TBLI Group’s Rubinstein: “All the banks want to be part of the club without doing the heavy lifting”

• In addition to its original vision of changing the financial system’s focus, there is a shift towards other asset owners such as HNWIs and family offices
• In response to Bill Gate’s comments on clean technology, Rubinstein believes that fuel free energy can generate power without subsidies
• Financial institutions are reluctant to consider themselves as value-based banks

Rubinstein has been an integral thought leader for the Triple Bottom Line Investing (TBLI) industry for many years. His mission, spearheaded by the TBLI Group, is to create an inclusive value-based economy. The aim is to maximise investment flows into sustainable initiatives through showing the opportunities that TBLI offers to investors.

Chris Georgiou (CG): Let’s start with when and how you started the TBLI project. What were your personal motivations, objectives and even events that led to its advent?

Robert Rubinstein(RR): I wanted to create an economy based on well-being. I realised that in order to do that, I needed to have the business community on board, but they would only respond to pain. So I looked at what pain buttons I could press to get the attention of those business leaders behind the idea of profits and principles. The three pain buttons that I found to be effective were finance, personnel and reputation. I studied these three pressure points and chose finance. Personnel, I felt was too slow. Reputation, I felt was very hard to influence for a small organisation.

When I looked at finance, I looked at who had all the money between 1995 and 1996. I found out that if I only focused on the top 100 asset owners and managers, I could achieve the maximum impact with least effort. By adding the assets of those top 100, I saw that they have direct or indirect control of 20 to 25 of most of the assets. So I only needed to convince 100 guys (mainly men were Chief Investment Officer). By using an international conference on environment, social and governance (ESG) and impact investing, I could help educate this group of investment allocators. Fortunately, I also discovered that there was no group more predictable than the financial sector.

CG: Environmental, social and governance standards have all changed dramatically, one can positively argue, since you first started the project many years ago. How have the objectives and/or parameters for TBL investing evolved with the times?

RR: We were too far ahead, so the industry has caught up to us. Initially, we focused on pension funds and large institutional investors. That was helpful, but I came to realise that that group is very bureaucratic and slow. True innovation funding won’t come from them initially. If the fund is not tier 1 – Kohlberg Kravis Roberts, Carlyle, – and plain vanilla, then the chances of getting investment is small.

We have continued the original vision of changing the financial system’s focus of short-term only financial returns towards an inclusive principles-driven investment strategy that provides financial, social and environmental returns. What we have added is a shift in focus towards other asset owners, like high net worth individuals (HNWIs) and family offices. This is also a very large group, with a lot of assets, but they have small bureaucracies and are more flexible and willing to try something new.

CG: When you said, “Fortunately, I also discovered that there was no group more predictable than the financial sector,” in what sense did you find them predictable?

RR: They are mainly alpha males and females who are incentivised for short term behaviour. They are hunters. They all run up the hill and jump off the cliff at the same time. They epitomise the herd mentality.

Views on Bill Gate’s comments on clean technology

CG: In your team’s approach,it says that “TBLI now aims to marry its history and dedication in the social impact space along with expertise in the global capital markets by dedicating resources in transactional services.”

Bill Gates said this year, however, that he just does not get “this madness that finance is the solution” and that “there is no substitute for how the industrial economy runs today.”

He added further, “That whoever came up with this term ‘clean energy’ screwed up people’s minds.” He asked clean investors on Wall Street who are using carbon footprint analysis to assess investments: “How are you going to make steel? Do you guys on Wall Street have something in your desks to make steel?”

How would you respond to his questions?

RR: I don’t see Bill Gates as a great thought leader and never have. He was not and is not a principles investor. Often invested heavily in carbon intensive industry and his endowment often invested heavily in the pharmaceutical companies with whom they engaged. His endowment also didn’t have a sustainable investment lens. He often invested more in companies that worsened the health of those that he was giving grants to in order to make their lives better.

I agree, however, that with present technology it is a bit tough to make steel. But we can produce fuel free energy to generate power without subsidies. We can create transport systems that don’t need massive subsidies like the aviation industry. A bicycle has 21% to 25% sales tax in most of Europe. Airline tickets have no sales tax. Aviation kerosene is not taxed at all. Why should this industry get such a massive tax break?

We can make cement, the most widely used building material in the world that is zero carbon, called geopolymer cement. It can produce cement from waste, with no ovens, and use sea water. It doesn’t burn, is stronger and requires less to produce the same results. Fuel free energy is a much smarter way of producing energy and is often lower in carbon.

I can repeat the same comment about Bill Gates. Did you ever notice when people respond in an angry way or give so much push back that it is hitting a nerve? Whoever came up with this term philanthropists who are changing or improving the world? They use 5% of their assets to fix things instead of 100%, and they are subsidised by taxpayers. Let them stop cutting ribbons and commit all their assets to reducing carbon risk and restoring the social and environmental balance. Why would you use 5% of your assets if improving people’s lives is so important?

CG: TBLI, in effect, supports a business framework that considers the interests of wider stakeholders rather than just private shareholders. Although renewable jobs and related industries are growing, a lot of people, especially in the poorest societies rely on fossil fuel industries for their livelihood.

