Narrator:
From the library of the New York Stock Exchange at the corner of Wall and Broad streets in New York City, you're Inside the ICE House, our podcast from Intercontinental Exchange on markets, leadership and vision in global business. The dream drivers that have made the NYSE an indispensable institution of global growth for over 225 years. Each week, we feature stories of those who hatch plans, create jobs, and harness the engine of capitalism. Right here, right now at the NYSE and at ICE's exchanges and clearing houses around the world. And now welcome, Inside the ICE House. Here's your host, Josh King of Intercontinental Exchange.
Josh King:
I pulled up a new report from McKinsey this week. The title: Does ESG Really Matter and Why? The report offers plenty of data. For example, it notes that there's been a fivefold growth in internet searches for ESG since 2019, even as searches for CSR, corporate social responsibility, an earlier area of focus more reflective of corporate engagement than changes to a core business model, have declined. As the McKinsey report states, more than 90% of S&P 500 companies now publish ESG reports in some form as do approximately 70% of the Russell 1000. In a number of countries, reporting ESG data is either mandatory or pending and here in the U.S., the SEC is considering new rules requiring detailed disclosure of climate-related risks and greenhouse gas emissions.
Now where there's a requirement to be followed, there's likely to be investments to be made. Inflows into sustainable funds, for example, rose from $5 billion in 2018 to more than $50 billion in 2020. Think of that. And then to nearly $70 billion in 2021. That pace has slowed in 2022, but the issues of ESG are still front and center on the minds of investors. One analysis found that social-related shareholder proposals rose 37% in the 2021 proxy season compared to the previous year.
Now, we've had 315 episodes of Inside the ICE House since our inception back in 2018. Our regular listeners are going to note that ESG has come up in the vast majority of them. Recently, for example, we had Gordon Bennett, managing director of ICE's Utility Markets to talk about how ESG related to the environmental markets. And then we had Kohlberg Kravis Roberts's Pete Stavros who talked about the impact of worker ownership. Hyliion CEO Thomas Healy explained his vision to shift away from fossil fuels and Brookdale Senior Living's CEO, Cindy Baier, focused on supporting the community where her facilities are located. Even most recently, Samsara's CEO, Sanjit Biswas, told us how ESG goals are achievable through technology.
It makes sense that what a company does would align with what their own expertise is of how to best meet ESG requirements being placed on them by stakeholders. Our guest today, Brookly McLaughlin, guides ICE's own ESG focus and helps thousands of companies figuring out the best way to create a strong and well-positioned ESG governance system. Our conversation with Brookly McLaughlin, building an ESG infrastructure, connecting goals and best practices, and how standardization is helping formalize reporting to the benefit of all stakeholders is coming up right after this.
Speaker 1:
Connecting to opportunity is just part of the hustle.
Speaker 2:
Opportunity is using data to create a competitive advantage.
Speaker 3:
It's raising capital to help companies change the world.
Speaker 4:
It's making complicated financial concepts seem simple.
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Opportunity is making the dream of home ownership a reality.
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Writing new rules and redefining the game.
Speaker 7:
And driving the world forward to a greener energy future.
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Opportunity is setting a goal.
Speaker 10:
And charting a course to get there.
Speaker 11:
Sometimes the only thing standing between you and opportunity is someone who's made the connection.
Speaker 12:
At ICE, we connect people to opportunity.
Josh King:
Our guest today, Brookly McLaughlin is vice president for corporate affairs and sustainability for Intercontinental Exchange. That's NYSE ticker symbol ICE. She has had several roles here at ICE since joining the company as part of the acquisition of the Chicago Climate Exchange a dozen years ago, back in 2010. Before entering the private sector, Brookly was a fixture in Washington DC with five years on the communications staff of the House of Representatives' Financial Services Committee and another five at the Treasury Department where she became deputy assistant secretary for public affairs under secretary Hank Paulson. Welcome Brookly inside the ICE house.
Brookly McLaughlin:
Thank you. Good to be here.
Josh King:
So that McKinsey study as cited in the intro, one of its authors, Lucy Perez, was quoted as saying, "Companies are reacting to the need," and I'm going to quote Lucy here, "to build purpose into their business models in a sustainable way and respond to their stakeholders' growing focus on the impact of the company's actions on the environment and society." Brookly, how do you define ESG and has that definition evolved for ICE over your time with us?
