Evercore Inc. (EVR) Earnings Call Transcript & Summary

Hello, everyone, and welcome to today's webinar. Good morning. Early good morning if you're on the West Coast. Good morning if you're on the East Coast. Good afternoon in Europe, and perhaps we've even got some people from the APAC region, so good evening to you. My name is Matthieu Bardout, and I'm the Global Head of Strategy for Banking and Insurance at S&P Global Sustainable1. It's my great pleasure to moderate today's webinar titled Beyond ESG with ESG client risk in M&A, which is part of our S&P Global Sustainable1's Beyond ESG webinar series, focusing on providing corporates and investors with insights they need when building and refining their sustainability playbooks. We recognize today's webinar is of great interest to you all. Thank you so much for taking time to join. This is really an interactive session, and I want to point you to a couple of interactive widget icons that you'll see on your screen, in particular the Q&A widget. We have some fantastic panelists today that I'm about to introduce. We're here to obviously have an interesting conversation on the ESG and the M&A space, but also to address your questions. So take a moment to submit questions. We'll keep an eye on those and we'll blend them into the conversation and also try to have a little bit of time at the end to take a couple of those. We may not get to every single question, but if we do not we keep written note of them and we get -- we may get back to you after the webinar with some written answers, so really please do take time to submit some questions. I also want to point out that we will have a survey at the end of the webinar with a survey widget. Please do take just a couple of seconds, really not long, to complete the survey. It's always really beneficial for us to get some feedback from our audience, so we really appreciate your time. Just a couple of questions on if you enjoyed the webinar, if you have some feedback. It is always welcome. Just as a note that the webinar is being recorded and an on-demand version will be available shortly after we conclude. So if you encounter technical issues, you can try to refresh your browser or of course, you can view the replay and share your -- with your friends, share with your families, the more the merrier, we're always keen to share this as widely as possible. With these couple of housekeeping rules out of the way we can get started, and I want to introduce the panelists really my great honor to moderate today's session. We have some fantastic panelists today, starting with Helene Banks, who is a partner at Cahill. We also have Meredith Bearden, who is a Director for ESG Strategy and M&A at S&P Global Sustainable1, the same organization as myself. We have Nathan Graf with a Senior Managing Director at Evercore, and of course, myself, Matthieu Bardout, the Global Head of ESG Strategy for Banking and Insurance at S&P Global Sustainable1. So I'll be your moderator today. On top of the Q&A, we've got a couple of polling questions sprinkled through today's session. We're going to start with a first pointing question to get a bit of a temperature check from our audience, if we can just put that on screen. So here's the first question. Does your company already incorporate ESG climate factors into its M&A strategy. Possible answer is yes; somewhat no, but we may do so in the future; and we don't have an M&A strategy. Pause for a couple of seconds, give you time to look at that. So again, the question is, does your company incorporates ESG and climate factors, pardon me, into its M&A strategy? Yes; somewhat; no; no, but we may do so in the future; and we do not have an M&A strategy. We'll give it a couple more seconds, and then we will show the results. Alright. Let's see what we have to show here. So interesting, yes, the majority that's good to hear, plus somewhat, we're at 65% or so percent, so certainly in consideration for most people on this webinar a couple of nos, a couple of nos that may do so in the future. So what that tells me is certainly unsurprisingly, given that the name of the webinar, a topic of interest in consideration for many people and certainly something that we're going to talk about today throughout the session, so thank you for taking time for that. Now I want to turn to the panelists for some opening remarks. Helene, we're going to start with you. The question is going to be the same for all of you, if you can answer in just a couple of minutes. Can you tell us about how you work and how it intersects with M&A strategy and ESG. So Helene will start with you -- Helene, you may be on mute?

Hi, everyone. Sorry. That seems to be the way I start every one of these panels. Well, good morning, afternoon, evening, where we are located. As Matthieu mentioned, I'm a partner at law firm Cahill Reindel headquartered in New York. We've been doing deals for over 100 years here at the firm. We work on transactions of all shapes and sizes for acquirers, investors, sellers and capital markets transactions, so lenders, and we are very steeped in our M&A practice right now in the ESG space. I am spearheading our efforts here at the firm. Our clients are probably similar to your polling question. Many of them have incorporated ESG into their M&A experience so far, but many of them are at the very early stages of considering ESG as part of their M&A strategy and part of their corporate strategy, so we are excited to follow along on their journey with them.

