Shaper: Rodney Schwartz

Show aired on 15th September 2018

Transcript

Elliot Moss
Welcome to the Jazz Shaper’s podcast from Mishcon de Reya. What you are about to hear was originally broadcast on Jazz FM, however, the music has been cut or shortened due to rights issues.

Welcome to another Jazz Shapers, where the shapers of jazz, soul and blues collide with the shapers of business. Following on the from the excitement of last week’s very special Shaper on Shaper programme with two greats talking to each other, and more on that later, today’s business shaper with a story to tell is Rod Schwartz from ClearlySo. In 1997 Rod set up Catalyst where he became passionate about businesses trying to make the world a better place. In particular Rod was reportedly inspired by how innovative and powerful Just Giving seemed and convinced himself that the world needed a company whose purpose was to create a hundred more Just Givings. As a result, in 2008 Catalyst became ClearlySo, described as Europe’s leading impact investment bank and has raised over £230 million for its clients. Rod, thank you so much for joining.

Rod Schwartz
Good morning.

Elliot Moss
Is that okay to call you Rod?

Rod Schwartz
You can call me whatever you like Elliot.

Elliot Moss
What do you prefer?

Rod Schwartz
Either.

Elliot Moss
Good. Rod and Rodney, all in one go, tell me in your own words what ClearlySo is and then we’ll work backwards because there is so many things I want to talk to you about?

Rod Schwartz
ClearlySo is really simple to explain, it’s an impact investment bank, so think of what an investment bank does and we only do it with clients that generate significant social, ethical or environmental impact and what we basically help them to do is raise money, and we help prepare them to raise money either from individual investors or from institutional investors, and that’s what we do and we do it all across Europe and we are Europe’s biggest impact investment bank.

Elliot Moss
And you’ve talked before, I think or your… the way that you communicate, your business is all around this third dimension of…

Rod Schwartz
Yeah.

Elliot Moss
…investing because people talk about risk, they talk about return and you’re saying can we please think about impact. Why? Why do you think it’s interesting?

Rod Schwartz
It’s not just can we please think about impact, people are thinking about impact. Think about it this way, when I did enter the markets people only did think about the two dimensions; return and risk. In fact, when I first entered the market people only thought about return but it was only in the aftermath of the very volatile period of the 1970s that people thought, oh you know what, this volatility is not a very good thing, I think I’d like to have less of it, and then investing became two dimensional. What I contend is that in 2008, the Crash, it got people thinking actually this system’s not working so well, there’s other things going on that I don’t really understand. Economists called those things externalities and impact is about measuring those positive and negative externalities. Now, that’s all very technical. Think about it this way; think of how many people are now buying Fairtrade food. People are paying extra for Fairtrade food. The products do not taste better, they often taste worse, they don’t give you any health benefits, you are just paying because you are using your wallet or purse to demonstrate your preferences for products that have ethical dimensions that you agree with and that is changing consumer markets and it’s changing financial markets, and that’s the third dimension.

Elliot Moss
Now, this third dimension was not apparent when you started in the world of the financial system…

Rod Schwartz
Certainly not.

Elliot Moss
…because you were a proper, hardcore expert, you were head of this and head of that at the biggest banks in the world. At what point did you have your epiphany and say you know what, this isn’t right, the financial system doesn’t work, fairness is important, impact is important, I’m gonna change everything I do, because you have.

Rod Schwartz
There was no moment of Damascene conversion. It was a steady sense of guilt and just a belief that I needed to do something different and even when I was in my first job at PaineWebber which is now part of UBS and I was following, as an analyst, the largest investment banks, I started getting involved in a charitable sector, I worked for a charity called House Foundation for the Arts so this sense of an obligation or need to do something else but make a lot of money has been with me, I think it just took me a long time to find the courage to do it full-time and as a profession.

Elliot Moss
You talked about guilt and I have read before about you and your family, and you came from an immigrant background, you are obviously American although that accent is gentle now because you have probably been here in the UK for a while.

Rod Schwartz
More than half my life.

Elliot Moss
There you go.

Rod Schwartz
I had my half and half party last year.

