the course we're on, we'll have three degrees C of warming by 2100. I just had a kid, you'd be at in a year, he'd likely be alive, I might be alive, who knows? In that time, in that it is unimaginable the level of chaos that that level of warming would unleash. We have to do all we can to do it. But in investing, we can't do it without investing. So that's what led us into this place of carbon collective. Wow,
Gabe Rissman 14:09
that's really fascinating. I also, I love that interview style. The mopping. I hadn't heard that specific terminology. But we learned a very similar concept, obviously, and we're going through our journey. Never do product validation, just try to ask questions about what people are doing and what their problems are and what their needs are. So I totally get where you're coming from there. And also, I think the thing that you learn is really interesting. So we have a very similar mission motivation. We have a very similar obviously, mission statement, you put it more concisely and cleanly have collected it carbonate climate action, but that what we oftentimes really like to focus on at your stake is the fact that according to these Morgan Stanley and A whole bunch of other studies, 85 90% of people want to align their investments with their values. And then the CFA Institute only had between 10. And I think 18% of people actually doing it. And that question of where is that gap coming from has a whole bunch of different hypotheses and answers. And it sounds like, you also saw that gap, you saw the positive impact potential of closing that gap. And your hypothesis and thesis that you're now solving is based on those user interviews, and it is that the products that are currently available are not compelling enough for individual investors to be excited enough to actually make decisions based on an impact that they don't actually see being realized or that they don't trust. Does that sound right?
Zach Stein 15:46
Yes. Yeah, I think that you your stake does this, again, you're approaching it from a different angle. But I think it's the same hypothesis, which is that sustainable investing, it doesn't have like a major technology problem, but it has a storytelling problem. It is how are we connecting the dots from what needs to happen down to me, and my actions. And if you get that, that's when you get the value for it. Because at the end of the day, like what's in my stock portfolio, it doesn't have any impact on me beyond its returns. And if it's sustainable, it's all about how it makes me feel and how it's it reinforcing my own sense of identity and place and purpose in the world. And that, that's it like that, that is what you're selling, that is what I am selling it is that emotion, and that. And I think that this is, you know, for us, zooming out a little bit out of investigated more just towards b2c Climate tech companies, the Promised Land is how do you deliver an experience that genuinely it can't be bullshit that genuinely connects people to something that's bigger than themselves, and can elicit that, because that's what we need for addressing the global issue of climate change that is far bigger than ourselves. And so I think they get out with your like, the metaphors and things like that, that you have. That is another attempt at drawing those those lines and those connections of saying, Hey, this is bigger than you. And we want to make sure that's aligned. So I think we're very much aligned with that we just wrapped up our latest fundraising round. And over half of it is this year marked. Thank you for marketing, narrative storytelling. And what we're doing like that is so much of the value that we see ourselves bringing to this and if we were to zoom in of what is carbon collectives mission, from not just you know, alright, how do we build better tools to collectivize climate impact? It's really it's how do we redefine what is understood to be sustainable investing, and help individuals, especially starting with those, but eventually the entire value stack, and customer base? See it be able to make those type of decisions far more clearly than they do today? Which is, again, the exact problem that you are also working on with those exact type of tools right now. I have a theory that I'd actually be interested in getting your thoughts on right now from a kind of almost like a VC perspective. Sure, is that I believe that right now, we are witnessing the unbundling of ESG. Which is if, if you're familiar with kind of that term, from a VC perspective, we saw the unbundling of Craigslist. The unbundling of Excel. And what happened in those past instances is you had a lot of usage for a tool, a lot of demand for a tool. And it the that didn't actually indicate that the tool was great. It just indicated indicated demand. And you started then peeling off things. Airbnb is like the most famous example of Craigslist, and but there's countless others. With that, of saying that, no, we need to actually build something that's far more tailored for this. And I believe that companies like ours are participating in that, again, it's occupying different verticals within it. But that is ultimately what you're doing is helping unbundle ESG away from kind of just the what it was of institutional MSCI, etc. Be interested in your thoughts?