Great. Thank you so much, Helene. And I'm sure you've seen a lot of change in this landscape looking forward to you sharing your experience or maybe a couple of anecdotes. Nathan, I'd like to turn to you now with the same question, tell us about your work and how it intersects with M&A and ESG.

Great. Thank you, Matthieu. Great to be here with everybody. Nathan Graf at Evercore, which if you have not heard of it as an investment bank, we specialize in advisory on M&A transactions. And so that's all I do. We have about 120 partners, which I am one here at Evercore and we cover a whole range across the waterfront of industries and geographies, so I think across the firm, we see a pretty good cross-section of the state-of-the-art in M&A. I myself focus specifically on data analytics and workflow software businesses and double specifically on those that are geared towards risk and compliance, the buzzword maybe GRC and triply geared within GRC to ESG, a topic of today, and so I bring a couple of perspectives, I think, to the table here. Number one is thinking about and being involved in M&A related to businesses that are ESG focused. That help other companies track, measure, report, monitor, et cetera, their ESG metrics, but also, and by way of our broader firm's footprint, to see again across the waterfront of how M&A is being done and what is or is not being incorporated in the evaluation and ultimately the quantitative analytics of M&A, and the survey results that I just saw Matthieu put up are quite interesting, and I look forward to perhaps challenging some of what might be embedded in the numbers there of 65% or so of folks who are incorporating ESG into their M&A strategy.

Great. Well, thank you, Nathan, for that perspective. Before I turn to Meredith, I also want to thank the first couple of questions that came in, again there's a Q&A widget, make sure that you submit your questions, it's always very interesting to take those if we can. Certainly, a thought provoking question that came in first. We'll get to that in a second, but before we do so, Meredith, same question to you, can you tell us about your work and how it intersects with M&A and ESG.

Absolutely. So really excited to be here and thanks all for joining us today. So my name is Meredith Bearden, and I'm the Director of ESG Strategy and M&A for Sustainable1 at S&P Global, and Sustainable1 represents the company's integrated sustainability offering. So we functionally bring together S&P resources and full product suite of benchmarking, analytics evaluations and indices, so we house over $700 billion ESG and climate data points. So within that, I'm responsible for helping to develop the strategy for our enterprise-wide efforts to accelerate ESG sustainability, impact, energy transition, kind of all of those buzzwords thrown in with a particular focus on driving growth through investments and acquisitions. And so I really interact with this market in 2 ways. So one is in service of our clients and their sustainability needs, but also just their core M&A needs. So through the S&P businesses, we've obviously been serving clients within their M&A workflows for a large amount of time. So that's everything from screening, to valuation, and sourcing whatever it might be. So we've always done that with the information that we've provided. But what we're now seeing is that shift into being able to provide the data and sort of in line with one of the questions that's already been asked. -- data that may have already been incorporated, whether it's something like board governance or something like that, but also a lot more of the newer data fields that haven't been historically as incorporated. So really anybody talking about integrating ESG considerations into their M&A should be looking at tools from S&P, small plug. And so then the other way that I interact with this market - is sort of similar to Nathan - is in the advancement of our tools to be able to better serve those clients, and that's true in both organic and inorganic opportunities, so looking for the opportunity to actually bring in health better tools to be able to serve some of the workloads that we're talking about here today. And again, certainly, as we've already referenced, there's been a lot of change and a lot more interest that we've seen in that over the past 5 years and especially over the past couple of years.

Fantastic. Thanks, Meredith. So really looking forward to the conversation today. With a lawyer, a banker and a service provider, I think lots of interesting perspectives to share. We won't cover it all, but certainly we'll try to cover some good ground. Before we get into -- go into the moderated discussion, we have one more polling question for everyone, so if we can put that on screen. So the next polling question is the following. Do you think M&A market participants have the knowledge and tools to integrate ESG and climate factors in their workflows? The answers being not at all; somewhat but not enough; yes, sufficiently; or it is unnecessary. So again, do you think M&A market participants have the knowledge and tools to integrate ESG and climate factors in their workflows. Not at all; somewhat but not enough; yes, sufficiently; or it is unnecessary. We will give it a couple of seconds and we will show the results. Alright. If we can put the results on screen, I'm very curious to see how that follows on our first polling question. Interesting. So a very strong majority here for somewhat but not enough. So building on, I suppose, the question that we had earlier, which was split between yes and to some extent, here again, we have somewhat, but not enough. I think overall, what we're seeing from these 2 questions is a topic of interest for many people that's still an emerging space in need of consolidation, so maybe there's still experience to build. Very few yes, sufficiently, 4% and a little bit more 14% not at all, so interesting. And something to note here, 0.0% rate is nothing necessary. And certainly, that feeds into a question that was asked pointing to the fact that ES&G, environmental social and governance factors, have always been a consideration in M&A, government, obviously, importance in M&A workflows, social, compliance, environmental factors also. So perhaps that 0.0 just recognizes that even if it's not in the newest generation of ESG and ESG data, it has always been a consideration. Certainly, some interesting results.

