Will Bachman 00:01
Hello and welcome to Unleashed the show that explores how to thrive as an independent professional Unleashed is produced by Umbrex, which connects you with the world’s top independent management consultants. I’m your host Will Bachman and I’m here today with Indra Neel gauche, who was in the New York office of McKinsey when I was there, we, we didn’t do a lot of work together. But we we crossed paths and knew each other. So it’s great to reconnect. Andrew Neil now is the CEO of Tiger Hill capital. And he’s also the author of a set up powering prosperity, a citizens guide to shaping the 21st century. Indra. Neil, welcome to the show. Well, thank you for that introduction. Well, it’s great to be on the show. So enjoy. Neil, let’s start with a little bit about tell us a little bit about your background. And what led you to write this book?
Indranil Ghosh 00:53
Sure. Well, I’ve had quite a diverse career Actually, I started off as a research scientist, I did my PhD in chemical engineering at MIT. And I’ve always maintained that love of science and technology, and a grad school, I became interested in finance and economics. And really, the commercial commercialization of technology was, was something that really grabbed me, especially since it was so much of that going on at MIT. And still is, of course, so when it came to join the real world, I, you know, pursued a career in business. In the early days, it was quite a traditional path. As you mentioned, I worked at McKinsey. And I went on to work at a hedge fund, Bridgewater associates, which is just up the road in Connecticut. But these days, I’ve really ended up being totally focused on sustainable investing and supporting impact entrepreneurs and companies trying to pursue sustainability strategies. And I think the transformation really came about when I worked as the head of strategy at mubadala between 2010 and 2012. And then those three years, it was amazing to be at a an intriguing sovereign wealth fund in Abu Dhabi, whose mandate was not just to invest and make money, but to diversify the economy of that entire country, away from oil and gas and into industrial and knowledge based sectors. And the model was to do that by incubating new businesses that produced all this socio economic benefit. And so that’s how I really got into double bottom line investing and business building. And this was at a time when, you know, most people didn’t understand what the term double bottom line meant. So maybe a bit of an advantage,
Will Bachman 02:36
and maybe explain it to us in case you guess I don’t understand what it means.
Indranil Ghosh 02:43
Sure, well, double bottom line simply means that in addition to making financial returns on a business that are equal or greater than what the market would demand, you also take great stock in trying to identify ways to add benefit to society, which could be on a number of different dimensions, it could be job creation, or high wage job creation, it could be improving social services, like health care and education, it could be improving environment. So these days, a lot of people go talk about this in the context of ESG. But I think double bottom line is a sort of broader context of not just an accounting system for looking at these additional benefits, but really thinking about how you’re going to have impact in society, in the community, through business enterprise. And I think this has become a lot more mainstream now. Then, you know, when I was doing it in a bottle of 10 years ago, and there’s a lot of interest by fine in terms of entrepreneurs who are thinking about building businesses that are scalable, and can really tackle some of the big challenges of our time, like climate change, and the inequality gap, and so on. And increasingly, I think investors are coming around to try to support those businesses. And that’s where, you know, at Tiger Hill capital, that’s where we sit trying to at the interface of those types of entrepreneurs and the capital, of progressive capital that wants to support them.
Will Bachman 04:22
So when you when you do that with your Tiger Hill capital, how do investors balance or do they need to those two bottom lines? So are they kind of explicitly willing to trade off a certain level of financial performance in order to achieve some social goals? Or are they, you know, aspiring, that they can all kind of both maximize financial performance? And also, you know, in correlation with achieving social goals? How do you think about how do you have those discussions with investors
Indranil Ghosh 05:01
Well, 10 years ago, I think things were somewhat different from what they are now. 10 years ago, you’d often hear people talking about this trade off. And of course, they still do. But in those days, you know, I think there was some real physical challenges if you’d like. So, if, for example, you have $100 billion portfolio, and you wanted to deploy that into assets, which could help mitigate the effects of human induced climate change, well, 10 years ago, wind and solar energy, renewable energy, wasn’t that grid parity. So you’d be looking around for assets, which had been somehow subsidized by government to make the returns work. And similarly, if you looked in other spheres, you know, trying to make an impact on education and health care, sometimes the digital technology hadn’t caught up, or simply the awareness of these things, so that businesses and social systems could be changed to enable new ways of doing things were much less available. So people would be investors would be working really hard to find enough deals, to make it a big enough part of their portfolio, for it to make a difference to the portfolio or in terms of impact. Now, fast forward 10 years, many parts of the world, you know, renewable energy is actually cheaper than fossil fuels, although, but all prices the way they are now. That’s, you know, changing dynamic. But, you know, the fact is, as with many material things, the the unit cost of production continues to go down for these renewable technologies. And there’s, you know, much, much more capital you can deploy, to make a good return, as well as, you know, having pretty large scalable impact. And over the years, I’ve seen that, you know, sector after sector, there have been many more opportunities to deploy capital, whether it’s in things like food production, or you know, other industrial areas, or in social areas like education, healthcare, where you can deploy capital to do good. And by doing good, you actually improve the economics of the industry and your business. So I think, you know, the maturity of this whole space has grown and will continue to grow, to make it much less of a trade off and much more that, you know, just doing something sustainable makes both financial and non financial sense. Okay,
Will Bachman 07:33
I recently had Karolina Miranda on the show who talked about B certification. So we recently touched on that. Beyond that, are there other types of certifications that help alert you to a company that’s pursuing a double bottom line strategy? Are there other formal ways for companies to you know, establish that as a, as a corporate objective?