Brookly McLaughlin:
Really before you have any conversation about ESG, you really have to step back and ask, what are we really talking about? How are we defining it? It really means very different things to different sets of stakeholders. Even within stakeholder groups like investors, the difference between maybe ESG integration investing and impact investing is quite different. You kind of touched on it in your intro. There's a lot of terms out there, right? There's ESG, sustainability, corporate responsibility, stakeholder capitalism. There are some pretty raucous and somewhat nerdy debates about what each of those means and how they are different. And not to diminish the differences, there's not a lot of agreement I think on what you're even talking about when you start the conversation often, and that I think leads to a lot of the frustrations that you're seeing around some of the terminology right now. In my role, the way I tend to think about it is really what are those long-term, non-financial meaningful risks and opportunities for our company through our lens as a business as well as through the perspectives of our major stakeholders, customers, employees, our vendors, our investors.
Josh King:
A few years ago, back on this show, Brookly, I think episode 134, you and Brian Matt, the NYSE's head of ESG, spoke about its changing landscape and how companies were really scrambling to come up with the answers to the questions being posed by the rise of ESG investing. Do you think broadly companies have built the infrastructure needed to provide the data that investors are looking for?
Brookly McLaughlin:
It's come a long way just in those couple of years, but there's still a long way to go. I think one of the things that's interesting to me about this period that we're in is we're kind of seeing as the understanding of what we need to do and why we need to do it gets better, we're able to move more toward how are we going to do it. And some of those workflow processes that need to be put in place, some of those solutions that need to be created in order for us all to get these things done to move from disclosure to the actual work that needs to happen.
Josh King:
So beyond the work that you do, Brookly, in your specific role, ICE has a large roster of people who are focused on working internally, working externally with clients. There's a lot of people you collaborate with in the team, aren't there?
Brookly McLaughlin:
Yeah, absolutely. I mean, I'm really lucky that I have those resources here in-house that I can draw on as I'm kind of trying to work through some of the challenges. Elizabeth King is our president of ESG products. Gordon Bennett and his team, I know Gordon's been on this podcast before. are doing some really great work on the environmental market side, around renewable energy. You know, for instance, when I'm going out to purchase renewable energy credits for our footprint, I know that I'm able to look at the ICE markets as a check on what the prices are and use that data point to help figure out what the right prices are to pay. The work Brian Matt is doing at the NYSE here to help issuers as they evolve their reporting.
The work that Anthony Belcher and Larry Lawrence are doing on our ESG data team again to help investors get the tools and the analytics they need to put their money into more sustainable investments is really critical. You know, Michael Blaugrind is doing some great work with IEG to develop a new asset class for natural capital, which could be a really great opportunity. Evan Kodra on our risk analytics team has some really great products or has helped drive some really great products that are helping to measure climate risk in the municipal bond market, as well as helping companies through this geoanalyzer tool to determine what the physical risks are for various locations that they have, which is an important input to climate reporting.
Josh King:
As you are taking on this assignment for ICE and advancing the mission of ESG at ICE, is there sort of a community, you've mentioned some of the folks inside the business, but whether it's in Chicago, Atlanta, or really around the world that you've gotten to know, best practices that you share with them, that they share with you, is there sort of a community of officers in this space that y'all learn from?
Brookly McLaughlin:
Yeah, absolutely. And I think that's kind of one of the interesting things about ESG in this field is there are several people who have been doing it for many years, for decades even. We're lucky to have a couple of those folks here at ICE, but there are a lot more that are relatively new to it that have been picking it up over the past few years, whether they're in sustainability roles, whether they're in investor relation roles, corporate secretary roles, legal roles. And I think what that's led to is a really great community of people that are very willing to help each other, very incentivized to share best practices.
And when you look at these issues, so many of them are not a zero sum game, right? There may be some competitive advantages here and there, but for the most part, we're all in this together. I mean, if you look at the climate challenges we have, we are in the same boat and trying to get to the same place. So I think that has led to a very open community and here at the NYSE, it's a great example of that. Some of the forums and working groups that we have bringing issuers together, bringing issuers together with investors, there's just been a really great willingness to work together.
