WRFH/Radio Free Hillsdale 101.7 FM - Wall Street Weekly: Interview with Paul Tice (Part II)

Episode Date: March 9, 2024

Join Patrick and George for the second part of their interview with author and investor Paul Tice. 

Welcome to Wall Street Weekly, a show where your host, George and Patrick, cut through the financial jargon to keep you educated and informed about the markets that affect our lives. Enjoy the show. This is Wall Street Weekly on Radio Free Hillsdale 101.7 FM. As we continue with part two of our interview with Mr. Paul Tice, author of the new book, The Race to Zero, how ESG investing will crater the global financial system, as we pick up our discussion about the younger generation and the impact that they'll have on ESG investing. Back to your last question. Millennials, yeah. This is, and, you know, I devote a chapter in the book to this to talk about it because clearly this has been a strategy of progressives over the last four decades, two generations, in terms of messaging, right?

And, you know, you're only one or two generations away from a change in society, certainly in consensus belief. And so with climate and sustainability and ESG all kind of being, wrapped together and being part of the same program, the issue you have, as you noted, is that, you know, if you're a millennial, you were born, you know, 1980 or after, your entire life in school, particularly in college, and graduate school, you know, as I know firsthand teaching there, you've been messaged about climate change being bad, right? And that, you know, you can't deny it, right?

and by the time you leave university when you're 22, you have probably filed away climate science along with gravity as kind of a given, never to be reviewed as again. I think that's true for most people. And so it's very tough to break down that, right? You know, I think we need, first and foremost, to be not afraid to talk about these obvious truth in public, even though people will call you a climate denier, right? And again, with ESG, you can't really criticize it unless you're ready to,

throw that first punch on climate change and have that debate. And that's what we really need to do right now because we've held off on doing this for so long. But all those people that are going through school, learning this all, now they're moving into business. You know, if they're going through business school, they probably are being exposed to courses on reimagining capitalism, right? So you have a lot of these activists now who are repurposing themselves as professors. and teaching this as curriculum. So that doesn't help, but it just feeds the machine. So if you look, it's only a matter of time before you have more millennials in Gen Z working in any industry.

On Wall Street, we're getting to a tipping point, frankly, you know, in terms of people who are under the age of 45. So over the next 10 years, you know, the older generation will retire. and you know, you're probably going to have more of an ESG approving mentality working in the industry. And I think that's bad. I mean, I've worked with some junior analysts at the tail end of my career, and, you know, it's dispiriting to see that they think that this is normal in terms of, like, investments and why companies should be run this way without questioning it, right?

And the problem with sustainable investing is you're not allowed to question it. You can't question climate change. You have to have the consensus view. And that's completely antithical to two-sided markets. You have to have a divergence of opinion if you work on Wall Street and you're making markets, right? We lose this battle if we don't speak up now. Would you say that criticism of the ESG mindset differs when we're talking about private versus public companies? No.

And if you look at, as I mentioned, the UN group, that's the main pusher of this agenda, the UNPRI. They have all of their primers about, you know, how to implement this. And they don't make a distinction between public or private companies. You're supposed to integrate that into all of your portfolio companies if you're an investment advisor. And so think about that. So you have a private company founded by, let's say, an individual, an entrepreneur. He risks all of his capital, maybe destroys, his family in his quest to set up this company. And then you're going to come in and tell him

that now he has to run his company for the good of society. That just shows you how illogical this argument is. It's no better with a public company with a more diverse shareholder base, right? You're arguing that this company needs to be kind of commandeered and focus on different goals. and with net zero, it's reallocating a lot of capital spending from energy and other industrial companies, right? So this is all wasted capital being spent on derisking a lot of new technologies that will never go anywhere. There is no distinction between public and private. The only distinction there is, and again, to show you how this is a neological system, ESG is imposed on companies in the developed world, North America and Europe, more aggressively,

than in the emerging markets, right? So in the emerging markets, you guys know, those are riskier companies, largely because you've got more unstable governments. You know, they're probably high-yield countries. So the sovereign ceiling is very low. You've got governance issues there. The environmental track record, just objectively, not the abstract concept of carbon pollution,

but just straightforward pollution is worse. But those companies and countries are held to a different standard. With ESG, you're targeting large-cap public companies in North America and Europe, mainly because they are susceptible to public pressure. And again, it's a coercive system. So no one can ever actually explain that inconsistency. But if you go back and look at it in a UN context, climate change and sustainable development, and now ESG has always been about a wealth transfer.

