S&P Global Inc. (SPGI) Earnings Call Transcript & Summary

Hello, everybody, and welcome to today's webinar. My name is Lauren Smart, I'm the Chief Commercial Officer for S&P Global Sustainable One, and it is my pleasure to moderate today's webinar, Beyond ESG with Asset Stewardship in Capital Markets. So today's webinar is part of the series titled Beyond ESG, Taking the Conversation Beyond Traditional ESG Topics. And before I introduce most delegate, so I just have a few housekeeping items. So we recognize that the topic of today's webinar is of great interest for you and we want it to be as interactive as possible. So we encourage you to submit questions for discussion. At the bottom of your screen, you'll see that there's a little widget, there's a row of widget, and you can use these to select various acts. So for example, if you'd like to interact with us through the session, you can do that. There's a Q&A widget that I'd like to point out as well which can be used to submit questions to the panelists, as well as the survey widget. So please take the time to fill out our short survey after webinar. We really value your insights. Additionally, you can find any of the reports that will be discussed today in the resources widget and there's lots of great material in there for you. The webinar is being recorded and an on-demand version will be available shortly after we complete. If you encounter any technical problems at all during the program, please try refreshing your browser. And if issues persist, then use the Q&A widget to contact us, and a member from our technical team will be in touch with you very shortly. And now it's my distinct pleasure to introduce my esteemed panel. So today, I am honored to be joined by Robert Walker, who is the Global Head of Asset Stewardship and Strategy with State Street Global Advisors. Robert, thank you for joining us. I'm also joined today by -- with Steven Bullock, Managing Director and Global Head of ESG Innovation and Solutions at S&P Global Sustainable One; and by Tianyin Cheng, Senior Director for APAC and Head for ESG at S&P Dow Jones Indices. So thank you very much for joining us, everybody. I'd like to start the conversation today with Robert. So Robert and I met many moons ago and I'm trying to remember when precisely, and I think it may have been about 16 years ago when I was at a little start-up due course at the time. And Robert was at an organization for governance for owners. And I would thought it would be nice for the audience maybe to give a little overview of your career history, Robert, it is fascinating and then how you got to where you are today.

Yes, that's correct. And it's really nice to be connected with you again, Lauren, and to be here went out on the webinar. So that's right, I actually started my career way back at PIRC, which was -- is still a premier proxy voting research consultancy in the U.K. And then went to Governance Partners where I worked with Lauren. And then I actually went to sell side, where I spent 10 years writing ESG research at Kepler Cheuvreux before moving over to HSBC. And then finally landing at State Street Global Advisors, where I started off as Head of EMEA Stewardship before moving into my current role as Head of Stewardship Strategy, which is really needing to be focusing more on Clients and Fixed Income Stewardship Strategy as well.

Fantastic. Fascinating history and a pioneer in the industry, so I think it is a real honor to have you here today. So in your current role, Robert, tell us about the sort of things that you do within your current role at State Street.

So yes, I mean as I've mentioned, I basically started off, obviously, focused on voting and engagement with our portfolio companies in Europe. As I mentioned, my role has now evolved to more of a focus of our clients. I think what we've seen in the last few years, particularly with things like be it costly Stewardship Code, is a recognition that the kind of view of our clients and the influence of our clients has to have more weight. And so I'm now actively engaging with our clients to understand their expectations for our stewardship activity.

Fantastic. And we saw recently that State Street put out a letter articulating very clearly that climate change and diversity are key pillars of asset stewardship. Can you tell us a little bit more about that letter and the context?

Yes. I mean, climate change has been a priority for our stewardship program since 2014. And the current letter in total is really an evolution of our activity. So for the first time, we're going to be voting against companies based on their climate disclosure. And then in terms of diversity and inclusion, we've been focused for a long time on gender diversity for our Fearless Girl campaign. And for the last couple of years, we've also been signaling to companies our intention that they should be disclosing more on the kind of racial makeup of the Board. And then for U.S. companies, in particular, we want them to disclose their EEO-1 report, which is basically kind of racial makeup of the organization itself. So for this proxy season, we will -- we're specifically voting against companies that have not disclosed the racial makeup of their Board. And we're doing that for Fortune 100 companies and S&P 500 companies.

Got it. And what kind of feedback are you receiving from companies on this strategy?

Well, we're not the only investor that's focused on this. I think diversity, climate change, these are topics I think lots of investors are focused on. I think companies understand the importance of diversity. As I mentioned, we've been focused on gender diversity since 2017 with our Fearless Girl campaign. When we started that campaign in 2017, we identified more than 1,400 companies that didn't have a single woman on their Board. And since then, more than 50% of companies have added a woman to their Board. Obviously, in the last couple of years, we've seen in the U.S. more focus on diversity itself, on particularly in racial diversity, given George Floyd and kind of Black Lives Matter movement. And so we put out some guidance on the kind of disclosure that we want companies to provide in terms of kind of racial equity. And as I mentioned, last year, we disclosed that we would be asking companies to disclose the racial makeup of their Board. So we wanted companies to say, kind of do we have a personal color or minority person on the board? This year, we're now saying to companies, if you don't have a minority director on the Board or a plan to do that, we will take voting actions.