Josh King:
It's still a new discipline in a lot of ways. As ESG moves from sort of this idea that can stretch back 20, 25 years into practical actions today, how has that changed the type of questions that companies are asking their own ESG teams? And you could talk about the questions that you get asked and the questions that you help other companies try to answer for their senior management or boards when they come down the pike.
Brookly McLaughlin:
Yeah. I think one of the ways that I think about it, and I think that every company probably struggles a little bit with this tension or getting the right balance is there are a lot of forces out there who are asking companies almost do a box-checking exercise and tick off a large number of items on it. Whether it's a rating survey or questionnaire, it could be two or three or four or 500 things that you're asked to say, do you do this, do you do that. And that's an important exercise.
At the same time, companies have to think about what they're doing on sustainability, just like they would any other critical part of their strategy and really take a look at what is it that's most important to our business, where is it that we think we can really move the needle, and focus on those and do a really good job reporting on those, do a good job of showing your progress, setting your KPIs. And I think those two things are really driving a lot of what sustainability officers are working through.
Josh King:
So now I'm taking a step back and thinking about your experience. Growing up in Iowa, were you sensitive to some of these issues? Was it on your radar screen?
Brookly McLaughlin:
Gosh, I would like to say yes, but I don't think so. Even maybe at some very high level growing up a little bit in the country and in rural areas, I might have been a little bit more in tune to it, but no, not too often, no.
Josh King:
After you stayed in Des Moines and got your degree at Drake, you headed to Washington to work for the House Banking Committee. How did that opportunity happen and what was your introduction to the finance industry?
Brookly McLaughlin:
Yeah. You know, growing up in Iowa with the Iowa caucuses being such a big event every four years, I think there's a lot of interest in politics in general and so it was something that I had taken a really big interest in, especially toward the end of my college career. So moving to DC was very much something that I wanted to do when I graduated. At the time, the House Banking Committee was chaired by a Congressman from Iowa, Jim Leach. So through some of the campaign work I had done, I was able to connect with a couple folks and interview for an entry-level job on the committee staff.
Josh King:
Ah, the great Jim Leach. Back in the day when moderate politicians just left and right of center were the norm rather than the exception. I always thought that one of the greats was Leach, Republican of Iowa who served for 30 years on Capitol Hill from 1977 to 2007, including six years as chairman of the House Financial Services Committee. I want to listen to Representative Leach speaking at the old executive office building before my old boss, President Bill Clinton, signed the namesake Gramm–Leach–Bliley Act into law November 2nd, 1999.
Jim Leach:
Mr. President, Secretary Summers, colleagues in the House, let me just say, this is a bill that's bipartisan, bicameral, bi- in fact, tri-institutional with officials of the legislative, executive, as well as the independent regulatory branches of government working well together. Seminally, it has four key components from my perspective. One, this bill has the strongest privacy provisions ever enacted in the statute. Secondly, it is competitive. It advances competition at home and it increases our competitive ability to compete abroad in our financial services industry. Thirdly, it forestalls the mixing of commerce and banking, in fact plugs the loophole that allows some commerce and banking in this country. And finally it tilts towards rural areas and small banks by allowing much greater liquidity to be provided small business and agricultural lending.
Josh King:
Brookly, Gramm–Leach–Bliley, the culmination of decades of work by so many leaders, including Leach whose humility and bipartisan nature, you got a sense of it listening to that clip, helped nurture the bill into law and get the committee to the final vote. What did the experience of getting that act over the finish line teach you?
Brookly McLaughlin:
Yeah, so that was a really interesting time for me to start on the Hill. Like you mentioned, it was a bill that was literally decades in the making. They had had gone through several different congresses, several different iterations. My role as a very junior staffer was not material to the bill. But we, I remember sitting through hours and hours of committee markups with just dozens of amendments. My role was actually to pass around the amendments oftentimes to each of the members. But it was just fascinating to see how that played out over that length of time. And then kind of one of the other really big pieces of legislation that came through while I was at the committee still a couple years later, was Sarbanes-Oxley. And that was something that came together extremely quickly in a matter of months if not weeks in response to several of the accounting crises that had taken place. So the two of those were a really interesting contrast.
Josh King:
I mean, do you see a throughline between both of them? The process to formalize accounting standards to what's happening with the ESG reporting today?