Elliot Moss
Congratulations. Is there a sense that your family, if you think about the influences in your life and where you have arrived at now, have they had a slow burn in the background about what would be right for you to pursue in your life or is it just coincidence that they were an immigrant family, that they came with nothing and all that?

Rod Schwartz
Complicated question. I mean, I am Jewish and both my parents are Holocaust survivors so maybe I have some survivor’s guilt. I think Woody Allen does lots on Jewish guilt and how that plays out so I am sure I have been shaped by that. I also went to a very religious school when I was young called the Yeshiva and in that school I would have had the morals of the bible impressed upon me. Actually, I was expelled then at fifteen so it wasn’t in all ways a very successful impression. On the other hand I do think that we all have a need, or I feel, a sense of need to do something positive in the world. There is a Hebrew word for it, or phrase, it’s called ‘Tikkun Olam’ which means, I guess in a sense, to perfect the world to make it better.

Elliot Moss
To heal it.

Rod Schwartz
To heal it, I think that’s a better word and I feel that sense, and I think I have always felt that sense, and it’s ironic because I was once asked about ten or fifteen years ago why I did this and that phrase just popped into my head and I probably hadn’t thought of it since I was expelled from Yeshiva at fifteen.

Elliot Moss
And the interesting thing, again, just to share this, is that in addition to all the things, and you set up your first business in 1997 I think it was.

Rod Schwartz
Yeah.

Elliot Moss
Yeah. In addition to all these things, and we are going come to the core of the business, you have been the Chairman at Just Giving which many people will be familiar with, the Chairman at Shelter, you’ve been a non-exec director in all sorts of different charitable things, so you haven’t, you have gone full force into the world of hold on a minute I really want to contribute. But tell me about the ’97 moment and why that happened, the formation of your first business.

Rod Schwartz
I think it was just the negative thing. I think I just couldn’t carry on working in the city any more. I’d like to feel as if yeah, I did this and I had this great moment but it wasn’t like that, it was a gradual extraction of myself from doing things that were just about making money. Having said that, I have nothing against making money, I think it’s important for people especially those who live in London, to make money but I think that life isn’t just about that and in addition to some of the organisations you’ve mentioned I have tried to stay in the commercial world as well and I think it’s the combination of the two that I think has value for me. However, I just thought once I passed forty and I guess I was forty in 1997 I wanted to dedicate a lot more of my time to trying to make a positive difference in the world.

Elliot Moss
And that’s…

Rod Schwartz
Just, can I talk a little about Just Giving…

Elliot Moss
Sure.

Rod Schwartz
…because that was quite interesting. So, your listeners will be familiar with Just Giving and what it does and that experience was eye opening to me. Being Chair of a large charity was not, it had some very depressing moments and some really frustrating moments but here was a business that was run by two amazing women, founded by two amazing women which makes it unusual actually, and in the spirit of the time let me say they are both foreign born, one from Belgium, one from Pakistan, so when we think about this Government’s immigration policy I think we should reflect on that but that’s an aside. Just Giving was a business that had deployed the kind of best of capitalist techniques, entrepreneurial techniques, built a really great business but also change the whole world of charitable giving and through its platform raised over $6 billion, so if you think about it the 5 million that went into Just Giving from investors in the early stages, created a business which in itself was successful so it sold last year for almost £100 million, so successful investment, that’s all to the good but in addition it really made a positive impact on the world and my motivation for setting up ClearlySo was to create a hundred Just Givings and help facilitate their development by getting them the money they need to succeed.

Elliot Moss
Stay with me for much more from my Business Shaper today, that’s Rod Schwartz, and he will be back in a couple of minutes. But first, talking about the world of finance, you’ve probably heard about cryptocurrency and bitcoins and the like, but what is it exactly and what do you need to be aware of? Our latest News Sessions podcast with Paddy O’Connell which can be found on all of the major podcast platforms, it’s all about that and here’s a taster, just for you right now.