Gabe Rissman 19:26
That's fine. I've never thought of it in those terms. Again, but similar concepts we, we oftentimes say and believe and I, I think this is one of the biggest trends of probably the next two years and ESG is probably I think the term ESG right now is used to mean anything, and it's going to really narrow into what its actual definition is and I think that will become more common, which is what are the environmental, social and governance factors that have proven correlation with finance purpose For me, it's going to be materiality, it's going to be that. And then there's going to be all these other terms, probably under the umbrella of valleys line investing, that are more about what the client is looking for. And that's really where all the demand is that there's, at least from a retail and general client perspective. Maybe institutional investors are interested in using ESG to reduce their risk and their returns. And individuals don't want to lose money, for sure. But what draws them into this is that feeling of identity, and the idea of creating impact, and because people have different views and visions of what impact means, and different goals, and it's not everyone looking for maximizing risk and returns with no other constraints, I think that there's going to be a ton of personalization, that means personalization of products, and also means products that allow for individual customization and personalization. So the unbundling, I think, is happening. And yeah, I think that makes a ton of sense. And I think it's probably more gonna be the dissolution of ESG, instead of just the unbundling, because ESG is kind of overstepped what it actually is useful for. So I think ESG is gonna pull back and what the real demand is, we'll go forwards.
Zach Stein 21:28
Yeah, it's gonna be really fascinating to see what those terms kind of ended up being in that, that breakdown of if that brella term of ESG starts getting more holes that are fading a bit.
Gabe Rissman 21:40
Your favorite term, which do you usually use when you're talking to people?
Zach Stein 21:45
I mean, we you know, we're specifically focused on climate, this was kind of our bet, in this space of saying that, of of the things in ESG, it is e that is where people are most often drawn towards. And within that, there's a sense that when you invest you invest to build things like that, that is just, it just makes gut sense. It does. So there's certain types of issues that we have to build our way out of, there's others that it's like a little bit more round hole, like square peg round hole, where it's like, well, you could like get a company to change its policies. But it's not like additional capital going into that space isn't necessarily going to solve that issue. Maybe some divestment from it. But it's kind of you get more ice squinty. Versus with climate, it's like no, we'd have to build a way more solar panels and way more electric cars. If we're to do this, it's like it's, in some ways, as simple as that, for us to be able to do this successfully. So that was kind of zooming in into that and making kind of our bet on at that intersection of climate and investing and saying that we actually need a company at that level. So we use the term sustainable investing, or climate investing. But we are working to define it, that it can only be sustainable, if it is truly aligned with solving climate change. And for that to be the case, because we know it's very clear in the next 30 years, we have to dramatically increase annual investments into climate solutions, while dramatically decreasing investments in fossil fuels. To us any any investment portfolio that does not align with that reality, it is very hard to see how you could label that as sustainable, especially given the fact that we have to invest in order to solve climate change.
Gabe Rissman 23:38
I think that leads me to my next question, a lot of our audience on this podcast is financial advisors. And you are occupying a very similar space and in the need to tell the story. And a lot of times advisors want to be able to better understand how they can tell that story of impact. And I would love to hear how you differentiate with your messaging, especially because there's a lot of funds out there called the Low Carbon transition fund called the what? Like and, and there is a lot of skepticism as well. And people don't just go with the name. So what have you found the most compelling and effective to prove the differentiation between something that's real and something that is well branded? How do you cut through the greenwashing which I'm sure you probably get questions on that all the time.