It's been about, you know, an uneven playing field. It's about deindustrializing the West and allowing the developing world to catch up. So you think that's the big focus. It's not necessarily climate change. It's more about this type of equal world. Is that what you're saying? Well, no, I think climate change is the driver. And actually, if you talk to the UN, the 17 sustainable development goals that they have,

and then you have a standalone climate action, STG, right? And as I mentioned, the UNPRI is up front saying that climate change has to be the number one priority ESG goal. So they're telling you all along that climate change is the main focus and, you know, it's going to be the driver of this wealth transfer. Okay, so you mentioned a term earlier that I want to dive into a little bit. Can you explain the difference in meaning between shareholders and stakeholders and what impact that has for ESG investing? Sure. Well, you know, shareholders would just be the owners of the company. those up until now have been the primary focus if you're running a company. They have governance

rights. I worked in the fixed income markets for most of my career, and I knew my place, right? I'm not an owner, right? A lot of times when I would dial into earnings calls, they would even take a question from a bond investor like me. They would reserve all the time for the equity analyst, right? So that's fine, right? You know, they're the owners of a company, and companies have always been more focused on their equity than debt. There's a balance there. But again, the point is, you know, shareholders are the owners of the company. They are the ones with the governance rights. Stakeholders expands the category of constituencies that ESG activists argue you should be

focused on. You know, there are still shareholders and bondholders employees, but they're kind of moved to the back of the line. Now it's more the environment, the planet, society, other constituencies, they throw in biodiversity. Again, a lot of these are real relevant issues, more so, again, in the developing world, not the industrialized world. But again, this is beyond the purview of company management. A lot of people that run company technically proficient, they know their industry. Once you get further past that, their macroeconomic view, certainly their political view, again, these are not qualified people to be dealt with. into that, and it's really not their role.

And, you know, if we didn't have a coercive system for all this, I think most of them wouldn't be doing it. I mean, there are true believers out there. Don't get me wrong. Disney would be an example, right? On the financial side, BlackRock is an example. I think, obviously, it's been the spokesperson for ESG and sustainability for years now. But for any one of firms like those, there are many more that are just afraid to speak up

because they don't want to be targeted. That's obviously not a great look. You'd like your CEO has the courage of his conviction. To give you the best example of how this fear factor works, the energy sector, which clearly is the number one target for ESG, and everyone knows that the goal is to defund oil and gas companies. Absolutely. And I mean, you talk about all of this stuff.

In your book, The Race to Zero, How ESG Investing Will CRETA, global financial system. And in that, you talk about the significance of 2030. I was wondering if you'd be willing to explain just a little more about why you see that, maybe not specifically like that year being significant, but I guess why six years from now or the next half decade is so important in this fight. I think we need to take the other side of their word. You know, you could point out all the inconsistencies and all the getting at wrong instances in the past, particularly with regard to some of the climate forecasts. You know, a lot of the, in fact, most of the UN IPCC forecasts that they do every six years,

they have been completely wrong in terms of predicting, you know, the actual temperature change, right? They've been too hot, they've been too cold, just like Goldilocks. Right. So the fact that they're projecting between now and 2100, anything that we need to be concerned with is laughable. You know, you're not going to embarrass them. Them is everyone, the progressives that are pushing this agenda, including ESG. So we need to take them, you know, at their word, that 23 is a milestone year. It's the year that we have to make significant progress on the climate front.

You know, we need to be, you know, Europe is planning on reducing its net emissions by 57% now by 2030 versus, I believe, 1990, right? So that's a huge decrease, right? that's going to lead to such a dropping economic activity and other unintended consequences. They're committed to it. Every year they have an annual conference of the parties meeting discussed climate goal setting. The last one was in Dubai at the end of last year. And it's Europe that's leading the charge there. So they're fully vested in this.

