Transcript
Hell. Hey, oh, hey. Live from an sbti flavored puddle. Grossly flavored, it's the ESG industry's. Only weakly woke data podcast, featuring analyst whole Matt mascardi. Today's un greedy. ESG offshore windbag called September 20th, 2023 random ESG headlines and sbti deep dive and a fancy expert named Cash. Who ironically is a credit expert. Hey oh yeah. Cashing credit we haven't had a fancy expert in a while. Daniel cash. We did have a fancy expert. In fact, he was so fancy. We talked to him this morning. Yeah. And we are going to excerpt part of what he talked about today. And we're going to play the entire interview tomorrow as a bonus episode because he was so interesting. You just wrote a book about the history of Moody's called a modern credit rating agency. The story of Moody's. It's out. I think tomorrow the e-book gets published tomorrow. So pre-order it right now and we'll hear from him. I hope Daniel goes to our website. Free flow analytics.com because the headline the head story is Kraft singles. American cheese. Recall plastic choking. Fears impact. 84,000 wrapped slices. And that's I think that's a bad that that buzzer was for, he does not go to our platform. That's all right. Ready for some? Oh, our show today is being sponsored by ESG Solutions provider. Yeah, that's gauge where the data is. Wherever the data is SKS. All right, let's just some random headlines. Yes. Yes she flavors. How good is yesu flavoring? Monday. We kind of covered the business world as a whole but on Wednesday we really like to get super Nerdy with the stories. I pick that's good because everybody likes that as an example, the first story, California, governor commits to sign climate disclosure bills into law. So, I heard a Newsome. Commits to, you know, he said, he said, quote, of course I'm gonna sign those bills, of course. Okay, SB 253. This requires all companies with a billion dollar plus Revenue to disclose greenhouse gas emissions. So this is scope one scope to and scope 3 emissions. This is gonna apply to more than 5,000 companies. This scope three is the big one. So the scope three disclosure obligations for scope, the will begin in 2027. So the companies have some time here. Okay, that's fine, that's plenty times. Think about it for a while, maybe smoke a pipe buy a fire while you can consider how you're going to do it? Yes, friends. And then then just say some stuff. The important thing here is that this is not just companies headquartered in California, it's it's companies that do business in California which is basically what? Yeah, that's all every company. Every company, I mean, California by itself is like the seventh largest economy in the world or bigger than Canada. Yeah. It's gigantic. More people in California than Canada people. So get over it. So that's a lot. That's a lot. That's a big deal. How soon before it gets the lawsuit to stop it. That's not what this show is about. Oh SB 261, the other bill is going to sign applies to companies with revenues greater than 500 million dollars. And it asks them to prepare. This is like us. This is like a shareholder proposal. It's asking those companies to prepare a report, disclosing, their climate-related Financial Risk is that us 500 million in Revenue. Stop it. I can't remember if its 500 million or 500 dollars in Revenue, that was generated. Meanwhile the headlines says a big oil has been lying to us. There's another story out of California, the US state of California is suing five of the world's largest oil companies alleging the firm's caused billions of dollars in Damages and mislead the company by Mislead the public by minimizing the risks from fossil fuel. So California is suing did that Exxon Mobil shell BP, ConocoPhillips and Chevron. As part of the complaint, is this quote oil and gas company is exactly executive. Okay, I don't know if I want to slow down focus on this. Oh yeah go slow, come on, read it, read it dramatically. Do you need some dramatic music underneath maybe? Yeah. Okay, how about this? Well at that oil and gas company Executives. That's the subject of the sentence Executives. Wow. Okay, have known for decades. That Reliance on fossil fuels would cause these catastrophic results, but they suppress that information from the public and policy makers by actively pushing out disinformation on the topic. So Matt, my point is here, is that there are actually people running these companies. So you actually can ascribe blame to the people that run Corporation. You can just describe to the executive to the board. You are alive. We are here to do this. How dare you? It's not liable. It's not slander. You are actually allowed to call out. The people who actually make the decisions. Matt look, if you're confused about Damian's anger right now, it's because we've been posting all. Take the dirtiest directors in the world, over the last five years, these are directors, who all we do is we take their influence number that we like use social science and create an estimate. How influential they are? We multiply it by the emissions, at the companies, where they are sitting on boards. So we said they're responsible for overseeing this much emissions. Here's the biggest emitters. Right? Here's the dirtiest directors, we did get some social media put back pushback saying that it was slander and