Indranil Ghosh 08:03
Well, I’m not really an expert on in terms of company structure in that sense, but, you know, the kind of indicators I look for are things like whether the company is able to reduce energy costs, which is usually a huge generator or carbon, or reduce the amount of material or moved to an alternative material that consumes a lot of lot less energy or, you know, is somehow avoid the use of some sort of harmful extractive methods to get their materials. I look at, you know, business models that can inherently be located because of what they are, and, you know, less populated in densely populated urban areas, because a lot of small towns and rural areas have been depopulated over the years, and D industrialized, and have been left behind. So it’s quite important that we don’t let them wither and die, but somehow find a way to reinvest in them, bring new businesses there and revitalize them, firstly, to alleviate pressure on cities, but also to rebuild these communities. So there are a lot of metrics like this, that, you know, I think, as a good impact investor, you can look for, to identify businesses that, you know, really move the needle financially and in terms of societal benefits.
Will Bachman 09:29
So let’s turn to your book. So powering prosperity. What are some of the ways that you talk about on how citizens can shape the 21st century?
Indranil Ghosh 09:42
Sure, you know, just a quick word on how I came about writing this book. So it’s been a long time in the making in the formulation probably goes back to my time at Bridgewater when I first started looking at some long term macro and mega trends and began to realize that We’re gonna go through a big economic transition. And we’re going to come to a fork in the road, a crossroads in history, if you like. And, you know, I think that transition is is really honest, it’s over the next 30 years, the world will become aged, lower carbon, an AI augmented industry, China and India will be new superpowers. And we’re going to see a lot more of these disease outbreaks and climate change events, systemic risks, that causes disruptions. Now, the problem in dealing with all of this is that this the working age population is dwindling, at least in most developed countries. Therefore, the tax base, you know, gets smaller. And it’s really difficult for governments to continue to fund the kind of Social Security liabilities that we’ve become used to, as well as taking care of these myriad of crisis response provisions that they’ll need to put in. And, you know, at the same time, jobs are under threat threat from automation and economic shocks and foreign competition. And somehow, we have to invest in transforming this sort of carbon intensive production models to something that’s lower carbon. Now, that involves a huge amount of sustainable development investments, which is I can go through the numbers a bit later is way beyond, you know, what public investment or public expenditure can afford. It means that there’s needs to be a change in the social contract and and some of our key institutions to make sure we’re a lot more exclusive, inclusive, to all parts of society and enable more people to go to work and participate. And, you know, the benefits of an economy. And we have to empower local communities, to thrive in a globally connected world and not just get sort of leached out by uncontrolled sort of economy. And so I think what citizens can do, you know, in their different roles in society, is realize you know, how much power they actually have, whether it’s, as a voter as a school principal, as if you happen to be in public office, or as a business executive or an investor, there are lots of choices you can make, in terms of what you spend your money on, who you vote for, how you invest, and what kind of companies and projects you support, and what you do in your local community, that can make a huge difference in whether, you know, we go down a more progressive fork in the path, and, you know, become a more sustainable society, or we continue to lurch from crisis crisis, and just remain in denial. So the book is really, you know, about laying out, you know, the framework for this, and how how you can think about some of the challenges ahead and what you can do about it.
Will Bachman 12:55
Okay, give us some examples. I mean, I think we can kind of intuitively, you know, understand voting, you can vote for, you know, maybe politicians that are going to have a more environmentally respectful, you know, that agenda, environmentally focused agenda. In terms of spending, we can choose to focus on more environmentally friendly products, maybe not travel so much or, or, you know, get carbon offsets when we fly, but but talk through some of the maybe less obvious choices that we can make that can help shape the 21st century.