With that, we're going to turn to the moderated conversation. So we're going to talk about a couple of different topics. First, we're going to have a look at the financial services and services space in general. There's been some very interesting movements in that space, a lot of acquisitions, a lot of consolidation, a lot of new players, Meredith, certainly very well positioned to share some insights there, but, Nathan, I actually want to turn to you. Can you tell us a little bit more about your work and how you're seeing the landscape around ESG and financial services and technology and data and analytics change? Are there new and exciting market participants? Are there disruptors and innovation happening? And what can you say about some of the consolidation that is happening with some of the incumbents, larger service providers like ourselves, S&P Global?

Great. Well, thanks for that question, and as you were describing before the panelists I was thinking that you were going to tell the joke that a lawyer a banker and a service provider walk into a bar, but you went in a different direction. As it relates to this question, which is interesting, maybe step way back for a minute because there's a confluence of a couple of trends here that I think are driving what probably we are all seeing in the last few years, and I have particularly, which is a bit of an explosion of M&A activity, both in the capital raising and ultimately in the acquisition world, broadly in the sector of ESG providers and specifically, as you suggested, acquisitions coming from large financial data of player incumbents, acquiring some of these new service providers. One of the secular trends is, of course, the general move from manual labor towards data-driven and workflow software, and this has been going on for a couple of decades. This has intersected of course with the pincer move, if you will, that we've seen around ESG, right? And what I mean by pincer move is, on the one hand, you have very large players, heads of large asset managers, sort of crying from the mountain tops about the importance of ESG in the investing strategy. And if I could, I term that sort of the pull into the market because a lot of activity obviously ultimately get scored, if you will, in the capital markets, and when you have that kind of a pull of $1 trillion of capital starting to take into account these types of metrics, people take notice. The push, of course, I think, is what we've seen in terms of the younger generations of, call it, lower case A activism. But from a customer consumer perspective or an employee perspective, notions around ESG are increasingly coming to the fore and corporations of all shapes and sizes and geographies are taking notice. And so in between in the middle of that sandwich, you have what looks like a gold rush opportunity for data and software driven businesses who can help transition what used to be a very manual -- and yes, it did used to be. This is not brand new. I saw the question come in. What did use to be a very manual focused qualitative type of analysis around ESG topics to data and software-driven approaches that can be much higher fidelity in terms of driving to the objectives at hand, A and B can be much more efficient for all the users of those solutions relative to human service providers, of which there are many on this panel right now, and we recognize that. And so in the middle, in this opportunity, we have seen an explosion of capital formation around these businesses. And when I say these businesses, that's quite amorphous, right? So you see climate modelling businesses that are only a few years old growing in the triple digits. You see carbon accounting, environmental footprint types of platforms that have sprung up you see sustainability metrics, scoring and tracking businesses that have grown up with exponential growth over the last few years. And quite interestingly, you see a lot of heat and energy harnessing the ESG wave, if you will, from a variety of adjacent sectors. So they used to be the sleepy little niche within software called EHS, environmental health and safety. That has now seen boom times in terms of the level of attention and M&A and capital being directed at these businesses that help organizations, large corporations track there, not only environmental but health and safety, worker health and safety footprints against a variety of regulatory issues and a variety of potential reputational risk issues. You see integrated risk management providers that help large corporations track a whole range of risks within their 4 walls, largely not financial risk, nonfinancial risk focused businesses, all of which have sprung up "ESG modules", right, in the last few years and are now trumping the ESG disclosure and reporting aspect of their platforms as if not the, one of the most important aspects of the platform that can be used by these large organizations. We see supply chain risk businesses that used to focus on pickups in the supply chain, for example, are now increasingly trying to move into the ESG world by virtue of their platform and the fact that they may have tens of thousands of different suppliers who serve hundreds or thousands of large hiring clients on the other side, harvesting more and more ESG data, because they believe that this is going to be gold dust in terms of value, this data that they're able to collect through their platform. So an entire ecosystem, very hard to pigeon hole into one title or another, an entire ecosystem of businesses have been funded, have grown. And by the way, organic investment as well. A lot of these adjacent software businesses haven't necessarily bought an ESG relevant business, but they have invested millions and tens of millions of dollars into growing some of these capabilities themselves internally. And so I think I'm seeing for Matthieu, the Oscar light here to shut up. So I'll wrap up here. And what this has forced in the end is the acquisition, the M&A side of it. And so across the financial data landscape of the larger incumbents, as I mentioned, you've seen our host today, S&P, you've seen Moody's, you've seen MSCI, Morningstar. You've even seen some of the credit euros more on the consumer side, all acquire some of these ESG functional and capable businesses. It's a necessary but not sufficient element of ensuring that, that 35% moves up to 80% in terms of people using this in their M&A evaluations. But it is not at all surprising to see some of these large incumbents now at the far end of that value chain, starting with DC, then private equity, then corporations themselves, making these bets in terms of these ESG providers. And I would just say from an M&A practitioners perspective in my seat, we've never seen anything like the pace and level of activity and the valuations in terms of multiples that have been paid to these businesses, all betting, not on the wave - I use the wrong word - but on the long-term secular trend where this is all heading. Uphauls there.