defamation that we should know better and that we should know better and that we don't have an ethical standard but I don't want to spend too much time in this, but let's just break it down a little bit, right. Maybe you don't believe in our methodology is to ascribing the percentage of influence to the board. Okay. Okay, fine. Yeah, I don't either then you can make the case that if it's a 10-member board that every, every director has about 10% of influence. Right? Sure. So you could make the case that they they have 10% of the blame for whatever the company is doing, right? So I mean, That's all I think the point here is, there's no point. Why do we elect a board at all? If we can't say they're responsible for anything that happens at the company, regardless of how you cut it, like if I can't say that person sat on this board. When the company spewed that much carbon, what can we say? What can you say about the human beings? Who are responsible for his decisions, notice that the state of California agrees because the subject of that sentence is not the company. It's not the corporation its Executives. Okay. Yeah, it's not the ephemeral company, that's correct next headline. The Delaware chancery why is Delaware the only like state with a Chancery this seem like everybody's got a chance, but they But Delaware is just the coolest. Uphold disparate voting rights for same class of stock. That's all that's a surprise to anyone. No, but what is the point like why? I don't know. I don't I don't know what to do. It's awkward in a democracy to be upholding. Disparate voting rights. I mean it's it's like saying dictators are okay in some places but not Delaware, certainly Delaware's cool with dictators BP. CEO, this is a article from Bloomberg BP. CEO search is Big oils. Best chance to fix its gender problem. So there are there. Big Bloomberg is basically asking a BP to create a glass Cliff scenario at. Yeah, that's not right? Yeah, so this article goes on to it kind of points out all the crap going on especially within the oil industry. How That that women only represent 13% of the c-suite and oil and gas, which is the low. I think the lowest for any industry they claiming that appointing a female CEO would send a clear message that the Clubby error of Petro masculinity. They're calling it could finally that. What does that, do you really think phrase? You really think the appointing, a glass Cliffs female CEO, a BP would send a clear message that the patriarchy and oil is over. Is that really know? But I think actually, you have to work backwards. I think they wrote the article so that they could say Petro masculinity or whatever. Like I think that they do like this, I think someone was sitting around in the office and they're like God, what a petrol mastering boys club and they were like that. Sounds like a story, write it, you know, there's some real. This article includes a research from a research study, which is would Bring up the question of whether the oil industry is not practicing Excellence, right? Here's the, here's the quote and Industry dominated by a macho culture Rife with sexual. Harassment, one where employees promotions are based on personal recommendations rather than marriage. What That was a possible that the oil and gas industry itself is not exercising. Excellent. Is that possible? No, no it's not possible and it's not possible because oil prices went up. All right, how about this stale? Stay with the glass Cliff CEO. This this guy that makes a happy. This takes the cake. The new Qantas CEO. Vanessa Hudson is apologizing to sack to workers at the headline. The new boss of Qantas has acknowledged the harm caused to more than a thousand workers, who were illegally sacked during the pandemic. This is nearly 1700 ground staff who were deemed to have been illegally? Dismissed during a high court ruling this week. Vanessa, Hudson, Matt offered a personal apology to those workers. Vanessa Hudson was not CEO. CEO Jumping the Shark. This is crazy. No, no should absolutely crazy. So the chair was the same chair. You know, why isn't he apologizing? Where is his apology? He I mean like crazy. Absolutely crazy craziness. This is, and this is the problem, right? Because everyone's gonna get angry at the woman who went forward and apologized. Not the dude, who I think you actually reported was currently at one of his million dollar houses in like Sydney somewhere. Like, yeah, he's got several million dollar. Condos that guy is is retired living in the life going like, thank God. I didn't have to apologize for shit. I mean well, another article on Qantas former quantity, though, the one you were referring to Alan Joyce, it was revealed in filings, over the last few days was paid 21 million dollars last year, but 14 million dollars of that is subject to claw back by the airlines board. What if you think the boards to do here Matty think they'll call that money back. I can't I mean I can't imagine how his BFF who he sat on with the chair. He sat with that for that long. We could possibly say we can't we're not going to close this back, right? Yeah, despite the fact that this is this is the most hated company on a in Australia, right now it's like the only Company Australia and they all do you. Oh, we talked about the big lawsuit in Montana, right? Young people suing