Tom Gosling was a partner at PwC, and an advisor to boards around executive pay and incentives, governance, and strategy. He's currently an Executive Fellow at London Business School and helps steer the work of the purposeful company collaboration.

Tom speaks about the benefits of purpose and the risk of corporate puff. We touch on audit reform and the challenges of regulation. We discuss the importance of democractic process and the role of government compared to the role of business. We underrate/overate carbon taxes, diversity targets, Milton Friedman and financial incentives.

On a personal note, we talk about the challenges of achieving a personal netzero, the joys of singing and the importance of understanding what makes you happy. Tom Gosling’s website.

There is a special guest cameo appearance in the video (pictured).

It's a fascinating conversation on many currently debated topics. Listen here or read the transcript below.

Transcript:

Benjamin [00:00:02]: Hello everyone, I am super excited to introduce Tom Gosling. Tom was a partner at PwC, and an advisor to boards around executive pay and incentives, governance, and strategy. He's currently an Executive Fellow at London Business School and helps steer the work of the purposeful company collaboration. He has recently hosted his podcast, the grow the pie podcast at London Business School, and is advising people as a financial and executive coach. I should say this is an informal educational podcast, and we're not endorsed by or speaking for any of the organizations we are associated with. So welcome, Tom.

Tom Gosling [00:00:38] Ben, it's a delight to be here. Thanks for inviting me.

Benjamin [00:00:41]: Great, we just get straight into it. So, purpose. Critics argue that corporate purpose is mostly PR and path and good messaging, and doesn't mean anything. Whereas proponents might claim that this is the sustainable way to long-term wealth, and welfare, and value creation. What's your current thinking around this given all of the work you've done with a purposeful company and the purpose tapes that you guys have just recently put out?

Tom Gosling [00:01:10]: Well, I think sadly, it's probably true that on the whole, currently, purpose does a little bit of fall into your sort of PR marketing bucket. But that's not sort of the best vision for what it can be. And on one hand, I think, the purpose is pretty simple. I think you've organization loses touch with what they're here to do and the benefit that they provide to society, they're unlikely to be successful. So, on a very simple level, purpose provides a sort of a guide to organizations creating long-term value. So, I don't think that purpose is just guff, but at the same time, I don't think the purpose is the answer to all the world's problems, I think sometimes purpose advocates can sort of a little bit overclaim for what purpose can do. But I just think clearly about what you're doing for your customers, the impacts that you have on your stakeholders, why you exist in the world, has just got to be a good thing for running a great business. And I think if you look at a lot of great businesses, they've got that strong sense of what they're here to do at the core of everything that they do.

Benjamin [00:02:13]: And did you have any particular learnings from these purpose tapes, which have just gone out any sort of reflections to go, that was a new thing, or I didn't get that?

Tom Gosling [00:02:22]: Yes. So, there's one interesting thing, I think, which is not quite all, but the vast majority of the CEOs interviewed say that they don't see any conflict at all between being purposeful, and value creation. And I find this kind of quite fascinating. I am sort of slightly skeptical about it because I think that there are trade-offs. But the risk is a really strong conviction that they all have that actually; this is not an either-or discussion. This is about the route to how we create long-term values. And I think there's quite a lot in that, although, we can get carried away by it. Because at the end of the day, there are trade-offs. I can choose to pay my employees more or retain more in profits in the business. I sort of have that sort of decision every day, particularly when you come to issues like the environment, there are still externalities that companies can take advantage of, if they want to create money, at least over the short term.

But I think it was very interesting, the extent to which almost all of these leaders were kind of committed to this idea that there wasn't a tradeoff. I think the second interesting thing is that quite a common theme that came out from both investors and companies that we spoke to, was that there's something not quite working in the dialogue between the two, around purpose. And companies are sort of saying that investors don't get it. They just ask about the short-term numbers the whole time. But then the investors say, well, actually, the company's just serving up all this PR guff, that doesn't have anything to do with the business or long-term value. So, a few investors and companies are talking across each other at the moment. And certainly, one of the things that in the personal company we're interested in looking at a little bit more this year is how can we improve that sense of shared understanding about corporate purposes? And I'm sure you'll have a perspective on that challenge from your day job hat.

Benjamin [00:04:20]: Yes, you see that a little bit within reporting, which I'm sure you'll touch upon, where you end up with a lot of reporting, which is on the one hand, kind of material. So, for instance, you could talk about currency risk. That's a kind of material risk to a business or commodity price. But actually, typically is not that interesting a risk for investors is almost like a boilerplate risk. And so, you've got this cross purpose where you're kind of going, yes, under any sort of framework. It's kind of material, but it's not of material interest to investors over the long term. And essentially, that's just one example of where you get this light. Well, it's useful to know where your purpose statement is, say healthcare companies typically have one about saving or improving human lives. But it's not kind of materially interesting unless we know how exactly you are achieving that through whatever mechanisms you go.

And so, I think that's where a part of the confusion is, as well as the fact that investors, which we make a market, we're a very mixed group, heterozygous as we would think, is much more mixed than potentially companies or other people realize. It kind of brings me on actually to another question, which is an offshoot of this, which is that I guess one framework is you have companies, you have people, stakeholders, you have NGOs and other organizations, and you have a government. And I guess the lines seem to be blurred between what our government responsibilities, what our corporate responsibilities, what our investor in people and other stakeholders, but that you can see this between the company piece, the government piece, and the investor piece. And one theory I hear, which I think there's some credence towards is that increasingly, policy or say, governments have pushed some aspects of what may be previously we would think would be in government or policy remit onto companies and an investor.

