Unlocking the Green in Wall Street: A Conversation with Ceres' Steven Rothstein

Hey folks, I'm back after a two week break, and you won't want to miss this episode of the Climate Confident podcast! 🌍 I sat down with Steven Rothstein, the Managing Director of the Ceres Accelerator, and we got into the nitty-gritty of how financial institutions are stepping up their game—or not—in the face of the climate crisis.

You know, it's not just governments and environmental organizations that have a role to play; financial institutions are pivotal players in the climate transition. 🏦 Steven sheds light on the monumental efforts some are making, like climate disclosures and considering ESG in retirement funds. But he also points out that we've still got a long way to go.

Is the insurance sector serving low and moderate-income families? 🏠 With climate catastrophes on the rise, Steven reveals that many families are left in the lurch, struggling with the financial burden when disaster strikes. Tune in to hear what Ceres suggests to make insurance more equitable and climate-smart.

We also dive into some eye-opening reports Ceres has been publishing. From machine learning analysis of insurance companies' first-year climate disclosure reports to an upcoming report on the insurance sector's risky fossil fuel investments, the conversation is nothing short of enlightening. 🔍

The reports are:
Climate Risk Management in the U.S. Insurance Sector and
Detailed Analysis of 15 Companies in the US insurance sector

Steven also explains why some insurers are pulling out of states like Florida, Louisiana, and California, and it’s not why you might think. It’s all about climate risks, folks! 💡

Your homework? Check if your pension provider is investing in fossil fuels! 📚 Even asking the question can make a big impact.

So join the conversation and get inspired to take action, because, as Steven says, "It's a problem you can't say someone else will solve." This episode is jam-packed with knowledge and action items you won't want to miss! 🎧

🌐 Check out Ceres.org and FreedomtoInvest.org for more resources. You can also reach out to Steven at srothstein@ceres.org.

Sign up to Climate Confident+ for deep dive analysis of the major climate and energy stories of the day.

Transcript

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Steven Rothstein: 0:03

74% of employees say they want to work in a company or buy products from a company that reflects their values. 41% said they would move to another company if they thought there was a company that was more climate oriented and same job, same conditions. So investors are speaking out. Investors with over 50 trillion dollars of assets have set net Zero Plans. They want to move their portfolio in an orderly way over the next 10, 15, 20 years.

Tom Raftery: 0:33

Good morning, good afternoon, or good evening, wherever you are in the world. This is the Climate Confident podcast. The number one podcast, showcasing best practices in climate emission, reductions and removals. And I'm your host, Tom Raftery. Don't forget to click follow on this podcast in your podcast app of choice, to be sure you don't miss any episodes. Hi everyone and welcome back to the Climate Confident podcast. I say back because I'm just back from two weeks of not publishing any episodes. I took a little bit of a break. I was hoping to get some vacation time in but that didn't happen. We had some illness in the family and I had to manage that and cancel the vacation plans but that's more or less under control now and so I'm back. This is episode 134 of the Climate Confident podcast. My name is Tom Raftery. Before we kick off today's show, I want to take a quick moment to express my sincere gratitude to all of this podcast's amazing supporters. Your support has been instrumental in keeping the podcast going and I'm really grateful for each and every one of you. If you're not already a supporter, I'd like to encourage you to consider joining our community of like minded individuals who are passionate about climate. Supporting the podcast is easy and affordable with options starting as low as just three euros. That's less than the cost of a cup of coffee and your support will make a huge difference in keeping this show going strong. To become a supporter simply click on the support link in the show notes of this or any episode or visit tinyurl. com slash climate pod. Now, without further ado, with me on the show today, I have my special guest, Stephen. Stephen, welcome to the podcast. Would you like to introduce yourself?

Steven Rothstein: 2:22

Sure. I'm Steven Rothstein. I'm the managing director of the Ceres Accelerator.

Tom Raftery: 2:27

Okay. And Steven, what's the Ceres accelerator?

Steven Rothstein: 2:31

First Ceres is a nonprofit. It's based in the United States, and we focus on work with investors, with businesses, with regulators, with policymakers to highlight to move businesses to become more sustainable. So again, working with key investors doing it for over 30 years. Our investors represent over 50 trillion of assets. Some of the companies that we work with are some of the biggest companies that are moving their portfolio setting Net Zero plans and highlighting that climate and water and biodiversity are really financial risks, and they're taking action to move that and we're trying to encourage that even further. In the accelerator we focus on the financial sector, the banks, the insurers, others, as well as the boards of directors, corporate governance.