Indranil Ghosh 13:33
Sure. So I think one of the big realizations I had when I was researching the book is that if you look at the real cost of things over the last 30 years or so, you know, manufactured goods, like electronics, and cars, and real terms have gotten much cheaper, so many more people can afford them. But actually, social services like the cost of housing, education, health care, child care, elderly care, this is all gone up quite dramatically. So fewer people can actually afford them, particularly in dense, urban, expensive places. So I think this is the observation that stuff has got cheaper, but life has gotten more expensive. And so when you hear, you know, the the refrain of the millennial generation, for example, that, you know, life isn’t as good as it was for the for their parents. This is, you know, a generation that saying the opposite of what was said before, which is regeneration, things get better. And I think this is a big driver of that. Now, what can we do about this? Well, the reason why, you know, many of these things have gotten more expensive, is let’s take housing for example, a large part of it is to do with zoning. So not in my backyard. And, you know, the lack of transport infrastructure, for example, that might allow people who live you know, in a nearby town, which lives Today is 2030 miles away, because of the lack of public infill rapid infrastructure, transport infrastructure, they can’t get to work, this tends to increase the cost of housing, particularly in densely populated populated areas, and prices out, segments of the community have to move out. And it’s harder and harder for them to find, find the jobs that actually do exist. Right. So in terms of zoning, and supporting and investing in public infrastructure, public transport infrastructure, in particular, there’s a lot we can do in terms of influencing our politicians, and also thinking a bit outside of our own selfish interest in terms of, you know, maybe allowing that development to go up, you know, in our neighborhood that can, you know, create a lot more housing for people who need to be need to be there. You know, similarly, when you think about the education and the healthcare system, the basic education system, particularly, I mean, it’s really not changed much since the 1930s, the 1930s and early 20th century, basically, still mostly a model of absorbing knowledge and regurgitating it, and doesn’t really lead to a job ready, people. And if we’re living in a world where, you know, for a period Anyway, there are going to be a lot more elderly people. And so the number of working age tax paying people is lower, then people need to start being productive earlier, and work longer. Now, this requires, you know, new business models or new models of education that can help get your job ready much earlier, and without debt. So that you can get ahead in the economic ladder sooner, it requires probably sort of a public private form of social security, where you can save in some sort of a life account and have contributions from government and your employer to top that up and be able to withdraw from that account. So that you can fund retraining and relocation to jobs, which you’ll have to do several times in your career. And it involves probably having a larger savings pool for your retirement, which could have been helped by having, you know, more of a organized and mandatory savings, savings requirements for retirement, which is what many countries like Denmark and Australia do very successfully. So in terms of, you know, the financial industry making, working with governments to make these types of financial products available, in terms of businesses coming up with better educational models, there’s a lot of things that we can do just in this one area, to really unlock some of the problems that we’re going to face otherwise, in terms of, you know, basically just running out of money to provide the social services people need to be able to go to work.
Will Bachman 18:05
Yeah, that’s kind of a grim picture. What are what are some of the changes in key institutions, you mentioned earlier, that we’re gonna have to see some changes and constitutions say a bit more about that?
Indranil Ghosh 18:19
Well, just talk about a couple. I mean, if you look from the 1970s, when Milton Friedman started talking about shareholder primacy, prior to that, there wasn’t really an obsession with the shareholders of the only stakeholder in the company, and maximizing returns to that. One stakeholder is what business is all about. There was much more of a balanced approach to thinking about workers and other stakeholders. And in countries like Germany, that probably remained the case, to a large extent, over the years, but, you know, the sole focus on shareholder primacy, as I think, you know, taking the eye off the ball of the longer term investments and the bigger corporate responsibilities that exist towards the welfare of workers. wealth, I mean, the responsibility to building up communities with longer term investments in r&d, which may be done through investments in local universities and colleges, which then help to create more young businesses coming out of those universities help to attract younger people help that community. I mean, there are whole cycles of positive, positive virtuous cycles, that the right corporate actions can kick off. If there’s a greater awareness and understanding that then these benefits society come back to help the economy as a whole but also help the company itself in terms of, you know, giving it a larger pool of talent to draw upon or richer, wealthier countries. He wants to buy their product. So I think one of the institutions that we really need to look at is corporate governance. And what is, you know, modern stakeholder approach to corporate governance look like. And, of course, we saw some of the thinking around that from Elizabeth Warren, which perhaps is a little too bureaucratic, but at least was beginning to, you know, open the dialogue. On that side of things in the US. Another important institution is anti trust. Okay, so, arguably, we’ve gotten not arguably, definitely, you know, most industries have gotten much more concentrated at the top with the bigger companies having a larger market share, and probably an even larger proportion of the profit pool in the industry, to the point where in some industries like tech, I mean, it’s hard to argue sometimes that there isn’t significant market power held by the top players. And yet, there’s practically nothing that’s been done in the US anyway, a little bit more in Europe, to challenge that, and unchallenged, what that means is that profits from these larger corporations, in particular, tend to go to disproportionately to the shareholders, the asset owners, and top executive management, and less to workers. And, lo and behold, we’ve seen over the last 20 or 30 years, the proportion of profits going to workers declining steadily, and the proportion of profits to the asset owners increasing. And this is one of the reasons that has led to a growing inequality divide in economies like the US. So that’s another example of an institution that needs to be looked at again.
