The Role of Accountants in Advising on ESG Initiatives

The Young CPA Success Show: Episode 11

Joey and Hannah talk to Kai Gray from Motives ESG to discuss the shift in consumer values toward sustainability and its impact on businesses. They highlight the role of accountants in advising on Environmental, Social, and Governance (ESG) initiatives. Kai shares insights on the importance of ESG in private equity firms. The conversation also covers the need for education on sustainability, the influence of stakeholders in driving sustainability initiatives, and the potential for businesses to profit from sustainable practices.

Intro (00:00:00) - Welcome to the young CPA Success Show. If you're a young accounting professional, this podcast is your ultimate guide to navigating your early career. Join us as we share valuable insights, expert advice, and practical tips to help you kickstart your path to success and excel in the accounting industry. Let's embark on this exciting accounting journey together.

Joey (00:00:23) - Hannah, when was the last time you took an inventory of your closet?

Hannah (00:00:28) - Geez, Joey, I don't know. It's been it's been a while. I feel like, though, how I look at my closet today has shifted from how I looked at my closet years ago. So, the inventory of such would be a very different process than the last time that I'd done it. I can say that for sure, but it's definitely it's definitely been a while.

Joey (00:00:52) - So let me tell you the backstory to that question, because I kind of led into a question. I was doing something called hiding the cookie, or I'm hiding this cookie behind you, behind my back to try to get you to take the bait.

Joey (00:01:02) - So it's obviously puffy vest season here in Albuquerque, which means the weather is changing, right? It's a little cooler. Producer Rob is jealous because he's sweating down in Jacksonville. But we're up here in our sweaters doing our thing, looking at how all this was going. So, we kind of start changing out our clothes and making sure everything's okay. And usually around this time of year is when we start looking at what clothes we want to donate. Either it doesn't fit anymore or it's not quite the right style or something. And what I've noticed over the last couple of years is we've done these exercises. We have less and less stuff that we're like trying to turn over. And it's partially on purpose because we've downsized a little bit and we've tried to minimize some certain things, but it's also a reflection of the fact that 4 or 5 years ago, we started shifting into a different mindset. As consumers. We stopped wanting things like fast fashion. You know, you go and you just grab something from H&M or you grab something from forever 21.

Joey (00:02:14) - If you're my wife or whatever that happens to be, and you wear it a couple of times and then it either intentionally falls apart or you're just like, yeah, I just don't have a reason to do that anymore. And we've moved into things where it's like, I want some more evergreen stuff, stuff that I'm going to have versatility because we care as consumers a lot about sustainability and minimizing our footprint. And that's kind of where we wanted to kind of think about. How that's impacting our lives as consumers, and then how businesses are responding to widespread changes in that across the marketplace.

Hannah (00:02:51) - I feel like for me as a consumer, it is definitely shifted. So even what I mean is how I look at my closet today is different. How than how I look at my closet years ago didn't care where my clothes came from. I probably was just buying the cheapest thing that I could find. I refer to that era of buying clothes as I was buying disposable clothing. Now I care a lot more about where how these pieces are being made and their origin story and things of that nature, whereas didn't care about that before, like my values in as a consumer have definitely shifted.

Hannah (00:03:25) - So it's been interesting to see how the how the market has also shifted as a result of our generation's values changing in that regard. In a lot of different ways. I feel like my values, not even just in clothes, but in the food that I eat, too. We were just having a whole conversation, you know, about the sourcing of food and being able to trust where that came from. And that is also hard as a consumer is to know, be able to trust that, hey, if something says it's grass fed or, hey, it's sustainably sourced, is it sustainably sourced? At surface level, I'd like to think that I could trust that. But can we as consumers trust that when they say it is that it actually is?

Joey (00:04:07) - I don't know, it's I mean, I can I can think of a couple of different things, like, I used to joke all the time that, you know, when I was living in Texas, they'd advertise Hatch Green Chilies in Texas and I'd be like, oh, cool.

Joey (00:04:19) - And they're like, yeah, hatch green chilies. These came from California. And I'm like, no, no, no, no, no, you don't understand. Like hatch is not a brand hatches a place. You only have hatch green chili if it's from Hatch, New Mexico. But there's so many things like with marketing and buzzwords and things. And these companies are smart. They understand like this is a trend. This is where people are moving towards. And it's I think it's more than a trend. I think it's a movement, like one of my favorite things to watch on, like the Instagram Reels and TikTok reels, like when I just want to zone out for a little bit. Like, I love these like, vanlife people who are just like, I have no attachments. Like everything that I need is just like right here in this little camper van. And I'm like, I'm six two, 215. I don't know how I'm going to fit in one of these, but I aspire to I aspire to have that level of freedom in that.

Joey (00:05:08) - And I think there's so many things from like not just those, but like all the consumable goods like, you know, our style's gotten more minimalist as we've thought about, like wanting things that are super sustainable. Our food, we stopped going to the local Kroger store. We stopped going to these things. We shop now mostly at, you know, local co-ops and things like that, where we're trying to get a little bit closer in the supply chain to where the food's actually coming from. But, you know, there's so many things that it's really, really, really hard to kind of get rid of the noise of what's marketing and get back to the truth. And. I think consumers are really pushing for more truth telling from our companies, and I think our companies are responding because they're realizing that if we're, you know, true to this, and we show people that this is how we're doing. There's a market for that and it's profitable. They can make a business off of that entire position.

Hannah (00:06:16) - Absolutely. I think there's a level of due diligence that we have as accountants, especially as we come in contact with companies that want to prioritize these ESG initiatives to make sure that we are reporting these in the most accurate way, that we're providing the most accurate financial metrics around this, because we know that there is a level of responsibility that we have to the consumer to be sure that we're arming them, us, our peers, with the right information to make the best decisions for us and where our personal ESG values stand as well.