So, it's like, well, the government's not going to have a real policy around carbon on net zero, but we're going to expect individuals and companies to all do it. And that would be great. So, I was kind of interesting, in maybe the cross-section of purpose, do you feel there's been this blurring between, say, government responsibilities, and corporate or investor and other stakeholders? And should we be doing anything about that? And therefore, do we feel some sympathy, for companies, investors who are being potentially asked to take on responsibilities, which you could argue maybe they're not best well suited for or if they are suited for are then they don't have them, say, the democratic mandate to do something, which should be through a government mechanism?

Tom Gosling [00:07:13]: So, I think we've got the next 20 minutes of our conversation pointed out here. You've raised so many fascinating issues in that question. And I'm just going to start by connecting back a little bit to the previous comment around this sort of lack of meeting of minds within investors and companies around purpose and your comment on materiality because I think that there is this sort of confusion, or at least mixed views about what purpose is, and is there to do, so some people think that purpose is about companies just being nice to everybody. And therefore, understanding all of their potential stakeholder impacts, mitigating negative stakeholder impacts, and so on. And that's where some of this kind of pressure around the kind of social responsibilities coming on to companies comes in.

And I'll maybe come back to that because I think the thing that a lot of articulations of purpose miss, which is what caused the investors problem with it, is how does this purpose help and support the organization in creating value over the long term? And I think that's where the purpose needs to start. And quite often, what you find is that purpose statement, just try to pick out the good bits that a company does. And it's almost like sort of buying indulgences from the church in the Middle Ages, you know, you do all of this sort of terrible stuff over here, but then you've got your purpose over here, that kind of makes it all okay. Whereas actually, I think the few companies that do purpose well have a very deep understanding of how it links into that value creation process. And I think Freddie Wolf at Jupiter, but for his master's thesis, he did a review of all of the purpose statements of footsie companies. And I can't remember the exact numbers, but about 10% of them made any reference to strategy or value, so they sort of sit in as this sort of abstract thing.

And I think this is in part in response kind of coming on to the question you just asked to this pressure that corporates feel under to be sort of fulfilling kind of societal goals. And I think we need to be quite careful about this. We need corporates to be acting in a way that is consistent with the sort of societal expectations of the time. But also, we need corporations and investors to focus on what they're good at. And to your point, what they have the mandate to do. And I think the danger of pushing too much onto corporates is twofold. One is it distracts them from doing the stuff that they're good at, but the second is, it creates this idea that we're solving the problem, when, in some of these areas, what we need is strong government action. And I think there's a little bit of a danger that we all sort of pat ourselves on the back about this sort of wonderful, responsible business movement, when actually, it's not making a sufficient difference, if I take an issue, like climate change, for example, which is, I think quite a good case study of this.

At the moment, there's all of this kind of push for investors and corporates to be taking the action on climate change. A couple of real problems with that, one is, it's just not going to have a big enough impact, we might sort of bend the curve by 10%, or something through this sort of thing. But the only way we're going to reverse it is by getting proper regulation, decisions like banning internal combustion engines, carbon pricing, all of these kinds of things are what's going to create the environment where investors and companies can do what they're good at, which is to optimize scarce resources. And I think the way that we're trying to do it, number one, this whole issue around climate change is fundamentally an optimization problem, and you can't do it at the company level, you have to do it at the system level. But I think also, this point about democratic accountability is important because there are going to be winners and losers. And if you're an investor or aboard, he's deciding, for example, let's say you got coal mining, coal mine is an asset.

Now, every coal mine should be kind of shut as soon as possible. We should just not be pulling this stuff out of the ground anymore. But then you say, well, you put yourself in the position of the company or its investors. So, if they shut the coal mine, that harms their beneficiaries, so that imposes the costs on them. But actually, it also harms the community where the coal mine sits. And so, what is their legitimacy for making that decision? Now, you could say, well, if all of their investors gang up and tell them, well, we don't want to own coal mines anymore, we want you all to shut them and we're prepared to pay the cost. I suppose that at least solves that problem. But you then still got the problem of the community on the receiving end being told by all of these shareholders who are on a weighted basis, rather wealthy people, telling them that they can't have their livelihood anymore.

So, I think that we are starting to expect a little bit too much from responsible business. And if we think that pushing this political decision-making into the realm of corporates is going to somehow appease people who are frustrated about capitalism, I'm not sure that's true. And I guess one final point on this as well, boards when they're thinking about what it means to be quite responsible, have in mind a particular target demographic, whether it's their customer base or their investor base. And that is not democratically representative. So, there are just loads of problems here, I think we need to sort of pull back a little bit from this notion that business solves all these problems.

Benjamin [00:13:06]: And it can kind of give governments a sort of free pass. They managed to push it on. We've got the pike on, it's going to end for one second, and we will restart.

Tom Gosling [00:13:23]: I love the way it just appeared out of the virtual background. That's an amazing trick.

Benjamin [00:13:31]: So, you've been a trusted advisor within the boardroom of a vast number of some of the largest corporations in the world. And my impression is that most boards are well-meaning, but actually, we can see they still make mistakes in their decision-making need advice, I'd be interested, can you give me your impressions of what it is like working with non-execs, we don't get a glimpse into what happens in the boardroom. And I think, this is one of the problems on the democratic accountability part that we were talking about, because boards don't have that same sort of political decision, but are making some of these so as a trusted advisor, can you give a little insight as to what it is like working with these non-execs? Are they as well-meaning as they seem?

Tom Gosling [00:14:14]: So, I would say that definitely, board members are well-meaning, I think that this idea of the sort of, greedy avaricious board members just trying to exploit stakeholders for gain, it just hasn't been my experience. But what is also interesting is that ultimately, they're just people sitting in a room. And we sometimes sort of think of somehow these boards being omniscient and having all of these amazing sources of information, and they do have incredible resources. But ultimately, they are making decisions based on limited information, and therefore, as you say, they can make mistakes and as with everybody, they are Riven by all of the limitations that we have as humans. And I think one of the other things that people maybe don't always acknowledge is boards and non-executive. So, it's executive teams that run companies, boards don't run companies. And again, I think that's a little bit dangerous about assuming too much of boards, and what boards are capable of doing, they do play a role of a sort of challenging executive as opposed to getting into the weeds of running the company.