Zach Stein 24:28
I guess the number one question is, you know, why couldn't Blackrock just do this? Or, you know, Betterment has a climate impact portfolio, or, you know, Calvert funds or, you know, there's its ecosystem is not empty here. And the problem that we see is again, the difference is ESG. So it's today still and I think as you alluded to this is changing, but it is just a less bad version of today. battlements. Climate Impact portfolio? For example, it does not it contains more fossil fuel companies exposure to fossil fuel companies than it does to climate solutions. Companies. How does that that just doesn't square with where we actually need to go. And there's not a clear theory of change within that this, you know, can come to I think this is part of where advisors often gets tripped up is like, okay, like, we made some switches for you. What does that mean? What how do you actually make that tangible? And draw that to the point? And so for us, the what we see our role is, is how do we make sense for folks of what is like a pretty confusing, really complicated and overwhelming ecosystem that has tons of greenwashing. And, and, again, what we've seen success in so far is that by being outsiders, by not being folks who are like, Yeah, we have this long history in Wall Street, and, you know, now are coming to the table by saying, No, we started first with what is it gonna take to solve climate change? And then went back and said, Okay, people's 401k Is their IRAs, these aren't charity. So you have, it has to be a smart investment. And it has to, you know, so many, especially on the retail side, see index passive Based Investing, as that strategy, how do we build something when they're with a really clear theory of change that also meets those investing needs first? Yeah. And so go ahead.
Gabe Rissman 26:32
Let go. Yeah, continue.
Zach Stein 26:35
So for us, we've, I think, had a lot of success so far, starting in the high level of saying, what is it going to take to solve climate change? And helping people through the logic of wise investment? A critical piece of that? And then why does your IRA what role does that play into it and addressing some of those concerns, you know, for the more savvy people would be, like, well, efficient market hypothesis. And, you know, it's all publicly available information, how do you change that and things like that, to then having a really clear theory, which is, again, we're not trying to do everything a carbon Collective, we are focused on climate change, and how are we driving as much impact as we can there. So we adopt a fairly simple strategy, we first we do three steps on our equities, we divest from the industries that are technologically dependent upon the long term use of fossil fuels. So this is not just oil companies, but also petrochemical companies, dirt, utilities, cement, steel, and airlines, airline manufacturers, etc. These are companies who, barring a complete breakthrough of technology, in the world, where we have decarbonized, their core business fundamentally can't exist. Which means that it, they need to either change or go out of business. We on the divest versus engage for these companies debate, we are very much on the side of divest, and I'm happy to talk about why more, I think it's might be pretty interesting. To some of your audience, like we do not think voting on Exxon Mobil is where we should be spending our activist industrial energy. So that's about 20% of the US stock market. So we divest from that 20%. And then we give that share to the companies that are building solutions to climate change. So again, this is how are we aligning with that long term view, if we have to dramatically ramp up investments, and climate solutions, while winding them down and fossil fuels and related industries, we create this list and manage it ourselves. So what we do is we go and look at what are the top independent resources that dictate how the path to solving climate change, and we say alright, what is every single publicly traded company that is building one of those solutions? We then So in 2020, there's about 350. On US markets, we then filter out those who generate more revenue from products or services that are built for or dependent upon the fossil fuel industry. We do not use climate pledges, we talk is incredibly cheap in this space, we say that your past action, similar to the Mom Test, is the best indicator of your future actions. So an example of a company that didn't make it in 2022, in order to in 2021, was General Electric. They're the second largest manufacturer of wind turbines, but they generate more revenue from their natural gas turbine business and their jet engine business. So that to us means that they do not meet our criteria, and thus we exclude them. Then broadly for the remaining 80% of the stock market, we hold with a few exceptions, we cut out big banks because of their significant loaning to fossil fuel companies. We both don't want to hold that ethically or financially. But we broadly hold the rest because these are the types of companies who its core business can exist in a world where we solve climate change. which means that it's upon us as shareholders to push them to get there as fast as possible. So the example I often use is Coca Cola. For, you know, greenies. Like me, Coca Cola is far from an environmentally friendly company, but in the world will resolve climate change. Coke can still sell me a brown, sugary, bubbly beverage that is using the secret recipe. It's just done with 100% renewable power. It's delivered on 100%, electrified or green hydrogen powered fleet. And they're protecting instead of abusing that our watersheds. That means to us those are big changes, but it's much different than saying, hey, Exxon Mobil become a solar company. Yep. And so that's why for us, we need to shrink the demand for fossil fuels. And that's where we focus our shareholder engagement, especially because these are companies that care much more about what climate people like me think, than an oil company, so we can get that dual leverage. So that's our broad approach with our equities. And with that, combined with our bonds, we can offer our clients portfolios that have similar levels of risk and reward as they would get in a generic US based index portfolio. So I think some of that differentiation that I think you hear is, we are fully focused on climate. And this and I think, have a clear, a theory of change that we think is a fairly clear and can help people say, okay, I get I get this. And that's, I'm either in or I'm out, and we hopefully give the people enough information to make their call.