Joey (00:06:52) - That's such a great point, because that was I did not really understand like, I know what ESG is. Just for the record, it's environmental, social and governance. What I didn't really understand about this was like, this is not like these metrics are not trying to provide a value proposition. They're not trying to tell you right from wrong or anything. It really reminds me a lot of an audit where we're just saying, like, hey, we're not telling you whether these financials are good or bad.

Joey (00:07:22) - We're just giving you an opinion on, hey, what they say they did is, is kind of what they did. So, if they say they did poorly, they did poorly. You know, that's kind of what some of these ESG initiatives are moving towards. And it reminds me a bit of the Wild West where I feel like we're kind of reminded, like a little bit like cryptocurrency, where it's like we know that there's some regulatory need here. We just haven't quite figured out how to separate, like what's actionable from companies and what the marketing is. But that is sort of the preface for our episode this this week, which was with Kai Gray, who's with Motiv ESG. And I really enjoyed our conversation with Kai. I thought it was a great I mean, we spent a lot longer than we normally do, talking about a pretty heavy subject, which speaks a lot to him and what he brought to the table.

Hannah (00:08:17) - Yeah, I thoroughly enjoyed our conversation with Kai. Walked away from that conversation feeling more educated on the topic, feeling more empowered to have those conversations with my clients to be.

Hannah (00:08:29) - To actually want to dive in and learn more about it and how I can and how I can best advise my clients in that way. Because here's the thing. After that conversation, it just really brought to light for me that ESG and the topics surrounding ESG are not going away. If anything, they're going to think be brought more and more to the forefront, especially as there's more regulation around some of these pieces that need it. And I think if we as accountants can get in front of that, stay educated, be where we can be thought leaders in this way, that'll provide a whole new avenue of services that we could provide for our clients.

Joey (00:09:07) - Yeah. So, I mean, thinking about how, like, younger CPAs could get involved in this, like, if you're someone who's, like, really passionate about things like the environment or you're really passionate with social issues, you know, making sure that you've got, you know, all of the things handled correctly in your organization. Kai mentioned training a lot, which is something Hannah, that's like really near and dear to our heart because that's where we spend a lot of our time, is working on training.

Joey (00:09:32) - If you're someone who's really, really invested in that as a young CPA, this is a really interesting future and a really interesting place to maybe think about. Could I specialize in something like this? Could I become the type of accountant who helps businesses a not only understand the ROI of these initiatives and the value behind this type of reporting, but maybe you get into something down the road where you say, like, I'm involved with measuring compliance, or I'm involved with helping companies get into compliance with new regulations. So, I think this is a really fascinating field. That's all. To your point, only going to expand.

Hannah (00:10:11) - I think there's also an opportunity for us getting educated in such a way that we can then educate our clients, because as this becomes more important for consumers, our clients are going to have to then become educated in this as well. So that way they can decide where they where they lay on the spectrum of ESG and what they want to prioritize and what they don't want to prioritize.

Hannah (00:10:33) - So there's some importance in that piece as well, and being able to truly guide them towards their goals in this particular field. So, I'm excited for you all to dig into this episode with us. With Kai, I feel like you're also going to end feeling like you're more empowered to learn more about ESG and walk away feeling a little bit more educated. So, I'm excited for our listeners to tune in.

Joey (00:10:57) - Yeah, I figured we'd spend a few minutes here, just kind of chatting and learning a bit about you and sort of what's going on and what you're what you're hoping to get out of this for, for your audience and what you're hoping our audience gets out of it, and then we can kind of roll into it. 

Kai (00:11:12) - Yeah. I mean, so, you know, but by way of background motive, I'm the founder.

Kai (00:11:18) - And CEO of motive. And we are a we call ourselves a tech enabled advisory firm. We specialize in private equity, helping private equity firms with ESG. But our clients sort of run the gamut.

Kai (00:11:33) - And one thing that we have noticed is that a lot of CPAs and CFOs and people in the financial industry are getting called on to answer ESG questions, and particularly smaller CPA firms because ESG is trickling down. You know, it started with big public companies, went to, you know, tier one suppliers. And it's moving its way down to not quite mom and pop shops yet, but to, you know, smaller private firms. And so when they get ESG questions, they turn to their vendors that they trust. And those are either law firms or CPA firms. And so a couple of CPA firms just in the sort of, you know, here in town or locally just said, hey, can you give us a quick overview on ESG so we know how to talk to our clients about this. And so, you know, it makes a lot of sense, right. It's like if you're if you're a small business and by small I mean, you know, you're you know, you're probably in the $5 million range and up where this stuff starts to really matter.

Kai (00:12:45) - Um, you know, you've been working with your CPA firm for a long time. Those are your trusted advisors. That's who you're going to call. And most smaller CPA firms don't have the wherewithal to just sprout another consulting arm specializing in ESG. So, we've found both good business and good relationships working with CPA firms who are running into this and trying to make sure that their clients get, you know, serviced properly.

Hannah (00:13:16) - So how would you talk to clients about ESG? What is the advice that you gave those firms whenever they reached out to you? Because I feel like that's probably really relevant advice for our audience. 

Kai (00:13:25) - Sure. I mean, so it does run the gamut. So, I'd say for a lot of a lot of companies that are first getting asked about ESG, it's a brand new subject for them. Right. So, where this comes up for companies is usually in an RFP sales situation. So you make widgets for someone. Those widgets go into something, you know, you're part of a supply chain or a value chain for some larger company.