But I do think that on the whole, you've got high-quality people doing these jobs. I do think, however, that there is sort of limitations in terms of the amount of time that they have available to spend, they're very dependent on what the executive presents to them, executives can quite successfully keep control of boards, I think, and board members, only spend whatever it is 30 days a year on the business of their company. So, again, I don't think we should be too ambitious for what we think they're going to do. I think the other issue as well is that on the whole, boards don't terribly like being in a state of perpetual conflict, either. And so, the number of times in which a board is prepared to go toe to toe with the executive is kind of limited, as well. So, there are sort of inevitably flawed human institutions, but they are having you’re on the hole, good intent, even if the execution isn't always perfect.

Benjamin [00:16:52]: Yes, I'm reflecting what you say, people, I speak to who aren't involved in the investment world are surprised how little investors speak to boards. So, that has its pros and cons. But it relates to your first point that they speak to management a lot because management is running companies. But there is a kind of aphorism that we sometimes adhere to or think about is that sometimes CEOs choose boards, and sometimes boards choose CEOs. So, we know there is a kind of board you capture by management teams if you want to call it that because they are meant to be supportive. But to what extent you've had constructive challenges on that.

Tom Gosling [00:17:33]: I think also Ben, that, that there are also, certain CEOs who were the board's kind of in all of them, and I can think of cases where they've been CEOs of large companies, who sort of looked around the board table, you can tell they're thinking, you've never had a job as big as my job. And so, what do you think you're doing, telling me what to do? And sometimes you can see that the execs are somewhat in all of the CEO, and say that the whole question of board dynamics is a fascinating one. And I guess it is sort of human nature, in that boards tend to be kind of in one of two states, they're either hugely supportive of the CEO, or they're trying to get rid of them. And there aren't that many boards who can maintain a sort of perpetual state of constructive tension, because it's quite difficult and tiring and wearing to do that. So, you do seem to see this sort of flip-flopping that goes on a little bit, and then suddenly, the CEO is fired, and they move on to the next person that they think is a hero.

Benjamin [00:18:49]: Actually, that's a similar observation on when you have a more activist investor or an activist who's gone on the board, it tends not to last forever and ever, because it's very draining on both sides. And you kind of have to resolve one way, or the other on seeming who's right or not. So, maybe squaring back on that last thing, I'll point what we said about the responsibility of boards to close this off is, to what extent do you think companies should be dipping into some of the arguments on inequality or not, because this kind of ticks into pay ratios and fairness and all of these things, which is have underlying importance for stakeholders, whether that's employees or within that, but again, there's this seem to be a lot of emphasis pushing onto companies to deal with potential things of inequality.

Whereas I know there are some proponents within sort of the economic sphere, which say, well, the best way to do that on a systematic point is to enable proper transfers within the system, either via tax or benefits or however, the politics has decided to do that rather than to be enabled to do that within a company structure or outside of company sites, sportsmen or women how they should be paid. And I know you've done some work on pay ratios, kind of suggesting that it's too much of a blunt tool. So, I'd be interested in where you think, again, on the lines of responsibility for boards on this, and to what extent that should flow into pay ratio or fairness kind of thinking?

Tom Gosling [00:20:26]: Yes, this is interesting, isn't it? If you look at kind of root causes of inequality, then you'd have to say that corporations are kind of coming at it a little bit late in the day in the sense that a lot of it is built around early life, education, upbringing, health, housing, diet, parent, there's a whole bunch of stuff where corporations can't do a lot about it, frankly, and a lot of the issues that arise around inequality has to be the preserve of government action to kind of get anywhere with it. Having said that I do think that corporations can play their role and in perhaps, addressing, or at least, helping not to exacerbate some of the inequalities that society has thrown up. And I think that things like, a focus on, for example, social mobility, racial equality, gender equality, I think if corporations don't think about those issues at all, then all of the sorts of embedded mechanisms of advantage that Western society just get perpetuated through the way corporations work as well.

So, I think the work that we've seen, for example, on, trying to place less emphasis on prior grades in recruitment processes, and all of these kinds of things that are done, I think a useful way in which corporations can help address these issues. And to some degree, they have a self-interest in doing that, to the extent that it enables access to wider talent pools and avoids talent being overlooked. I think where we need to be a little bit careful is in expecting organizations to stray into areas that go way beyond their commercial self-interest, in less we're going to kind of have a democratic framework that pushes them to do that. So, let's say, for example, so I'm all in favor of the government doing work around having good labor laws. And worker protections. And I think that's the sort of thing, that's an essential role of the government. Now, let's move that into the corporate sphere. And we know that there's some evidence that companies that treat their workers will end up doing better financially.

But there's going to be a limit to that. So, then the question is, should companies treat their workers better if no law requires them to do it? And no kind of governance code requires them to do it? And it's not going to make them any better off? And again, I think we come back to this point about legitimacy, because if a company spends money doing that, and it doesn't make them any better off, it's their shareholders that have paid for it. And so, what's the legitimacy behind that decision? And I don't think we can just sort of entirely brush that under the carpet. And that's where I think there needs to be some discipline around this decision-making. And I quite like Alex Edmund's criteria on this around, if you're going to get into that sort of stuff, is it aligned with your purpose? So, is it part of the consistent story or telling the outside world about why you exist? Do you have a unique capability to do that, that another organization doesn't have? Are you going to make a massive impact on the people that you're doing it for? But I think that just sort of willy nilly, I don't think organizations are there to just willy nilly be nice to people, I suppose.