Gabe Rissman 31:33
That's amazing, man, based on that. I'm not going to be able to ask all the questions that came out of that in the time that we have left, but I'll try to prioritize the rest ones. First, I'll just do a quick clarification on that on that research process. So you said there are 350 companies that are your their core business model is climate solutions, is what you're saying? Is that using like Project drawdown, or you have a taxonomy that you're looking at, or
Zach Stein 32:00
Yeah, so it's not their core business model necessarily. It is just a bill to climate solution. So we project drawdown is one of the main independent resources we use to define that. We also use the IEA and rewiring America to also help inform and define what is a climate solution, but it's largely project drawdown.
Gabe Rissman 32:21
Okay, awesome. And then the next question that divestment versus engagement, can you before? Well, actually, this is this is a very personal one for me. When I was in college, I wrote my first article in the Daily newspaper about how shareholder engagement with fossil fuel companies was ineffective. But then two years later, I filed a shareholder resolution with the fossil fuel company. So I think what I learned and what I realized is that divestment versus engagement is something that I think is sometimes counterproductive and leads to discussion and disagreement on tactic when both are very important. And I also think that divestment helps to create the space for engagement. And that engagement is also effective for divestment. I think they are compatible and complementary, and helping each other out. But I would love to hear your thoughts on that your thoughts on the divest versus engage?
Zach Stein 33:29
I think that's like a really nuanced answer. I'll maybe tell an analogy I I really like Matthew Yglesias. He does he was with Fox, he's doing his own thing now and he wants talked about the role of different people in journalism, and how there are some people whose it's their job to be the pushers of what is possible. With that, and not necessarily grounding in today. And kind of the like, you know, measured both sides fact fact that you that they actually pushed the window of what is possible. And so yes, I think, you know, Overton Window, etc. I think that what you like maybe potentially within the ecosystem that you described, which I think is, like, quite good point, is that if you have complete divestment, then you to some degree, lose the threat of divestment. Which is something that I'll need to think about more, I'll present our logic on it, which is going through the motions of saying, Okay, I think we're probably all familiar with engine number one, and their work on Exxon Mobil. That campaign costs about 12 and a half million dollars, generated a ton of press, and was really influential in that it proved that David could stand up to Goliath. I think it was very inspiring in that regard, generating a ton of press for it. When we look at its impact on solving climate change, That's where it starts to get really hard for us to see how it could have any impact and potentially even be negative. And so let me walk through some of that logic. Let's just let's assume that ExxonMobil, that this is as successful as it possibly could be, that the board members that join ExxonMobil, and the extra pressure that's put on leads Exxon Mobil to saying, Alright, we're going to get out of the oil business be huge, right, you know, largest publicly traded oil company in the world. So what would the actual impact on you know, carbon emissions be of that? Well, one, potentially very beneficial impact could be if they put up banners around the country, say, we're getting out of oil, it's a bad business to be in. That'd be like, would lead to a fire sale of oil assets likely around the world, that'd be amazing. Exxon is unbelievably unlikely to do that. Because you don't, you know, say, Hey, I'm gonna, the business I'm in is terrible, would you like to buy that asset from it, you know, you don't do that in advance. So if they were to get out, they probably likely very quietly sell off their assets, because they wouldn't want to create a rush for the exit. And frsl they would want to keep those asset prices high, you know, in delivering that return to their shareholders. So alright, so we can kind of, I think X off that potential benefit of decarbonizing. So, if they do, you know, let's say they quietly sell off all their assets. The problem is someone has bought those assets. And so they bought them, unless it's like the Nature Conservancy or something crazy, like they bought them to extract the oil. And so so long as there is demand for that oil site, then it's likely going to get used. So that kind of just then leads to the question of saying, all right, why would we spend this amount of money and time and effort galvanizing a campaign around oil companies, instead of trying to get them to voluntary cut down supply in a world where they have customers lining up around the corner to buy their products? It seems it's backwards, we should be going to their customers and saying, Hey, come over here, electric cars are significantly better, let's get solar panels on and stabilize your energy costs. It's just a better investment, that to us seems like it's a much better place to be spending our energy on these, let ExxonMobil do what it's going to do, it's going to be incredibly hard to change them. From that regard, you know, the best of all possible worlds is you have their level of capital, now participating in green energy. That's the best case scenario. But it doesn't actually mean you've done anything to reduce carbon emissions until we've lowered the demand for it. So that's our theory. I don't know. Pokeballs.