I think that it's a really strong signal in the market, more than a signal, because I think that, that kind of action can really make a change. What change have we seen and what more needs to be done? Where are we at on this journey?

I think the biggest barrier is data. So in some markets, like for example in France, it's illegal to kind of collect this kind of information. So I think that the one -- the biggest challenge is data, which is why we started with the U.K. and the U.S., because you have data available or you have kind of regulatory pressure to kind of -- in the U.K., for example, you've got the Parker Review, which was pushing for FTSE 350 companies to have a minority director on the Board. But in other markets, it's quite hard to do this. So we take India as an example, if you're looking at diversity there, well, it's not so much color, it's more cost, right? So markets -- there are different dynamics depending on the market. So we'll enter market as we believe that we can in fact change and create outcome.

That's a super interesting point. So which markets do you think have got -- are harder in terms of influencing? And which one markets do you feel like you've got bigger levers to influence?

Apologies, going to follow that.

No. Everyone is in the call.

So I think in terms of -- I mean, if we're talking about diversity, as I mentioned, I think in Europe, for example, there are challenges. And as I mentioned, in France, for example, there are -- you just cannot collect information on diversity, it's illegal. So it's very difficult, therefore, to do that. Again, that's why we kind of selected the U.K. and U.S. I think if you're broadening out this question, you're saying, okay, what levers do we have as an investor? Clearly, engagement and our voice of vote are big levers, but we are a permanent holder of capital. So we don't have the ability to divest in our pooled funds, right? So engagement is the way in which we believe we can affect the most change. And this is something that our clients believe in as well. When we actually surveyed our clients in 2021, and 63% of our clients said, look, we prefer engagement over divestment in terms of creating impact for climate change. So our clients are telling us that divestment is the last resort and actually engagement is key to effecting change. And so that's definitely one of the biggest drivers for us, because we need to understand the quality of what we own. And one of the ways in which I think we can do that in a systematic way is through our ESG data platform R-Factor. So R-Factor is based on the SaaS methodology, so it's materiality-based, and it allows us to look across all our portfolio companies and to kind of understand the level of disclosure our companies are providing on ESG and identify more, importantly, laggards, so that we can engage with those companies to improve ESG disclosure. Now this is great for us because it allows us to potentially reduce risk across our portfolios, but it's also great for the wider market because those companies providing better ESG disclosure means other investors are going to see that disclosure and can benefit from that as well.

That's fantastic. I'm going to come back to the question around the role of divestment in a moment, actually. Let's pivot slightly to climate change. So that was one of the other key elements within the letter. What are your expectations for old companies when it comes to climate change and action on climate change?

Yes. So as I mentioned, this year, for the first time, we're taking voting action against companies that are not meeting our expectations on TCFD disclosure. And we went with TCFD because it's a well-understood framework. It's been in place for a number of years. And it's easy to understand and explain to companies what our expectations are. We're also launching a targeted campaign with our key emitters across our portfolio companies to understand their kind of transition plans in order that we can develop some best practice around that. And again, in 2023, possibly take voting action against companies that we feel are not meeting our expectations.

Got it. And the letter refers to brown-spinning, which might be a phrase which is newer to some people. Tell us a little bit more about what that means and why that might be challenging for a universal investor.

Yes. So again, I think this is really playing into kind of engagement versus divestment, right? So by brown-spinning, we're really saying, look, you can't reduce emissions by just kind of selling off assets. So it's very easy for a company to kind of just sell off assets and therefore look better because they've basically sold off their polluting assets. But in actual fact, you haven't reduced emissions, you've just basically taken those emissions private. And so what we're basically arguing is that engagement is important. By engaging with companies on TCFD and encouraging them to provide more disclosure on their greenhouse gas emissions, we can engage with companies and try to understand why they are in a particular transition plan, why they believe that particular transition plan is effective. Now of course, there are many times where by divestment is appropriate. And certainly, we do provide products to our clients on the active side that can do that. But our point here is just that you won't solve this issue through divestment and it has to come through engagement. And a great example of that is the net 0 asset managers initiative, where asset managers are coming together to agree targets, to agree reporting. And stewardship is going to play a big part of that because you can use stewardship to engage with companies, as I said, on their transition planning, on their greenhouse gas disclosure. And these -- you require a collaborative effort, I think, together.