Thanks, Nathan. I mean some incredibly interesting insights and certainly some sort of a gold rush in the middle of that sandwich, if I understand well, with lots of activities on all fronts. I think we'll come back to some of the topics that you raised. There's also lots of questions that came in, so thanks very much for taking time to submit these questions were to being a close eye on those. Meredith, I'd like to turn to you. It certainly sounds like financial service providers, service providers in the market in general is asking for more integration of the traditional financials and the less traditional ESG factors, of which we have more and more data available now. What do you think that says about the changes in practices in the market of the clients that you serve and M&A strategy? How do you think that's still going to impact the way we work across M&A workflows?

Well, there's certainly a lot of activity, and I think Nathan made that very clear. And I think that whether it's talking about an S&P type company and the information provider space, but also, as Nathan mentioned, in the asset management space, we're seeing a huge amount of activity, specifically within the asset managers getting into or investing in the data and analytics space around ESG, and I think it's really clearly indicative of 2 things. One, sort of that gold rush that Nathan mentioned in the sense that it's a very attractive space to be in at this point where people see a huge amount of top line growth. But I think the second side is where it's indicative of the broader market trend. It's because they feel like they need to be getting ready for all the questions that they're getting from their clients, whether or not those questions indicate sort of where they want it to be. I think there's a lot of direction to go, but it's certainly the clear indication that there's a lot of attention there. So it doesn't mean that this market is mature at all and we're thinking about considerations within the M&A space, but it does sort of feel inevitable at this point in terms of a lot more activity there. And so I think we're seeing some clear examples of advancement in areas where there are very concrete financial implications. So for example, we're seeing a lot of investment in the carbon space. That's a very defined area where you can own a certain number of assets if we're talking about offset. You can price them at the liquid market price. That's a line item in your financial statement, whether you own those assets, whether you intend to develop those assets or whether you intend to buy them, that's something that has a very clear implication within a valuation type workflow. If you consider it an asset or you consider it a future liability. So that's something where, again, we're starting to see that maturity creep up in certain areas where it's easier to quantify. And as we talked about, Matthieu, you mentioned the integration of sort of these nonfinancial metrics, certainly not new within M&A workflows. If we forget everything related to ESG, if you see an area something like trying to quantify the value of the brand. That's something that back in the day is a little bit fuzzier in some ways, but we've seen a lot of metrics sort of spring up around that to be able to actually have quantifiable metrics where you can compare apples-to-apples where you can see trends over time. And I think is what we're seeing in ESG is advancements in that way to quantify the stuff that has been fuzzier, the stuff that's been held in sort of long texturing as opposed to a quantifiable metric. And so I think overall, what that means is for the broader market, sort of the play within the information provider space is a bit of a harbinger of everything else that's coming within the broader M&A space. The market is responding to a clear need, whether or not it's a clear answer, it's certainly a clear need. I think we're going to continue to see players grow. I think that means new entrants. There's a lot of new entrants in the space trying to help call these workflow needs, but a lot -- just a lot of activity there. And as we talk about, again, sort of the integration of ESG into the broader M&A market, that's, I think, obviously, an area that we can continue to get into here, but that's fundamentally the backbone sort of for that increasing maturity and for the incorporation that we're seeing is the need to bring that data into something that can be incorporated, whether it is a little bit twitchier and more on the screening side or whether it starts to move into quantification evaluation.