Kai (00:13:53) - That company all of a sudden instituted an ESG policy. And so now, as part of the RFP, you're getting asked to supply your ESG report or some something like that, some sort of a climate disclosure or, you know, hiring numbers, things like that. And that's a sort of a brand new thing. And so for companies, before they just start the creative writing process, you know, they get a little bit worried about how they should talk about this stuff. And so that's when they reach out. And so I would say when we're talking to companies, the first thing is this, you know, the ESG 101, like what it is, how it's going to be read. And then, you know, what we try to do is counsel companies on the idea that this is really a business driver. Right. Like if they pursue this, they put themselves into a category of vendors that now have this. And so, you know, it's really interesting. I would say I'm not sure exactly what the numbers are, but you can see, you know, within we work with some scrap metal companies, for instance.

Kai (00:15:11) - Um, and which seems like a very weird business for, you know, ESG to be in, but dealing with raw materials, there's a lot of pertinent information there. And I would say half of the scrap metal companies have sort of understand this, and they have ESG programs in place. The other half sort of had never heard of it. Right. And I think that, you know, we always talk about this idea that there's like, you know, there'll be winners and losers in this and think that if you can position yourself as a, you know, an ESG forward company, that you're aligned properly with your customers, that you just stand a better chance, right? So for the scrap metal companies, what was interesting and learning about their business is they said, you know, we're a commodity market. And so anything that we can do to give ourselves a competitive differentiator is a huge. Good deal for us because at the end of the day, it's just sort of price per pound and a grading process and things like that.

Kai (00:16:17) - Now all of a sudden we have something to talk about that our competitors may not have to talk about. And that, I think is a very important message for companies that are trying to stand out. So that's how we, you know, that's how we counsel companies. That's how we, you know, we try to work with them.

Joey (00:16:38) - So for the uninitiated, how would you best define ESG? Because I think this is a relatively new term in the business world. Like I think back to my business school days. And the big thing in 2010 was corporate social responsibility. And this feels like a very natural evolution from that idea.

Kai (00:17:01) - Yes, in fact. So depending on who you talk to, the sort of the origins of ESG or sort of date back to apartheid South Africa, where there was an where there was an active, um, there was. An active move to divest of certain things to cause an impact. Right. And so you had university endowments divesting of companies that were in South Africa or invested in South Africa, and that was an ESG.

Kai (00:17:38) - But that was the beginning of impact investing, which became socially responsible investing, which became corporate social responsibility. And then, you know, you have sustainable investing. You have all of these, I would say, branches of a tree. And they've all been slightly lumped under ESG for good and for bad. And so what ESG is in very practical terms, it's about 200 metrics that cover environmental metrics, social metrics and governance metrics. And it's the thing that a lot of people miss about ESG, understandably, is that it's not. ESG was never designed to delineate good companies from bad companies. It was purely a way for investors to understand the transparency or to understand the businesses that they were investing in. And so, you know, the example of that is, Exxon. So Exxon has a very robust ESG program. They disclose lots of information. And because of that they're held in many, many ESG funds. So people always, you know, get really worked up and say, well, how can Exxon be in an ESG fund either, you know, it's all fossil fuels.

Kai (00:19:09) - And the answer to that is, well, ESG is not measuring whether they're in fossil fuels or not. It's just measuring how they disclosed what they're doing? Are they transparent about things? Do they you know, I, I often talk about ESG and sort of reverse the acronyms because, you know, when you look at governance, you would say, you know, governance is about sort of insider trading and independent board members and audit committees and oversight and really just sort of good housekeeping for a business. And if you read the metrics for Under Governance, everyone shakes their head and says, yeah, yeah, of course, like you would, you would never invest in a company that had red flags there. And then you sort of move, you know, into environmental things. And many of the things just have to do with sound business practices. Right? You know, are you are you, are you consuming a lot of resources? Are you, you know, are you inherently a wasteful corporation or not? And, you know, and I think social is the is the area that gets has sort of the most stigma about it and has become sort of the political football here.

Kai (00:20:26) - But the reality is the social part really concerns itself with employee training, sort of wellness, safety, things of that nature. And so when I look at a company's ESG report, what I'm looking for is the level of detail that they can provide. And even if you dismiss the actual answer, just say, boy, this company really understands how they run. They're able to answer all of these questions. You may not like the answer, but they're able to actually provide this answer, which is, you know, it's sort of the green M&M type thing, right? Where you can spot companies that have a good command of their business and their business operations by how much they're able to disclose versus, you know, a lot of ESG reports tend to be more marketing lead and are fairly pithy. And, you know, you say. The jury's still out. You know, would I invest in this company? But some you look at and you know, IKEA's a good example of an ESG report that if people ever want to look at a really comprehensive ESG report, look at IKEA's, it's, you know, it is sort of a science based report, some heavy reading.

Kai (00:21:50) - It's not going to be, you know, no one's going to spend their weekends, you know, digging into it, except for the folks at Ikea and folks here at Motiv. But, you know, it gives you an example of like, this is a company that truly understands what they're doing, how they're doing it, how to report on that data and leaves very little to the imagination.

Hannah (00:22:15) - You touched on a key word that is really important to me as an advisor. For my clients. And that's the metrics surrounding each one of these, these arms and advising financially around those metrics. What could I do to better educate myself? So that way I can provide sound financial advising and education for my clients, because I feel like some of our clients are going to need some help understanding what this means for their business. What steps can I take in order to be better in that way?

Kai (00:22:47) - That's a very good question. So I think ESG is really based around the notion of materiality and materiality boils down to, you know, sort of a contextual situation.

Kai (00:23:00) - You're a company in an industry. And I think one thing that is hard about ESG, especially when you go to like Yahoo Finance and you look at sort of, you know, a score, one rolled up score, it's very, very difficult to make heads or tails of that because two different companies in different industries have very different material issues. Right? So, you know, it could be a company with a very sort of a large labor force will have very different issues than a company with a small labor force. But maybe it's dealing in a lot of raw materials or in a slightly sort of controversial area. And so I think that the first step always and, you know, anytime we have a new client, the first thing we do is really try to understand the industry, like what's. What's truly important to this industry and how can we narrow down the list of metrics that are important? Because, you know, something that we see routinely is especially when we come into an engagement, that sort of.