That leads very neatly into my next question, which is on the role of collective action. We've seen various initiatives, particularly on climate, where asset owners, asset managers collectively coming together to have a singular voice and amplify that voice in the market. Can you talk to us a little bit about the sorts of collective action areas that you think are particularly important?

Yes. I mean, again, I think it comes back to engagement. So I'd kind of highlight Climate Action 100 as a great example of that where investors are coming together and engaging with companies collectively on their climate change activities and sharing their experience and insights. So one of the reasons why we wanted to join Climate Action 100 is because we've been engaging with companies since 2014. We've done hundreds of engagement. We -- given our size, we engage directly with the Board most of the time. We're talking to the Chairman on -- and so we felt that we had significant insights and expertise that we could bring to the group and help to kind of lead on engagement and be a part. And again, I think the net 0 asset management initiative is a similar kind of endeavor, that we're all coming together to set targets, to produce reporting. And again, stewardship's going to play a big part in that because we're going to be all collectively engaging with companies to understand how they're transitioning to a low carbon economy. And let's be clear, a lot of the net 0 plans that we're seeing from companies have a really long life part right, it's going to 2050. So the people that are kind of putting these plans in place are probably not going to be around when it comes time to see what -- where will they achieve that success. And so what we're asking companies to do is to have interim targets. So maybe 2030, you're kind of coming and kind of highlighting to investors where you are in your plan. Because we don't want us to be kind of set and forget. You kind of make the announcement, but then there's nothing going on. What we've also seen is kind of a push for companies to link their kind of net 0 plans to executive compensation. That could be interesting. I think it's going to depend on how you do it. But it's an interesting way to kind of tie the super long-term targets to compensation, which tends to also be long term. So it's something that we're looking at and we think could be an interesting way to keep companies accountable for meeting these targets.

It's fascinating. And that's very powerful, I imagine as well. I'm going to pivot now to Steve to pick up on some of the areas around climate that we've just been discussing. So clearly, we've heard from Robert about the commitment from asset managers and asset owners and the collective actions that is taking place as well as individual actions by some of the largest in the space. What are you seeing as the biggest challenges when it comes to implementing net 0 strategies when you're working with investors every day, Steve?

Yes, sure. Great question. So maybe just quickly, I'll talk a little bit about what's sort of driving demand for more information from investors as it relates to sort of the net 0 targets and strategies that companies are setting. And I think there's kind of 3 things right now. There's the sort of, I guess, shifting investor expectations. Obviously, we've just heard from Robert about the sort of the action that investors are taking around engagement and voting to encourage more transparency from organizations on the commitments they're making. We're also seeing as well sort of central banks and supervisors starting to recognize that climate change could affect the stability of the global economy. So a lot of sort of investor pressure. We're seeing increased regulation. Obviously, we've mentioned TCFD already, a great example of that, a sort of a framework focused on increasing transparency for all financial market participants on the impacts of climate change. We're seeing obviously more and more financial market participants setting net 0 targets. And I think the third piece is the sort of the recognition that climate risk is financial risk. And we're seeing increasing evidence of that link between better ESG performance and better financial performance. So the bottom line is, is that businesses are now actively competing for capital based on their performance, based on their ESG performance, and specifically communicating and being transparent about their commitments relating to net 0. Now I think the challenge is that -- and again, Robert sort of alluded to this point, is that a lot of organizations are setting these really long-term targets, net 0 by 2050. But I guess there's a challenge in sort of understanding what that really means. And I think if we talk about sort of I guess the sort of the perfect type of disclosure, what do we really want to see from these organizations. I think the first thing we want to see alongside this commitment is, I guess, a view from a kind of emissions point of view about where that company has been and where they're heading. So understanding that sort of the baseline greenhouse gas emissions profile across different scopes. Obviously, we're all familiar with Scope 1, Scope 2, Scope 3, but really being transparent on that kind of carbon emissions intensity and setting that baseline. And that's no easy feat, of course. For many organizations, their most material gas emissions may not necessarily be in their direct operational control, it might be in their supply chain or it might be their products in use. That's the kind of first piece around sort of the baseline. And then we expect organizations to have a view on that sort of that forward-looking nature of climate risk, the exposure to different types of transition risks and physical risks in the future. Our research shows, for example, that 66% of the largest companies in the world have at least one asset at high risk of the physical impacts of climate change. So investors also want to understand sort of what is that exposure to future climate risk. And obviously, the TCFD is a great framework for helping organizations disclose information relating to those types of risks. I guess the next piece is alignment and really understanding from an emissions trajectory sort of how aligned that emissions trajectory is with the goals of the Paris Agreement. So every organization, obviously, will have a carbon budget associated with the transition to a low carbon economy. And we want to understand exactly where that company is based on its performance, but also the targets that it's setting, how aligned it is with that -- with those sort of 1.5 or 2-degree trajectories. And I guess, finally, it's about the targets themselves, sort of understanding whether they're science-based, what time frames are using. And I think Robert made a great point about sort of intermediate targets. So we want to see sort of decarbonization happening in the short term, so what are the targets like for 2025, 2030 and 2050. I think that's really important. We also want to understand what scopes those targets cover. A scope -- a target that's just confined to operations for an organization that has a bigger exposure in its supply chain obviously is a risk. And then also things like how carbon offsets are being used and the timing of those. We know that offsets may have a role to play, but the immediate attention should be on decarbonization. Then one last thing is the transition plan. So alongside the target, sort of what is the actual strategy the company is using? What are the costs to achieve and what does the sort of investment look like? So I would say right now, obviously, we have more and more organizations setting these targets, but I think there's probably an opportunity for a little bit more transparency from organizations on those different parameters. And it's really encouraging to see, obviously, that the action that investors are taking in this area to encourage and promote better disclosure on these things.