Brookly McLaughlin:
Yeah, I think especially with Sarbanes-Oxley, if you can connect that to some of the rules that the SEC has proposed around disclosures and accountability. And when you start looking at that proposal, which is 507 pages long, there are going to be a lot of verification, internal audit, various accounting certifications that will need to be made and I think that has a lot of similarities with what was taking place in Sarbanes-Oxley and needed to happen.
Josh King:
So Brookly, with President Bush now in office, his first treasury secretary was Paul O'Neill, who came over from serving as CEO of Alcoa, that's NYSE ticker symbol AA, and he was succeeded by John Snow, the CEO of CSX corporation, which is ticker symbol CSX. Let's hear President Bush at the swearing in of Secretary Snow at the treasury building on February 7th, 2003.
George W. Bush:
In this position, John Snow will be a key advisor on the economy, will be an advocate for my administration's agenda of faster growth, more new jobs, and wider trade.
Josh King:
Brookly, you joined the treasury department that year. Not withstanding what President Bush was talking to Secretary Snow about, what were the types of things that you were working on?
Brookly McLaughlin:
I had a few different roles within the press office at treasury. My first kind of beat, if you will, was on economic policy. So I worked closely with the assistant secretary for economic policy, and we spent a lot of time, there was a lot of talk back then around reforms to the social security system, and a lot of focus at the time based on where we were in the economic cycles around the creation of jobs.
Josh King:
So not to give you a case of PTSD from 2008, but let's go back to the height of those days after Secretary Paulson is in. Here's a report from CBS News from 2008.
Speaker 9:
So in just six months, three of the five biggest independent firms on Wall Street have now disappeared. Bear Stearns, which collapsed last spring, Lehman Brothers and Merrill Lynch. Treasury secretary Henry Paulson tried to reassure investors today.
Henry Paulson:
The American people can remain confident in the soundness and the resilience of our financial system.
Speaker 9:
Paulson attempted to broker a deal to sell Lehman over the weekend but unlike the buyout deal for Bear Stearns, the government would not offer any financial guarantees.
Henry Paulson:
I never once considered that it was appropriate to put taxpayer money on the line in resolving Lehman Brothers.
Josh King:
What a weekend that was, Brookly. What are your memories of it?
Brookly McLaughlin:
Oh, it is a blur. And then yeah, I think there is a little PTSD when I hear that. I mean, there were several months where it really was quite a big blur and there were so many people that were working so hard, sleeping overnight at the treasury department to get things done. Thinking back, I do think that we really had a good team in place with Paulson and the partnership and collaboration that he had with Ben Bernanke at the Fed and Tim Geithner at the New York Fed. They really were the right folks with the right set of experiences to shepherd us through what was quite a terrible situation.
Josh King:
Secretary Paulson is probably most remembered for his efforts to steady the ship that year and for working hand-in-hand with, as you said, Bernanke and Geithner and then with the incoming Obama administration that was notable for its really cooperative transition, again, which seems like a relic from the past. But this is a very broad thinker who's always been very deeply committed to issues of the environment and conservation, as it kind of relates and crosses over into business. Let's listen to part of a conversation that Paulson had on Bloomberg Television on the economic case for biodiversity back in 2020.
Henry Paulson:
You know, one of the things that's been clear to me over many years in terms of advocating for conservation, you need to get government to act and government's not going to act without broad public support, broad business support. And to do that, you need to make the economic case. And the private sector has a lot of money that can flow into this area, but the government has to create the conditions for that capital to come in, has to create the proper incentives and financing mechanisms. So we lay out a number of those mechanisms.
Josh King:
Brookly, how did Paulson's interest in the nexus of climate and markets lead you to the Chicago Climate Exchange?
Brookly McLaughlin:
Yeah, he was obviously a very big conservationist and had a huge interest in this and especially that nexus between markets and the environment, and I certainly don't want to speak for him, but I think that he would've loved to have spent more time on that while he was in the treasury department and he was able to make a lot of really good traction on that, especially with regards to our dialogue with China. But of course, a lot of his time was taken up with the financial crisis. But he had introduced me to the Chicago Climate Exchange. They were on his radar screen and someone that he had met with so that then when I was looking for a job in Chicago, that ended up being a good fit.