Tom Raftery: 3:19

Okay. Okay. Usually when I hear the term accelerator, I think of startups, but that's not who you're referring to unless I'm misunderstanding what you just said.

Steven Rothstein: 3:33

You're exactly right. So we are not focused on startups. We're trying to accelerate the pace of change that we only have seven years to get to 2030 and the world needs to make dramatic changes. And one of the key levers, not the only, but one of the key levers are the financial players. The banks, the insurers, every transaction, any place in the world needs financing and needs insurance. And so the more that they understand the risks and they then share those with their customers has an enormous impact. So we're trying to accelerate the pace of change in our society.

Tom Raftery: 4:08

Okay. And how are you doing that?

Steven Rothstein: 4:11

So we're working with investors, banks, insurers, others on a voluntary basis. And there are some great examples of leadership, some great examples of moving quickly. But then we're also working with their, their owners, their investors, and their regulators. In the United States, unlike many other countries, there are a plethora of, of regulators. Every state has a bank, an insurance, and securities regulator, the federal government has several. So we're working with a lot of agencies to help them, give them ideas in terms of some of the rules to ensure that the, that the banks, insurers think about these. There is, for example, there is more financial risk on bank balance sheets today because of loans they've made to customers than there was in 2008 'cause of subprime housing. More risk. Wow. And, and while we hope financial crisis doesn't happen, what we've seen in the last few years, in fact it's getting worse. There are, you know, last year in the United States alone, the federal government said it was$165 billion of economic loss. In the United States alone, 3. 4 billion, sorry, 3. 4 million people lost their homes, some temporarily, some permanent. Again, if you go around the world, the numbers are even much bigger. And so, these climate risks are enormous. And there are big climate opportunities with the Inflation Reduction Act, with new technologies and those things. So we're trying to highlight those and help to accelerate that change.

Tom Raftery: 5:41

Okay, and when you refer to climate risk, what kind of climate risks are you talking about? Is it climate risks from things like big storms coming through, droughts, or is it climate risks from things like stranded assets for investments in fossil fuel companies or projects that might get left behind?

Steven Rothstein: 6:01

It's both. It's both physical risk and transition risk. Physical risk, floods, fires, droughts heat exchange. You know, people, I'll give you one example. In the Pacific Northwest in the United States, half the homes that were built didn't have air conditioning because the theory was back then you'd never get warm enough to need it. Well last year, unfortunately, many people died in the Pacific Northwest because of heat stroke elders and other people. So, so the physical risks are happening. 60% of the United States in the last few years have had 60% of the counties have had climate emergencies, either too much water, not enough water, fires, droughts, things like that. And transition risk. We're seeing stranded assets, as you mentioned, but if you just take the automobile companies, you know, by 2035 the major companies said they're going to be going to all EVs. So if you're one of the hundreds of parts companies, from spark plugs and fan belts and things like that, that are in internal combustion engines but are not in EVs you either need to change or you'll go out of business. So there's enormous transition risk as well as physical risk.

Tom Raftery: 7:10

Okay. What's the appetite in the U. S. for hearing about this kind of risk? Because, I'm, I'm based here in Europe, we get mixed signals about what the uptake is, and how w illing people are to take on board that message in the US. It has been, unfortunately, heavily p politicized in the US more so than anywhere else that I'm aware of. And so, yeah. Is it, is it something that people are open to hearing about?

Steven Rothstein: 7:41

It is politicized more than any of us wish it was. But the market is is clearly responding. If you look at major companies, you know, 92% of fortune 500 companies have climate disclosure plans in place. Hundreds of companies have set Net Zero plans. Companies, I'll just take automobiles again. You know, they've committed tens in some cases, hundreds of billions of dollars to retool their equipment. So the market understands. You know, Mother Nature doesn't care if you're in a red state or a blue state when there's a fire or a flood or a tornado. And again, there are opportunities. Job creation are happening in all parts of the country as well as obviously around the world. So that the, the investing market, the corporations they're responding. Employees want to know. You know, 74% of employees say they want to work in a company or buy products from a company that reflects their values. 41% said they would move to another company if they thought there was a company that was more climate oriented and same job, same conditions. So investors are speaking out. Investors with over 50 trillion dollars of assets have set net Zero Plans. They want to move their portfolio in an orderly way over the next 10, 15, 20 years. So that the market is moving and there are, unfortunately, there are still elected officials that do politicize this.