Gabe Rissman 37:59
Yeah, I think that makes a lot of sense. I think that the business model change will be very tough. I do think that there are some side benefits. For example, a lot of the shareholder engagement work done with oil and gas companies is getting them to stop obstructing climate legislation, with their lobbying. So I think there's still some good stuff. But in terms of changing the core business model, that is trickier. I also love the way that you talked about, like Exxon putting up all these banners saying, oil is no longer good investment. That's, that's what divestment does, as well as the public single aspect of that. So I really am playing. Like I think both are very effective strategies. And I think that, like, I have it, but they both have to be done. Right, like divestment without any public statements is not very helpful. But divestment with the story divestment with the collective action. And this kind of leads me to my next question, divestment with community, what are ways that carbon collective? How are you thinking about the collective? Do you? Yeah, open ended?
Zach Stein 39:08
Yeah. Let me just address like, I think a big missing piece of the equation right now, which we touched on, is the divestment engagement debate is just focused on oil companies, which it then says like, it's kind of gets at this binary have to do you engage or divest? Which if you then say divest, then you're kind of implicitly saying that engagement broadly with companies is not a useful tool. And we are saying no, engagement is an incredibly useful tool, but we're talking about it in the wrong places. Yeah, we should very much be using it on these types of companies like what is it? Shareholder resolution that we'd love to see is let's get a big box store resolution of saying that within the next five years, you have solar panels on every single one of your buildings with battery backups, where it makes like so long is it you don't know lose money on it. And we can make economic arguments for it to you know, fluctuating prices of energy, being able to support yourself and blackouts and things like that as a climate adaptation measure, that could lead to a significant reduction in fossil fuels. While for those companies creating a bunch of positive press it like those, that's the type of engagements that we should be working on. Again, it's not, there's maybe a different emotional feeling of it's not like going to the enemy. And saying, Well, you know, if you have the other thing I'll say, on the divestment part, because, or the engagement piece with fossil fuel companies, and this has gets to where I think it can be dangerous, which is fossil fuel companies have shown that they are not good faith actors around climate change. Yes. And they are very happy to say something, if it relieves pressure, and they're happy to pay fines, they're happy to get caught lying. In this an example that really stood out to us was Exxon has been really investing in Guyana, and their oil fields off the coast there. And in order to do that, they signed an agreement with the government of Guyana saying that they were going to capture all flared emissions. That technology doesn't work yet. And so they just flared it. And Guyana was like, what what do you what are you doing at Exxon was like, oh, we'll pay the fine. But actually, we're gonna pay like a 90%. Lower fine. So what's hard then is to think, Okay, this is Exxon dealing with a government, where it's doing it's like business, biggest piece of business. What is to us? Why would we think that if they're making any type of commitments with their greeny shareholders, that it's not just a delaying tactic? Interesting to get us off their back?