Thanks, Steve. That's super insightful. You touched on physical risk there, which I know is an area that we have seen a lot of client interest in. What are the -- what are the key things that can be done in terms of physical risk? Is there a way to be able to turn what might seem a risk indicated into a financial value? How do we address the kind of -- what does it actually mean? The -- so what of understanding that there may be a risk, but what does that risk mean in an investor language?

Sure. No, absolutely. So I think we're seeing around the world right now more and more organizations exposed to physical risks associated with the change in climate. And I guess one of the challenges we face with that, it is very, very location specific. In fact, our research shows that there isn't really a clear sector dimension to a company's exposure to physical risks. Obviously, the type of industry that they're involved in will affect how sensitive they are to some specific issues. But actually, what's more important is sort of a really kind of granular assessment of the location and where the company's assets and their supply chain and supply is all located around the world. Because clearly, when it comes to things like sea level rise, heat waves, cold waves and water stress, for example, it's really about where those assets are located around the world. So the first thing really is understanding and mapping, a mapping exercise really for organizations to really understand and map out their sort of operations and supply chain. And at S&P Global, we've been working on that kind of part of the problem for some time. So right now, for example, we've mapped around about 2.9 million assets to around about 200,000 different companies. So kind of increasing that visibility and transparency on sort of location-specific nature of these issues. We've also been able to understand the sort of exposure in those different locations to different types of risks. But going back to your point, Lauren, I think the next step is understanding exposure, but then trying to translate that into specific financial indicators. And you may have seen that the S&P Global recently acquired The Climate Service with the intention of trying to address that gap. The Climate Service bringing with them a lot of expertise around the financial impact of these physical impacts. And that's important because, obviously, to make better decisions around how to manage these risks and so on and so forth, it's very important to understand what those financial implications are at the asset level and at the company level, especially as we see that the sort of a large proportion of the world's largest companies already have these assets at high risk.

I think that's a really interesting question for us to come back to. In a moment, actually, as I open up the discussion after a couple of more questions I've got around the investors with multi-asset class portfolios. And what levers we've got in different asset classes and what the relative are because, obviously, there'll be different levels of exposure to something like physical risk if you've got an infrastructure portfolio or real estate portfolio that could be relatively illiquid, could have longer time frames, could be highly exposed. So that's something I'd like for us to come back to. But Steve, just taking -- going back to one of the other points that we discussed in the State Street letter around diversity. I know that there's been quite a lot of research that's come out of different parts of S&P Global on this recently. Are you able to just give us some of the snapshots and then people can go to the resource center to find out more.

Yes, absolutely. Very happy to. So in sort of alongside our annual sustainability sort of reporting and yearbook, which is linked to the CSA process, which is our annual engagement with companies around the world, we did put together some research on gender equality in the workplace, focusing on women on the Board. And I mean, firstly, why was that important? Well, there was a report back in -- a couple of years back from McKinsey & Company which found that companies whose boards are in the top quartile of gender diversity are actually 28% more likely than their peers to outperform financially. So what we wanted to do is sort of have a look at the data that we have on companies and see what that sort of representation was like at the Board level. So just a very quick note on the approach. So I mentioned the Corporate Sustainability Assessment, CSA, that's our annual engagement with the world's largest companies on a whole broad range of ESG issues. And what we saw, sort of, I guess, a positive takeaway, was that the percentage of women on Board has increased across all regions over recent years. But the key takeaway and the sort of the actual title of this was going beyond sort of, I guess, Board's representation, was that while there is an increasing proportion of women on the Board, and that's important, further steps are needed to improve gender equality in the workforce. And one of the things that we discussed is the way that companies need to hire and promote more women into senior management positions, which presents some opportunities for those companies to access new talent pools and increase innovation and efficiency since we know, of course, from that report from McKinsey that diverse teams performed much better. So just a snapshot into some of the research that we've been doing. I would definitely encourage everyone to check out the sustainability yearbook. There's a lot of different articles in there relating to a whole broad range of issues on ESG. But yes, some of the sort of findings we've been discussing relating to Board diversity.