Josh King:
In a recent episode of Inside the ICE House, as I mentioned in the introduction, Gordon Bennett said that the Chicago Climate Exchange was actually years ahead of the rest of the world's understanding of actually putting a price on pollution. Let's listen to the legendary Richard Sandor in a speech at Emory University in 2010 talking about the origins of the Climate Exchange which he founded 2003.
Richard Sandor:
In 1999, a woman who I had met in the '90s approached me and she was heading a foundation in Chicago and said, "We've known each other since the UN years and you've been advocating starting a market and you're talking about really implementing, not just theorizing about it and you've got a track record. Can we give you some money?" And I said, "That was an easy one, yeah." You know, how much was the next question. And she said, "Submit an R, we'll put out an RFP, or don't even put out an RFP, it's the millennium and we'll give you a special millennium grant." So she gave us $400,000 to explore a carbon market. The goal and objective at that time was very, very simple. It was to prove concept, to build institutional capabilities, to go and work with people at universities in the legal profession and accounting to build human capital so that when we implemented Kyoto, we would have a head start with the rest of the world. Okay. This was the objective.
Josh King:
A head start with the rest of the world. Brookly, tell us about Sandor's work and how it laid the foundation for ICE's current environmental markets.
Brookly McLaughlin:
Yeah, absolutely. And when I started at the climate exchange in I guess 2009, it was really a very exciting time because they had put in place this voluntary cap and trade system and had this great group of companies and municipalities and academic organizations that were participating through these voluntary commitments to decrease their emissions over a set timeframe. At that time kind of leading up to the 2008 election, there was a period where both McCain on the Republican side and Obama on the Democrat side were making comments supportive of some type of a federal climate policy or cap and trade program. So I think there was a lot of hope that that was something that was going to move regardless of how the election resulted.
It didn't, obviously and we're several years later and there's still no federal cap and trade system, but there are a couple very large regional cap and trade systems in the U.S. and then of course in Europe and in UK and other places. So I think a lot of, I absolutely agree with Gordon that CCX was in a lot of ways ahead of its time, but all of that groundwork they did and the experience that they provided to those that participated. The other part of the Chicago Climate Exchange business of course is around the futures markets and the secondary market around these various cap and trade systems, government programs, renewable energy programs and that is something that ICE has over the past 10, 12 years just invested in and really helped grow.
Josh King:
What was it like working for Richard?
Brookly McLaughlin:
Oh, it was great. He really is inspirational, is a big thinker and was able to really drive some big ideas.
Josh King:
After the break, Brookly McLaughlin, ICE's vice president for corporate affairs and sustainability and I are going to discuss how ESG underlies all aspects of her job from employee engagement to being a resource for New York Stock Exchange-listed companies to supporting the ICE board's decisions around sustainability and governance and that's all coming up right after this.
Narrator:
And now a word from Stellantis, NYSE ticker STLA.
Speaker 13:
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Josh King:
Welcome back. Before the break, I was talking to Brookly McLaughlin, ICE's vice president for corporate affairs and sustainability about the development of ESG as a discipline and her career path that led her from the Midwest all the way to Washington DC and back again to Chicago. Brookly in 2010, ICE acquired the Climate Exchange. I think the agreed-upon price was about $600 million after partnering with them for a bunch of years. I mean, at the time, ICE's founder, chairman and CEO, Jeff Sprecher said, I'm going to quote him from the news release., "The leadership that Climate Exchange has shown in establishing market standards in Europe and increasingly in the U.S. and Asia has driven its success and we see continued growth opportunities within these nascent markets globally." But at the time, was it a surprise and how well did you know the ICE team that was coming in?
Brookly McLaughlin:
Yeah. And I had only been with the Chicago Climate Exchange for I think less than a year before ICE acquired them and so I was relatively new to the space and had not been in a role where I was engaging with the ICE team a whole lot. So it was a fun experience for me. I think one of the things that was really great about bringing what the Climate Exchange was doing in the environmental markets together with where ICE had traditionally had its focus in the energy markets, is that it put together in kind of one market ecosystem this broad range of energy price discovery.