Gabe Rissman 41:59
Yeah, I've actually. So before starting our stick, Patrick and I did a whole literature review on on what creates impact impact investing and looked at all the research on let's take a look at the whole track record of shareholder engagement. When is it effective? And when is it not? And it's not it is effective, or it's not effective? It's about when and where and for what reasons it was what context? And there were a lot of examples, not that many, but but there were definitely examples of companies making commitments to basically get their shareholders off the backs and then not following through. And there's a lot of worry now I know a lot of resolutions being filed of, hey, company, fulfill your commitment that you made, what's going on. And so it, it is definitely something that happens, but the way that engagement can be most effective is with kind of the more persistent campaigns bringing a lot of people together. It's really just a way it's a component of a campaign, essentially, and it's part of that collective action engagement can play an important role. An important part
Zach Stein 43:04
of thing. Absolutely. And how do you make it near term? This was like, you know, there was some celebration a little bit while back of getting the big banks to say they're going to be net zero by 2050. Yeah, Jamie diamond, dead by 20 52%
Gabe Rissman 43:20
of the employees will still be there something like that. Yeah. Yeah,
Zach Stein 43:23
like, sure. It's like a really easy thing to say, and know that you're not gonna have to be the one to actually deliver on it. And do it. So how do you make these so much narrower term and so much more concrete, and have built in carrots and sticks with it? And then I think as exactly as you said, and this gets to your question about collectivization, of how can we make this broader? That's where it's, I think, you know, in some ways there should, there's so much more room for experimentation when it comes to shareholder engagement, of how do you make it like cross company, but really focused on it. And this is an area that, again, we're just starting to scratch the surface on. In the climate space, there's such this focus on, you can't fix what you can't measure. And that's true. And we also know there's like, really like, regardless of what the measurement turns out to be, like, everyone's kind of such 100% renewable energy. Why don't we start on that now and get better measurements, scope three and all of that, it still will keep the pressure on that you can't have it release the pressure. But the switch to 100% electrified fleet, like that's basically also has to happen. So yeah, in terms of how does carbon collective where do we fit into this? Yeah. Is that we believe that change happens bottom up, that it's much harder. Maybe you can argue Elon Musk is doing this, but to have some rich person top down and saying, Oh, I control this money. I'm going to create this change. Here. That instead having enough people, individuals who are saying, I believe I want to change the status quo, that is when you then start to get a pushing up this is whether it's getting your company to change its 401k. This is the your charitable organization to change how its endowment is invested your pension fund institutional fund managers, et cetera, it needs to happen bottom up. And so with that, we very deliberately set out in our path to make it that anyone can participate in it. There's no minimums, for what we do, you're gonna pay the same you would, as generic other generic online investment platforms, like betterment, or Wealthfront. For us, we launched our second product, which is our 401k service for mission driven companies. And we have a lot more in the works there as well. So it's with that, that our goal is saying, Alright, how do we reach as many individuals as possible through that and help start that change? On a just a purely a headcount level. And with that, we can start pushing up into higher level higher concentrations of capital. With that, so like, what is what does the world look like we're carbon Collective is very successful, is where a student group at the University pressure's a their endowment to divest. But they don't just say, stop investing in this. But they say start investing in that, in that clear strategy. And whether it's carbon collective, or we're really successful, and BlackRock copies us and does the same thing. Doesn't matter. That's what we wanted to happen in a position to change that definition here, of how do we drive impact specifically in relation to climate?
Gabe Rissman 46:50
Well, and that is one of the big questions that advisors oftentimes really want to know, financial advisors. They get these questions from their clients sometimes, and they want to know themselves as they're pitching ESG by investing in this company and not that company. What is that doing? What impact is that having on the world and it sounds maybe I shouldn't put words in your mouth, it sounds like what you're saying. It's not just that choosing this company or not that company, but it is changing the identity of the person based on the way that they're investing in alignment with what is really needing to change. And that has a ton of impact. I'll stop putting words in your mouth, and we'd love to hear from you, you get a financial adviser gets a question from their client. Hey, are you recommending carbon collective? What is? What's changing what's happening in the world? I'd love to hear your thoughts.