Elliot Moss
We’ve had so much great feedback on last week’s special Shaper on Shaper programme featuring Maurice Helfgott from Amery Capital and Simon Woodroffe, the creator of YO! brand asking the questions of each other, it was genuinely brilliant to be part of it. And if you’ve missed it you can find that along with hundreds of other programmes on your favourite podcast platform or also on our exclusive Jazz Shapers smart speaker channel and today’s conversation back right here, right now, is with Rod Schwartz from ClearlySo, and that in addition will be available from 10.00am this morning. We’ve talked Rod about all sorts of things around scale and you talked about, you know, brilliant this business is worth X £100 million but actually it raised £6 billion. To create a business of scale you need people and you need good people. ’97 you started a team then, you’ve gone again with ClearlySo as you’ve re-branded. Tell me a little bit about how you found the right people and what they brought to you that you couldn’t do yourself.

Rod Schwartz
It was really hard to find the right people because basically we were looking for investment bankers and investment bankers, you will know, have a high opportunity cost and we certainly couldn’t pay what investment bankers could and it took us a long time, actually, to build the right team. We’ve twenty people now, they are fantastic, we had an event last night where all of them shone and I just feel blessed with twenty of the most amazing people who are both really skilled at what they do as investment bankers because you need those transactional and executional and sales skills, but at the same time they really believe they are changing the world for the better and it’s not just the team that works there day-to-day, it’s the investors who have supported us and there are over fifty of those, it’s the Board members who have guided us, we’ve just been blessed by people who have really created this business and I feel very little like a founder or a CEO, more like somebody who has just been delighted to be able to watch it happen around me and that’s been a fantastic feeling.

Elliot Moss
I talk to many people about the teams that they create and in the world of for profit, purely for profit, they game is different when you are hiring people because they are not quite guns for hire but they are focussed on making money and the business is going to make money and so on and a number of the people I interview then go on to, you know, have company valuations of billions and stuff and so on and that’s…

Rod Schwartz
And maybe we will.

Elliot Moss
And maybe you will too but in terms of hiring it must be easier for a business like yours because there’s a sense of purpose and a sense of mission. Is that a fair point?

Rod Schwartz
It’s easier with some people, it’s much harder with others. We do stand out and the people who are looking for a business that will make a difference in the world will come to us and that’s great but it also means that there are certain skill sets that are really difficult for us to find and to acquire because they have a very high opportunity cost but you will appreciate that. However, the people who come to ClearlySo have made a huge financial sacrifice but I think one day that will be a little bit rewarded, it might not be sort of a Morgan Stanley reward but we think that we will one day maybe exit the business and people will all do well and everybody in the company has options so that’s part of it but I think at the same time they too feel that life is more than just about maximising return, you want to say something to those you love and to your children that you’ve made a difference through your life and that’s important and that’s the sort of people we tend to get.

Elliot Moss
Ten years ago we were in a very different situation with regard to bankers making a difference and it was generally negative and I guess that politics and economics over the last ten years wherever you are in the political spectrum, wherever you are economically and pretty much whichever country you are in, you’ve been impacted by what was essentially the collapse of the financial system as we knew it in 2008. Ten years later Rod, what’s changed, if anything?

Rod Schwartz
Well, a lot has changed. People often ask us what impact the crash has had on us and it’s actually had a very positive effect because, and it’s a horrible thing to say but because it made people aware that there were deep, serious flaws in capitalism as it was practiced and this past week was quite a poetic one for me because it was the tenth year anniversary of Lehman’s collapse. Lehman is a company I followed as an equity research analyst, I worked for as Head of Equities here in Europe, Dick Fuld the disgraced CEO who was there when Lehman fell down, gave me my last interview and then it was just amazing that the very same week Lehman collapsed was the week we founded ClearlySo and we just celebrated our tenth anniversary and I just thought that was amazingly poetic but life doesn’t always work out that poetically but it really was a great alignment last week.

Elliot Moss
And jumping forward ten years from now let’s play that game, 2028, what’s the financial system going to look like, will we have resolved the issues that are inherent within capitalism? Will politics have calmed down so that we’re not all checking our phones every three minutes for another incredible announcement by the President or Prime Minister of a country?