Benjamin [00:24:33]: Yes. And so, you end up where the Coinbase CEO recently said, saying, we're going to stay out of politics as a company, although very interestingly, actually has a lot of relationships and work with regulators, which would suggest that it is not but, when you're in a space, say as crypto exchange, you would expect that as a key stakeholder who is interested in that so it's kind of interesting that, that would deal with one's purpose if one wants to do that. That actually kind of brings us on to some of the government's things, I'm thinking audit reform, I'm also thinking TCFD, to some extent. So, on order reform, I guess proponents are suggesting we need separation of audit from large firms because there have been conflicts of interest and quality of audit has not been that high in certain areas, we've had fraud.

We've had issues with companies going bankrupt. On the other hand, you have people suggesting that separation is not going to necessarily improve audit quality when certain companies fail, it's healthy for them to fail because it's perhaps a failure of the business model and corporate culture, you might have problems of audit quality if they're not supported by enough pay. Bayes and FRC are currently consulting on this. Do you have any thoughts on any aspects of audit reform that you think is perhaps not as well understood as we should think about?

Tom Gosling [00:26:10]: Yes, so I've got a couple of observations on the base replacement. So, one of the things that I think is interesting is this whole area of audit policy and giving investors a vote on audit policy. And, again, I think that could be useful. I think if there's an area where there's a problematic company, and investors want to come together to try to bring about change that could provide a useful focus, so that, but again, I worry a little bit about kind of pushing too much of this responsibility on onto investors, as opposed to reminding everybody that it's the audit committees responsibility kind of really oversee this stuff.

So again, we could get the law of unintended consequences there and efforts to sort of drag investors into areas where maybe they're not the best equipped to do it. When it comes to the audit reforms themselves, it's very difficult to know what to do about this, because I'm not convinced that their proposals on audit separation are going to make a lot of difference. After all, my experience working in a big four firm was that, this pressure to compromise the audit to win fees elsewhere. I just never saw any evidence of that at all.

Benjamin [00:27:24]: Because generally, people are well, meaning.

Tom Gosling [00:27:26]: Yes, but also very concerned about reputation, and I had situations before it became prohibited under the rules, I did special projects on remuneration for audit clients. And I had CEOs complaining about my work to the chair of the firm, and I was always backed up and there was always this idea that actually, you have to be even more independent in your advice to an auditor, because our reputations on the line here, so I don't buy that premise that, that is what's at the root of the audit quality issue. Having said that, I think it's undeniable that there are more needs to be done, there have been too many cases, I think, where audits haven't quite worked out. And I think that there's something here where we gradually just sort of chipped away at the status of the audit, the purpose of the audit has become more technical. I sort of feel that the stature of the audit partners isn't quite what it was, in terms of the extent to which they had a seat at the boardroom table, rather than just sort of pitching up every once in a while, to an audit committee. Maybe we're not paying enough for the audit.

I don't know, but there is a sort of a cost-benefit trade-off. Because if we want every audit to be a real-time forensic audit, all of the forensic investigations of every company in the footsie, no way are going to cost us a lot of money. So, I suppose what I come back to on this is, you look back in time, and you say, with the benefit of hindsight, should regulators have let PW and Cooper's merge. That was probably the one that in an ideal world, you wouldn't have done that so that when Andersen failed, you'd still have five, not four. But I think also, there is something about the aggressiveness of the regulation. So, you don't want to create a fear culture. But I think when they're bad audit failures, fines and sanctions have to be enough to [inaudible 29:36] and you don't want to be going after small infringements. But when you've just had grotesque failures of oversight, you just think actually, you got to send a message that that's not acceptable. So, probably, if I was going to make any change, it wouldn't be a structural one to the market, it would just be to give the regulator a bigger stick in the first instance.

Benjamin [00:30:03]: Which I think the part of the reforms will do that. Thinking then about reporting burdens in general, everyone is seemingly going around the route of TCFDs, this is the Task Force on climate-related disclosures. Critics would say this is an added cost. And that critic would also argue that perhaps for a whole bunch of companies and even for the financial system itself in the short term, there is no acute risk from climate. Yes, there's a transition risk. Yes, there's a long-term, yes, there's a systemic problem. But this requires the burden of this scenario analysis, which you can poke holes from so an economist like John Cochrane would be arguing on that.

On the flip side, you've got another body of work, which suggests that transparency, particularly on material areas, are very useful for investors very useful for organizing operation in terms of where cash flows are going, and may even impact the cost of the capital cost of debt, or cost of equity. And to the extent that you have systemic issues, or in fact, maybe now central banking mandates have some climate within them, at least within the UK, then that would be a useful area. So, I'd be interested, do you have any views on I guess, overall reporting, but we can see this through the lens of the climate-related reporting that everyone has been asked to think about now.

Tom Gosling [00:31:33]: Yes, it's interesting, I think that on the whole, climate-related reporting is a good thing. And I suspect that we'll see it develop quite a lot further from TCFD as well. And the reason I think it's a good thing is that, well, number one, climate change is an important issue. But also, I think it's difficult for investors to do some of the analysis that's required to understand all of the impacts that climate change has on a company. And I think you were making this point in the seminar you gave just the other day. And so, I think requiring companies to make some of that analysis available to investors in a structured way, I think makes a lot of sense, for an issue that is going to be so important, not just for society, but for so many companies. Now, you could argue we're spreading the net a little bit wide, because there are some companies for whom this is neither a material issue nor do they have a material impact on the issue for society.

So, you could argue that maybe we could have picked sort of 400 companies or something, there are the ones that we want to do this, I guess you then get into the problem of what exactly how do you do that? And select those companies, but it might be interesting, I suppose, if there were any sort of sense of global regulation around this issue, as you have for financial firms, why shouldn't you have globally systemic climate firms in a way that you have globally systemic financial firms? And we know that, so for example, climate action 100 plus has sort of come up with that list. And actually, then you might impose a higher reporting standard around climate on those firms. And actually, that seems broadly a sensible thing to do. I'm just not quite sure in practice, how you align that with the current way that regulations are organized kind of globally? Quite hard to do well, that's an interesting idea.