Montana, right? We don't. Yeah, that was a big win. Yeah, big win win. No, they're still a win. Now, there are six young people suing 32 European countries over climate change 6. Portuguese, youths are taking 32 Nations to the European Court of Human Rights this month for not doing enough to stop global warming. This was this, this came out for the massive wildfires that struck Portugal in 2017. Killing over 100 people. The young people say they are suffering from anxiety over their health and having to live with a climate that is getting hotter and hotter with more natural disasters. They are argument. Matt is that excessive carbon emissions are infringing on their particular on the right to life in the right to the respective private and family life so that their see what they're doing here. This is, this is the same language idea to use in Montana know. Yeah. Not only is it the same language they used in Montana but I think when it happened, we were talking about how this is basically. Groundswell opportunity, right? Like, you can sue, if you are young and have to live in the shithole that the Boomers, and frankly us the Gen xers have left for us. Dare you. I mean we're less responsible. No, apathetic come on. This is if you're young, this is your, this is your way of recouping. It's like climate reparations, baby. We gotta pay a generation. I'm no legal expert. But if someone, if some kids from Montana could win. You got to think these Portuguese kids really have it going on, right? I mean, come on, they're cool. Aren't they smoking cigarettes and there's more surfing in possibly. Yeah. Then Montana the justice department is probing the justice department, probe scrutinizes, Elon Musk perks at Tesla going back years. This is from The Wall Street Journal Federal prosecutors are scrutinizing personal benefits test La may have provided Elon Musk since 2017 as longer than Previously known as part of a criminal investigation examining issues including a proposed glass house for the CEO. So, They're really looking at all these on there that the. So you're you're, you're you're constantly calling out chair Robyn denholm. I have some Merit to it. Yeah. But what do we think for realities is gonna happen? Do you? Do you actually think that there's a, there's a downside like Elon Musk is going to be facing some sort of criminal liability, Martha Stewart in jail. Yeah, Martha Stewart was a woman. Like I don't know if you notice true. This is the richest man in the world who will spend tens of millions of dollars on high Price Lawyers and like we are already fight, we found out there was news that broke this week that basically Dorsey was getting cold feet about Sicking with musk on Twitter, and then musk just said, well, I'll just I'm gonna guarantee. I'll guarantee you your investment, right? Like, that's how billionaires work like this, they don't, there's a rules. Don't apply? I'm just a glass house for small pictures. It's just what the board at Tesla to have a backbone and get rid of him a CEO. That's that's just looking for that. You don't. If finally, the UAW United Auto Workers were like, what are we like, days, six day, five of the strike of this recording. Yeah, they are justifying wage demands by. How are they doing that map? By pointing to CEO pay raises? That's right. Yeah, baby. The United Auto Workers. Union has made CEO pay a central part of their argument for a big worker wage increase to here's a. Quote, the reason we ask for a 40% pay increase is because in the last four years alone, the CEO pay went up 40%. I and I'm only covering this article because this, this amuse me CEO Mary Barra, who we talked about a lot of GM. She said, I don't know where the 40% came from, that's her. That's her her, brilliant response. And as it turns out, she's right, Matt because her pay since 2019 has only increased 34%. So she has a really, it's a really, really good point she's making their she's really it went up from about I think in 2019, it was a roughly 21 million. It's going up to 29 million over that time. I don't know what you're talking about. I didn't get 40% got 9.7%. The best you can come up with Well, I mean, in look In fairness. This is the only time you'll hear me say this probably In fairness to marry Barra and CEOs. Yeah, it's not exactly. Like the pay structure is even remotely comparable to like a UAW worker and we are talking about cheese paid almost entirely with equity and all of that, that increase comes from Equity increases, right? So it's money. She takes home. Yeah, that's basically fake and basically until age increases, yeah, I know. But I mean, what was her base salary increase? I mean, really the question should be how, what percentage of our salary is now tied to ESG. Oh, because that, that's really where all the big money that's coming from. That's a good way. That's a good segue into stupid. That's a good. Stupid sexy. All right, ridiculous, I know this is gonna be something, all right, just I'm gonna give you very so on Friday. I talked About as one of the assholes week segments, sbti the science-based targets initiative, and I got pushed back on social for basically saying that, you know, someone was an asshole but they said well, their argument has Merit. So, can I want to go on record here? I didn't vote for that. You talked about Bill