Zach Stein 47:39
Yeah. So there's kind of three ways he's like, look, let's be honest, I think we can often beat around the bush here, we're talking about buying and selling used stocks, like the stock market is eBay. We're often not buying directly from companies. So what does that impact here? You know, there are more direct ways of impact, you can invest directly in a solar farm, you could put solar panels on your house, that's going to have a very direct carbon impact, and publicly traded markets. And those portfolios are how much of us hold wealth. So how do we start there and maximize as much as possible, and we've done it, we find it really hard to get into the ownership principle. We kind of started on on talking about that, how many flights across the country your portfolio is representing and people are like, you get into the well, someone's buying it and selling it and it gets sticky fast. And so what we found is kind of the most effective of talking about that theory of it's not just you know, while you feel better about it, that's certainly part of it. Earning dividends from Exxon Mobil feels to a lot of people really crappy. It's like blood money. So definitely, that's part of it. But there's three ways that we can generate impact. The first is voting, we talked about that a lot. This is really underutilized in the climate space. And we think we're just at the beginning of how to really put together these campaigns, and do so in a way that's very fresh and new. And news breaking because it's really, it's great news to be making. So that's the first one. So any, any way that you're evaluating a sustainable investing, how's it voting is really key for that. Number two, is this often is hard to talk about or people get tripped up in it, but your shares do impact share prices for companies. The stock market is dictated by supply and demand. It is a really simple equation. And yes, even if you have like a few shares of Apple like that does make some type of difference. And it's especially true in retirement accounts. Because when you buy and hold a company stock in your retirement account, you're fundamentally keeping that that stock out of the actively traded stuff ply, so you're basically reducing the supply of that company. So if that company has an awesome quarter, and a bunch of us are holding it just in our retirement accounts, we're not touching it or trading it, then that company's share price is going to go up. And that's going to allow that company to raise debt and sell more capital more cheaply. We saw this with the latest renewable energy boom, in 2020, Tesla sold a bunch of stock expanded faster, companies like plug power, were able to raise money to go out and build out their green hydrogen infrastructure. It's great. This is something that fossil fuel companies have done really well, because they provide really high dividends. So they make a lot of sense in IRAs, which is a little bit of a sneaky move on their part. But the supply and demand really matters. This is the third part. And this is so critical and not talked about enough is narrative sort of comes back to storytelling. When we talk about efficient market hypothesis, I think we imagine that it's like computers that are making all of these trading decisions that are just like fully rational beings only analyzing data. And it's not we are humans, we were beautifully rationally flawed, I think it was like, like, there's like 188 recorded cognitive biases. Like something crazy. And confirmation bias is a huge one with that. And so what we don't appreciate is that the underlying narratives about investing are part of the publicly available information. They're the like, like slow undercurrents with it. And the current narrative is that fossil fuel companies are a necessary evil in a balanced portfolio that you will be losing out on. And that's just not true. If you had divested, and from there, I was born in 1989. From the s&p 500 and fossil fuels to today, you would have made more money over that period of time. And that includes a counter cyclical decade, because everyone's like, Well, no, it's it's because it's counter cyclical. The 2000s, the s&p 500 was basically flat. And fossil fuels in the US are like up 350%. So it includes the thing that advisors talk about us like why you need to have this. So that is wrong. And then on the sustainable investing side, we still get this all the time. People are like, Yeah, I'm gonna join carbon collective. And you know, it's okay, I've thought about this, I'm okay, accepting a few percentage points worse returns. And we think that, you know, we'd love to have you and we think that your rationality is wrong here. That sustainable investing might not perform better next year. But over the next 1020 30 years, we actually have can look at a lot of the mega trends here and see that make, I believe, a strong argument that fossil fuels are fundamentally an industry in decline. And the industries that are replacing them are poised for massive growth. So it's like an investing basics, do you want to invest in the declining industry for the next 30 years with the growing one, like, it's not that complicated, but those type of narratives become self perpetuating. In the market, fossil fuel stocks are kept elevated, because they're seen as that necessary evil, whereas climate pollution SOPs are kept down, because it seems like Well, I'm doing it because it's charitable, versus letting greed come into that. So that's a really critical piece, in terms of education, that I think advisors can be doing more. And I think it also connect the dots more for clients to be able to draw those macro conclusions of what's going on. And it's not just you know, what's going on with treasuries and things like that, but like in the, you know, the decades long perspective. So, we found that very helpful as well.
