2023 and Beyond: Geopolitics and ESG
A Conversation Between Christopher P. Skroupa, Skytop Editor-in-Chief, and Ron Rock, CEO & Co-Founder, Microshare / November 30, 2022
Ron Rock co-founded Microshare in 2013 and has been CEO since then. He brings three decades of experience as a bridge builder between new technology strategies and legacy enterprises. He was most recently the founder and CEO of Knowledge Rules, an international business process management (BPM) technology company that was sold to Accenture in 2010.
Prior to founding Knowledge Rules, Ron held several senior leadership positions at Pegasystems (NASDAQ: PEGA), Advanta Corporation and Kelly Services.
Born and based in Philadelphia, Ron has sat as a director on both public and private boards serving on multiple committees including Audit, Governance, Technology and Investment. He most recently served on the board of Philadelphia Insurance Companies (NASDAQ: PHLY). Ron earned a Bachelor of Science in Accounting from LaSalle University in Philadelphia PA. He has deep ties to the technology and venture capital sectors in the United States and Europe and is active in philanthropic pursuits in his native city.
Christopher Skroupa: Thank you so much for working with us into 2023. I’m excited about some of the things we’re doing. I was putting together some of the amazing things that we have discussed. Ironically, I was trying to time- release our last Q&A but the more I waited the more conditions changed in Europe and around the world, and the more things seemed like there was a gap in your comments if compared to current events. So, let’s revisit our discussion and update our readers with your thoughts in real time.
My first question is, from your perspective, if you were to take a snapshot of the world today versus where it was 6 months ago, what do you think, do you think that anything is different in ESG or are the events we’re facing today not necessarily going to impact or pause the advancement of ESG?
Ron Rock: That’s interesting and, boy, has it been a crazy 6 or 8 months. The first is absolutely in North America, the United States specifically, ESG is scarily slipping to a nice-to-have from a must-have just twelve months ago. In Europe, that’s not the case at all. We’re seeing very strong demand. I just spent the last two weeks in Germany and Switzerland and it is as important as ever because they’re closer to Ukraine. They’re experiencing day-to-day their natural resources going away. And Germany is in a real tough spot, having decommissioned most of their nuclear power plants, not having enough wind energy to go around. So, despite all of that, they’re still seeming to be committed to ESG. In the U.S., I’m seeing a softening in importance. The other thing that’s significant is that with rising interest rates, much faster of an acceleration than I think most of us thought, we’re seeing a big downturn in tech. We’re seeing big layoffs in tech. The results are that a lot of your ESG product development initiatives are slowing down. It’s the perfect storm. Customer demand is kind of softening and tech firms are running out of liquid capital to drive innovation.
Christopher: And do you believe that’s one of the causes for the recent bevy of layoffs happening in the tech space?
Ron: I think the reason for layoffs is overall lack of demand, or softening of demand, for what they’re doing and rising interest rates and the tightening of access to capital.
Christopher: That’s interesting. We recently ran, in Stockholm, our conference on ESG impact, of which you were a proud sponsor. To share some context with you, when I put the agenda out, and I started recruiting asset allocators and fund managers, I was getting emails back saying geopolitics and ESG.
In Europe there seems to be a determination to drive forward on ESG, even though we are living in some uncertain times. Why do you think that ESG is persisting in Western Europe, where we may not be experiencing it the same way here in the U.S.? I would imagine that if you were in Poland, given the recent missile attacks, or if you were in a Western European country, it seems like there conditions that factor differently. But I am surprised to see that you experience that ESG isn’t slowing down.
Ron: So, with the colleagues I was with in Frankfurt this past week, they were telling me how some of the once every hundred- year floods hit Germany like three times in the past twelve months. Forget about saving the planet. How about just renewable energy? Europe has always paid three times what the U.S has paid for energy. They’re very keen and educated at a cultural level– turn the lights out, turn the thermostat down– it’s a very different lifestyle. And I’m going back now thirty years on that.
I think that with the whole foundation, you talk to a European in these countries about ESG sustainability, clean energy and renewable energy, it’s been part of their DNA for three decades, so you’re not going to undermine that with a blip in whatever the geopolitical or economic trends may be. That being said, also just to respond to your comment, I think a lot of these portfolio managers are in the middle of a reckoning that they’ve never done probably in their professional career.