Bowie of us. Yeah, formerly of sbti, that was one of your candidates wrestle the week. He didn't win by the way. That's true. And I didn't vote for him. So there you go for him. But stop like past doesn't mean, doesn't mean. He's not an asshole though. I'm just not in vote for him. But what I promised to do was actually look at sbti and lo and behold in the past five days as bti, I made a headline. Are you ready for this headline? Headline is sbti separates climate Target standard setting and validation units to boost credibility? Okay, so look, it's like a firewall they firewalled. They did. Every single financial company does, which is firewall 110, just another and pretend like, they don't ever talk to each other, like they don't make tuna salad sandwiches and sit in the same like in office together. All right. So you know what sbti is sbti stands for science-based targets initiative. It was organized by CDP World Resources Institute, worldwide fund for nature WWF and the UN Global compact note, that there are no for-profit companies. There, those are all non-profits, they're all quasi National and non-profit organizations. They are a standard setting body for setting a carbon Target and then validating it and what they are now doing is they're separating the target setting and the validation so that there's less of a perceived conflict of interest as part of this announcement. This the story. They also announced the addition of the following of new board members, okay? Board members. So here's what we were going to do. Are you ready for this? Yeah. we are going to take this bit by bit and we're going to Rip you sbti. We're going to criticize this bti. We are going to like, go on the Merit of what Bill Bowie said. So you I on its substance. There's stuff here, right? So we are going first, let's talk about the board. Okay. Yeah. The board of sbti. One of my favorite things about it is two of the new board members, the Board of Trustees because it's a non-profit are in our database. Okay? There? It's it's the current the ex CEO and chair of enel, an Italian Energy company and the CEO current CEO of novozymes know. So that's Francesco. Sorachi. He is the chair of the of the Board of Trustees. Now he had 28% of the influence on emails board and 19% of influence on and death's board. He actually bats 556 on carbon. All right, he's actually pretty good. He's okay, he's averaged surprise me if energy is former CEO of an energy giant. Yeah, I know. But they look, I read everything on this is how much research we did. Yeah, I read everything that email and in desert has put out about what they're doing around so Urban. You think Francesco's a good choice for the sbti board? Okay. So I'm a little concerned about one particular thing. Yes, not two things. Number one, email according to msci has the worst governance score basically possible. Okay? But scores, as we as we've learned over the last few years, people are very comfortable separating the G out of this ESG. They don't really care about G as much anymore, they just named him the chair of an organization. Okay, so I think the governance part of this actually matters. So there's a little better sauce. Of like what he calls governance. The second thing is, while they are making huge strides to decarbonize, they have all of their, unlike, their sort of like, you know, Partners who are saying like, we need more gas. Like everybody's saying, we need more gas and oil, whatever. At least at the time being they're actually doubling down and saying, we do not. We need to good faster towards Renewables good, but they still use a lot of coal, so there's still like, a Coal Fired stuff. They're using that to make that, delicious pizza. Delicious Italian pizza look. Gelato doesn't get made in warm climates. So, you got to keep a cold somehow And here's another problem that I have with the board strategies, one thing he's the chair. Ivan Duque Duque was the former president of Colombia. Do you know anything about Chloe, really? Yes. Yes. He's joined the board of sbti. Science-based targets initiative carbon reduction initiative. Yeah. Columbia. Is it in oil State? Yeah. They'll have oil and they love cocaine accordingly, right? Okay. Now is the biggest export, I mean, I'm not sure that. That is the rep like stretch. Okay, I can get behind, but this is, I mean, under under Ivan's, watch? Yeah, CO2 per capita increased 6% while he was President. Absolute admissions, increase the 11%, it was production based increases meaning because the company or the country was basically digging up more and selling more. What the hell. How the hell is this guy? Getting an SBT. I don't know. And This top two exports of Colombia are crude petroleum and coal is the second one that's out. The cocaine not a good look. Maybe about maybe the maybe it's I've glanced Bill Bauer. He's 170 page snow exaggeration. Yeah against SBI maybe the code maybe they need the cocaine to just kind of deal get through reading it. Yeah yeah exactly. Um, the last one on the board who's worth mentioning here is Esther Esther bajet or baguette? Pretty sure that's not how you page yet. I don't know how to pronounce her last name. She's a Nobles novozymes. Yeah. What is no time? So novozymes is like, you know Pharma company. Biotech biotech and she is A fake CEO. Okay, what