Kai (00:24:09) - Halfway done, sort of in the middle, and people are getting frustrated. So okay, we you know, we did all these surveys. We talked to stakeholders and employees and management and, you know, listen, we've narrowed down the list of these 45 topics. We have to we have to focus on. And you know, it's like the reality is you're not going to be able to focus on 45. And there's not going to be 45 things that actually move the needle. There's probably three, 4 or 5 things that you can actually focus on and are important, you know, so we were working with a company that was on the smaller side and they had, you know, their number one priority was to electrify their fleet of vehicles, which you said, okay, well, it's an admirable goal. How many, how big is your fleet? They said we have 11 cars.

Kai (00:25:02) - Well.

Kai (00:25:03) - Okay. That's not going to help anyone. It's not going to help you. You're going to spend a lot of capital sort of buying new cars.

Kai (00:25:10) - You're not making much of a dent in your emissions because you're not you know, these are not sort of like you're not running a transport company with thousands of diesel engines and whatnot. And we said, it's it feels good, sounds good, but it's actually not important to your business. And it's not going to help your business. It's not going to help the environment. It's not you know, it's sort of it's one of these things that that, you know, they said, well, shouldn't we be you know, there's a big push to electrify everything. It's like, yeah, but for you guys that's not important right now. Right. What's important is, is putting more money in your employee training programs, because this is an area where you know, you need to sort of upskill like an employment force. And that will go much farther, both from an ESG perspective, but also from a business perspective and sort of retaining talent. So, you know. I would just say in the process of educating yourself, and there's a lot of material online about what is it and those types of things.

Kai (00:26:14) - I think the key is, start with first before you look at the metrics and say, okay, what are what are the important things for this company? And you know, there are so many ESG metrics. It's so broad that you'll easily be able to fit in. Sort of if you work backwards. Okay. I've identified these five things that are really important. You know, you have a lot of real estate holdings. So we need to make sure that our metrics are aligned with that you don't have a lot of employees. And so you can start to narrow down or maybe you know, a company, you see you guys travel a lot for business. Right. That's usually one that comes up a lot. There's a lot of air travel for companies okay. That's a key thing for your company. Your emissions are probably going to be pretty high. So that becomes a material issue for you for real estate companies. And we work with one here.

Kai (00:27:21) - They own a lot of property that could potentially be affected by rising sea levels and more intensified storms. So it's that's a material issue from a business perspective. It's also something they should be aware of from an ESG perspective.

Joey (00:27:43) - What I love about this framework, thinking about ESG is it reminds me a lot, and I think this is very relevant for young CPAs and a good thing to think about. One of the things that always cracks me up when you see something like an Enron or one of those things is they're like, well, how did that happen? They had audited financial statements. Didn't that mean it was good? And it's like, no, it just means that what they were saying is exactly what it is. They're accurately representing the situation. And that's kind of how I think about ESG reports, is we're not making a value proposition good, bad or otherwise. We're just representing, hey, everything that's been represented here is verifiable and accurate. And that's a really interesting framework because it still puts the impetus on the company, the investor, whomever is doing the analysis to then take that information and use it properly.

Kai (00:28:31) - That's right. I mean, I do believe that ESG is going to end up in sort of a soc2 world where, you know, because the issue right now, especially in the US, is greenwashing, right? So you have a lot of companies that said, hey, we do this, this and this, but if you sort of peel that back, you know, that's a bit of a stretch. And so, you know, the SEC is starting to get involved. And because you have big funds that are sort of putting this stuff out there. So you have retail investors who are buying company stock based on in some, you know, in some part because of these statements, if they're factually not correct, you know, this leads to an issue. So I believe over the next few years, we're going to end up in, that more of a soc2 world where people have to sign off on this. But yes, I agree. I think that, you know, it's the companies have to you know, they have to disclose this information and it's up to.

Kai (00:29:41) - the investor or the reader of it. To read these things with some sort of, you know, understanding and context of like, okay, well, you know, I like this or I don't like this. I mean, I'll give you a question. A metric is on the social side is about unionization, whether the company is open to it or not. You know, it's more the wording is more nuanced than that. But there's a couple of questions about unionization. There's not a right or wrong answer. It's just the company discloses that, you know, they've you know, they fight it or they don't, basically. Um, and so if you're an investor, you may take a side, say, yeah, I want to invest in companies that are sort of pro-union or I don't want to invest in those companies because I think it's a liability for them. That's up to the investor, or the reader of these metrics.

Joey (00:30:41) - So who's thinking back? Kind of maybe zooming back out 15 to 20,000 feet view on this on this issue.

Joey (00:30:49) - Who's really driving the bus on this movement. Is it investors? Is it regulators, is it employees? Is it all of us? And maybe we all have slightly different motives in terms of how we're doing things.

Kai (00:31:04) - Yeah, it's a great question. I mean, I think ESG has picked up enough steam. So it's the flywheels engaged. So it's um, and I think people would argue right now no one's driving the bus. It's moving. The bus is moving, but there is no one driving it. And so that's where there's a big call for the SEC to actually get more involved. It's one of these times where large companies, the fortune 500, actually would like the oversight because they say, hey, we're you know, we're investing a lot of money in this and we have no guardrails. So we don't know, you know, like if you just tell us what the rules are, we'll do that. Right. And I think the ESG world today is probably being led by the EU, which has the most sort of there are a few years ahead of the US, probably, you know,2 to 10 years, depending on, you know, what you're looking at.