Typically, big pension funds, institutional investing, have a large position in commercial real estate. Why? It’s always been predictable. You ride the appreciation curve. You ride the cash flow curve. It’s been an A+ investment. But because of COVID-19, and now, because of regulations coming in, different in every city, country and region in the world, your real estate portfolio is in jeopardy.
It’s in jeopardy with the predicted cash flow. It’s in jeopardy with its appreciation over ten. If I had a real estate portfolio, I can look at ESG as another hit through my bottom line –putting that part of my portfolio is a risk. Or I can look at ESG as a competitive advantage, because I’m going to get higher rent, whatever it may be. But the ability for these fund managers to just phone it in on the real estate portfolio portion of their investment, that just went away.
I wouldn’t be surprised if half the portfolio managers you spoke to had that “deer in the headlights” look. Half would say, “Oh yeah, that has nothing to do with it.” And the other half would respond, “Wow, it’s interesting you brought this up right now because of the palpable downturn in performance.”
Christopher: All the years I’ve been going to Europe, you walk into a lobby and the auto light clicks on, you walk out, it clicks off. How elevators are operated. It’s everything about using the energy you need and not the energy you waste. I was thinking about the Russian sanctions and I’m throwing a question out there. When Zara and other companies like McDonald’s issued sanctions against Russia, closed their stores, and unemployed people, the first thing I thought about was shareholder concerns about rate of return or share price. So, what I thought was fascinating was how that might play out on the earnings calls going forward. You know, how does that affect McDonald’s balance sheet? Are there losses that need to be written off because of an action that seems to be, in my opinion, falling into the “S” in ESG. What are your thoughts on that?
Ron: That’s interesting too. I was very fortunate to be in Western Europe while a midterm election was going on as well, so everybody wanted to talk to me. And the surprise to me I guess, surprise superficially, when you think about it, you start to appreciate it, the number of Germans that are now siding with Russia or at least against stringent sanctions.
And that’s all be because they are now paying for sanctions out of their own pocket. There were parts of Germany that were limiting the amount of hot water you consume because they’re into winter and they don’t have the reliable energy sources to get it. You can trace that back to a badly risk-tested decision to rely so heavily on Russian natural gas in the first place. But what voters there and elsewhere care about now is the implications for their household or corporate bottom line.
To your question, yes, we believe in motherhood and apple pie until it hits our pocket book, and that’s as true in Germany as it is in the USA. When it gets past root causes suddenly people are willing to put a lot of those values to the side. It’s easy for an American to complain about such attitudes, but Western Europe is paying a much steeper price for what is going on globally than the United States.
By the way, let’s discuss people’s 401K’s. Guess what they have a lot of? Real estate in their portfolio. Investors don’t even think about its performance until now because they’re not going to see the returns that we’ve seen in the last 5 to 7 years. All of this is likely to be a conversation.
Christopher: At some point, Putin may very well win the PR war because the question is, “Is it really worth Germany freezing for Ukraine?” How do you see this relating to the concept of social responsibility from a corporate perspective? Do you feel that if you look across the European landscape that companies are still in a position that Putin may end up being the path of least resistance to getting out of the ditch ?
Ron: I think with Europeans, again, it goes back to their core DNA. Social responsibility is part of who they are. It’s obvious in every government in Western Europe. It’s obvious how they take care of their population, integrated healthcare, the way that they think about time off for maternity. All of that is core, and I don’t see that shaking. People can isolate all of their social values and put them in one bucket and be very specific about an economic challenge about natural gas.
And what’s the best way to get that? Nobody’s jumping on Putin’s side.
What they’re doing is asking, “How can we accelerate the end of this conflict to get back to stable times?” Let’s just say that when Ukraine gets resolved in whatever fashion, how long is it before Western Europe is reengaged with Russia? Have they just killed their credibility for the next decade? Or is this something that within one or two quarters they piece together another relationship, and again, the gas starts flowing?
Christopher What is interesting is I believe that ESG is inextricably embedded inside of geopolitics and I am curious to learn if companies can feel that it’s a separate threat. ESG and geopolitics go together. Do you agree or disagree with that?
Ron: I agree.
Christopher: I appreciate your time today Ron.
Ron: I enjoyed the conversation. It’s all very timely.