does that mean? It means that Kassim. Kate has more than 70 60% of the influence of the board of novozymes because he's actually the CEO of Novo Holdings. Okay, designs is nothing. But doesn't mean that she's a bad choice. I didn't say she's a bad choice, I just faked CEO. It's better than the president, the former president of Colombia. Yes, I would agree with that. I know, I really want to know how that happened. I want to know was there were no climate scientists available for this. Was there's no one there's no one honestly. If you're talking to Daniel cash today, I would I put I would put him on. I'm gonna hit him for the board. A lovely gentlemen. Yes. Albright scholar. Yeah. There's no I know background in this but who cares. Smart. The other trustees are actually the founders and funders of sbti and they are members from un Global compact, CDP and WWF, and wri. In fact, their roles are actually. These are the seats are sponsored by those companies. So, These nonprofits are funding the seats of the executives of sbti, so it's all funded you know. The funders are basically doing that which gets us to the money question. Are you ready for the money? Yeah. According to the science based targets dot org, they're saying that Yvonne Duque calling him, a global expert, in security Affairs, sustainability conservation, green finance, and energy transition. I mean, what do I know? I I guess he's a conservationist. That's what they're calling a good thing. Yeah, I think if you're the you're the ex-president of a country they're just gonna put you on a board. He was the youngest ever elected president in Colombia. Maybe that's a good thing. Oh okay. Well I still don't really understand, I don't get it go ahead let's follow the money a little bit okay 45 best bti. 45% of SBT is funding comes from two foundations and this is their core funding, it comes from Bezos the Earth Foundation. Probably does good stuff. Yeah, I don't know about the source of the money though. I mean, the hefei might not, and then the Ikea Foundation. Oh, I didn't even know, that was a thing. There's an Ikea, what I like about that? Is it, do they give an instruction manual with the money that and is, there is also come with a really shitty bookcase. Yeah, it's shows you the picture of one unhappy person and then two smiling people because you're supposed to use two people to put together, you know, Carbon targets and validation. 20% of the funding is Project funding, and it comes from three foundations, the laws Foundation Bloomberg and Rockefeller. Now, I don't know laws, do you know anything about the Lord's Foundation, you know? So, um, but it's a, it's only a fifth of their funding 35% of their funding just, just over a third of their funding are fees for validation. All right, we're gonna come back to that because this is the issuer, pays model of Finance. This is credit ratings, which is why we talked to Danielle cash. We want an expert to talk about this. This is the heart of what is argument one argument. I guess against sbti, one thing about their conflict of interest if you are taking money, To set a target for somebody helped them set the Target. First of all, you choose the model that they set the Target on you, take their money and then you validate their target for money. Like, right? You are doing two things at the same time. The incentive would be to cheat a bit to get that money. This is not for profit organization. No sbti I mean, let's yes, but let's be honest. There's not like there's no human instinct for. We're not for profit. We'll we'll be super harsh on you, so we don't get your money right. Like there's not that's not an instinct. And the reason why this is conflict matters is because of this headline, US Government. The world's largest purchaser takes a bold step to align supply chain with sbti. So the US government chose sbti as the standard Setter effectively, for all carbon targets and reduction, validation in US, purchasing the biggest purchaser of stuff in on Earth, okay? So that's a big deal. For Asi for everybody else. Is that a surprise? I mean, were there are there known competitors that they could have chosen? Or it's more or less a monopoly? There are a lot of Consultants that do work similar to this, but it's more or less a monopoly. There's not like he's not like 100 of them, you know, bidding, this you know, process. There's basically that But keep in mind, this is like five overworked nonprofits donating 20 over work. Nonprofit employees with second jobs to do this and make it with tireless work. Yeah. And and they are conflicted. And my point what I came away, what is your point? Yeah, they're not as bad as, or they're at worst at worst. They're equally as bad as everybody else in finance, right? Like, okay, the Creditor chucklehead. You just like the rest of us. It's look like life is hard, man, and that's what Daniel cash is going to get to us. All right, so let's talk about the two major points of contention with sbti. And then wrap this up with Daniel cash. Please do core complaint against sbti, they chose the wrong carbon model, OKAY? The court complaint basically is, there are many models to choose from SB I chose the one that their own funders created with help from you know a consultant and they chose it at the like exclusion of all those other