Kai (00:32:04) - They have started to enact regulations around disclosure that have teeth in them. The EU taxonomy is a much more defined. This is what when you say this, this is what it means when you say this and I think that, my guess is that the US is going to start to adopt more of that and continue to look at the EU. But in terms of where this all comes from, I mean, I believe it all comes from consumers at the end of the day. Right? And I think that, you know, it's. It's the consumers of products and services. It's the investors of stocks, the retail investors, and it's the employees of companies. And that group is basically the same. I mean, that the Venn is pretty tight when, you know, it's the same people that are buying products are also employees of companies. They are also investors in their 401 case. And, you know, I think sustainability and ESG and all of these concepts are there's certainly a generational component to this.

Kai (00:33:18) - If you if you talk to if you talk to my father and then you talk to my son about these exact same topics, you will get two very, very different answers.

Joey (00:33:30) - You're going to get the spectrum on that one.

Kai (00:33:32) - You get the full spectrum. And, you know, the only difference is my father is trying to save money where my son's actively spending all my money or, you know, this is he's out there buying stuff. And I think that as millennials and Gen Z's move more into the market, both as managers of companies, of purchasers of things, it changes the dynamic. And I you know, it's a very powerful force. Right. Just you know, so you look at a lot of companies that are, um, you know, the, the scrap metal or the steel companies. Right. Their big push for ESG is that they have to comply with Toyota and Hyundai and, and Ford ESG requirements. Well, why do those companies care? Well, their consumers have been very, very vocal about it.

Kai (00:34:33) - Right. They want low carbon steel in their cars. And you know, and Coca-Cola and Pepsi want low carbon aluminum for their cans and recyclable plastics. And, you know, they're trying to address a consumer segment, and they're pushing that down into their supply chain. And at the same time, you have this other angle where employees of companies have become very, very vocal, like, I think we've entered an age where, um, there's more employee concern than ever before, you see, you know, think Covid really accelerated that. But they've become very, very powerful stakeholders. And you can see that in Disney, right? You know, Disney ended up taking a political position because their employees forced it, not because management said, boy, we'd really like to get into, you know, into a fight with a state government that was not that was not management's, you know, ideal situation. But their employees all walked out until, you know, until something was done. And so I think, you know, these are all very powerful stakeholders in the market that are.

Kai (00:35:41) - They're going to continue to drive these things. This is why I think, you know, ESG or whatever it is called in the future is here to stay? I don't think there's any this is not going back in the bottle.

Hannah (00:35:54) - You talked about greenwashing earlier. From a consumer perspective. How can I sniff that out? What are some key things like what are some indicators that you've seen just having seen this develop and emerge in the market? Is there anything that you've seen as a key trait that seems to be an indicator that, like, I could know as a consumer because it is important to me that somebody is not doing they're actually doing something they say they're going to do.

Kai (00:36:18) - Yes. And I think that the probably the easiest way, sort of the sniff test is. Gets into details. Right. So just like, you know, if you read a, you know, one of those articles in the, in the airplane magazines that they put out, you know, they're pretty soft lifestyle pieces, you realize, you know, maybe not hard hitting science here.

Kai (00:36:44) - The same is true for ESG reports. You can read them and it's just, you know, it's pretty light and fluffy. There's a lot of pretty pictures almost always, you know, a lot of nature pictures and some people hugging. And, you know, it's just it's a real maybe. Yeah, yeah, you can go and find the exact images I have many times, you know, and, and I think that, you know, for me that's always something that gets me to double click on it and be like, let's just see if, you know, if there's going to be any substance here. And if I can get through any ESG report without sort of any reference to science or actual like, you know, how they calculated their numbers. If there's not a data table as dry as that may seem, then there's a very good chance that there's some greenwashing. And whether it's malicious or not, you know. You know, I would say a lot of companies don't go into it to be malicious and say, we're going to actively try to mislead people.

Kai (00:37:52) - It's just we don't really know the answer, but we know we have to put this thing out. So like, fire up the pretty picture machine and, and let's get the English major to do some creative writing. And, you know, Bob's your uncle. We have an ESG report. Um, the other end of the spectrum, like I said, is, you know, you go to some companies that really take it seriously. Coca-Cola. Delta, Ikea. I mean, there's a lot that really do a good job. And you're going to read sort of a very scientific report, and they're going to cite how they came up with this and the standards that they're using. And, you know, um, it, you know, if it's greenwashing, they've done a really, really good job and they've tried really hard, you know, but it's usually sort of the, the old sort of, you know, the, the idea of professors weighing papers to decide how, you know, the heavy papers or nay, it's a little bit true with the ESG reports.

Kai (00:38:54) - You can kind of tell, like if this is a big, thick one with a lot of data, they worked much harder. But if it's a 13 page, you know, coffee table ESG report, probably not that great.

Joey (00:39:08) - I think it's a really interesting kind of thing to think about and a little thought exercise to go through. And I'll preface this with a little bit of kind of my personal experience with this and some of the things we're dealing with in my community here, where we live in a, in a state that has famously 265 days of sunshine a year. So there's a lot of opportunity here for green initiatives. There's a lot of pull for green initiatives. There's a lot of desire for that in the marketplace. And I think the thing that a lot of us are rightfully struggling with is, okay, if I do make this large investment in this company's product, a it's probably a smaller company that's going to be working on this, be, you know, without that type of comprehensive ESG report.

Joey (00:39:51) - How do I know that the electric car that I'm trying to get to, to play my part in saving the environment wasn't created in a way where it's actually more harmful than all of the stuff that was going on. And it's a really, dangerous. It's a scary rabbit hole to go down in terms of thinking like, I have all these great intentions, but am I even doing the right thing?

