Kim Evans: In the past, looking at it from a corporate social responsibility perspective, that was about messaging, that was about marketing, and it was also about the things that you would do voluntarily because they were the right things to do. What’s happening from an ESG perspective is that we’re moving from that voluntary space to a more mandatory space which is inclusive of regulations but not being driven by regulations. Years ago, we were talking about the Venn diagram [with] customers, employees and stakeholders, and in the center of that was the sweet spot that you’re supposed to be working in. How many companies really behaved as if there were equal views from your employees, from your clients, and from your shareholders? Well, in this era of stakeholder capitalism, if you are not holding out that everybody has a voice and that you have to meet the needs of all of your stakeholders, you’re missing the boat.

Tonya Williams: Venture is a different model. It is private capital, but you’re one of many investors and you’re investing to make sure that a company is growing and scaling. So the interests of investors have been a little bit different, and without regulatory pressure, I think standard venture has been a little slow to the game. ESG is important because there are ratings and scores that are important to a brand. But also, as Kim was talking about with the stakeholder engagement piece, much more is expected. Investing in technology is consequential, and if you’re not thinking about some of these other things that don’t specifically speak to profits, there are consequences, and we take that very seriously. Venture investing is not just for a profit in a few years; we’re investing for the long term. When you’re doing that, you really need to think about other factors that come into play that can determine whether or not it’s a good investment. So while venture may be a bit behind others, it’s quickly going to have to catch up.

Jeff Cohen: There is the ability to think about ESG very thoughtfully as an asset manager, irrespective of asset class. It’s just a matter of knowing what levers you can pull and ensuring that it is going to be additive to informing the investment decision on an ongoing basis, as well as forming perceptions of company management’s attitudes toward these issues from a long-term strategic standpoint. If you’re invested in the common stock of a company, you can file a shareholder resolution and make your voice known. If you are a lender, then you may not necessarily have direct access to the board or influence, depending on the nature of that lending environment. In private equity, you may have a board seat and can often have material influence over a company’s operations. Similarly, if you are originating a loan, then you can try to negotiate ESG margin ratchets, which effectively move the cost of capital up or down based on predetermined KPIs that could be tied to certain ESG-related performance targets. For other strategies, there are still opportunities to create systems-level change by working with NGOs and trade associations to try to harmonize around a common set of information. Every asset class can help to effectuate change incrementally with a specific company. It really just depends on what asset class you’re in, what levers you have available to you, and how you choose to pull on them.

Kim Evans: It’s all about the information that you have access to and how you’re looking at that information. It’s one thing to set the net zero carbon target by 2050. But it’s something totally different to say, OK, well, how are we actually going to manage getting there? And it’s not just managing and measuring our emissions. It’s managing and measuring what happens with our upstream value chain, our downstream value chain. Previously in this space, you could make grand statements about what you wanted to do. But now we’re seeing, moving into ESG, it is about measurability. So our approach to this is data-based.

Tonya Williams: One of the things that makes this hard is that there are lots of ways you can skin the cat. You can look at ESG broadly or you can prioritize and say, “These are the areas that we’re going to work on.” What SoftBank has done is we started with diversity because the biggest problem for many founders is accessing capital. We started with a $100 million fund that we deployed in two years to 80 companies with the idea that these are great companies, these are great founders, and they’re just not getting access to capital. And we’re building from there with other initiatives that have been important to the company that come under the ESG umbrella. We’re really formalizing now and trying to set goals that we can then meet around some of the other issues.

Jeff Cohen: In the service provider community, many companies are popping up and saying they can help sponsors collect information from their underlying portfolio companies with a standardized questionnaire and are creating workflows able to assign different members of companies in which they’re invested to complete the content. I believe this is important, because a lot of these service provider organizations are creating questionnaires anchored around common standards and frameworks, like the Task Force on Climate-Related Financial Disclosures or the Sustainability Accounting Standards Board. Other initiatives are beginning to build benchmarks around this. The idea of benchmarks for private companies around ESG-related issues seems like a fairy tale, but this is something that’s coming down the road. Ultimately, what is measured is managed, and that’s the type of thing that will help really create a lot of change.

Jeff Cohen: The regulation is coming in reaction to market demand. If you actually look at the SEC comment letters that were sent in regard to some of what they released around climate, there were thousands of comment letters. A significant portion were from institutional investors, and they were supportive of mandatory climate disclosure. In the end, I believe this regulation is reflective of what asset owners and fund managers should do to demonstrate to their key stakeholders (whether LPs or their beneficiaries) how they are providing capital that is both beneficial from a returns standpoint and that addresses some of the societal and environmental outcomes that are increasingly important to their stakeholders.

Kim Evans: Usually regulation is viewed as the stick. In this case, it’s not the stick at all. The stick has been clients and investors, from our perspective, asking the questions and driving for change. The reason to do all of this is because there’s a huge opportunity for growth. This $2 trillion to $3 trillion a year that has to get pumped into the marketplace, that spells opportunity for everybody. We have to make sure that we’re capitalizing on it the right way and that we don’t end up just saying what we’re going to do versus actually doing it. The World Economic Forum said we need to be managing three shifts: from messaging to meaning, from silos to systems, and from costs to value creation.

Jeff Cohen: Purely through the SEC lens, it’s hard to forecast because one thing that is likely is this will be heavily litigated. How long that takes to play out — it could take six months, it could take two years. However, irrespective of what’s going on with the SEC, this is already implemented in a lot of other jurisdictions. Certain regulations are already in force. How that’s going to come through in the U.S. is going to largely play out in the courts.

Kim Evans: If you wait for a prediction or even wait for the final rule to determine what you’re going to do, I think at that point, you’re too late to the game. There are some views out there which would suggest that, oh, just wait long enough, this will go away. And I do think, because it is being driven by the investor community, that it’s not going away. So waiting for the regulation, I think, would be detrimental to the success of the business.

Jeff Cohen: There are environmental, social and governance issues that affect every industry, whether it be renewables, oil and gas, tobacco, gaming, health care, etc. Within oil and gas, there are companies that have good practices — in thinking about water management, reducing methane leaks, and avoiding health and safety related issues — and companies that do poorly as it pertains to those issues. If you look at it through that specific sector, you can tease out, all else equal, good and bad performers and how those issues will potentially affect a company’s cost of capital, affect their capital expenditure and affect their cost of revenue, for instance.

Kim Evans: There is also the theme around managing the transition risks as we think about moving to a low carbon economy. Some large, sophisticated investors have taken a position that their portfolios are no longer going to invest in certain sectors, oil and gas being one of them, because they want to take this stance now. Then many others are aiming to manage their risk over time versus just trying to pull out based on a score at any one particular time. We look at ESG from a risk-based lens versus the hard position one way or the other. And at some point, if we are truly moving toward a low carbon economy, what some sectors do in terms of supporting the E, the S and the G will be important in terms of their long-term viability.

Jeff Cohen: Neither view is right or wrong. You could say, “We’re going to invest in oil and gas no matter what,” and that’s your choice. Whereas other folks say, “We’re choosing not to.” If you’re going to invest, then it would behoove any good investor to think about the relative risks associated with certain ESG issues.

Tonya Williams: And I think it’s dangerous when we start trying to simplify it into yes or no. It really is about managing risk. You have to take all of these things into consideration and make a determination based on lots of things. It could be your entire portfolio — not just the industry, not just the sector. And this is why it’s hard, right? This is why everyone is struggling a bit, because to try and simplify it to a simple question of if you are in or out really isn’t the point.