models despite and one academic paper and I only found one academic paper that said there was a better model that they could have chosen. So that they chose the model that most scientists agree to, which was the best model. It wasn't. Like, it doesn't seem to be like, most scientists, agree or disagree. There seems to be robust debate about which model is good, but you had some models are good in some situations. But as credit, you gotta pick a model and move forward here. Well that is part of the problem, right? Sbti in order to stay economically feasible and get anyone to do anything about carbon has to choose something. Right? So what do they choose? They choose the one. It's kind of like we spent all this time and energy, building this model. It's good like the science. We're all the scientists, it's good. Use it and there might be a better model or there might be flaws to their model. But that's one of the big complaints. Again I chose their model to the exclusion of better one again. I can see why you need all this cocaine sbti because it's it's challenging work, right? And someone is gonna be mad about something, right? Like no matter which model you choose, there's gonna be someone who's anti model or I don't really know why they couldn't change their model like next year to something else like why? Like the models improve sure, no model is perfect, right? So I don't know why they can't change later. But part number two, is this conflict of interest? Because they chose their own model. And because they get paid by the company to do the standard setting and the validation, the appearance is there is an incentive to weaken the targets validate them and get the company money. That is that's The, that's the appearance of a conflict. Um, right, there's no, there's no actual proof of this, but that's the apparent, the appearance I got. I got you got it's about like the social trust and there's a conflict of interest. And so, there's been demands and the headline from, you know, five days ago about them separating, these two bodies inside of them standard setting and validating is about removing the Optics of this conflict. Now, the Optics of this conflict are really what I want to get into because this conflict exists Fucking everywhere. Sustainalytics was selling Consulting, work to improve the ratings ISS works with the companies that they they rate they rate for ESG and governance like credit ratings. They accompany comes to them says I'll give you money if you rate my credit and if I don't like your rating I can go to the other credit rating agency and see if I can get a better rating. The incentive is to, you know, make sure that the company gets what they want. This is where I want to bring in an expert to talk about this. Look, I mean, you know, this this goes into many parts of like, I mean, there's there's criticism against the Academy of Motion Picture arts or whatever about the films that they select to to win. Oscars really is is partly based on Art but also partly based on furthering the interests of the industry, right? Who produced it, how much money did it make? Who like can you pick the most obscure Niche films, that only appeal to certain And, you know, artists then it won't help the the revenue for the entire industry. So these conflicts exist everywhere, pretty much everywhere. And and and and and so, my struggle was to figure out why sbti was different. And this is Danielle cash. The full interview is tomorrow, so but this is an excerpt from that interview. Daniel cash, author of a modern credit rating agency. Talking about conflict of interests, and the messy sort of credit rating process. Here we go. Before we end here, because we're we could talk about this probably for days, which means we're probably gonna have to have you back. There was something you said earlier about how the analysts you were talking about the team of analysts the methodology. Like in the end is can be largely irrelevant. The team of analysts getting a room, you said, quote, they deal with the issuer, right? And I want to ask about that process because there is a conversation happening. Now, about carbon Target setting and science-based targets and it, they talk about an ESG ratings and they talk about conflicts of interests. The issuer pays model effectively where, when you're dealing with the issue or the issuers page, you as a credit rating to give the rating and it's not different from a company comes to you and pays you to create a Target and then validate that Target which is effectively getting a rating. And in ESG ratings, there are companies that will give a rating and then charge to consult to improve your rating, right? It's all issue or pays All of credit ratings and the Heart of the problem when it comes to like incentive streams. How Bad. Is it in a credit rating or how natural is it? Like how, how, like, there's not another better model and I'm curious when you think of it that way, is the ESG, the carbon Target setting, all of that. Is it really that different From the way they do it. Very quick. History lesson issue. A pace started in 1969. There's two reasons why it's started. The first is the Rocks machine was launched in late 60s publicly, not allowed us to potentially photocopy and release the subscription for free which is called free riding. So