Kai (00:40:15) - Yeah. No, I totally agree. And I feel that on a daily basis. Right. I think that if you think too hard about what goes into your phone, um, you know, and you understand where the minerals get sourced and how they get sourced, you're not going to want to use your phone ever again. Right? And I think that, you know, it's like, um, I have a Tesla. And I'm fully aware of how where lithium comes from. And, I think today I read something very topical, but the mining company is trying to, to mine, an ancient volcano in the Nevada, Oregon border, which may, which may contain more lithium than has ever been found before, which would be a huge boom to the battery industry.

Kai (00:41:06) - But to actually mine it is going to be an ecological disaster, it sounds like. Right. So you do get into this, is this better than that? Um, and you know, it's I mean, sadly, I wish I had a more definitive answer. I think the answer is we don't really know. And it really, you know, one thing that's important when you talk about electrification, you're talking about so the reduction of greenhouse gas emissions. And so you say okay. Yes. Electric vehicles do reduce greenhouse gas emissions period. By now. Is reducing greenhouse gas emissions more important than some of the ecological issues and social issues that are caused by constructing that thing? Um, and, you know, so a lot of these get into almost like sort of line items, right? It's like, okay, this does a very good job of this, but the trade off is, you know, we're going to. The only way to do it, sort of at profit, is very, very inexpensive labor that's almost always like, you know, involves a lot of bad things, or we're going to wreck a habitat for something to do this.

Kai (00:42:25) - Right. So it's, you know, is this good? Better than all the bad. And that's a very hard dilemma for people. Right? I think you know.

Joey (00:42:38) - Well and it feels like I think a lot of people will look at this and say, if we're doing this, this is the silver bullet that's going to solve everything. And I think the thing the more I think about this and learn about this is like it requires a number of different things and coordination. Yes, it requires this and either policy decisions or consumer decisions and all of these things that we're going to have a cat maybe join us. Hi, buddy. You're going to see a tail walk across your screen. He's very interested in this because as long as he gets his premium ocean white fish and sustainable manner. Yeah, he is very, very happy.

Kai (00:43:13) - That's right.

Joey (00:43:13) - But it it's one of those things where I think a lot of again, the intentions are great, but it's, it's to what Hannah was saying earlier.

Joey (00:43:21) - We've got to know and learn and understand how to not only read and digest these reports, but also what they mean in the practical stuff. And this is the question that was all a preamble to this question. Where do you think the education needs to come in on this? When should we start educating people about this? How should we start educating? Is it a high school thing, a college thing? How do we start? Getting people to think about this and understand what we're looking at.

Kai (00:43:50) - I, you know, so, so my, my very small sample size of one which is my son, you know, I so he has grown up with me, you know, and I feel like he's an eighth grade now. And, and for the past couple of years he's really started to understand the concepts, right, that, you know, things don't exist in vacuums, that there's a, you know, there's a process to two things. And so I feel like he's receptive to this.

Kai (00:44:24) - You know, he's learning it at school. He gets a huge dose of it at home unfortunately for him. But he you know I think we need to start incorporating these ideas particularly supply chain. Right. Supply chain is a huge, huge issue that just doesn't get talked about in, you know, in high schools or elementary schools or anything. But the reality is like supply chains run the world and nothing exists without supply chains. Period. And that's very true of ESG, right? All ESG programs have a you know, the majority of ESG programs are about supply chains, managing supply chains. And I think that, you know, a lot of people don't know where their thing came from. And so. You know, again, I have no data to back this up, but I would love to see a more robust education just on supply chains. I think it helps people immensely make those decisions, because now you have a little bit of context and you say, oh, you know, it's like people are trying to understand where their food comes from, right? It's another supply chain.

Joey (00:45:35) - That was the example I was going to bring was, you know, that's the number one thing I think of when I think about not understanding the supply chain is, you know, I didn't know that until I had to do my first job in public accounting and had to go out at a feedlot. And it's like, oh, that's right. Oh, I get it now.

Kai (00:45:51) - It makes you a vegetarian for a week. It's like, you know, it's.

Joey (00:45:56) - Been for about six years because of that experience.

Kai (00:45:59) - That's right. I mean, I think when people start to understand how things are, how things get to their, their house, you know, it's not Amazon does not make them in a magic factory. And, you know, and just deliver them. It's like, no, no a bunch of things happened and you know, and some good and some bad. I will say the companies that do well in ESG score high usually have a very, very well run supply chain.

Kai (00:46:30) - Right. There's not like that's not by accident. And so I think, you know, teaching people how these things come to be is a would probably be the single greatest thing you could do to educate people. Because then all of a sudden all of the metrics make sense, right? You're like, oh, okay. So you know. The emissions or the training or, you know, I mean, the governance, probably not as much. That's just, that's that is more the governance is more of an accounting function. But I think that, you know, starting kids on. Learning about that is actually more beneficial than teaching kids the sort of the right and wrong version is like, you know, greenhouse gas emissions are causing the planet to warm and sea level rise. So the answer, of course, is like, well, that's bad. We should stop that. Right. And so my son's very much, you know, I get I take a lot of heat every time I do something that he thinks is, you know, not in the right direction, but it lacks a lot of context.

Kai (00:47:50) - It's like, well, how do we stop doing that? That's right.

Hannah (00:47:53) - And I'm talking about this. I feel like we all have our own internal set of ESG values to some degree, and right and wrong can be very relative whenever it comes to having our own values in this. So like what might feel right for me and my ESG values, I guess is what I'm calling this here. Maybe another name for it might be very different for somebody else. And garnering conversations, intentional conversations with our kids about that feel like it's going to be very, very important in terms of making them successful, successful employees for somebody one day in terms of these companies and how they're being ran, we're having feel like I need to do and can do more work in this field specifically and just developing my education and knowledge around this. And so we have an opportunity with our kids to make this look a lot different for them versus us as adults having to go back and do this education phase.

Kai (00:48:50) - Well, I mean, to that, it's a great point.