And you really, as we're making these transitions as we're moving toward net zero, that price discovery across the full spectrum of energy is really important. It is going to play or does play an important part in helping market participants navigate from various fossil fuels to cleaner sources of energy. And you know, you can see that play out very much as you think about the interplay between coal and natural gas prices and the decisions that companies are able to make with that information in order to take those steps. So I think bringing together that environmental piece that Chicago Climate Exchange was doing with ICE's traditional footprint in energy was really critical.
Josh King:
What was your first role then once the acquisition was done, your first role with ICE, and how did your responsibilities evolve as the company really has continued to grow through acquisition and organically as well?
Brookly McLaughlin:
Yeah. My first role was in communications. You know, I could be off a little bit on this, but I want to say that ICE had less than 2,000 employees back then. A much smaller geographic footprint. We were really still mostly focused on the futures and exchanges, exchanges and clearinghouses parts of the business in fewer asset classes than we are today, and to look back at how the company has changed over that time, it's incredible.
Josh King:
Well, so many people at ICE including yourself wear several hats. You oversee two major functions that at first glance, might not seem to have much in common. In addition to your ESG responsibilities, you run the company's employee engagement and development programs. How do you see them fitting together?
Brookly McLaughlin:
Seems like that would be two very distinct jobs but if you think about it, kind of put it on a Venn diagram, there's really a lot of overlap there. For a company like ICE, one of our big focuses under the umbrella of ESG or sustainability is human capital management. That is if you kind of break that down, those are issues around diversity, employee engagement, employee development, career development. And so being able to kind of weave those pieces together, I think is really, really helpful.
Josh King:
Employee development, part of human capital management, of course, which is one of the focus areas for ICE. Can you take us through the steps that you took to survey stakeholders to guide what ICE should focus on?
Brookly McLaughlin:
We conducted what's often called a materiality analysis or a sustainability assessment and it's a practice that companies go through every two to three years most commonly. And it's you reach out to your stakeholders, so that's your investors, your customers, your vendors, your communities, your employees, to really determine what they think the biggest risks and opportunities are for your company. And you kind of align them on a heat map-type chart with what the business feels are the biggest risks and opportunities and really use that to kind of set out your strategy and make sure that you're focusing on the most critical pieces. So we've gone through that exercise and human capital, certainly one of the top issues, so certain risk management areas and then climate, of course.
Josh King:
Some of the audience that might be listening to this conversation could be working for companies just embarking on creating an ESG governance structure. If they're listening to this as a how-to guide, what do you think needs to happen after you gather those findings from your stakeholders and distill it all into the actionable goals to ensure that the company can track, report, and respond to what you learn?
Brookly McLaughlin:
I'm going to, I'm going to steal a line from our colleague Brian Matt. You really want to think about that the results of your materiality analysis as the table of contents for your corporate responsibility reporting or your sustainability reporting. Take those top issues and make sure that's what you're focusing on in your reporting, in your disclosures, in setting any KPIs and go from there.
Josh King:
Speaking of reporting, ICE has just issued its ESG annual report, something it's done since 2015. And in addition, ICE also produced its second sustainability accounting standards board annual report and its inaugural task force on climate-related financial disclosures report. Brookly, that's a lot of reporting that you have to do. Why does a company need to report these separately and who's the audience for each of them?
Brookly McLaughlin:
Yeah, yeah. A lot of reporting and a lot of acronyms. I think the ESG space might have some of the worst abuse of acronyms out there. You know, I think this is an area that needs to and will evolve in the coming years and I think you will see some consolidation around the different reporting strategies and it's really, it's underway and taking place and I think will be helpful both for the companies that are creating these reports as well as the investors and other stakeholders who are consuming them.
Task force for climate-related financial disclosures is a framework that grew out of some work that really going back to the G20 and international regulators had teed up to help get companies reporting climate data in a somewhat consistent, uniform way. I think there's work going on now by the ISSB, to throw out another acronym, which is part of the IFRS that will put some more detail around what those will look like. SASB is also going through a process of streamlining and consolidating with other reporting frameworks.
They took a different tack and they set out to kind of lay out what they think the most important items were for every different sector and sub-sector. So rather than having one reporting framework, SASB created I think it's 77 different frameworks down to a pretty specific level and they ask for each of those subsectors to report on those maybe 10 or 15 things that really investors determined were most material or are critical for those types of companies. So I think as this all evolves and some of these come together, there will be some efficiencies to be gained.