And the U.S. too, under the Democrats, is also on board, right? So I think, you know, to laugh it off to think that they're going to back away from the edge because people aren't going to buy, you know, enough EVs, it's like, no. I mean, they may have a tactical retreat, you know, here and there. And you're seeing some of that in terms of some of these mandates in terms of the EV take up. You know, we're pushing back from 2030 to 2032. And again, a lot of these things will kick in just after 2030. I think that is probably a political decision to push some of the pain. further down the road. And you also see that in Europe. 2030, by 2030, we have to achieve significant reductions in emissions globally, including in the U.S., and they want to achieve the 17 sustainable development goals. We're nowhere close to that. And then in ESG, the goal is to create a sustainable financial system by 2030, right? So the only thing, again, that everyone is concerned about is really climate change. So there will be more drastic policies to drive down emissions.

And I think this is a very important election year around the world, particularly in this country, right? And John Kerry recently just made the all kind of comment that no one politician can turn around, you know, the climate, sustainability, ESG agenda at this point, which was an industry concept. I mean, it points out the fact that it's a non-democratic process that is pushing this on the American public. No one voted on any of this. right. It's all being implemented by the regulatory state and the judicial system. But he just made that point that it's too late to try and reverse this thing, which I don't agree with. Again, it points to the importance of elections. And in this country, I think it's the biggest one, because if we can keep the U.S. as kind of an ESG-free market country and then really back out

once and for all from the Paris Agreement, it's going to undercut everything around climate. And, we win that battle, then ESG, I think, everything else would just dry up and blow away. So I think this is an important election year. You know, as you guys know, during the first Trump administration, when he withdrew from Paris, everybody in Europe involved with the UN was running around like a chicken with their head cut off because of what it meant, right? Yeah. And the thing to remember about all these agendas is that there are prisoners' dilemma, right?

Everyone has to participate. Everyone has to suspend their disbelieve and say, yes, this is important. important and basically subjugate their economies and their societies in order for it to work. If you go one big holdout, the U.S. would obviously be a very big holdout in this process. It derailed, and so I think, clearly the U.S., I think, will be the linchpin to the pushback. Remind me again, we rejoin the Paris Climate Accord, right? Yeah, so Trump withdrew, and this is what I don't understand. First of all, the Paris Agreement is a treaty.

Okay. It should have been submitted to the Senate. The previous U.N. climate agreements, including Kyoto, they were supposed to be submitted. They weren't because they would not get the votes. We joined Paris under the Obama administration by executive order. That's extra legal. That's unconstitutional. But then Trump withdrew under executive order.

And then Biden immediately taking office, issue an executive order where we rejoined. But under Trump, we had to wait four years before we could technically leave. Again, I'm not sure why we're bound by the terms of an agreement that was passed illegally. Right. So that would be the first question. I don't think we should be fooled twice on that front. If Trump wins this later this year, we need to submit that to the Senate. It won't get a super majority of votes to pass, and then that will undercut a lot of these other climate regulations that have been infiltrating the U.S. economy illegally, I would argue. But yet, it was executive order, and the same goes for the sustainable development goals.

That is also an economic treaty. That also needs to be put up and then not passed in order to reverse that. And what's curious to me is that you get cities across, cities and states across this country are now aligning with the UN when it comes to Paris as well as the SDGs. And it's like, That would be, in my mind, the same as like announcing that you're going to align with the latest five-year plan from North Korea. I mean, really has no bearing. And certainly, companies should not feel beholden to align with the UN. You know, they use the term international norms to put moral pressure on a lot of these companies. And like, when it applies to this agenda, clearly there's no consensus.