Kai (00:48:53) - And I think, you know, we're now in an era where information is plentiful, right? And we have access to just about all the information if you really dig. Right. This is what this is also what makes ESG possible. But you know, and I think that this is what makes the sort of that the employee voice more powerful is just now all of the information is out there for everyone globally, right? So, you know, you can find out about companies in Japan and how well they treat their workers. And, you know, the list goes on and on. And it's, you know, but that same information overload if people don't understand how things are made or what's good or bad. You know, it's very easy to be influenced by. TikTok videos. Right. Or, you know, you think. I mean, just think about fast fashion. Just down alone, right. You know, which is a huge industry, particularly on social media, if you if people understood what happens to make a shirt for a dollar and who you know what that supply chains like it's, you know, a lot of people I think would have issues and they wouldn't want they wouldn't want to buy that shirt.

Kai (00:50:15) - Right.

Joey (00:50:15) - The thing, the thing that gives me hope about this is, you know, historically, capitalism as a mechanism hasn't always been the greatest at self-governance in this regard. We talk a lot in economics classes about the tragedy of the commons and what happens when individually profit maximizing firms all go after the same resources at once. And the downside of that, and what gives me a lot of hope for the future here, is we're starting to build an infrastructure and mechanisms for people to be able to say, you know what? Now we understand that there's additional stakeholders here beyond just our shareholders and those things that have to be factored in. If we want sustainability, if we want this to continue, and the fact that people are even talking about this and thinking about this is something that gives me a lot of hope for the future, because that this wasn't something we were doing in 1970. This is a relatively new phenomenon.

Kai (00:51:12) - You know, I think in business school we were sort of pounded into us.

Kai (00:51:18) - The you know, the goal of the business is to increase shareholder value. That was it.

Joey (00:51:25) - Like, if you maximize return.

Kai (00:51:29) - That's right. And I think that. You know, and so there's been you know, there's obviously a huge debate right now about that. For me, the thing I take home where I'm hopeful about this is that I don't think it's as big of a decision as is being debated, because right now the companies that are doing well are being rewarded. So I think you can actually almost stick to that adage and it still works, right? You know, if you're trying to maximize shareholder return value, you should be doing these things right. You are going to you are going to garner you're going to be more efficient. You're going to have, you know, less turnover, you're going to have a more productive workforce. The list goes on and on. Right. And so it's like, yeah, all of those things happen to also maximize shareholder value.

Kai (00:52:22) - So we can stick with that. Um. But I mean I'm always happy to see this sort of a more inclusive voice from, you know, from all things. But I do think that, you know, if nothing else, sustainability is a profitable thing for companies, and I do like that. That's the thing that, you know, where I really sort of get on a soapbox because it's like a lot of companies and a lot of individuals don't understand that these things are good for business, and they look at it as being sort of almost welfare programs and just, you know, do good and at the expense of. Doing, you know, I mean, I give a, I'll give a very quick example of a longer presentation. So I'm here in southern Alabama, there was there's a very large aluminum manufacturer moving in. They've committed to building a $2.5 billion facility here, and employing a thousand people with an average salary of $65,000 a year in the area that they're moving into, that three times the average salary of anyone there.

Kai (00:53:41) - And what was interesting is that even in their press release, they said that they will be producing low carbon aluminum because all of their customers are demanding it and they're going to make their factory a renewable, fully 100% renewable energy factory, which is a real feat for a metal. You know, aluminum takes a lot of energy, and we're often in a place where there's, you know, offshore drilling, you know, not within eyesight, but close to it. Right? So, so it you know, that was amazing. And what I try to show people is that, you know, here's a company reacting to the market producing low carbon aluminum. Aluminum. They're not doing it for charity. Right. They plan on making lots of money doing it. And the process they're going to inject $65 million a year into the very local economy, plus $2.5 billion to build this thing. So as a community, we all win, right? This is if you're if you're a car salesperson, you're going to sell a lot more cars.

Kai (00:54:45) - And, you know, if you're a mortgage broker or insurance salesman, whatever it is, you're going to make a lot more money now. And it's all because of this sort of circular effect, right? This company is doing this to produce a more sustainable product because their customers want it, because that company's customers demand. Right. So a big business and it's I think a huge oversight for people to look at this and say, oh, this is at the expense of profit, like we're doing this. And it's like, yeah, you're it's at the expense of short term profit.

Joey (00:55:25) - Well, it's the yeah, it's the what do we call the agency problem that we've always talked about in business. Right. Where it's like there's the, the temptation of that short term gain, that quick bonus for the managers, the things that are going there versus the long term vision of this is where society is going. And we're creating an infrastructure with which we can react to it.

Kai (00:55:45) - That's right.

Kai (00:55:46) - If you want to be a 100 year company. You forget ESG. You just need to do these things right. You won't be here in 100 years if you don't do these things.

Joey (00:55:59) - So you mentioned and we usually like to wrap up with something. And this has been kind of a heavy not a heavier topic. But there's lots of implications here. There's lots of ripple effects and opportunities for people to feel a certain way about things we wanted to. We usually like to end with something light. And you mentioned that there's about 40 metrics. And I'm going to ask you to, to do something that Hannah and I always like to joke about. Like, you know, we all say we love our kids the same, but we all have a favorite kid, right? Um.

Kai (00:56:26) - That's why I just had one. Yeah.

Joey (00:56:28) - So you.

Hannah (00:56:29) - Really have a favorite.

Joey (00:56:29) - Kid? Yeah. Yeah yeah yeah, yeah.

Joey (00:56:31) - It's all of.

Joey (00:56:32) - Those.

Joey (00:56:33) - Oh, sorry. Go ahead.

Kai (00:56:35) - I said it's bad when he's not my favorite.

Kai (00:56:37) - You know.