Rod Schwartz
Who on earth knows what will happen in ten years. There’s lots I think to be quite depressed about right now. All we aim to do at ClearlySo, and all I aim to do, is just do what I can do to make the world a better place and I think that our practical approach to making the world a better place really resonates with people. Lots of people want to do good but it’s getting the balance right between good intentions and proper execution and that’s what we are about.

Elliot Moss
And I want to talk about execution for a moment just so people understand the kind of businesses that you are raising money to invest in. A couple in front of me, there’s Bulb the renewable energy retailer which has been in the press recently because it has just done another raise which gives it a big valuation, SuperCarers I believe is one of them, Adam was on this programme…

Rod Schwartz
I heard that programme.

Elliot Moss
…not that long ago. You’ve got Oddbox in there which is the wonky fruit and veg box scheme which I love, you’ve got QBOT in there, are there, do you kind of fall in love with these because I’ve always been interested in ethical investing and I get excited about doing good as well as making money. Does it feel the same from an emotional point of view?

Rod Schwartz
I fall in love with every single one of these businesses. The question I most commonly get asked is ‘What’s your favourite?’ and the truth is I kind of love them all. I mean, you mentioned Oddbox, we actually buy Oddbox, we’ve just increased our order from one to two fruit boxes a week so we love the Oddbox in many senses but it’s a really cool business because so much food gets wasted and it gets wasted for ridiculous reasons like the apples are not sufficiently red or the bananas are not the right colour which is absolutely ridiculous when people in the world are starving, and I think that will be a good investment. On the other hand, Bulb Energy which you mentioned was a client that came to us a year or so ago looking for money, at the time we thought the valuation was high at 60 million post money but they’ve just raised another 60 million at 411 million post money, proving the point that you can do really well at the same time as you do good because Bulb Energy is 100% renewable and also does really well by its customers as Trust Pilot suggests and I love those companies that are changing the world and at the same time rewarding investors and hopefully all investors will start to move in that direction and that’s what we are about.

Elliot Moss
My final chat with Rod is coming up in a few minutes plus we will be playing a track from Earth, Wind and Fire, that’s coming up very shortly.

That was the big, brilliant sound of Earth, Wind and Fire with Shining Star. Rod’s dancing in the studio but luckily you can’t see it, only I can. I have Rod Schwartz just for a few more minutes. We’ve talked about a bunch of stuff. I haven’t asked you this question, what about your own personal attitude towards making money? You’ve got a kind of view of the world which says it’s important that, you know, you do it ethically and properly with positive impacts…

Rod Schwartz
I’m solidly in favour of it. I just think that what you want to do is make money in a way that doesn’t destroy the planet and in a way that is beneficial for society and if people out there, your listeners who are thinking about what they can do, just start to use that lens through which to see your investment portfolio. You will do no worse than you’ll do in the mainstream but you’ll actually feel a lot better.

Elliot Moss
There is a whole bunch of theory around liberal economics and the like and without sounding a bit strange, there’s a philosopher, Hayek, who talks about reluctant interventions. It sounds to me like, or as much as I am not in favour of the government, any government, getting involved, it sounds like we need to be looking at these reluctant interventions where we can encourage companies to do the right thing. Is that a fair point and if it was fair, how would you do it?

Rod Schwartz
Well, I think the governments have been trying to intervene to encourage impact investment and that was a Labour initiative, that was coalition initiative, that was a Conservative initiative, but I think so much of it is trying to lavish tax breaks on rich people to do this which I think has lots of flaws. I think what they should do is much more fundamental. These externalities I talked about earlier, when they are negative they should be taxed so companies that pollute, companies that bring down financial systems, they should be taxed much more significantly so that they bear the full cost of the harm they are causing to the planet and to society. On the other hand, companies that do good things that pass on free positive externalities, they should be given tax credits and that will make their business models more profitable, more capital will then flow to those businesses, more capital will flow away from those bad businesses, I call that fiscal tilting, I have been talking about it for a while, can’t get anybody to listen, maybe one of your listeners will…

Elliot Moss
A few more people…

Rod Schwartz
…and can do something about it.

Elliot Moss
Yeah, fiscal tilting, I like it. We might need to work on the way it sounds.

