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42. Back to the Future of ESG Investing with Patrick Reed

42. Back to the Future of ESG Investing with Patrick Reed

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Key takeaways

  • To solve a problem as a startup, trial and error is the way to go.
  • Transparency of data can help unlock the flows of assets into more sustainable channels.
  • The sustainability movement prioritizes a stable green impact rather than to completely purify the economy.

Patrick Reed, co-founder and CEO of YourStake, joins Ned and Dani in this episode to talk about sustainability in the Wealthtech industry. Are wealth and sustainability mutually exclusive? Do millennials care more about environmental and social issues than baby boomers?

Having been passionate about environmental issues since young, Patrick was often involved in related activism before starting YourStake. He met his future business partner, Gabe Rissman, at the environmental student group at Yale. As head of the student group, Patrick started a chapter to divest the university’s endowment from fossil fuel companies. As they partnered to draft negotiations and research for their campaign, Patrick and Gabe realized they could help people who were not institutional investors with endowments to make a change through their investments. Sprouted in the jungles of Costa Rica, YourStake helps financial advisors and their clients understand as well as grow their social and environmental impact. On one hand, YourStake found that potential investors were not aware of the information surrounding the impact of their investments. On the other hand, financial advisors were struggling to give their clients accurate and detailed materials regarding their investments.

By leveraging data and analytics, YourStake is able to provide tangible information for advisors to articulate to their clients. They created an ESG based Metaphor Metrics to help investors understand and decide the composition of their portfolios. Such metrics include digestible statistics, like emissions from cars an investment reduces or which companies have more meetings led by women in leadership positions. An ESG personality type is generated from a questionnaire that maps the combination of environmental and social impacts and values an investor cares about. Coincidentally, this transparency of data not only helps clients to determine their funds, but fund managers are able to substantiate their funds’ ESG claims as well.

 Speaking of things that keep Patrick up at night, he wishes to address the issue of greenwashing by companies. While there is increasing interest in ESG and new ways to invest, some investable products might not be entirely transparent about what their sustainability reports claim. Since regulations are only just starting to be erected, most companies do not include sustainability reports in their annual reports. Sometimes, these sustainability reports may be done by the marketing team instead, which could intentionally skew the perception of consumers to believe their green efforts. Nevertheless, there have been new efforts to reduce emissions by linking executive salaries to sustainability as a measurable compensation objective. However, companies may self-report things that do not convey the right set of tradeoffs and misconstrue the narrative of sustainability.

Patrick believes the Wealthtech industry is an exciting space to be pushing for sustainability efforts. Especially with a larger number of people willing to take these issues into consideration when investing, companies would be more inclined to improve in order to obtain capital.

Meet Our Guest Speaker

Patrick Reed

Founder and CEO at YourStake

Patrick is striving to change capitalism one ESG at a time. He majored in Economics and Environmental Studies at Yale, and has always been passionate about sustainability. In the years before co-founding YourStake, Patrick had been a community organizer for the Democratic ticket and took major roles in developing frameworks and products on sustainable wealthtech. He also co-authored a research paper on data for low-carbon investing that was published in the Journal of Environmental Investing (JEI).

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