Tom Raftery: 9:04

Okay. What about this whole anti ESG movement that has started to come up from certain states?

Steven Rothstein: 9:12

Yeah, so it is real. You know, there are so from my perspective, it's grown a lot. First, why is it grown? Because of success of the movement, because they see that companies and investors are investing billions and collectively trillions of dollars in new technology. Just recently in Texas, known for its oil, 37% of the energy came from renewables, just in a recent survey of the new energy produced. So that there is it's a result of success over time and it's having a short term impact in terms of it is getting people to be quiet is there's an effect called the Disney effect. Where Disney has been criticized. So companies say, I don't want to be criticized. But they're still, so companies aren't speaking as much. It's kind of green hushing in a way. But they are still doing all the things that they were doing. So we talk to big companies and big investors. And some of them say, I may not sign a letter or issue a press release. But I'm still going to be doing all the things we're doing. And as part of that, we set up an initiative I'm happy to share more about. It's called Freedom to Invest.

Tom Raftery: 10:19

So yeah, talk to us about Freedom to Invest. What's that?

Steven Rothstein: 10:23

Yeah. So the first, when you, when you look at the surveys, 75% of the people don't really understand what ESG means. For some people it's, and, and because of the politicization, it means different things to different people. So we, so kind of what are the core values that, what do we, what do we support? What have we been supporting literally for decades? This idea that investors in companies, whether it be an investor being an individual thinking about their own retirement, or an institutional investor with, you know, a trillion dollars of assets or a big company, they should have the right to think about risks and opportunities. So, if the person who manages my retirement said, I'm not going to think about climate as a risk, I wouldn't work with him or her anymore. You want them to think about inflation and pandemic. And so they should have the freedom to invest and think about risks and opportunities. So and and that is a broad base. We actually did polling and over 90% of the people, including people on kind of the more conservative side do support freedom to invest. And in fact, three quarters oppose the state setting bans or blacklists or things like that. So we're building support and people want more information than go to freedomtoinvest. org and get more information and join us.

Tom Raftery: 11:42

Yeah, because it, it seems incredible to me, but several states have actually passed legislation in the U. S. mandating that ESG can't be taken into account. Is it, or is it, is it, has that actually, I mean, I've read the headlines, I haven't gone deep into the stories. Has that actually happened, or is it?

Steven Rothstein: 12:02

Well, yes, so state, so, so, to give a context, there have been about 20 bills that have been passed. In different they meet their different variations. Some are stronger. Some are weaker. But but there are also 80 bills that have failed. And even in conservative states. So one way to think about it for every bill is passed four have died. And what and the economic impact fundamental. I'll give you an example. There was a bill in Texas that said if you are a bank and if you have an ESG policy, you cannot bid on municipal bond work. Borrowing for a city to build a school or wastewater or bridge or something. Well, that meant that there were six banks, five were now couldn't bid on that. The one bank was there had higher rates so that the taxpayers in the state of Texas are going to spend up to 532 million dollars, a study done by Wharton School of Business at University of Pennsylvania highlighted that. There have been other studies done around the country. So what people started to realize is by restricting basic idea of supply and demand if you restrict you restrict investment managers, pension funds, insurers, banks, the costs are going to go up. They've also imposed burdens on how they invest on divestment and things like that so that these even if you believe in what they're saying the way they're doing it is costing enormous sums of money.

Tom Raftery: 13:28

I thought they were anti regulation.

Steven Rothstein: 13:31

Well, it is interesting. We've had folks, there just was a a democratic, again, we're non partisan but there was a democratic state treasurer who testified before Congress who said that he was surprised that he was the one advocating for the free market. Whereas colleagues on the other side were adding asking for restrictions. So, it, it, I don't understand their thinking in this, but we do, you know, fundamentally, Ceres. We believe in the free market, if there's good information. And if there's good information, we think they'll act. Not always fast enough, but we think they'll act.

Tom Raftery: 14:07

Okay. Okay. And as we're recording this you are about to release your 2023 financial regulator scorecard. It will be out by the time this goes live. We could, we could speak in the past tense that the scorecard has been released. Talk to me a little bit about the scorecard. What is that and what, what has it found?