Rod Schwartz
Yeah well.

Elliot Moss
You know, maybe that’s the issue because actually the thinking behind it is brilliant. I have one more question and people listening go what do I do and you just touched on it briefly but in a really practical way if someone has money to invest, what would they, or they want to give money in a different way, what’s their next action?

Rod Schwartz
Well, there’s plenty of ways to give money, we talked about Just Giving so that’s not the question. I think if people want to invest differently, high net worth individuals can get involved in organisations like ours and others which are facilitating their direct investment into impactful businesses. The reason I say high net worth individuals, I am sorry about this, is that we are not permitted by financial regulations to ask the guy in the street to invest. It’s funny because we don’t discourage them from charitable giving which means they will, you know, effectively give away all that money, they won’t see anything back, but when they may get something back in return we restrict it, now that’s a bit perverse, I think we should be encouraging people to invest with impact.

Elliot Moss
Sounds like another conversation you need to have with those who are in power.

Rod Schwartz
I have given up hope on the people in power, I think if we are going to have any difference in our society, any positive difference, it’s going to have to start from individuals acting with impact in mind rather than politicians who are acting with some very different motivations.

Elliot Moss
Rod, it’s been really brilliant talking to you, really insightful. Thank you and thank you for sharing so candidly what you think as well, I am very pleased that you had whatever it was that happened to you in that period of time that moved you from making money without anything else to this position now where you are really thinking about, as you said, positive impact investing. Just before I let you go, what’s your song choice and why have you chosen it?

Rod Schwartz
You know, I was trying to think of some really esoteric and great choices but in the end I just thought back to my days in university and Chuck Mangione and Feel So Good because it makes me feel so good, and that’s what I want to feel.

Elliot Moss
Here it is, just for you, thanks again.

That was Feel So Good by Chuck Mangione, the song choice of my business shaper today, Rod Schwartz. He talked about a Hebrew phrase ‘Tikkun Olam’, healing the world, and talked about making a difference, he wanted to do that having been inside the world where he was just making money. And a little phrase for you, let’s work out if we can say it in a better way going forward, fiscal tilting, let’s talk about government actually making it difficult for companies to have negative impacts on the environment and society and make it fantastic for them if they do the opposite, i.e. the positive ones. Really, really good stuff.

Rodney Schwartz

Rodney Schwartz’s background in equities, financial research, investment banking and venture capital makes him an unconventional but authoritative champion for impact investment. He holds an MBA and BA from the University of Rochester. Rod joined Wall Street in 1980, he rose to become the number one ranked financial services analyst at PaineWebber and then held senior management posts at Lehman Brothers and Paribas, before leaving the sector in 1997 to found the venture capital firm Catalyst. At Catalyst, Rod became passionate about innovative businesses that earn a living by trying to make the world a better place. He transformed Catalyst into a social business consultancy and in 2008 launched ClearlySo, a business designed, “to help create 100 Justgivings”. The firm raises investment for high-impact businesses, charities and funds. Today, ClearlySo is Europe’s leading impact investment bank and has helped more than 130 clients raise more than £230 million in investment capital by leveraging its extensive network of high-net-worth individual and institutional investors. Rod teaches impact investing at the Said Business School in Oxford and the ESMT in Berlin.

Follow Rodney on Twitter @RodneySchwartz.

“We only work with clients that generate significant social, ethical or environmental impact.”

“Consumers are paying and pursuing to demonstrate their preferences for products that have ethical dimensions; that is changing consumer markets, changing financial markets; that’s the third dimension.”

“Impact is about measuring the positive and negatives – think of Fairtrade food – if you buy it if it aligns with your ethics.”

“This sense of an obligation to do something else but also make money has been with me – it took me a long time to find the courage to pursue this as my profession.”

“I’m sure I have been shaped by my history. Both of my parents are Jewish holocaust survivors, so I think I could have survivor’s guilt. I have a need to do something positive in the world.”

“I think we should be encouraging investing with impact. If we’re going to have any positive difference in our society it’s going to have to start with individuals acting with impact in mind, rather than politicians with different motivations.”