Awesome. Super, super interesting. Again, I clearly get a sense from you that this is an incredibly dynamic space with lots of interest, lots of innovation, lots of stuff happening, but still a little bit of consolidation needed. Helene, I'd like to turn to you -- I think you said something really interesting when you introduce yourself, which is that your partner at Cahill with a specific focus on ESG I imagine that wasn't necessarily a role that existed 20 years ago or maybe even 10 years ago. So the question that I asked for you is if you look back at the last few years of your work, how have you seen ESG change? Have there been material changes? Are there ways that your clients approach ESG that is very significantly different? We've talked about the fact that this is not entirely new, right? I think of governance always been a question for M&A. But what is changing? What are you seeing substantively changed in the market? For example, from a screening perspective, is it more critical for companies to really understand ESG exposure, performance, controversies before they even dive into the nitty-gritty of acquisitions? Helene, over to you.

Yes. I have a perspective that is not just focused on the financial sector, so perhaps it responds to some of the questions we've come in. So we're seeing that companies no matter what their space is are paying more attention to environmental social governance issues, even though, as someone mentioned, compliance has always been a topic in the M&A space. So for me, I'm an M&A lawyer. I just don't happen to also be focused on ESG because it interrelates with everything we do here in the M&A space and even in our capital markets practice. So it's really infiltrated the whole corporate practice. So from a company perspective, we have seen our clients focus on things like going out into the market and looking at targets and prioritizing targets that bring with them a sustainable feature that is a plus without quantification. And so hearing that in Nathan and Meredith's view, the quantification is getting easier. I think that it's going to be really helpful to spearhead the change a little bit more outside the financial sector, because clients are clamoring for, well, that's great that you do X, but how do I value that. And so right now, there's a lot of qualitative conversation about those things, so people look at, well, that's a company that's in a sustainable food business, I don't have a sustainable food business. I think that would be great for my ESG profile, but how do I value that you are a sustainable business and that will bring me that credibility in the sustainable space. That's really hard to quantify. And on the other side, there are clients that are looking at, I have advanced my ESG profile to a point where I'm I have a reputation for being a leader in the space and I do not want a target that will take me down a notch or 2 in my reputation. And again, you're looking at the same kind of things you've been looking at for years in compliance, but now you're looking deeper and broader. So you're looking at things that really affect reputation. We were not looking at diversity statistics 5 years ago. No one was looking at diversity statistics when you're doing an acquisition. Now we look at diversity statistics. That's a big difference. We were not looking at deep into the supply chain, where do your fabrics come from. We're looking at FCPA compliance, but we weren't looking at where are your suppliers based and what kind of materials are you using? Now you have to look at those things first because of the leader force labor protection act, but secondly, even if it's not related to China, you want to know as far deep as you can, where the sources are so that you are not taking on a reputational risk that maybe you can't quantify yet but would impact you once you buy it, you own that risk, there's nothing you can do about it.

Thanks, Helene. Super interesting. Obviously, there's lots of considerations that play a challenge between the qualitative and the quantitative. I think certainly that's something that we see in the ESG space. Everything is not easy to quantify. Nathan, I'd like to turn to you. There's also a question I think that blends in well with the question I was about to ask. The question that came in is, is this a trending topic or is it here to stay? And the question I wanted to ask you picks up on something that you said earlier that maybe you wanted to provide a slightly contrarian view to the results of the first polling question that suggested that this is something that's incorporated in most ESG or at least 65% of M&A strategies. As I understand at Evercore, it is certainly a present topic. There's a flurry of capital going into ESG-related start-ups and investments, but it's not necessarily something that is really entrenched in the day-to-day M&A workflows that you see, maybe it's the quantitative aspect that is missing. So building on that question, is this just trending or is it here to stay? What do we need to address? What are the gaps do you think to make this something a little bit more permanent a little bit more closely tied to the quantitative workflows that you guys going to often work on?