Thanks, Steve. And then I was lucky enough to be sharing a panel with as part of our Beyond ESG series last week the CEOs of Accenture and the CFA Society on this topic as well. So there is a reporting if actually people want to take a look at it. And obviously, as was mentioned by Mark, the CEO of the CFA Society, investors should be particularly attuned to the importance of risk diversification and how risk is reduced through diversification. It's part of modern portfolio theory, so -- and that really is a great example. Moving on, Tianyin, it would be great if you could talk to us. We've been discussing about different types of -- the different levers that are available, the role of engagement, the role of active investors, of collective action. Can you tell us a little bit about in the index world what you're hearing about? What are you being asked for when it comes to both ESG and time? And I'm separating those out because I'm expecting that you may have different answers for those questions. So I'd be very curious to hear what you're hearing.

Yes. Thank you, Lauren, for the question. I think, first of all, indices is sort of slightly different world compared to some of the things we've discussed, but we -- indices leverage on every data and industry trend that we observe in the ESG space. Essentially, indices are basket of securities and we aim to measure how this basket of security perform, whether they are ESG basket or non-ESG basket, traditional basket. I think ESG indices are very important because they are serve as benchmarks for many asset manager, asset owners portfolio. Alternatively, they are used as underlying of passive products, right? There are a lot of ESG ETFs or ETPs available nowadays. And in fact, we have seen a huge trend of increase in AUM. Therefore, I think it's sort of important to highlight that along with the ESG effort, it's important to push sort of taxonomy into like more regulation and provide investors with tools and metrics benchmarks to better understand whether their investment is sort of sustainable and help them to navigate the transition into low carbon economy. Talking about different types of ESG indices, Lauren, as you mentioned, we see 2 major types. Actually 4, but 2 are more important. The first one is ESG core, which is sort of ESG integrated portfolio aiming to provide a broad diversified exposure to the market. And then there is a bunch of climate indices, things like low carbon indices, net 0 indices, aiming to provide a benchmark for investors who are looking for low carbon transition. And then there is sort of ESG thematics, things like clean energy, clean power, water. These are narrow themes indices, strategies looking to address typically ESG opportunities. And then we have fixed income ESG indices as the last, but not least, category. So -- and my observation, the AUM -- dramatic AUM of ESG ETF increase has been driven by core ESG products because they serve as sort of replacement of traditional products. If people who allocate to S&P 500 Index, they probably would consider S&P 500 ESG Index if they would like to align their value to ESG. But an area of sort of huge interest increase or AUM growth is really climate. And I think we have hear from everyone here that what's driving behind this change. And from our side, we have seen a lot of discussion on climate indices. And this is not only Europe, but also in Asia as well. So in Europe, just to highlight, we see a lot of discussion on net 0, integration of net 0 consideration into indices. And in S&P, we actually have this offering of S&P 2050 net 0 index series, trying to really align the 1.5-degree scenario but at the same time to be in alignment with TCFD and other climate objectives. We see this indices as sort of also a core sort of replace -- core offering to replace traditional benchmarks and products. And in Asia, I think the carbon net 0 has not been fully thought through into like standards. Of course, different countries are also at a different stage of development. We have developed markets. We have emerging markets in Asia and everyone may want to approach net 0 from a slightly different angle. And therefore, we see different approaches here. So we have seen people looking for maybe a low carbon benchmark. And this -- there is a very good example, which is Japan's GPIF, Government Investment Fund of Japan, who actually implemented 2 carbon-efficient indices, a mandate with S&P, and they put JPY 4.4 trillion into such mandates. So a huge mandate and shows that these universal investors are really looking to integrate carbon and climate consideration into their sort of equity portfolio. And sort of the other example would be sort of fossil fuel free index. And we typically see such product being offered into the ETF wrapper. In fact, we have a very successful product with that we have essentially allocated to every single company in the S&P 500, with the exclusion of company with fossil fuel reserve. So these are companies who have sort of reserve in the thermal coal, natural gas, crude oil, typically vulnerable for being standing. So this is kind of addressing the future kind of risk. And of course, there's last piece, which is the opportunity. And I think there's really a huge interest into like ESG themes in Asia. As I mentioned that many of the Asian investors haven't really thought through about how they should integrate net 0. So a lot of focus is on opportunity, therefore, kind of allocate some of their assets into clean energy, clean power is very popular strategy. So I'll stop here and happy to answer any further questions.

Fantastic. Thank you, Tianyin. I'm going to go to the audience now to start asking, open up for Q&A. We're beginning to get some interesting questions coming in. It'd be -- just as a reminder, there's a widget at the bottom of the screen where you can put in your questions.