But where I have some sympathy around with John Cochran's position. Is that climate is an important issue. And therefore, there's this temptation that we want everybody to do everything they can to address this issue of climate change. But then you need to look at it well, who are the people best equipped to do it? And do they have a democratic mandate to do it? And I think the big issue and difference between what's happening in the US and the UK, is it in the UK, the inclusion of climate change within the mandate for the financial regulators did follow do the democratic process because the Chancellor has the ability under our laws to just say whatever he wants them to have as their kind of key areas. But that at least is our democratic process. I think the suspicion in the US is that there's this sort of move to paint climate as being this sort of immediate kind of financial stability issue, which kind of probably isn't.

But it's being portrayed as that to kind of shoehorn it in under the Feds mandate because there's no chance in hell of them formally changing the Feds mandate through Congress. So, that then brings us back to this political kind of legitimacy point and it's kind of a tough one. But I do think that on the one hand, it's good for the kind of corporates and regulators to sort of lead the witness a little bit on climate change. But if you become too far detached from something that you think you could get support for politically, you potentially create a bigger problem down the line. And ultimately, our goal particularly given all of these sorts of tinkering changes around governance responsible business, the role of the Fed, aren't going to do any more than just sort of shift their trajectory of the curve. At some point, we've got to face up to the fact that if we're going to address climate change, we need political support for some pretty drastic action. And we can't keep kicking that can down the road.

Benjamin [00:35:47]: Yes, I think that's true. This is a theme actually on this chat, which has been very interesting about the democratic process, particularly in the US, particularly where you have got suspicions over whether certain things are being shoehorned or not. And I do think it's interesting how you think the regulator slide is being relatively slow to understand, for instance, global financial services and their lending book, and how that might play into climate. Something which actually, TCFD maybe slightly sparked as a sort of realization, but practitioners sort of knew always, but then also the balancing of the stakeholders being, too far away, as you say, if you're going to finance a new coal mining, in Wales, and you've been asked to do that, you're not going to necessarily have to take into account. Well, what's the wealthy community do or do not within that finance efficiently?

Tom Gosling [00:36:48]: I think that's an interesting one there, Ben, as you can see, this role of banks and financing, so there is various sort of pressure points around responsible investing, which is a very sort of trendy area at the moment, but on the whole, I think, sustainable equity investing, the evidence suggests that there's sort of slightly second-order impacts on some of this stuff, but that financing can be first order. And when you have a relatively small number of institutions at the heart of a vast proportion of global debt financing on pretty much anything of scale, that is a channel where you could make life difficult for dirty activities, people wanting to finance new coal projects are now significantly constrained in where they can go if they don't have direct government backing to do that.

Benjamin [00:37:41]: Yes. And for listeners, for instance, you could look at what's happened to HSBC, and a shareholder engagement there in terms of their lending, but financing for some of the debates around about that. So, a slight pivot to the personal but keeping with the climate theme is gone. We both went on a kind of climate net-zero Jurnee. ourselves, partly, I think, for my insights has given me a real insight into how difficult it will be, or is for companies with this government piece. And I didn't fly at all last year, actually, no, I did in the early part. But if I take the March to March, and I think I've got my carbon footprint, down to only around eight. Now, the average in the UK is about 12.

A global, I think is four or five, but I was kind of hoping that I could get it lower than eight. But actually, I'm probably not, I can maybe do one or two extra things on a delaying consumption basis stuff, I don't buy new clothes or new computers. But the embodied things about living in the UK and just using UK goods and services. Just existing here means kind of, unless you're living very frugally, you're pretty much at five or six, just living an ordinary life. So, I thought it was quite interesting. But maybe you want to tell us a little bit about your learnings from a net-zero journey personally, and how you found that, and then where you are maybe a couple of tips or whatever you'd like to observe on it.

Tom Gosling [00:39:17]: Yes, it's been a lot of fun. And I've learned a lot from it. And I've been on this journey for about two years now. And I do know there are pluses and minuses to say it's very educational going through the process of actually trying to figure out what your carbon footprint is and where it comes from. But surprisingly difficult to do. It takes a lot of work. But it does kind of come down to a few big-ticket items that to some degree can stop you sort of stressing about kind of really minor stuff that sort of mastered the second order. And you're right. Absolutely can number one for a rich Westerner is how much do you fly? In terms of the incremental difference, you can make it to your carbon footprint. That's like a massive one. The one that was a real eye-opener to me was diet.

Diet is often a quarter of our carbon footprint. And, if you're prepared to go vegetarian, you can take an axe to that in quite a material way. And one of the things if I look back on this year, no flying, that's a big tip for the carbon footprint, we've slightly relaxed on the vegetarianism. And that's partly been through having kind of kids at home the whole time, he wants his keen vegetarians, and how many meals you prepared to cook and all of this kind of stuff. But that's one that I want to sort of push on a little bit more. And the other one I've been grappling with, which comes back to your sort of government policy point is home energy. So, I've been trying to say we've got solar panels, we use a green energy provider, who I think has a credible case for saying that, if not zero-carbon, it's much lower carbon than normal electricity. So, I wanted to move to put an air source heat pump in as a supplement to the boiler, I haven't quite got the guts to get rid of the boiler altogether yet, but the idea would be heating is 80% of what you use hemorrhaging for. And I could do that all through the air source heat pump. But goodness me it's complicated to do...

Benjamin [00:41:37]: I think it's expensive like 10 to 20,000 pounga. So, if you are not [renovating] already.