Yes. Great question. Thanks for that. So I think it's both a fad and here to stay. And what I mean by that is there's clearly a level of the new, new and the heat and excitement around it right now, bubblish if you will, perhaps at the margin. But it's clearly not going away, and I think the interesting thing is how it's going to change from what we're seeing right now in terms of the long term. I don't think that the jury is back in with a final verdict as to what is the right answer of how to do this yet, certainly not on the quantitative side. So while it is trendy right now, some version of what we are seeing, we'll certainly have, I believe, very, very long legs. I think from the contrarian side, in a weird way, I think the more you see people like when the ESG conversation transitions from people like Helene to people like me, I think that will be in line with the qualitative to the quantitative. And so I have the pleasure of working with Helene on a transaction not too long ago, and in fact, I'm sure a lot of what she does is looking at where the fabric comes from that ultimately enters the supply chain, et cetera, et cetera. But from my standpoint, in regular way, M&A, put aside the deal specifically focused on ESG businesses themselves, it doesn't really show up from a quantitative aspect, and in fact, in anticipation of this panel, I reached out to all of the partners at Evercore and did an incredibly unscientific poll across the industries, across the geographies, what they're seeing. And I gave you broadly the number of partners we have here. It's fewer than 20% of our partners say they see their clients incorporate anything ESG-related into a quantitative evaluation of -- in M&A. And 100% of those fewer 20% were partners focused on what I would term frontline industries, specifically around the E part of ESG, so energy, power utilities, heavy manufacturing, et cetera. It has not yet permeated in any sort of quantifiable way into the non-frontline industries -- and by the way, it's a multidimensional front line. It's, of course, those industries also geographically. I think Europe is further ahead, if I may use that directionality relative to North America and certainly, APAC as it relates to incorporating some semblance of quantification of ESG into their M&A analyses. And there's another dimension which is kind of public versus private versus large private, most of the elements of the importance of assessing and analyzing and perhaps even quantifying ESG relates to public market transactions, specifically capital markets transactions, IPOs, et cetera, M&A would be a close second in the public market environment. And on the private market side, what we're seeing at the Vanguard is the large private equity players with dozens or hundreds of portfolio companies and total assets under management measured in the tens, if not hundreds of billions. That will creep down and that will creep West across the Atlantic, and that will creep into the other industries, but it is not there yet from a quantified perspective, and I think one of the biggest stumbling -- 2 main stumbling blocks to answer the last part of your question. Number one is the data. As an example, Scope 3 data on environmental issues, right? Everything below the water line outside the 4 walls of a corporation. -- there's no industry standard for that. It is very, very hard to have a proper comprehensive understanding of what that could imply and then ultimately run some models, et cetera, to turn that into valuations for these large sprawling businesses, especially. And I think number two is people be investors specifically being able to see that there is an upside to Helene's point about people at the forefront in terms of ESG that there is an upside return on investment to ESG. It's not just a risk approach in trying to avoid pitfalls and being on the front page of some rag with a black mark in converting that into -- there is actually return on investment value in doing this quantification analysis, and once those 2 lines join, I think, inevitably, there's going to be a lot more effort and work based on quantifying ESG footprints in the M&A muscle. It's just not there yet for the, from our perspective, vast majority of M&A transactions.

Thanks, Nathan. I mean, super interesting and your pseudo-scientific survey of the 120 Evercore Partners is certainly very insightful and I think it's extremely useful to have a reality chat from leading practitioners, right? These are people who are in the market day to day covering I'm sure many transactions. I think it's very useful to know that. I think one of the trending topics here is to quantitate it, right? I think the qualitative is clear. This is clearly a topic of interest, something that is subject to scrutiny but how do we quantify it. Meredith, I'd like to turn to you. So S&P Global recently acquired the Climate Service, which focuses on physical risk, and for a very long time, I think there's been debates in the ESG space on how is this valuation relevant? How does this impact the bottom line? There's also a question that came in from the audience, the juristic spill out on ESG, how it impacts the bottom line. And no one where you can firmly say if it's up or down. Is this a risk problem or is it an opportunity problem I think the -- within the ESG space kind of risk and physical risk is certainly one where things are getting pretty tangible and quantifiable for many stakeholders, the kind of service, that company that global acquirer has certainly done a lot of work to quantify the financial impact from planning change of assets and own companies -- so can you tell us a little bit more about maybe some of the background behind this acquisition and how you think this can -- this could potentially be a game changer and REIT providing these quantifiable baselines that maybe can feed into M&A valuation workflows.