Steven Rothstein: 14:31

Sure. So as I, as I say, there are about, there are about 10 agencies at the federal level that regulate different elements of the markets. One look at municipal bonds, accountants, banks, et cetera. So we've, we've evaluated all of them and what they're doing. And this is the third year we've done this. And what we found is, overall, from the agencies that people know well, the Security and Exchange Commission and the Federal Reserve, to other agencies that you may not know as well, nine of the ten of them are moving forward to address that climate is a financial risk. Again, these are not climate regulators. They're regulators thinking about the safety and soundness of banks, or the accounting industry, or things like that. But they're all saying, they're almost all but one. Saying that, in fact, climate is a risk to the safety and soundness of their industry, and they're putting in place rules. So over a hundred steps have been taken in the last year, which is great. Some of these smaller, like a speech. Some of them bigger, like a draft regulation or supervision. So we appreciate all that they're doing. And we're still behind. The United States regulators are still behind what's happening in many places in Europe, for example. So this gives a scorecard. We, we have ten different agencies. We measure them on nine factors. And we have, literally on our website, Ceres. org. You can look at scorecard and look at who's doing what with a set of recommendations. So it's important to recognize the great work they're doing and appreciate that and to highlight what is still left to be done.

Tom Raftery: 16:09

Okay. Do you want to say who are the leaders and who are the laggards?

Steven Rothstein: 16:15

So there are, we, again, there are nine of the 10. that are moving forward in, in exciting ways. The Securities and Exchange Commission is doing some things, the Federal Housing Finance Agency, the Department of Treasury, there are many of them that are doing some, lots of things. There is one agency, the Public Company Accounting Oversight Board, that hasn't yet taken those steps, and we hope they do very quickly.

Tom Raftery: 17:05

Okay, what are some of the good things that they are doing, because you said we should recognize the good work they're doing, what are some of the good, what are some of the, the steps they've taken in the right direction?

Steven Rothstein: 17:19

There are many of them. So, the Securities and Exchange Commission that regulates publicly traded companies, they have a draft rule that would require climate disclosure. They received 15, 000 comments, more than anything else in their 90 year history and they're evaluating that. We hope that they'll have a final rule in the coming months. That was, that's very important, just as Europe has a CSRD and just recently ISSB, the International Sustainability Standards Board, came out with their rules. So climate disclosure is very important. There are draft rules from the agency looking at federal procurement. The Department of Labor allows rules in the retirement fund. There's about, there's trillions of dollars of money people have in their own retirement funds. Collectively it's under a rule called ERISA, and they've changed it to saying, a very simple thing that says you may consider ESG. Not that you have to, but you may consider it. So that's a big step forward. There are draft rules from the banking regulators. Just a few weeks ago, the Federal Insurance Office came out with a report with 20 recommendations to protect the insurance industry. So there's a lot of good things that we appreciate what they're doing. Again, collectively, we're still behind, but moving forward.

Tom Raftery: 18:41

Okay, cool, cool. And you also bring out or publish insurance reports. Do you want to talk about those reports and what they, what their findings are and what they're looking into?

Steven Rothstein: 18:54

Sure. There are a number of reports we've either done or in the process of doing. Two that we've just released. One in, back in January, that had to do with the insurance needs for low and moderate income families. And we highlighted that in the United States, and again, around the world as well, but in the United States particularly, low and moderate income families are really not being served well by the insurance industry. As climate emergencies increase, floods, fires, tornadoes, That these families can't, they don't have the flexibility. About a third of the population in the United States have 400 dollars of margin. Meaning if they have a $400 emergency, they are underwater financially and literally. So if, if I had a flood in my home, I can afford to stay in a hotel for a few days while the work gets fixed. But if other people, they literally have mold growing or if their car floods, they can't get to work. So the problem is enormous. And we identify 14 recommendations, things that federal governments can do, state governments can do, private insurers. Some require more money, but some are different kinds of insurance, parametric insurance and things like that. We've just released a separate report that on TCFD reports that we are very excited that this is the first year that let me take a step back. Five years ago, not a single U. S. insurer had submitted a T. C. F. D. A Task Force For Climate Related Disclosure financial climate report. And like any problem, you can't manage a problem if you can't measure a problem. So understanding the scope of it. Now, regulators have required that 80% the largest 80% of the industry submit those. So we just did a machine learning analysis of those and just released that. And it shows that again, that insurers are making progress. Considering it's their first year there's a lot of exciting information, and we look forward to them building on that in the future. We're doing a separate report on the investment portfolios and how much they are invested in fossil fuel as well. That'll be coming out in a few weeks.