Will Bachman 21:54
Okay. Tell me a little bit about the coronavirus pandemic, and what you see as either the opportunities or the challenges it poses to powering prosperity?
Indranil Ghosh 22:11
Well, I think it really, in some ways, brings a lot of these issues to a head, you know, all the challenges that I’ve discussed, and many more has been simmering for some time. And, you know, you’ve seen a lot of protests around the world, whether it’s because of protests for democracy, or protests for economic justice, protests for, you know, better respect to the environment, lots of different protests, which is just an it’s been escalating over the last three or four years, which is a sign that people are discontent with the system. And, you know, certainly there’s a lot of challenges that have really been simmering. But the problem is, when you look at, you know, at least democratic societies, leadership, political leadership tend to have a four or five, six year cycle. And so there’s, there’s really not much incentive to tackle these challenges in a very aggressive way. And it’s very easy to kick the can down the road, unless those challenges come and really hit you in the face, and there’s no option but to address them. And this is why I think when you look back in history, some of the biggest changes, whether its technological or, more importantly, perhaps even social changes have been accompanied, have come on the heels of, you know, huge crisis. So things like universal suffrage or women’s, you know, entry into the labor force. These are followed big crises like the world wars, because there was no other option to give universal suffrage to all, you know, the people who’ve gone and fought in the First World War and died for the country. And when you know, women went to work in much greater numbers in the Second World War, well, that was hardly going to be rolled back, especially when they prove their equal, you know, to their male counterparts. And so, you know, in this crisis, I think, you know, we will face some of these challenges, because it’s quite a big crisis. Let’s not, you know, any under and under any illusion about that, it’s quite a big crisis. And many of these issues will come to a head. And it will be an opportunity for great innovation, particularly from the private sector, but also the public sector to try to address these these issues once and for all. But of course, as with anything, you need public support, and you need good leadership to make the right choices that we’ll see how that works out, particularly in the US. us with the upcoming elections.
Will Bachman 25:03
For a reader of your book, what are the one or two or handfuls of kind of really key points that you hope would stick with someone and, you know, maybe actions that they would do?
Indranil Ghosh 25:17
Well, I think one of the biggest concepts in the book is that Publix, you can’t rely on the public sector to do everything. And the private sector is kind of unempowered without the right measures taken by the public sector. So it’s a really a partnership. I’ll give me one example of that. So I think everybody has heard about the 17 Sustainable Development Goals now. And, you know, one of the interesting questions is, how much does is it going to cost to drive forward all these 17 goals to the levels required, and the estimates by the UN has been on the order of two and a half trillion dollars per year, for at least the next decade, that’s the funding gap. That’s not the total amount of investment required. But if you look at what’s already budgeted in government budgets, the gap is two and a half trillion a year. Now, in my book, I actually make some back of the envelope calculations, and I think it’s actually much bigger than that it’s probably at least double that $5 trillion a year. Because these calculations, don’t take into account the additional childcare, we’ll need them the housing and a few other things that really not fully accounted for, in my opinion. So let’s say 5 trillion a year of funding gap you need for at least the next 10 or 20 years. Well, the global tax base is only 25 trillion a year. But to fill that funding gap, you need to increase taxes across the board by 20%. globally. Now, clearly, that’s not going to happen, especially now that we’ve experienced this economic crisis. So where’s the solution to that? Well, the only other number that’s anywhere close to being big enough to address this challenge is, is private wealth, not public wealth, because public wealth is actually surprisingly, small public stores of wealth, are probably only in the order of a few 10s of trillions, if you take sovereign wealth funds and a few other, you know, pots of public money flying around. But private wealth globally is in excess of 200 trillion. What? Wow, 200 to 100 trillion. Wow. It’s a staggering number, right, especially when you put it in the context of some of these other numbers I’m talking about. And global consumption is 65 trillion a year out of $80 trillion of GDP. So, you know, simply put, if you start diverting a relatively small proportion, of your spending, your consumption, and you start diverting, again, a relatively small portion of private wealth, to the sustainable development, type of investments and, you know, more intelligent, sustainable