essentially, they were going to be taking. I was a business if they didn't change. The second reason is the company. So in between the 30s and 60s, don't Broad Street was by all of these different racing companies, they had won the national credit office and in 1966. They bought Moody's in the 1960s. The national credit off. Was keeping out Triple A rating. What they called primary things. To everybody who wanted one, because they paid for it and what happened in 1970, the railroad company called Penn Central crashed, and shocked, the economy. what happened was not the national credit office was found to be really guilty by Congressional investigation and they essentially disappeared into nothingness. In their place stepped of the credit rating agencies who said, we're not like them. We're different. But they just changed their rating model too. Issue pays. So we only have a five year gap between Rudy's applying a issue pays model and SMP catching up. And similarly, applying the issue of his mobile. In gap. Moody's rating went up for issuers, by two ratings on average. Because they changed their model and have four years later. SMP rating's caught up and went up two ratings on average, because they all so changed to issue. A pace. The point is rating. Inflation is the natural partner of the issue of pace model. Theory of issue. Pays, is that you get access to information that you wouldn't normally get But it's impossible to stop the conflict of interest. It's quite literally impossible to do it. And even if you separate the analysts from the commercial people, they then go into the rating committee where the commercial person and the executives of the rating agency. Sit in a very same room as what are analysts, and sometimes, Junior analysts. So it's impossible to change, and in the ESG space, It's mostly subscriber pays or what we call. Investor pays. But that's slowly changing. Once you get issuer, pays in the ESG world, that will be the end of what we call. The only couple isolation and you'll have the natural copy that all the investors want. So, yeah, that's terrifying. I so just to summarize that ratings inflation is the natural outcome of issue or pays and firewalls don't work. Meaning like any of the ESG ratings, any carbon validation, any of that kind of stuff that are currently issue or pays. Are exactly the same without the oligopoly. Does that make them? Do you would you say that makes them better or worse? I mean, and well, in a way it sounds like that might actually be worse. That just that an earliest stage of their development, that's all because the ultimate goal of a rating industry is to be an ally, because once you're in it, you call it, it did it essentially, a job for life. So a very quick story when I was starting my PhD, my supervisors award me not to do it because he said you're being very specialist and you might not have a job. I said, don't worry, the credit rating agencies will keep me in business for life. I wouldn't worry about that and believe me every single day. There's a new story. What they got to. So, because it's essentially economic rent taking. They've got a place in the economic system and they would draw rent from it, because they can't be punished. So I got it in my whole PhD thesis was based on this simple understanding. They bought the consultancy services from the audit companies after the end run when Ed Ron was forced to divest their consultancy. They build up this massive consultancy business. And my whole thesis was about, you can't have somebody. So Central also selling consultancy services to issue is when you have issue of pays, it's a massive conflict of interest and they're generating too much money for you to polish them, effectively. The record punishment was so there was a settlement in 13 for 1.3 billion. There's a settlement in 2015 for 800 million. Day and five times that from just ancillary Services alone so does literally no deterrent. So, the different with the ESG is at the moment, you can't deter and that's the difference. But if even, when the oligopoly is formed your ability to deter of operate. So that's what we saw with the financial crisis. Me. Okay. I think he makes my point. Doesn't he does he make my point? Is that where you want to be happening here? You want someone to make your point. I want someone to make sense to me. I think the takeaway here is look carbon targets there that conflict of interest there is not worse. It's not better. But it's certainly not worse than everything else. And lots of other markets. In fact, at least they're doing, they're trying to do some good because if they make money, carbon does go down some That's good to me. I'm really hoping you got this. SBT, yeah, I think out of your system. It's done. I'm never talking about it again. Don't ask me about and again, that's Damian Ross. I'm at mascara that was woke Wednesday. The show was sponsored by S gauge your ESG data services provider, and by free flow, analytics.com, where you can get that directed data those Board of Trustees that date is available on WWE free, float analytics.com, you can sign up and get it there. Stay tuned for tomorrow bonus episode, the full interview with Daniel cash, where we get into the history of raiding stuff and then come back on Friday for a rep of the week until then good. Bye. I'm