Absolutely. And I'm excited you brought it up because this is a really exciting area for us with the acquisition of the Climate Service, and I think it shows a couple of things. It's a clear advancement in the analytics in this space, but I think it also tracks sort of the overall theme that we're talking about here from the perspective of, is this something that I can talk about and account for versus is this something that I can build into a model. So a little bit in terms of the history of how S&P was serving clients within the physical risk base before acquisition of the Climate service, we already had physical risk analytics, we were doing climate modelling, and we essentially put this in sort of a score format. And so folks who bought in or a believer, so to speak, could rank assets against one another up to a company level, roll up to a security level and get the relative risk exposure. So as we think about the different parts of the M&A workflow, that's a great thing to bake into a screening file workflow where maybe I'm not going to look at anything that's above the 75 or take your cut-off, whatever it might be, but it gives you an ability to at least sort of see that relative value. But where we saw pushback or where we saw this melting incorporated was folks who didn't know how to incorporate that into a financial metric. It was a score. It wasn't a dollar value. So the reason that we were so cited about TCS and TTS as a siding to the market is they were really well known or are really well known for the financial classification of that risk. So functionally the basic probability of risk just like we would show expected loss, it's the probability of the loss times what you would lose if that company defaults, but just taking in the climate format. So it's why the risk could be event happening, whether it's a hurricane or a wildfire or whatever that might be, against, say, the loss in revenue, if there's a plant that has to shut down because there's a hurricane that comes through and you can't operate in those environments. So you're actually able to back into a value today if you stretch that over the relevant time period, back that into a value of what risk you should carry on that asset. We already know how to do sort of the other side of it, but this is just an additional metric. And so I think the reason that it's been more incorporatable, I don't think that's a word, but it's because we know how to price lots of other kinds of risks. So it wasn't a question of whether or not we should, it got us to the place where we could fit that into a financial model. And I think that climate is one of those areas where we can clearly see that it's a risk if you think about PG&E, if you think about a municipal area that owns a lot of assets in a little line coastal area and a hurricane comes through, that's sort of the easy way to see you can't diversify that risk away. So it's something that I think it was very tangible for folks to look at it and say, "I need to be incorporating that into a model and having something again, that is very quantifiable, it's why we've seen so much interest in the space. And again, I think it's a clear example of a risk that can hit financial statements, can hit the valuation part of a workflow and can be quantified in a way that everyone can understand. So I think it's -- you and I have obviously talked about this where it's a fun one to talk about because it's sort of a metric that's gone through that maturity cycle into something that can be in a lot of different parts of an M&A workflow. But just a couple of years ago, this is something that still lives, I think, fundamentally in the space of more of a screening style or sourcing in terms of what you -- more of a binary metric around what am I willing to be exposed to or not?

Certainly, some very interesting insights there. And I also plan that space, and I can certainly attest to the fact that there is a lot of conversation and questions on how to use these financial metrics that are incredibly granular in all sorts of workflows. M&A is one, credit risk models and many others is another. Helene, I'd like to turn to you again. There's another question that came in here kind of similar to the quantifiable carbon pricing and certainly my these very quantifiable things in the climate space, because it's a dollar value because it's implemented increasingly across many jurisdictions in places across the world. If we take a step back and look at climate risk more broadly, I think there's a lot of ways that this can materialize into risk, in some cases, also opportunity. We're talking about business risk and opportunity, right, opportunity side. I think Nathan covered it earlier, right, this is an exploding space, there's lots of stuff happening. But there's also business risk with supply chains, the disruptions, et cetera. We're talking about stranded assets. So potentially investments from which investors might not recover the full value because of changing climate policies and changing socioeconomic environment. We're talking of compliance risks. Just recently, there's a pretty big piece of policy that came through in the United States, maybe not as strong on compliance risk as in other cases, there are also some questions with the SEC disclosure requirements and other regulatory developments might be interesting. Stakeholder activism is also something that popped up in the question. Certainly, we're seeing an increase in stakeholder activism around ESG. And of course, legal liabilities. There are a lot of cases now that are being brought to governments and companies and all sorts of stakeholders around climate. So lots of things to think about that certainly can have a very practical tangible impact on companies. So my question to you, Helene, can you tell us a little bit about how this is popping up in your workflows? What kind of conversations are you having with your clients around this?