corporate behavior, if you insist on that as a consumer as a as a as an investor. And if you, let’s say you’re, you know, part of a lot in charge of a large asset management for more institutional investor, if you take these capital shifts Seriously, this is really the only way to to address the Sustainable Development investment requirements. Right. So it has to be a partnership between the private sector and the public sector. And the public sector courses is incredibly important, because it’s going to set the incentives and the regulations to make those flows of capital, much more attractive, financially. So you’re not just relying on goodwill and no awareness, but you’re making it financially attractive for flows of capital to go into sustainable things through, you know, making sure that your pricing carbon properly through a carbon tax, so you’re channeling money into negative carbon industry and infrastructure, for example, that you’re maybe giving tax incentives for employers who provide training and retraining to their employees. So it’s, it’s more advantageous to do that, on the p&l statement. So there’s a lot that the public sector can do. There’s a lot that they can do in terms of seeding and structuring infrastructure investments in particular and a lot of other areas like innovation, seeding funds to help with smaller companies get off the ground, that can then crowd in private the private sector. So, to make this all work, but I think that’s one of the big takeaways from the book. And then I think, you know, practically, I think, you know, you really need to think about your life as a portfolio of roles in society that you have. Because we all have different roles in society, you know, we might be a CEO, we might be a father, you know, we might sit on the board of a nonprofit, we might sit on a school board, there are so many roles we have in society, where we really need to understand how much power and influence we really have asked ourselves the question, are we really doing enough with those opportunities, because if you can really have an impact as a school principal, in the way you are preparing youth, to be not just good students, but good citizens, and really productive, you know, critical thinkers and problem solvers that are aggressively going out and, you know, changing the world, you’re going to have an enormous multiplicative effect on society over your career. And if you think about the same thing with all the different roles you have in your life, as a parent, as a, as a CEO, as an investor, you know, these choices make a big difference. And these choices make an even bigger difference. When they happen at scale. And then when you talk about this with your, with your, with your colleagues and your friends, and you do your part to change awareness and attitudes.
Will Bachman 31:33
Fantastic. Any, any parting thoughts for us, in general, any, any other takeaways?
Indranil Ghosh 31:42
Well, I think one takeaway is, technology is a great thing. And it is a big enabler of a lot of the kinds of changes we’re envisioning. But by itself, it’s neutral. It’s all about how we use technology. So I think it’s very important to you be cognizant of that and be thinking about how to use technology with with the right outcomes in mind. And trying to anticipate as much possible as possible, some of the negative second and third order effects that somehow come along with new technologies and, and modifying the approach quickly. But I think, you know, digital technologies have the potential to be a great leveler, because if people in the remotest Least Developed parts of the world, can now get on the internet and, you know, basically have access to infinite knowledge. And, you know, increasingly, you don’t have access to financial products have access to a lot of other things. I think the future is really bright in terms of what digital technologies can do. But they can also be used for digital repression by the wrong sorts of governments. And, you know, they can create stress if you’re looking at a computer screen for too long. So we have to think really make the most of the technology that we have. And I’m not just talking about digital, that’s one but all the different technologies that are coming through, but we have to really look at them through an ethical and philosophical lens to make sure that, you know, we’re making good choices in society as to how to use them in the right way. So I think that’s one of the parting thought that’s explored in the book, and is an important one for us to think about.
Will Bachman 33:36
So Andrew, Neil, for any listeners that wanted to learn more and follow up with you want to give any website or Twitter handle or best ways for people to find you online.
Indranil Ghosh 33:49
Sure, you can find about what we do at Tiger Hill, my firm at Tiger Hill capital.com. You can find out more about the book at powering hyphen, prosperity, calm that’s powering hyphen, prosperity, calm. And of course, if you you’re interested in these things, please go to Amazon and you can buy the book. It’s been about a week and it’s it’s it’s selling very well actually. So
Will Bachman 34:16
congratulations support the project. All right. And do nail Hey, thanks so much for being on the show. Thank you. Well, it’s always a pleasure.