Gabe Rissman 53:34
That was really compelling. I also, I think what you're saying there, I probably maybe even said the same thing on a different podcast episode of this one. But we found it's pretty amazing. Three or four clients out of maybe 100 clients that a financial advisors have, asking for fossil fuel divestment, or ESG, is enough to get the advisor to take it seriously and start doing stuff. Three or four advisors, asking a fund manager to take something seriously and start making changes from an ESG perspective, gets that fund manager to start doing something differently. Three or four fund managers pushing a company to make a change. And this is this isn't literally, I mean, like you get enough, there's not that much. It's like small things at the margin. Being the squeaky wheel that gets the grease really changes things. So we've found that like, not just having your stocks in one place versus the other place, but the actual act of making that motion moves things up the chain in a really powerful way. And that's why I really love your name of carbon collective because it is it's about the collective action. And I love that the voting is a part of what you do too. And it was really part of the theory of change. So yeah, I thought that was really compelling. explanation.
Zach Stein 54:56
Thanks, man. Yeah, I like loved what you're just saying, oh, have the three to four. Like, if I was to summarize like, what is the mission and our challenge, and we're doing it in different ways, we're working on the RA community, we're right now working with larger with retail and maybe eventually institutional. But it's exactly that. It's how do we tell that story of not connecting, and leading to change? If we get that right, then we can have massive impact and I think also be very successful companies yet. So yeah, I would love to coordinate with you further, like, how can we help tell that three to four story? He has? Yeah, when we started carbon Collective, we were very influenced by the Obama campaign, were in 2018 are very successful. And they were really good at saying, Alright, your call center, you know, called this many people today. This is this. Many people in your county, this many people in the state, this many people in the country, they always connected the dots, for you to your impact? Yeah. And that if we do that, that's how we make change here.
Gabe Rissman 56:00
That's amazing. I know, we're already over time. I have one more question. If you have a couple more minutes,
Zach Stein 56:05
ma is fine. So
Gabe Rissman 56:07
transparency, really important to us. And I can tell from from your website, and from what we've talked about, really, really important to you as well. Can you talk about how you make your information really public in a way that I was shocked by it and and what you're doing there and why?
Zach Stein 56:24
I'm interested to hear the shocking parts of it. So to us this is again, generally a problem with ESG that I think your company it's it's resolved to etra is to solve is its lack of transparency. It's when I'm investing in a Vanguard ESG fund as an individual, I might know Vanguard, I have no idea who MSCI is, who they're choosing, and MSCI they make their money, like by selling proprietary data. And when it comes to ethics, it's all about trust. So you're asking me to trust the one I've never heard of, to make decision ethical decisions for me in a way that I literally would have to pay $30,000 a year to see into how it's done. That doesn't make any sense. So for us, it was really critical that we only use publicly available information and be post our methodologies and our work to such a degree that if you did the same thing, you hopefully could do it yourself. So you could replicate our carbon collective portfolio. Full stop, it might take you a very long time. But you absolutely could. And we think that that type of transparency is really critical in building trust in a space that has been so battered down by greenwashing. And there's so much distrust, and especially for us, we're starting largely in the climate community, and people who are working on this and close to it. So there's just a lot of initial skepticism we have to get over which is good. That means that it puts us through our paces even better, we have to be better. And we like it for that reason. But that's why we try to be as transparent as we are. Because it's under that theory that you build trust and get excited by knowing that you're going to be able to see why everything is in there. And then also talk to someone and being like, Why is this here. And I try to say this very publicly, our portfolios are always built to be a work in progress, and never want to think that they're perfect. Because they're all just really complicated. And there's always going to be things that don't fully add up are things that we need to tweak and build. And that's also part of that collective aspect, as well, is being really open and receptive to that feedback of saying, Hey, this is how we do it. If you have feedback to that. Yeah, we're listening and we very well might integrate it.
Gabe Rissman 58:38
Love it. Any any last things that you want to share.
Zach Stein 58:43
Now, this is great. I'm like such a fan of your work. And I'm just honored to be here. And I really look forward to continuing imagining in five years how we have both done a significant amount of change the narrative and the story of sustainable investing and its impact.
Gabe Rissman 59:03
Love it. Zach, thanks so much for joining and have a have a really nice holiday weekend. Thanks Gabe you too