But I'm going to kick off with one -- picking up on what you just mentioned, Tianyin, about regional differences and investor expectations. You alluded to this, but are there differences in what you're seeing in terms of index expectations, requests coming from different regions? In different countries within APAC?

Yes. I think one thing -- first of all, before talking about difference, let's talk about something that is in common. I think ESG core is definitely something in common, yes. I think as ESG investing moving from sort of into mainstream, we see the core offering being the most popular one. And I think there are 2 reasons behind that. First of all, people are now realizing that ESG investing is different from ethically investing. So we have those ethical indices that is value-based. But instead, ESG indices are actually ESG-integrated portfolios, and they are usually broad-based. In another word, there is a myth sort of buster saying ESG doesn't hurt return, right? In fact, ESG consideration may help your return and help you to reduce volatility. And the fact that nowadays, a broad-based ESG index is available, and they are providing market-like risk and return characteristics is also very, very important factor that is making ESG indices into the core and mainstream investing. So I think this is definitely something that we've seen sort of as a trend globally, because that's the main sort of ESG asset inflow that we have been seeing. And secondly, to talk about difference. I think as I mentioned, Europe is really, really focused on climate. And they are sort of talking about net 0 a lot. And the other sort of trend is regulation is getting very important in Europe. You hear people talking about SSDR, taxonomy regulation. And therefore, when we work with our clients in Europe, we are focusing a lot on making sure our indices are taking the -- are sort of compliant with Article 8 or 9 and all that, satisfying their low-carbon benchmark requirements. But in Asia, as I saying, a lot of countries are still in the process of making this taxonomy and regulations. Therefore, people have a lot of sort of different views of approaching ESG when it comes to like Climate. And the other sort of key difference is a lot of the Asian investors are still very much return-driven. And a lot of time, you can't expect ESG investor to outperform traditional indices a lot or like the data is forward-looking, you kind of see that from a test sort of results. And therefore, I think Asia, a product provider and Asia would feel the pressure of offering these kind of core ESG or core Climate Solutions without delivering any alpha? And of course, this is different from region to region. Australia, I guess it's less so. But China, Korea, Japan is more. So the focus on return on alpha. And therefore, we see this more demand of thematic ESG solutions that is more cyclical, less -- sort of less correlated with market.

Fantastic. Thank you, Tianyin. I'm going to flip the same question to you, Robert. Globally, are you seeing differences between different regions, countries or, as Tianyin rightly pointed out, key areas of commonality?

Yes. I mean I think it maybe depends on kind of the maturity of the market. I think Europe is obviously way because you've got the kind of regulatory push coming from the European Commission. I think in terms of nonfinancial disclosure, SSDR, SRD2, I mean there's a plethora of regulation. But you also got mature investors as well that have been pushing, whether that's a stewardship code that we're seeing in the U.K. and kind of in other markets as well, where I think some other markets, there's still a lot of kind of education that kind of happen and the momentum in terms of kind of getting to that to the same place where I think Europe is moving to. So definitely from where I sit in London, Europe is definitely leading the way on lobbies in its where it's net 0 or kind of no financial reporting.

Fantastic. Thank you, Robert. Steve, a question that's come in for you around engagement. So if you are engaging with a company as an investor, how do you -- and they say, yes, we've got a net 0 target. Wonderful. How do you know whether they've got a good strategy in place or whether they've got the right targets in place? What should you be looking for? Are there some -- is there a cheat sheet?

Yes. No, great question. Thank you. So yes, I mean, going back to some of the points that I made earlier, I guess that we're seeing more and more companies setting targets and communicating those targets. But I think there is a danger that without the supporting information that it's difficult to understand the sort of the robustness of those commitments. So where I think as a big opportunity today and is really to kind of, in addition to the targets, really being transparent on those transition plans. What is it that companies are doing in the short run as well? So what does the decarbonization plan look like for the next 5 years? What are those intermediate targets? And one -- I guess, one of the promising developments recently is that the latest guidance for TCFD does indicate that alongside the sort of the metrics and targets that are important for TCFD-aligned disclosures, so the transition risk and the physical risk data, that also within those TCFD reports, organizations can share more information and communicate more information regarding their transition plans. So I guess we hope and expect that through the TCFD, which is obviously becoming more and more established as a framework for climate disclosure, that we'll start to see more information around those transition plans. And at S&P Global, we're also looking at ways that we can bring together different types of data to provide investors with that comfort, with that confidence, that those commitments the organizations are making are real and are supported and backed up by planning and action. And that means, again, looking at disclosures in annual reports and sustainability reports. Any indications that there is around the sort of the investments that these organizations are making to support their net 0 goals. So I think there's still a little bit more work to do here. This is relatively new in terms of the volume, I guess, of net 0 commitments, but we do expect to see kind of more transparency around some of those supporting -- the supporting insights, specifically on transition plans.

