Surfing with Sharks: Mr. Wonderful and ESG Investing

Key Takeaways

Kevin O’Leary of Shark Tank fame recently spoke about ESG investing, so Catherine decided to make Steve share his unfiltered reactions to what Mr. Wonderful said. 

 

Season 3, Episode 14: Surfing with Sharks: Mr. Wonderful and ESG Investing | Transcript

Steve Soter: Hello, and welcome to Off the Books, where we surf the uncharted waters of accounting, finance, risk, and wherever else the waves take us. This episode is brought to you by Workiva, the risk, reporting, and compliance platform that simplifies your complex work, like figuring out what goes in your trash bin, the recycle bin, or the compost bin as you leave the drive in. Check it out at workiva.com/podcast. My name is Steve Soter, accounting enthusiast and Diet Coke aficionado. I'm looking forward to debiting a great conversation, and I'm happy to have you with us. I'm also very happy to have Catherine Tsai joining us. Catherine, can you please tell the fine folks who you are?

Catherine Tsai: I'm not an accountant or Diet Coke aficionado, but I like asking questions and learning new things, so I'm here to do more of that.

Steve: Thank you, Catherine. What is on the docket for today?

Catherine: We're going to mix things up this week.

Steve: How so?

Catherine: Do you watch Shark Tank?

Steve: Well, I don't make it to aquariums very often, that's for sure.

Catherine: Do you know Kevin O'Leary?

Steve: Oh, you mean, Mr. Wonderful? Yes, I say that in air quotes. I'm somewhat familiar with Mr. O'Leary. Yes.

Catherine: OK. Yes. So this will be fun. He recently spoke at an online event about ESG and investing. So investing with environmental, social, and governance factors in mind. And there are a few points he made that I wanted to ask you about because you've had accounting and finance leadership roles at a few private and public companies. So are you up for it?

Steve: Yeah. You bet. Let's do it.

Kevin O'Leary: People assume that if you have a social mandate, a social mission, a sustainability mission, ESG mandates you're abiding by, that somehow that does not equate to profits. Nothing is farther from the truth. Companies that take on these very complex societal issues and particularly make it clear to the customers that are buying their goods and services that this is part of their DNA, part of their business model, are richly rewarded with very, very strong profits because people get on board, become very loyal to the brands, the goods, services.

Steve: Yeah. Catherine, so that's a very common sentiment, and honestly, I think it's something that a lot of companies are trying to use to their advantage right now.

Catherine: I wanted to see if you think what Mr. Wonderful said about profits is true because as an amateur armchair investor, it seems like investing in better ESG performance might hurt short-term profits, but I could definitely see it being a profitable long-term strategy.

Steve: Yeah, that might be the case. I think there's actually two things going on here. So what Kevin is really talking about is the opportunity for companies to focus on sustainability and make it part of their products, their services, and even their DNA, as he said. And I totally agree, that's a smart strategy. Whether you're directly serving or selling to consumers or to other businesses, there is no question that ESG is increasingly important, especially in those cases where it doesn't dramatically change either the price or the utility of what's being sold. But on the other hand, meaning ESG investing, so making investments in groups of companies that are focused on ESG or sustainability, honestly, Catherine, I think that seems to be varied. I mean, I am no expert, but I've seen reports on both sides, ones that tout the outsized returns of ESG investing. And then even just recently, there was a Harvard Business Review that said exactly the opposite. But regardless, I think there is no question that consumers and businesses are increasingly looking for ESG-friendly goods and services, which certainly plays well for the companies that provide them. Catherine, what else did Mr. Wonderful have to say?

Catherine: Let's see.

Kevin: What matters now is mission and sustainability in the business model. This is core to any successful business today. Consumers care. The government cares. People care. Mandates, policy all around the world are toward sustainability. ESG is not a marketing scam anymore. It is a mandate at government policy level and corporately. If you don't show people that you care about sustainability, you care about ESG, you care about the environment, you care about sustainability, if you don't care, they don't care about you. And every business needs to know that. You can see it. Massive movements towards, you know, companies that have missions and show how they specifically solve for sustainability.

Steve: So, Catherine, I appreciate what he's saying, because regardless of how much focus consumers or businesses place in ESG, governments around the world are asking for disclosure, which means to some extent you kind of have to care at least a little bit. I mean, take the SEC's recent proposal to require public companies to disclose climate metrics. Now, if that rule gets adopted, we are talking about some high stakes reporting. You combine that with what's happening in Europe and Asia, especially for large multinational companies, and you'd better care about all this stuff, and you better keep it straight. Or there will likely be some unpleasant fallout.

Catherine: What do you mean you better keep it all straight?

Steve: Well, when you're doing any reporting exercise, if you have the same source data, but it ends up changing when it goes to different stakeholders who are receiving that information, so let's say I'm reporting one thing to the U.S., one thing in Europe, and one thing in Asia, well, I've got to be sure that the differences between those three are exactly what I expect them to be, especially as that gets subject to scrutiny by those regulators, but also to auditors and to other people.