Tom Gosling [00:41:42]: It's massively expensive. You did, there are some government grants. And if you believe that they will possess them, they reduce the costs. But they're also, practicalities about the space you need for the additional units that you've got to put in, you need quite a large sort of air conditioner unit, you can't put it within one meter of your neighbor, so that means that we can't put it down the side of the house, we'd have to put it at the back of the house. Finding suppliers who can just sort of look at all of this stuff in a timely fashion is very difficult at the moment. So, I've been struggling with this for about a year, I'm still hoping to get it done, this year is one of my sort of carbon reduction objectives for this year. But actually, you then look at it and I'm sort of doing it because I'm thinking, Well, I'm an early adopter, and I just kind of do it, for the sake of it. But the cost per ton of carbon that I'll reduce will be enormous from doing this. And this sort of takes us back to some of this earlier debate, which is individual actions, whether it's by companies or individuals just aren't going to solve this issue, we need to put in place the incentives that drive the economy, towards labeling.

Benjamin [00:42:59]: And if you look at heating, as an example, as a kind of tricky area, whether you're going to go heat exchange, potentially you go moonshots say hydrogen or something like that, you look at it, and you go, that's going to need government intervention, or policy only if you looking at all that housing stuff. And actually, some places like Australia might be able to do it with solar, you could see a pathway for it. Potentially, maybe with a nudge to market leader, but within the UK it seems to me that you're going to need that and you do get payback over a long period. But the upfront is so large, you can't expect the vast majority of people to be there.

But yes, and maybe for listeners, we can put some numbers on it if you think these numbers are about right. So, if the average is around 12 this is tons of carbon a year. I think going veggie saves you about one to two tons a year, that order of magnitude a flight is about a ton long so flight to sort of New York so you will come back can be about two tons. Depending on your car, a car change can be about a ton as well if you stop using your car and just go cycling that could be a ton two times but very impractical for most people. And then heating is again about a ton to two pounds depending on where that is, I think. But on the veggie thing I think if you just go meat-free one day, that's still about a quarter of a turn a quarter to half a ton.

Tom Gosling [00:44:34]: Well and also cutting out red meat if you stick to [vegatables], that's a massive one as well. The car one fascinated me, and I think we are going to go electric later this year, probably. My daughter's currently kind of learning in a manual car. So, we're just sort of waiting till she passes and then we might change it. But it is quite finely balanced, because not only is it sort of in the embedded carbon cost of the car that you have, but also, I did some an analysis based on kind of new car registrations, and so on, which seems to suggest to me that if you sell a car and buy a new one, only a quarter of that car that you sold gets written off. In effect, point seven, five of the cars are added to the stock of cars, and it gets driven about four or 5000 miles. So, there is something about how you're feeding the market for car usage if you're prepared to just crush your car. So, if you're prepared to no longer walk, I'm just going to crush it and put it in the ground, then maybe it's a stronger case for changing to it.

Benjamin [00:45:45]: Yes, it is finely balanced. So, [Cross-talking, Berners-Lee book] the books that we refer to, I think he calculates that most cars, you should run until the end of life before changing, but actually on heating. Again, there are so many ifs and buts for the average. But if you've got a normal of your normal standard gas boiler, because there's not so much embedded material you should buy an embodied in the car, there's quite a lot.

Tom Gosling [00:46:11]: But also, when you get rid of the gas boiler, you are effectively crushing it. You're not creating incremental boiler demand by doing that. But there is another thing that we always have to think about here as well, which is around market signaling as well because there is something about, governments tend to be quite cautious about regulation. And this is another area where I'm a fan of responsible businesses just pushing the envelope a little bit because there is this concept of shifting the Overton window, you know, I mean, so if lots of people experiment in this area, it creates a condition where it becomes easier to regulate. So, I don't think it's right, just to say, we're going to wait for regulation and not do anything.

Benjamin [00:46:52]: No, I think I completely agree. And that's why people like you and me who are in a position to move that I think that there is a little bit of we're interested in work. And I think that's one of the reasons why Gretta is so powerful because she's so obviously living what she's doing, whereas you have some celebrities who, I think it's kind of fine, but they will fly over to New York to do protests or whatever, and raise money. But Gretta would go that's too inconsistent, I would only ever get there...So, it just leaves an extra sort of level of like, you kind of feel like on the margin, the celebrity still doing what's convenient. Whereas, the powerful logic where Gretta is, is that there's no compromise because it doesn't seem consistent, which I think that authentic resonance goes down.

Tom Gosling [00:47:41]: So, Ben, here's something I'd love to get your view on. So, I think I've concluded, so I always used to offset my emissions. So, whatever it was, for the year, I'd offset them and allowing for sort of leakiness of offsets I used to offset four times my emissions, I think are now concluding that all of these offset programs and potentially so problematic and leaky, that I'd be better off spending the money just on direct efforts to reduce my footprint and signaling initiatives, even though in principle, they're much less efficient. But I don't know what your view is on offsetting. And I haven't yet made this decision, but it's something I'm grappling with at the moment about whether I'm just wasting money on offsets.

Benjamin [00:48:30]: So, I think if you're in a position and the best thing to do, would be essential, to plant your trees. So, rather than outsource to some of these third parties, or we're not too sure, you can actually either find a garden or a project or even a little bit of woodland in the UK, like sort of arrow and then actually simply plant some trees. And I think it's something like every 50 trees is about a ton. And okay, it's a lot more than a $40 cost of carbon and that, but it's in the order of maybe a couple of 1000. And then you can nurture them. Or you can find essentially direct giving projects, which aren't so much a first-order offset where they're trying to go okay, tree management, which we know is a difficult thing to sort of maybe audit, but it's something much more direct, like saying, giving education to girls in Africa or better cookware and pots or things like that.