Thanks, Steve. Robert, a question for you. What levers do investors have outside of listed equity? So -- but the question is really saying, is engagement just for listed equity? What happens in the multi-asset class portfolio, fixed income and private investments in particular? And what can be done, what can investors do there?

No, I think engagement can be used there. So for example, in the fixed income space, we've actually, in 2021, we engaged with some sovereigns on ESG. So we engaged with the Brazilian government on ESG. So I think that's definitely an area where we do an engagement. Same for kind of private assets as well. So I think engagement is possible. It takes on a different dimension because obviously when you're engaging with a sovereign, for example, your ability to push for change is different to what it would be with a listed equity. But no, I think that, again, it's about having conversations, understanding the direction and travel and then trying to communicate why you consider particular aspects to be important.

Thanks, Robert. And a linked question, Steve, for you around how -- are there different challenges with understanding climate risk in these different asset classes?

Yes, absolutely. I think the tendency has been to focus on the sort of, I guess, the listed equity space because disclosure does tend to be more widespread in that asset class. But we know when it comes to things like climate risk and transition them, physical risks specifically, that other asset classes as well are important, not least infrastructure, real estate and so on and so forth. So extending these types of data sets and analytics to alternative asset classes is a sort of nascent field. But there are approaches that allow us to do that. It does often require that some sort of -- some modeling and some proxy information because of that sort of lack of disclosure. But when it comes to things like real estate and infrastructure, of course, it comes back to that point around location. So if we're able to understand where those assets are located around the world, then the process becomes a little bit more straightforward in the sense that we can map out physical risk impacts at the sort of geospatial level and being able to then sort of pinpoint specific assets allows us to kind of do that analysis. But when it comes to kind of the baseline carbon emissions data, then we're sort of relying on proxy information until we get sort of more disclosure in those areas, but it's certainly an important field. And I guess more recently as well, we've been looking at how to look at things like commodities as well, which, again, very important to understand where those commodities are being sourced. But again, there's so much complexity there because of the nature of the way sort of commodity value chains work, supply chains, the way those commodities are used. So certainly challenging, but sort of, I guess, quite a lot of promising recent developments on extending some of these approaches to different asset classes.

Great. Thanks, Steve. Another question. This is a tricky one to answer in a very concise way. So I'm going to throw it to Robert. Can you give the asker of the question a brief overview of the different types of ways that ESG can be integrated into investment strategies. I know that's really hard to answer in a very short space of time, but maybe just a very brief summary if you're able to.

Yes, I mean, okay. It's a really bold -- I mean, I think, again, engagement is a tool that we use to understand how companies are disclosing information across the ESG spectrum that we think might be material to a long-term sustainable returns. And so depending on the asset class, the company, what the issue is, we have conversations with companies. Now again, as a passive investor that can't divest, engagement is the foremost way in which we kind of talk to companies to understand where they are in their journey. When I joined State Street maybe 5 years ago, the way the engagement was described to me by my boss at the time was that it's like being in a marriage where you can't get divorced. And so engagement means that you have conversations and you have ups and downs but everyone knows that you kind of need each other. And so that's a little bit how I see engagement, that it's having those conversations. I mean if you take something like climate change, you're asking companies to effectively make capital allocation decisions, right, over a period of time. And so I've never had an engagement where we asked the company to do something and then apart from maybe compensation, for example, when they've been able to do immediately. What tends to happen is you have a conversation with a company, you say, well, look, I think it will be really good if you did this particular thing because this is what we consider best practice or best-in-class. And then you need to give the company time to make that -- to make that change. And I think, again, just using climate changes as a moniker here, I think a lot of investors have been on a journey with that, starting off by voting through shareholder resolutions, now using things like TCFD to hold directors accountable. And of course, we're seeing things like say on climate coming through as well to kind of -- as a kind of additional way to push companies to create more disclosure. But in effect, what engagement about -- is about encouraging companies to provide more disclosure so that we can understand what they're doing or what they're not doing. I don't know if that answers the question.

I think that's a great way of describing it. Thanks, Robert. And I guess, follow-up question is, what is the role of divestment? And I know there are different views here, but maybe you could just add that as a bolt-on question, Robert.

Yes. Again, I mean, for our passive products, we're not able to do that. I think, look, certainly, what we're seeing now is that our active teams are creating climate products. And I think what's interesting is, as we engage with companies on their transition plans and seeking to understand what they're doing, then yes, there's the potential on that side to potentially divest where there's a company that we don't think is taking sufficient action. But ultimately, divestment is not something that we're able to do on a kind of -- on the passive side. But of course, on the product side, for clients that want specialized indices, that omit certain companies because of their disclosure or their exposure to certain sectors, we're able to do that.