Sure. I'm listening to the conversations and we're very focused on quantitative because we're talking to a banker and a service provider. But from the lawyer perspective, we focus a lot on the qualitative and then kind of shove it back to you guys to quantify it all. And on the qualitative side, we focus a lot on what affects reputation, strategy, where is the opportunity and the risk. And on the risk side, it's not always quantifiable. And that's been the case forever in M&A. It's not always quantifiable. It's more of a gut reaction by the executive team and the Board sometimes on whether they're willing to take on a risk -- so as much as you can quantify takes that judgment off the table, I think it's really helpful. But I think where we've seen most quantification has really been in pieces of climate because it's a lot easier to do risk analysis where you have scenarios that you can run and come up with dollars attached to particular scenarios. So you're still going to see qualitative conversations mostly, I think, around sort of everything else that fits into ESG, like diversity, worker safety, supply chain efficacy and even governance matters. And one of the things we've seen this past year, which was an interesting development in the proxy activist space, was there were more proposals that shareholders put forward this year in what were sort of considered ESG focused, but they received less support because as proposals get more granular and more detailed and more prescriptive investors, particularly the larger investors, are shying away from telling management to be that prescriptive on what they do in order to meet their ESG strategy. So it will be interesting to see how that carries into the next proxy term. We also have, as you mentioned, at least in the U.S., a very significant regulatory change with the SEC climate proposal. We're waiting to see if it changes and/or when it's effective. But right now, if it's noted as proposed, there's not a company that operates in the U.S. that won't be impacted by it. It technically applies only to public companies, but if public companies need to report Scope 3, they will need to talk to all their private suppliers who will also get pressure to come up with numbers in order to push through whenever they need. In fact, we even see it in our own business as a law firm, investment banks have to report now on the DAT emissions, we get requests from our investment banking clients about our ESG program. So I think there will be a push through down to every small business that operates here in the United States because everyone is a supplier to someone, and we'll need to roll up into that. So going to get a lot of attention on that. There's also -- we're still waiting to see if the SEC isn't finished for the year. There might still be more rules on human capital. They've announced that they are expecting more rules on human capital disclosure, and that's going to also affect what people are reporting. And therefore, in the context of M&A, what people are looking at. So you mentioned the SEC has a special enforcement group now focused on ESG. They've announced 2 actions recently. And so when we're doing M&A diligence, we are looking at old disclosures, whether or not they're filed, because whatever you say in your CSR reports or on your website is something that is potentially actionable, need support for all of that. We're going back to all our clients to help them make sure that they have adequate support for everything that they're saying that, if they needed to, they can provide to the SEC. The FCC has been active with their comment process, seeking background for that. So all of this feeds into the M&A process because if you're going to be worried about it as a public company going forward, when you're doing acquisitions, obviously, you need to be looking at it. And if you're a company that never hopes to be acquired by a public company or a company or go public yourself, you're also thinking about it. So it really is creating all aspects of corporate practice at this point.

Thanks, Helene. Very interesting. I think you brought in a couple of additional perspectives, right, the compliance, the regulatory framework. They've been presented to sets sandwich earlier. It certainly sounds like we're at the very least looking at a triple decker sandwich, which is a pressure from multiple sites. We're going to go to another polling question. We have 10 or so more minutes. We'll have one more polling question, and we'll have a couple of quick-fire rounds. So the polling question here, I think we've probably addressed it, but keen to get the view from the audiences, which sectors do you think are most susceptible to climate risk-adjusted valuations? We haven't covered every sector in the world here. I have a little bit of a simplified framework, but what we have is energy and power, materials and mining, real estate and infrastructure, tech and telecom, transport or other. So a couple of key sectors, pretty macro here, but interesting to see the audience's perspective, multiple choice, you can click on a couple if you think that's relevant. Again, the question is which sectors do you think are most susceptible to climate risk-adjusted valuations? Energy and power, materials, and mining, real estate and infrastructure, tech and telecom and transport and other. We'll give it a couple more seconds, and we'll see the results. Alright. If we want to display the results, curious to see what the outcome here. Nathan, I'm particularly interested to hear if this aligns with our 2 pseudoscientific surveys align. What we're seeing here is Energy & Power, 75% of respondents. Materials & Mining, 60%. Our real estate and infrastructure, 36%. Telecom 6%. Transport 40%. And other -- not too many others. No big surprise as far as I'm concerned. Obviously, in the climate space energy and power is pretty prominent and always front and center, materials and mining, real estate and infrastructure. If anything, I would say, transport, even with real estate and infrastructure, often we see a lot of attention to transport sectors, but I think these are interesting results. I'll pause for a second and see if any of the panelists want to comment on that real-quick, Nathan in particular, and then we'll go to a quick fire around. So if you can all keep it short that would be great.

Look, I think this is broadly consistent. I dare say your end sample size is probably a lot higher. So better results that we're looking at here. I guess the one I'm a little bit surprised at, or I should say is slightly divergent, is likely around the real estate infrastructure side. To the extent that sort of government-owned municipal-owned infrastructure, I get that -- on the real estate side, the nuance that I picked up from my internal conversations was the -- again, very same theme. The public REITs need to be front foot and focused on this. But the vast majority of real estate is owned in the private markets and I did not get the feeling that ESG was particularly high on the list for the private real estate managers.

Thanks, Nathan. I think we can co-publish or paper on this together with our joint surveys. Helene, go ahead.