Although it's slightly harder to calculate the first-order impact, although they do that, too. They can offset, you know where the trend that you're doing systemic good that way. I do think the first one where you actually and this you're saying, it's a direct project, and again, the signal is, it's a lot easier to do, at least it okay, so small scale a direct positive impact directly to an organization or community that you're involved in, particularly if you're only actually offsetting, 10 tons of carbon, you can find those projects locally and maybe come on to this, you with your applied math can very easily say, well, this order of magnitude is I've offset that with new.

Tom Gosling [00:50:24]: But the additionality, such a problem, though, isn't it Ben? Particularly now that everybody's within the Paris Climate Agreement. So, a lot of these projects just get absorbed in the government. [Inaudible 50:39] progress is finding something that's genuinely incremental, has become so hard.

Benjamin [00:50:43]: It is hard. And I think this is why I'm making further and further bets on essentially, innovation, or some sort of innovation, which hasn't been created yet or is in the process of going created. So, that's the kind of risk-adjusted impact because some of it isn't off now, but again, for where we are, where we can maybe make these assessments and judgments, I think people can make a much more local impact than you might think. The other one actually to look at potentially is elements around food waste. Because although there are elements where yes, it is kind of happening, it feels to be one area where we have easier wins, and again, because we're kind of still at the low-hanging fruit stage, you can accelerate quite a lot on that.

Tom Gosling [00:51:30]: [Cross-talking 51:31] on food waste.

Benjamin [00:51:33]: Yes. So, very big. It's very win-win it's up about somewhere, like 25% to a third, somewhere like the UK is wasted on the end table, and we have still had some in the supply chain area. So again, if you're looking for a sort of focused area, that's something I would think about. Great. So, I have plenty more questions so, I sort of see we're coming up to a little bit of time, so maybe another 5 10 minutes if that's cool with you. I thought maybe a short game of overrated underrated, you can pass or you can do a quick one. This is I guess, hat tip, Tyler Cowen, but there are a few others who do this. So, we'll do that and then talk about a couple of personal things as well and then end up things. So, just a few ones. So, overrated underrated. We'll do some tricky ones first, carbon tax.

Tom Gosling [00:52:33]: Underrated.

Benjamin [00:52:34]: Underrated. So, that's because if we need to do it, it's a thing to help price markets.

Tom Gosling [00:52:41]: I'd rather do cap and trade I suppose [Cross-talking 52:42] sort of technical discussion in my head there about whether to say underrated or overrated. I think cap and trade would be massively superior to a carbon tax if we could make it work.

Benjamin [00:52:54]: Yes, cap and trade. I guess the counter-argument I hear on that is to do with this political thing. We just don't seem to have the political will or mandate to push these things through because the ideas have been around for a long time. Okay. So, this is perhaps a little bit precise. Diversity targets are overrated or underrated, I guess we're talking at the corporate level.

Tom Gosling [00:53:21]: Overrated.

Benjamin [00:53:22]: Overrated. And this is because of, I guess, second-order or unintended effects on actual targets.

Tom Gosling [00:53:29]: So, it slightly depends on where the targets are set. And obviously, targets are important. But the reason I say overrated more than anything is that I think there's somehow this view that all we've got to do is force more numbers through of underrepresented populations, and the problem will solve itself and I think that hugely underestimates the scale of change that is required in our organizations to make greater diversity a success.

Benjamin [00:54:00]: Sure. Pay ratios, overrated or underrated?

Tom Gosling [00:54:05]: Overrate.

Benjamin [00:54:05]: Overrate. The easy one there.

Tom Gosling [00:54:07]: red herring.

Benjamin [00:54:08]: Yes. Milton Friedman.

Tom Gosling [00:54:15]: Underrated definitely. He's portrayed as this sort of bet noir of, you'd have thought that he was responsible for many of the world's ills and runaway climate change and deforestation and goodness knows what else and I think a lot of that's been very unfairly to put at his door.

Benjamin [00:54:37]: Overrated, underrated. The idea that incentives are everything.

Tom Gosling [00:54:41]: Overrated.

Benjamin [00:54:43]: Overrated. Because there's a lot of other things in the world.

Tom Gosling [00:54:46]: Yes, and it's interesting, and I said will Alex Edmans and Dirk Jenter. We're just doing this study of how CEO pay is set and works and it's quite interesting that everybody accepts its intrinsic motivation is the most important motivational factor for CEOs. And yet we constantly act as if CEOs are coin-operated. And if we want to change their behavior, then we need to bring different targets into their pay.

Benjamin [00:55:09]: Sure, yes, it's a component but it's not on our lender. Which is why I think it is very intriguing for this purpose. Why are CEOs trying to do what they do? Okay. So, a couple of other questions here. What do you think people misunderstand about happiness?

Tom Gosling [00:55:29]: I said, this is interesting. Say that we're there are systematic errors that we make about what we think is going to make us happy. So, we vastly overestimate the extent to which changes in our life circumstances will make us happy. So, getting a new job or even getting married actually, or avoiding illness. There are lots of things that we think are that must make us happy. But then you go to people who've had those things happen to them. And they're just as happy as people, you haven't even for quite extreme things like accidents, results in paraplegia, and so on. And so one is that the second is the extent to which sort of stuff is going to make us happy.

Benjamin [00:56:15]: Stuff over experiences.

Tom Gosling [00:56:16]: Yes, stuff over experiences. And so, we systematically misestimate what is going to make us happy. And there are these two sorts of errors that come to mind. One is the single focal ism. So, when we're thinking about something that we haven't got, whether that's something in our life or an object, we're only thinking about that. So, we vastly overestimate the extent to which is going to influence our happiness when we get it. Whereas once we get it, all the other crap in our lives is still there.

