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Published Dec 19, 2022

Ana Marshall – Preparing for the New Environment at Hewlett (Capital Allocators, EP. 288)

Ana Marshall, CIO of the Hewlett Foundation, delves into the need for adaptive investment strategies amidst changing economic conditions, addressing challenges in emerging markets, ESG compliance, and private equity liquidity management to ensure long-term success.
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Episode Highlights

  • Measurement

    The challenges of measuring ESG factors are significant, with highlighting the complexities of verifying and reporting accurate metrics. She describes the process as a "fuzzy science," especially when it comes to scope one, two, and three emissions 1. The difficulty lies in aggregating data across various portfolio companies and ensuring compliance with SEC standards. Ana notes that the estimated cost of compliance for these emissions is expected to exceed that of Sarbanes Oxley, indicating the financial burden involved 1.

    Scope one, scope two, scope three. In a world where measuring them and actually assessing them, let alone verifying them, is a fuzzy science.

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    The "S" in ESG, which stands for social factors, presents its own measurement challenges. Ana explains that while climate change and governance are prioritized, social metrics like female participation rates can be misleading due to industry-specific factors 2.

       

    Strategy

    Strategically, discusses the balance between rewarding strong ESG performers and encouraging improvement. She identifies two paths: investing in companies with high ESG ratings or focusing on those improving their ESG metrics 3. Ana emphasizes the importance of the rate of change in ESG performance, suggesting that this approach could create more value. The confusion in the corporate sector about what to measure and how to comply with future regulations adds to the complexity of ESG investing.

    ESG was great then. ESG was greenwashing then ESG is trash. It's like a religion that is trying to be debunked.

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    This strategic focus requires fundamental analysis to capture the companies that are actively improving their ESG ratings, which Ana believes is crucial for creating value 3.

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