Josh King:
So how does a company like ICE synthesize the dozens of standards that are asked for by industry groups, by governments, and other organizations? I mean, you have all sorts of requests coming into you. How do you manage and prioritize?
Brookly McLaughlin:
Yeah. I mean, it's something that we're dealing with on a daily basis and really trying to figure out. And that's why I think there's a lot of opportunities and I'm excited for some of these kind of workflow solutions that are going to come out. But yeah, we look at each of them and just really try to make an assessment around which of various ratings or assessments or surveys or questionnaires most of our stakeholders are focused on and prioritize that way.
Josh King:
Give us a taste of some of these workflow solutions that are coming down the pike.
Brookly McLaughlin:
One interesting piece is the ESG data products that we have here at ICE and one thing that I think is really helpful for me and others in my role is the ability to look at what your peers are doing, look at what others and whether your sector or other sectors are doing to help measure where you are and what some of those best practices are.
Josh King:
So let's dive specifically into one issue, climate, and how a company like ICE looks at it. You've got to be looking at it I'm sure through a couple different prisms and a couple different buckets.
Brookly McLaughlin:
Yeah, absolutely. We really look at it in kind of three different areas. One is the impact that we as a business through our operations have on the climate and making sure that we're taking the right steps to basically clean up after ourselves. To mitigate that, to reduce our emissions, purchasing of renewable energy and other steps, carbon credits, to offset the impact that we're having on the environment.
The second bucket is really the flip side of that. If you think about what are the risks of climate change to our business, both physical and transitional. And we talk a lot about that in our task force for climate-related financial disclosures reporting and assess those.
And then the third area really is around the opportunities that we have through our sustainability products and services to help the broader community of companies and clients that we work with and make a difference there. And that's going to be our environmental markets, the renewable energy, the cap and trade programs that we're supporting, it's the price discovery that we're providing across that energy spectrum. It's going to be our data and analytics products which are helping investors to make more sustainable decisions, and it's the support that we're able to provide to companies through our NYSE community, the sharing of best practices and resources there.
Josh King:
As you're working with your colleagues at ICE to determine the company's own environmental footprint, you mentioned that at the beginning of the answer to the last question, I'm curious what you see, what gets produced for you, what do they say about basically the environmental exhaust that a financial services company like ICE throws out? If you think about three companies that are headquartered in the Atlanta area, I mean, there's Delta Airlines, burns a lot of jet fuel. There's Home Depot, huge real estate footprint, a lot of packaging. And then there's ICE, financial services firm. What kind of exhaust do we really throw out and how do you view that?
Brookly McLaughlin:
Yeah, so relative to companies like those or other factory-based companies, our footprint's relatively small. However, everybody's got to do their part and so it's important that we focus on it. You know, when you talk about emissions, there are three scopes. Scope one, scope two, scope three. Scope one are your direct emissions and those tend to be more around manufacturing type emissions that are created. Our scope one emissions are pretty small.
Scope two emissions are basically the electricity that you're consuming off of the grid for any of your offices, for data centers. For example for us, we've been able to take steps to either purchase renewable energy or renewable energy certificates to green that piece of it. And then the third one is scope three and that's if you think about kind of what's upstream and downstream of your company. Your supply chain, the emissions associated with all the products that we buy and sell, and those are the hardest to calculate. A lot of companies are kind of working through what the best ways to do that, that's where I think we're going to have to see some additional workflow solutions. But for us, those are really probably the biggest categories.
Josh King:
Through the New York Stock Exchange, how is ICE multiplying its impact on best practices and advocacy for sensible policy?
Brookly McLaughlin:
We have through multiple ways. Most recently we've created something called the NYSE sustainability advisory council, which is a group of very veteran sustainability folks at some large companies who are coming together to look at ways that we can both advocate for policies that result in better information for everyone, as well as share the best practices, share a lot of what they have learned over the years.
Josh King:
So on the matter of policy, Brookly, the last area of focus for ICE's ESG efforts is risk management, which in some ways was low hanging fruit, as it was core to the company's principles already. How have you formalized what we could call just good business practices into a discipline?