And all the other good things, actually, and this thing that we thought was so important sort of pails into the background. The other thing is that we psychologically adapt to whatever life throws at us. And that's one of the great strengths that we have as humans, we're incredibly adaptable. And that has great upsides because we're very resilient in the face of disaster. But the downside is, we also become inured to things that we think are going to make us happy. So, we tend to overestimate the extent to which things will make us happy and for how long. But we don't realize that we make these errors. So, we keep chasing the wrong stuff all the time.

Benjamin [00:56:24]: And so, I guess this is one of the lines of work that you're advising on in your kind of coaching and financial coaching, are there any other couple of areas that you kind of think you'd be good at advising people on to think about?

Tom Gosling [00:57:39]: So, I think the other one, and I guess it is linked, but in fact, it links a few things that we've had over the last few minutes. I think this concept of enough is really important and underestimated one. We're in a world we're sort of saying, I've got enough sort of feels like settling, and somewhat feels like we should be striving for more. But, just for your sort of mental well-being, but also looking at things like our impact on the planet, this concept of enough has to come into play. And my work is generally with successful professionals, and they often lose all touch with the idea of what it means to have enough and you just need to show them what the ordinary people live on. And most successful professionals are kind of in the position of, a teacher who is 40 has to work until 65 and has just won a million pounds in the lottery. That is sort of the position that most successful professionals are in. And yet they don't sort of act or feel that way. So, there's something for me about figuring out what enough is from a material perspective and a consumption perspective to focus on what matters in life.

Benjamin [00:59:02]: It's that ladder that we've all sort of stepped on particularly successful people, and they haven't kind of been able to calibrate a lot of our earlier talking about what makes us happy. What is the purpose, what is success? What is enough? That's fascinating. Great. So, maybe the final kind of two or three questions here is what we can learn from singing?

Tom Gosling [00:59:24]: Singing creates this sort of very unique sort of bypass of the rational brain deep into your emotion somehow. It's a truly spiritual experience singing and particularly singing with other people, which is a very sort of communal singing. And is it interestingly being something that sort of doesn't appear now in the everyday lives of a lot of people. And so, I think that three things you can learn about teamwork, you can learn about the beauty that you can create as an ensemble or that you can't create by yourself. I think you can learn about how the physical affects the mental. And there's just something about the appreciation of beauty that's in that.

Benjamin [01:00:26]: So, choirs are underrated?

Tom Gosling [01:00:29]: Underrated. And it's interesting, as you said, I was in a choir until just before lockdown. I want to find a choir that doesn't require quite as much work as a choir.

Benjamin [01:00:41]: Anyone listening. Well, there's a singer available, but not too much rehearsal.

Tom Gosling [01:00:47]: Yes, exactly. Another three complex pieces, right at the edge of my ability all these times.

Benjamin [01:00:52]: Exactly. And so maybe as a follow on from that, do you have any advice for I guess, young people today? Or people sort of anywhere within their careers? Or their life, what kind of pieces of thinking that you would give them? And maybe this is the sort of like, what would you be telling your 21-year-old self-type of thing? But yes, any thoughts about where we are now? And what should they think about in the future?

Tom Gosling [01:01:19]: So, I think there are two I'm going to kind of focus on and they're not particular about where we are right now. But I think they have universal applicability. So, one is around just doing your best to live life on your terms rather than according to other people's expectations. And there's a slightly sentimental book by Bronnie Ware on The Top Five Regrets of the Dying, who an Australian carer who went around looking for people who was terminally ill, and her number one regret that she had identified words, I'd dared to live life on my terms, rather than according to the expectations of other people. So, I think avoiding that regret is important. And I think the other thing is, as well, as you look at all of this sort of psychological research on the extent to which we're adaptable, on the whole, we should take more risk. Related to our careers in particular, and our life choices, because the reality is, it will never be as bad as you fear.

Benjamin [01:02:24]: Yes. And this is the kind of, you think about the risk of admission or the risks of commission, there is the risk of not doing things we should do more. Try more things now. Excellent. And then final question, then, in terms of what looks like, a productive day for Tom, would you have any kind of personal productivity tips? What do you think kind of works or works for you? Or could work generally, or what doesn't work? Like, if this happens is my day that we're going to be a day where I'm very productive. I wonder whether it should start with a little bit of a song. But there is some evidence that people do start with either a song or something Camino or physical activity is the other one, that there is something to that, but I guess that's a little bit esoteric for most people. Although I guess a lot of people sing in the shower. But anyway, productive day for Tom, what do you think it looks like?

Tom Gosling [01:03:18]: Yes, say. Well, I think you have mentioned one of them. So, if I've had a productive day, it's probably got three characteristics to it. So one is, I've started it well, and I'm trying to start every day now with a little bit of yoga and meditation. And I do find that when I do that, it makes a big difference to my focus for the rest of the day. So, I'm trying to create a habit out of that. I've got a target of doing it every day this month. And I'm on it so far so I need to stick to that. The other one is this whole thing around deep work. So, I'm a terrible butterfly.

And I sometimes find myself going around this cycle of, checking each email account, and then I check LinkedIn, and then I check Twitter, and then I go back to the first employee know it, you just go around in circles and say, so for me, productivity is also associated with just shutting these applications down. And focusing on some deep work for some time. And the other one that I've noticed since we've been in various stages of lockdown is fresh air. If I have a day when I've been stuck inside all day, my productivity goes through the floor.

Benjamin [01:04:37]: Great. Do you think combined also with a walk or is that simply just sitting in the garden?

Tom Gosling [01:04:43]: I think that just being outside in some sort of natural environment is a lot of it. But obviously, it walks better because that also gets you a little bit of, cardiovascular as well.

Benjamin [01:04:54]: Great. Well, I think we've had an excellent conversation and I just say, thank you very much. If you want to learn more about Tom and Tom's work, basically Google him Tom Gosling is his website and you can find him on LinkedIn, and Twitter as well. So, thank you very much, Tom.

Tom Gosling [01:05:13]: Thanks very much, Ben.