Fantastic. Thank you, Robert. We've got a couple more questions. But just before I move to those questions, we have a quick polling question just to see whether people would like some more information afterwards. So we'll pop that up, feel free to put your answer in. That just goes back into our marketing team. So doesn't go anywhere else. But if you could fill that in, that would be really helpful. A question for you, Tianyin, this is a very quick one. How do the returns of the S&P 500 ESG compared to that of S&P 500? We can't hear you, Tianyin. I think maybe you need to adjust your audio. We can maybe ask Tianyin to come back with the answer to -- that we have several questions actually about the returns there. So Steve, how do we avoid greenwashing? That's another big question to answer in a very short space of time?

Is it better now?

Okay. Tianyin is back. Do you want to go back to Tianyin or should I take that one?

Tianyin, if you are able to give us a super short answer on the return to the 500 relative to the ESG 500.

Yes, sure I'll do that. Yes, so because of the way we construct the S&P 500 ESG Index is trying to sort of only exclude companies that are problematic or have real ESG controversy problems and being -- trying to be sector and industry group neutral in the construction. And we sort of -- so like 75% of the market cap in each industry group which are sort of a higher ESG performance. Therefore, just given the construct, the tracking error between the S&P 500 ESG Index and the S&P 500 is very low. And the 500 ESG Index were able to outperform slightly over the past 3, 5, 10 years. And we also need to realize some of the outperformances related to underweight in energy sector, and this might change. And I want to like -- sorry, take one minute to go back to the divestment and engagement question because I thought it was quite interesting. And I think a lot of time, people feel that from a passive point of view, it's kind of difficult to do the sort of engagement things or like it's very difficult. But I think one thing I would like to say is the -- all the S&P ESG indices actually utilize the ESG score that from a Sustainable One, S&P Global Sustainable One. And Sustainable One conduct the Corporate Sustainability Assessment to over like 11,000 companies globally. And the data collection goes beyond public disclosure. So I want to emphasize, I think by engaging company directly through CSA, the score actually capture a much broader range of topic and much more granular level than public reporting alone that can provide. And therefore, in my view, even though we are selecting company, we kind of are engaging company as well. So kind of interesting in a sort of slightly different angle to provide.

That's super interesting. Thank you, Tianyin. Yes, sorry, Robert.

So I'm just going to make one point just because I'm quite fascinating. So I would just add as well that I think what's great about our R-Factor methodology is, again, when companies ask for their R-Factor score, we give it to them. So for the first time, companies can get their R-Factor score from us and then go to the SASB materiality map and see for themselves what kind of disclosure is required for that particular sector. So I think versus a lot of other scoring systems where it's basically a black box, right, it's called like what does this mean and how do I improve. Companies can actually see how to improve. So it's like if they have a high score and they go to materiality map, they can say, "Okay, right, yes, we can see we got a high score because we're disclosing the 506 things that SASB requires". And we've got a low score versus their peers. Again, they can go to materiality map and they can see, oh, okay, well, maybe the score is low because we're only disclosing 2 out of the 5 things that SASB says are material for the sector. So again, it's that disclosure piece and increasing transparency to help companies provide that information that investors increasingly believe is material for their long-term stable terms.

Thanks, Robert. Steve, the challenge, in 1 minute, can you help some bullet points on avoiding greenwashing.

Avoiding greenwashing, yes, sure and very quickly. So I guess, COP26 last year, 2 words we heard the most and I think that was net 0 and greenwashing. And I think there's obviously heightened awareness that this could be a challenge. But I think there are ways that we can overcome any sort of accusations of greenwashing and that is, firstly, when it comes to making commitments around net 0 and climate that those commitments are science-based. And organizations are very transparent about the way they've set those targets and the way they've measured their carbon footprint and all the other supporting information. And the other piece to support that is obviously increased standardization around a harmonization around the way organizations use that information and disclose that information. And obviously, that is also -- there's a lot of -- sort of focus on sort of standardization at the moment and around sort of frameworks, reporting frameworks and things like that. So I think those 2 things together will play a really important part in combating any accusations of greenwash in the future as it relates to net 0.

Wonderful thing. That was very impressive, very quick. We didn't get to an important topic, which may be one for another session in itself, which is how can we make sure that net 0 is net positive for biodiversity. So maybe another whole session for that. That unfortunately is all we've got time for. I could have carried on for a very long time. We've got lots of other questions. We will get to those questions afterwards. For those of you who want to review anything we cover, this session will be recorded and you'll receive a copy shortly and so you can access it on demand at your own convenience. And in addition, when we close the webinar, you will be routed to a survey form. Please do and fill that in, we'd love to hear your feedback. It helps us to improve. Now just to say thank you, Robert, Steve and Tianyin. It's been my pleasure. And have a good rest of the day, everybody. Thank you very much.

Thanks very much. Take care. Bye.

Thank you.

Bye.