Tom Raftery: 21:02

Okay. I mean, the investment one will be interesting because... You know, it, it should be a an industry, the fossil fuel one that is becoming increasingly risky. And I'm not talking about the fact that they blow up from time to time or have spills from time to time, but rather from a financial perspective. The, if, if we're going to Net Zero, the demand for their product is going to close to zero. So, you know, that should mean that why would anyone be doing exploration in new oil fields, for example, when we already have enough proven reserves to three times meet our demand for fossil fuels, never mind falling demand. So, yeah, it's going to say something

Steven Rothstein: 21:46

So, no, you're exactly right. So insurers. First, they have an obligation when they have a life insurance policy and someone's going to get a premium payout in 20 years or 40 years, they have to make sure they have the reserves for that. So they, their investment portfolio, they have to think about their, whether it be a one year for property and casualty or health insurance or life insurance. And overall what this report will highlight is that the insurers that we've looked at, they have collectively over $500 billion of assets in the fossil fuel industry, but there's a really a few around 16 or 20 that have about half of that. So one of the key things in this report is to highlight who has a lot there and to raise a question. Is that really a sound financial element? Forget the environmental issues, forget those, just from a business perspective because of stranded costs, because of those risks. As well as then there are insurers that are pulling out of states that say, or to be more precise, they're not issuing new policies in states. 15 in Florida, 50 in Louisiana, several in California and others. And some of those are the same ones that have a disproportionately higher amount of fossil fuel in their investments. So we want to at least raise those questions.

Tom Raftery: 23:11

And why are they pulling out of those states? I mean, I know we've had this conversation already, but for people listening, why, why are they putting out of those states?

Steven Rothstein: 23:19

Because of increased climate risks. Because, you know, whether it be fires or floods or droughts. And that from a business perspective, their premiums are going up and and they can't get the return. So, again, it's a combination, like a lot of complicated problems, there's no one solution. We think rates should be driven more to the market price. If you're an elected official, you don't want rates to go up. We think they should go up so people can look at those real prices and there should be more government support for needy residents and, and, and families and neighbors as part of that so that they can recognize the real cost. And that will, we hope, motivate people to take more action.

Tom Raftery: 24:00

Right. Cool. Steven, we're coming towards the end of the podcast now. Is there any question that I haven't asked that you wish I had? Or any aspect of this we haven't touched on that you think it's important for people to think about?

Steven Rothstein: 24:14

Well, first, Tom, I thank you for this conversation and for all the conversations. You're helping to move this important dialogue forward. It's complicated. I think it's, it's really that everyone listening, they have a role to play. Whether it be as an investor, whether it be as a customer of a bank or insurer in the company they work for, or if they happen to be a senior official at a corporation, or investment firm, or a regulator, this is not a problem you can say somebody else is going to solve. And I hope that everyone gets involved. Again, including whether it be going to the Ceres website, Ceres. org or the freedomtoinvest. org and take a look at those things and see how they can partner that I am an incurable optimist, but I'm only optimistic if we all get involved.

Tom Raftery: 25:04

Cool. Cool. Yeah, I had someone on the podcast last year. And his point then was, you know, to what you were saying a minute ago, the fact that insurance companies and pension funds have to take a long term horizon in their investments, and what he was saying is you should, what everyone listening should do is contact their pension provider and ask them if they have investments in fossil fuels and if they have, maybe consider moving to another pension provider, but just ask the question anyway, because that, that, that just even that act of asking will mean that they'll start to take notice. So everyone listening, that's your homework. Steven, if people would like to know more about yourself, I mean, you've mentioned the Ceres.Org and the freedomtoinvest. org websites, but if people would like to know more about yourself or any of the other things we talked about in the podcast today. Where else would you have me direct them?

Steven Rothstein: 26:01

Yeah, so those websites, I also am happy to share my email, which is srothstein at Ceres. org. If we can help or partner with folks that I am inspired by what I see people doing work and I'd love to have people join together.

Tom Raftery: 26:18

Phenomenal, phenomenal. Steven, that's been great. Thanks a million for coming on the podcast today.

Steven Rothstein: 26:23

Thank you, Tom. Appreciate your, your, again, effort to get the word out.

Tom Raftery: 26:34

Okay, we've come to the end of the show. Thanks everyone for listening. If you'd like to know more about the Climate Confident podcast, feel free to drop me an email to Tom raftery@outlook.com. Or message me on LinkedIn or Twitter. If you like the show, please, don't forget to click follow on it in your podcast application of choice to get new episodes as soon as they're published. Also, please don't forget to rate and review the podcast. It really does help new people to find the show. Thanks, catch you all next time.