Joey (00:56:39) - Of those of those 40 metrics, which one would you say is your favorite. Is there one that you like really, really just like, hone in on and like, this is this is my baby. This is my child. I love this metric more than anything else. Um.

Kai (00:56:52) - You know, I mentioned it earlier and I said it a lot because I like it. I think that employee training for me is, is the one where. You know, when I look at it, I think like, here's a company that's that's going to retain a more talented workforce than all of their competitors, especially a lot of times when you see this, there's a huge discrepancy between one company and their peers. A lot of the other metrics, you know, within an industry will be generally sort of they'll all be relative, right? And there won't be huge outliers. But the but the training, the dollar per employee in annual training, sometimes you'll see, you know, one company will be 3 or 4 times higher than, than their peers average.

Kai (00:57:41) - And I would think but that's a company that is much better positioned. Right. Their employees are going to, you know, inherently happier employees, longer tenures, easier to recruit. I mean, the list goes on. So I think if there was one metric that I look at, um, it's not on the environmental side. It's not, you know, there's a lot of important ones on the governance side, but the one that I always end up my eyes are on is like, wow, look at that company. Like, you know, they spend $9,000 a year on employee training. Their closest. Pearson's 2000. Right. So it just tells me that, like, you know, over time that company is going to win. More like they're going to get better people and they're going to build better people.

Joey (00:58:35) - Well, and talk about the, you know, circling back to what we were talking about earlier, the short term cost versus the long term gain. And I spend a lot of our time, um, actually actively right now developing a training program for some of our employees.

Joey (00:58:51) - And it's, it's one of those things where when we sat down and looked at our goals as a business and our growth and the things that we're trying to do that naturally came up of, we have to train. We can't afford to not do this right now. Right. And it's not it's not an easy endeavor. It's it costs a lot of time and man hours. And yes, that's right.

Kai (00:59:12) - And I think, you know, you've put yourself in very good company and you're, you know, just by even addressing it, you're in the top 25 percentile of, of companies because there's a lot of companies that think training's a compliance thing. Right. It's like we have to do this. So we do sort of the bare minimum. Um, and, um, but, you know, it's I think if you were talking to probably, you know, some hardcore environmentalists, they'd want something out of the E. You know, it's like, you know, their scope one or scope two emissions or things like that.

Kai (00:59:55) - But, um, the one, the one category employee training sort of cuts across all industries. Like, I don't know of a company. It's not nearly as relative to the industry. Right. So, you know, you may have very high emissions, but you might be in an industry that like, you know, that's what you do, right? You're sort of you, you know, you burn coal, for instance, or something. You're a power plant, but all companies have an employee training sort of budget. And they all they all need to train employees. But not all companies do.

Joey (01:00:38) - Well and if you're if you're running a certain type of power plant, I really want to make sure the employee who's running that nuclear power plant.

Joey (01:00:43) - Yes.

Joey (01:00:44) - Very, very adequately trained.

Joey (01:00:46) - Yes, yes, yes, I would like that.

Kai (01:00:49) - Yes. It seems like, you know, sort of a Simpsons poster child.

Joey (01:00:55) - Oh, yeah. That always stresses me out.

Hannah (01:00:58) - Well, I'm going to take the conversation a little bit of a different direction and on a very, very light note.

Hannah (01:01:03) - So let's just say that you've been traveling, you've been away from home, which is we've determined South Alabama for you. Where is the first place that you're going to eat and what kind of food are you getting there.

Kai (01:01:14) - Oh the oh that's a good one. Okay. So it's here we just found. So I find there's a lack of good pizza in South Alabama. It really me coming from Boston this has been, you know, moved to California for many years. I also think that there's not good pizza there as well. And so we just recently found a pizza place that actually, you know, when you walk in, it smells like a pizza place. It looks like a pizza place. It's great pizza. It's in the middle of sort of nowhere. And that's probably where I'm going. But I think, you know, what I've discovered in moving to South Alabama is that there's some, you know, there's some restaurants where you definitely don't feel better when you leave, but it's delicious while you're there, you know, you actively know, you know, it's like.

Joey (01:02:16) - Okay, I'm going to pay for this later, but it's so worth it.

Kai (01:02:19) - It's, you know, comfort food to the nth degree, you know, just biscuits the size of your head and, you know, just all the gravy you can eat. And, you know, when you when you try to scooch out of that booth a couple of pounds heavier, you're like, oh, I shouldn't have done that. But boy that was good.

Hannah (01:02:42) - So. So what's the name of the restaurant?

Kai (01:02:45) - All right, so the pizza place is called Vitalize. To make sure I go okay. So it is in Dale Roberts Dale, Alabama, which is also the birthplace in the home of Tim Cook, the CEO of Apple.

Joey (01:03:01) - Oh, do you know that?

Hannah (01:03:02) - That's really awesome.

Kai (01:03:03) - Yeah. And I was told that he even every year he pays for all of the bands instruments and uniforms. He personally writes a check to Robbinsdale High School to cover all the all new instruments for the band every year.

Hannah (01:03:19) - Oh, that's so awesome. Love to hear that. Awesome. Well, thank you so much for coming on the show. Where can our listeners find you if they want to connect with you?

Kai (01:03:32) - Absolutely. So the easiest thing is our website, which is just wwwesgmotive.com. Um, and or feel free to connect with me on LinkedIn, particularly if you're not selling me something. I'd love to connect with you. And if your listeners have have questions or, you know, I'm happy to talk to anyone.

Hannah (01:03:57) - That's awesome. I know I'm ending this podcast feeling a lot more educated within the topic of ESG. Feel a lot more motivated to look into it and educate myself further. So hope that everybody else does too.

Kai (01:04:08) - That's wonderful. My job is done here.

Joey (01:04:10) - We really appreciate you

Kai (01:04:12) - Thank you.

Kai (01:04:13) - It was a pleasure.

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