Brookly McLaughlin:
The issues for us, at least as a company, are ones that we've been quite focused on probably long before anybody was calling them quote unquote ESG. And if you think about things like cybersecurity or information data protection, if you think about business continuity and disaster recovery efforts, if you think about just this strong ethical foundation that we have had to create through various compliance policies and testing in order to protect the integrity of the global markets we operate, those are things that have really been at the core of what we do for many, many years and it's more that they're just kind of following under this ESG umbrella now and certain frameworks.
Josh King:
So coming back full circle then from the beginning of our conversation, I mentioned that McKinsey report on ESG that just came out. The report doesn't shy away, Brookly, from ESG's critics. So the authors note, and I'm going to quote them here, "Detractors complain ESG is often just public relations cover rather than true corporate belief where greenwashing is employed to profit off of unwitting, environmentally and socially conscious investors." I know you, Brookly. You have a very highly tuned radar for greenwashing, don't you?
Brookly McLaughlin:
Yeah, absolutely. I don't think any company ever wants to be accused of greenwashing and there are certainly cases out there where people have probably pushed the envelope too far and gotten into trouble by overstating something. I think we tend to be very conservative in what we say and how we talk about what we're doing, because we don't ever want to get out over our skis and even inadvertently overstate anything that we're doing. So we try to be very factual.
Josh King:
So on the other side, Brookly, ultimately the McKinsey report does conclude that regardless of the turbulence surrounding its specific components, ESG's underpinnings and what they call the social license adherence to them, are going to remain important for companies far into the future. The last lines of the report conclude as follows, I'm going to quote it. "We believe that the importance of the underlying ideas has not peaked. Indeed, the imperative for companies to earn their social license appears to be rising. Companies have to approach externalities as a core strategic challenge, not only to help future-proof their organizations but to deliver meaningful impact over the long term." Is that a fair summary of where things stand?
Brookly McLaughlin:
Yeah, I agree. I think there is, the Economist recently had a special issue on ESG where they took a very hard and honest look at some of what's not working, some of the inherent problems in the system today. But I think that it's also a very nuanced view of how we need to fix it and the importance of making it work. Of making the tweaks, making the changes, making the workflows and the various deficiencies, because it's just too important not to.
Josh King:
As we wrap up, what's your outlook for ESG and do you think companies are on track to meet the level of reporting needed to track it?
Brookly McLaughlin:
I think they're on track. I think that in some cases the goalpost keeps moving and so it's hard to keep up. I think there are a lot of redundant reporting requirements in the system. In the coming years, that's going to start streamlining and working itself out but in the meantime, a lot of this is really in early days still and there's some growing pains that we're working through. But like I mentioned earlier, I think it's important that we, as we're kind of making this shift from just understanding what needs to be done and why it needs to be done to okay, so how are we going to do it? What do we need to get in place? What are the solutions? You know, I think that's going to be an important turning point.
Josh King:
The challenges notwithstanding, what are you most excited about in ESG in the years and decades to come?
Brookly McLaughlin:
I mean, just the opportunities there obviously are huge to make a very important and real difference. And I mean, I think it's fun to be in an area that is still rapidly evolving because every single day I'm learning something new. While it can be overwhelming, I think that's really what makes the work fun.
Josh King:
That's what makes the work fun. Thanks so much for joining us Inside the ICE House.
Brookly McLaughlin:
Thanks for having me.
Josh King:
That's our conversation for this week. Our guest was Brookly McLaughlin, ICE's vice president for corporate affairs and sustainability. If you like what you heard, please rate us on iTunes so other folks know where to find us and if you've got a comment or a question you'd like one of our experts to tackle on a future show like Brookly and ESG, email us at [email protected] or tweet at us @ICEHousePodcast. Our show is produced by Pete Asch with engineering and production assistance from Ken Abel and Ian Wolf. I'm Josh King, your host, signing off from the Library of the New York Stock Exchange. Thanks for listening. Talk to you next week.
Narrator:
The information contained in this podcast was obtained in part from publicly available sources and not independently verified. Neither ICE nor its affiliates make any representations or warranties expressed or implied as to the accuracy or completeness of the information and do not sponsor, approve, or endorse any of the content herein, all of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell, a solicitation of an offer to buy any security or a recommendation of any security or trading practice. Some portions of the preceding conversation may have been edited for the purpose of length or clarity.