It's kind of crazy because you think it's like, when has the U.S. really ever followed the norm in the nation's history? I got one more question, as we'll wrap up this interview with Mr. Paul Tice, author of the new book, The Race to Zero, How ESG Investing Will Crater the Global Financial System. So my last question for you is, most of the people listening to this probably aren't, like, you know, top executives at J.P. Morgan or in the UN or anything like that. Don't want to make any blanket assumptions. But what is the average person able to do? They're opposed to ESG investing, but maybe not in a position where they feel like they can,

can really make a change in the system? Sure. So I think there's a lot to do. And again, the subtitle of book is not to be pessimistic. I'm a firm believer that the first step to fixing a problem is to acknowledge you have a problem and the scope of it. And clearly, you know, we do have a problem. And so speaking about it bluntly, I come from Brooklyn originally.

So that's my way. But I think we need to speak obviously about these truths, about what's going on, right? again, because we're kind of late in the game. So what can people do? Well, I think people need to educate themselves or arm themselves with more information around the whole climate argument. Again, I think ESG boils down to climate change, so we need to acknowledge that.

And I think most Americans intuitively know that the climate change argument is a scam, but arming themselves with a little more information, I think will be helpful. And chapter two of the book, you know, I go through all of the argument and the data, and the problems with the climate argument from a layman's perspective. Anyone who works on Wall Street, you can really analyze anything, right? Enough background reading. I've worked in research. I've had analysts can pick up new sectors and become expert in it fairly quickly.

So there's nothing about climate science that people with an analytical mind can't grasp. And if you are an investor, the rule is when you're a lot of, looking at a new trade idea or an investment concept, you want to figure out if it doesn't fly as soon as possible so you don't waste any more in your time or you don't spend any more money on due diligence, right? So you need to figure out what the fatal flaws are in the argument. And I try to do that, again in Chapter 2 on climate change, to show all the problems with the arguments here, the data, problems that persist to this day, and why this whole transition away from fossil fuels is being driven by politicians, not by society.

so-called science. So hopefully that is helpful. But I think if people educate themselves a little more where they're comfortable enough to say these things out loud and in public, they'll be strengthened numbers and more people will join in and start to push back here because, as I mentioned, there are regulations coming that are going to cement all of this ESG agenda in place, right? And it's going to take government resources to kind of lead the legal charge to push back on those regulations. And I think that's going to need to come first for Republicans. right. Democrats uniformly support ESG and the whole social agenda that it's pushing. I think we need to acknowledge that. This is a political issue with ESG. The other side, you know, has tried to shut down

criticism by saying you're just being too political if you're criticizing ESG. And it's like, no, it's progressive politics masquerading as finance. That's what ESG is. So we should have shy. We should embrace that. It's a political issue and not back down. So I think it's only Republicans that we can look to for help. And I think it's really at the state level, the red states, obviously, and the HEs and the governors there. And you've seen the beginnings of that charge, for example, in West Virginia versus EPA, where a number of the red states sue the EPA for the clean power plant. And they were successful. That set a great precedent, the major doctrines question. That same argument needs to be used for all these financial regulations now that are coming down from the SEC,

from the Federal Reserve, from the Department of Labor, the FDIC, the OCC, that are going to mandate disclosure around climate and ESG, and they clearly are overstepping their purview by delving into energy and economic policy. And then the other thing is away from the financial regulations, we have to keep working backwards. And again, address all the climate regulations that have sprung up over the last several years without any democratic process around it. So that would be the Paris Agreement, the endangerment finding by the EPA under the Obama administration.

We need to dismantle all of these. But it's going to require Republican lawmakers to leave the charge. So people need to feel free to give an earful to their representatives. Well, this has been a great conversation. Where can people go to find more about you and your work in your book? Well, the book's available from either Encounterbooks, which is the publisher's website or any major book retailer. And, you know, I teach at NYU Stern, so it's easy to reach me, you know, either through there. I'm also on LinkedIn and Twitter.

So you can also reach out to me and see some of the stuff I write about on those venues. Well, Mr. Tice, I want to thank you so much for joining the program. It's George and Patrick's, I guess, first outside interview, and it was a lot of fun. Yeah, no, I enjoyed the conversation. Thanks for having me. And thank you to our audience for listening to our show, Wall Street Weekly, on Radio Free Hillsdale 101.1. 7 FM.