Moreover, vast amounts of institutional capital such as pension funds are invested in fossil fuels. How can we manage that transition or divest without harming already very sensitive pension pots and the like as well as helping people’s livelihoods?

RR: It is simple. Continue the education and create better infrastructure for institutional investors. Present the opportunities at scale in a package that investors understand and in a language they speak. Don’t shoot loudly in Chinese to someone who speaks German. Carbon is a cost that will go up. If you have carbon exposure, your performance will be impacted. Even the Freshfields Report I and II warned that fiduciaries were not doing their fiduciary duty by ignoring carbon risk.

There are plenty of deals – all low carbon, public and private partnerships, low volatility and steady cash flow – and there is little to no technology risk. Deals are there but asset owners like pension funds are isolated. If it is not in their ghetto then they don’t know that it exists. I always say to get out of your ghetto.

Proof versus belief

CG: On your journey around the world, attempting to guide asset managers and private bankers towards a value-based and sustainable investing, I have noted that they often raise their concerns over the risk and return dynamic of such investments and are, therefore, hesitant to join in. To which you often respond and cite the ($321 billion) in fines and legal fees that banks have paid since the financial crisis (according to the Boston Consulting Group), and the high risks in traditional and complex financial instruments such as collateralised debt obligations (CDOs).

What is their response to these two points that you made?

RR: No response at all. When they constantly repeat that ESG data is not good enough, I reply that financial data is not good enough with trillions lost in financial fraud, or the financial data is poor. They nod their heads but don’t change.

It comes down to proof versus belief.

One of the greatest challenges in trying to integrate sustainability or the so-called nonfinancial issues into the investment mind-set is the issue of proof. Investors who are not familiar with a specific strategy want to have proof. They often ask if there is research proving the ESG or impact investing outperforms at best or underperforms at worse. In spite of the massive overwhelming research, they still were reluctant to embrace.  

Then, the “aha” moment occurs, and they realise that this is not about proof, but it is about belief. If one looked at how much research was done on CDO as a risk, there is little, if any. If you went further and looked at how many people who did find any research actually read it, there’s nearly no one. Finally, how much money went into CDOs despite the proof? Too much. Those investors believed without proof that CDOs linked to mortgages would churn out returns forever without any proof.

CG: I presume that you, therefore, believe the risks of investments after diligently considering ESG considerations to be much lower?

RR: The reason for ESG and impact investing’s rapid growth is because it describes a form of investing that has multiple beneficiaries not only to the investor. It looks at all risk factors – social, environmental (climate change), governance and financial.

If a company has an extraordinary social performance, they often spend less on hiring the best and the brightest and retain them longer as most employees are looking for some purpose. Additionally, companies that have an excellent environmental performance often waste less, pay fewer fines and user fewer raw materials and energy. All of these lead to higher returns and lower risk.

Most importantly, ESG and impact investing have the concept of values or principles, which are routed in how most of us were raised. There is a face added to the investment and not only a number. It is not particularly tied to one religious way or another. Values, according to the dictionary, are society's values that are passed on to us as children, while principles can be moral principles, ethics, moral code, moral standards, code of behaviour, rules of conduct or standards of behaviour.

Bringing value-based investing into the mainstream

CG: Looking ahead, we can see that the major commercial banks from Indonesia to the UK are stepping into impact investing, sustainable investing and ESG-risk assessed investing. 

How would you assess the progress so far and what will it take to really bring value-based investing into the mainstream? Is mandatory regulation, such as the European Union’s action plan for financing sustainable growth, the answer?

RR: Nearly all banks are offering products to customers looking for values investing or impact investing. The only difference is that they are really committed as it is not part of their DNA with a few exceptions. None of the banks own the space because they are not all in. The banks don’t want to be seen as a sustainable bank, but they don’t want to be not seen as a value-based bank, as well.

With that in mind, none of the major financial institutions are spending or committing the resources needed to truly integrate sustainability into the DNA of the bank. If they looked at impact as a mergers and acquisitions project, all the resources would be in place. I can’t even get some banks to speak or even moderate the subjects as they are concerned that if one digs a bit, they find the bank is a hypocrite, where most of their resources are still going to resource intensive or carbon intensive investments.

I don’t believe that mandatory regulation is the answer, as that might just push for lowest denominator. If you need to go to the bathroom, will you go faster if I draw a line on how to get there? When the banks see the opportunity and are pressured enough by clients, they can move very fast and do more than regulation would require.  

CG: What should be the common framework used to categorise investments as value-based?

RR: This is a work in progress. The principles for responsible investment (PRI) got lots of people to send the aspirational statement but it means nothing. It is an aspirational statement. There are no sanctions or hoops other than saying you will do this. If you look at it, many of the most outrageous breaches of the PRI occurred by asset owners who are active PRI signatories.

Many asset managers feel that they need to sign to get mandates. It’s like having a membership to a fitness club but not using the exercise machine. They all want to be part of the club but do not want to do the heavy lifting.

There are many attempts at giving some sort of validation of value-based investing. Let’s not forget that all the major disasters have been in the financial reporting. WorldCom, Enron, Parmelat and The China Hustle all had verified financial reports but were fraud. Let’s try to get the financial system to report honestly and fairly.