Catherine: So how do you keep it all straight?

Steve: Well, honestly, having the right technology like Workiva, incidentally, and having the right talent will be really, really important because as I said, you're using the same source data, you're collecting a lot of feedback and input from various stakeholders. You really need a place where you can see how all of that stuff plays out so that then when you have that end report and you can hand it off to an auditor or to a regulator, you've got complete confidence that that end report is exactly what you think it should be. And I really think that's what Kevin is saying when he talks about why companies should care about all this stuff because frankly, these governments are going to be paying attention.

Catherine: OK, why don't we take a break from hearing from Mr. Wonderful to hear some wonderful ads?

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Steve: All right. Let's get back to Kevin O'Leary and his thoughts on ESG investing with our third soundbite from Kevin.

Kevin: ESG really matters, and it matters because it's not just corporately driven. It's consumers making that decision, buying one product over another, understanding where the company's policy is, what their mission is, how they're giving back, and how they're being sustainable makes the companies more profitable. So ESG compliance is a big deal. And so I will not invest in companies that are not willing to go through a carbon audit. And many companies approach me all the time, and they know that's how I think so. And I'm not the only one. There's millions of us as investors that want to see this fixed.

Steve: So, Catherine, this is interesting because I think there's really two parts to what he's saying. It actually isn't just enough to be doing all of this stuff behind the scenes. I mean, people like to gripe about ESG being like a big marketing thing. And I guess to some extent, it kind of has been and might continue to be a little bit. But the thing is, if you're not telling your story, right, if you're not actually going through that sort of marketing-ish exercise, well, how are these stakeholders, either governments or your customers who really care about the stuff, how are they even going to know what you're doing?

Catherine: Yeah. And I think the key ingredient has to be trust. You have to be able to back up your numbers, track your progress, and be transparent. So if we said something was kid-tested or mother approved, or 2 out of 3 dentists agree, in the ESG world, you have to be able to back that up.

Steve: Exactly. That is exactly right, and I think more and more and this is kind of to Kevin's point, but especially to the SEC's point and other regulators' points, they are not going to tolerate that kind of, hey, we're just going to say it, but we can't actually back it up. And I think that's why some of these back end things that we've been talking about become so important for companies as they start doing this ESG reporting.

Catherine: Well, I think it's time for the closing question of the day.

Steve: Wait, wait, wait. But we don't have any guests, and I'm not sure I want you to ask me the closing question of the day. Like, are we doing this?

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Catherine: Yeah, why not?

Steve: Oh boy. All right, here it comes.

Catherine: I have two choices. I'm going to ask my first one here. Since we're talking with Kevin O'Leary of Shark Tank, is there a startup that you'd pitch to the sharks on Shark Tank, Steve?

Steve: You know what? When I was an 8-year-old kid, I was a subscriber to Boys' Life magazine. I'm not even sure that's PC to say, but Boys Life magazine. And in the back you could pay, I think it was $5, and they would send you this kit where you could go and sell, I think, stationery products door to door. So shocker, right? I had to pay $5 just so I could go hawk their stuff. I did that. I earned a pocketknife. And I'm wondering, maybe I could like go back to that and take it large scale. So perhaps my stationery selling business as an eight year old could go on Shark Tank? What do you think they'll say?

Catherine: It's a big fat no.

Steve: OK. All right, well, I guess we can move on. How about you, Catherine? I can't let you get off that easy.

Catherine: I was thinking, if there is a Google search for my brain, that would be great. But if I think about Workiva, you know how they have that feature, where you can link from source data to everywhere you mention it in every other report to come, and it automatically updates everywhere. So I would like to do that, like when I meet new people, in my brain, I want to have a tag. And then, like every context from then on, when I meet them, like at a party or in the office or in the grocery store, it's going to remind me who that person is. Can we make that happen?

Steve: It's genius. That's way better than door-to-door stationery. Oh my gosh. You're a visionary.

Catherine: I haven't made it yet though. That's the problem.

Steve: Well, good luck with that. You know, with all the SPAC stuff, you can actually pitch an idea like that, go public without even having a real product. So maybe a SPAC. Maybe not Shark Tank, maybe a SPAC.

Catherine: Fighting words. Well, thanks, Steve, for being on the episode.

Steve: I'm always happy to be on the episode, and I kind of didn't have a choice either. But you're welcome.

Catherine: I'm glad you showed up. If Kevin O'Leary didn't.

Steve: He's a busy man.

Catherine: Big thanks to Kevin O'Leary and his team. And big thanks to you, dear listener, for surfing along with us. I'm Catherine Tsai. That was Steve Soter, and this has been Off the Books, presented by Workiva.

Steve: Please subscribe. Leave a review. Tell your buddies if you like the show, and feel free to drop us a line at OfftheBooks@workiva.com. Surf's up, and we will see you on the next wave.