Ep. 111: Serena Wolfe - How do CFO's influence ESG?

Contact Serena Wolfe: https://www.linkedin.com/in/serena-wolfe/

FULL EPISODE TRANSCRIPT
Mitch: (00:00)
Hello and welcome back for another episode of Count Me In. Mitch Roshong here with you again and today you'll be hearing my co-host Adam speak with Serena Wolf about CFO role in implementing an ESG agenda. Serena is CFO of Annaly Capital Management and has over 20 years of experience in accounting. In this episode, she addresses the importance of environmental, social, and corporate governance and how CFO is truly influenced each letter of ESG. Keep listening as we head over to the conversation now.

Adam: (00:38)
Serena, thanks so much for speaking with us today on the topic of ESG and to provide some background for our listeners who might not be familiar with Annaly Capital Management, it would be great. If you could begin by providing our listeners with an overview of Annaly and your industry and some your specific role within the company.

Serena: (01:02)
Adam, I would love to and first I want to say, thanks for having me today. Annaly is a leading diversified capital manager that invests in and finances, residential and commercial assets. We were founded in 1996, and we went public a year later on the New York stock exchange. We are in fact, the largest mortgager REIT, and we have four investment teams. That's our agency, MBS business, which represents approximately 93% of our total assets. We also have a residential credit platform, a commercial real estate division, and a middle-market lending. Currently we have a market cap of over $11 billion and over $100 billion dollars in total assets. And with that market cap of over $11 billion, we have the largest capital base among our peers in the mortgage REIT space. And so let's talk quickly about REIT I guess, just, for your audience as well. REITs are often public companies, but specific to REITs, we are a taxable election. In fact, whereby we have to return 90% of our income to shareholders. So we're quite popular with those folks that want a dividend yielding stock, like pensioners, and things like that ..And broadly speaking REITs can be broken down into two major categories, equity REITs, which typically own and operate income producing real estate and mortgage REITs, which provide financing for purchasing or originating mortgages and MBS. Annaly, as I mentioned before, is a mortgage REIT. Mortgage REITs can be further divided into agency mortgage REITs, which invest in really just agency backed MBS and non-agency mortgage REITs, which invest in a broad variety of mortgage related assets that are not backed by the federal agencies. So for instance, Fannie and Freddie, and while Annaly is primarily an agency mortgage REIT, I mentioned before, we've got 93% of our total assets in agency MBS, our platform is differentiated based on the credit businesses that complement our core strategy and of note, we are the only REIT with a corporate credit investment arm. So, we have capabilities to invest across the capital structure in each of these, which means that not only do we own MBS and mortgages, but we also own income producing real estate assets. We have around about 180 employees. And as an executive officer of the firm, I have a broad set of duties. though as CFO, I have primary responsibility in communicating performance results to our stakeholders, managing our financial and budgeting processes and also oversight of our treasury and IT functions, but in all aspects, to be honest, I collaborate closely with the investment side of the house, as well as ESG, Strategy, and Risk.

Adam: (03:41)
I think that's a wonderful overview. So let's turn to our primary topic of today, which is ESG nAnaly just released its first ESG report. Let's set the stage by saying stating what is ESG, what does it mean to you and your company, and then how does ESG factor into running a business?

Serena: (03:58)
Yeah, so ESG and it is a nomenclature that's a bit out in the ether these days, but what it really means is environmental, social, and governance, and it refers to the three central factors in measuring the sustainability and societal impact of an investment in a company or a business. I know that's very definitive. I pulled it off, Investopedia or something, Adam, I think.. but historically many companies have focused on the G the governance aspect of ESG and less on the E and the S. That's not a new focus for us. I think we've been ahead of the curve in incorporating ESG into our business processes and culture from the start. For example, we are a female founded, company founded by Wellington Denahan, who remains a Vice Chair on our Board. And so diversity has always been a cornerstone of our company. And as you mentioned, Adam, actually on the 23rd anniversary of our IPO, we published our inaugural Corporate Responsibility Report. This provides significant disclosures about our ESG considerations that we've been incorporating implicitly and explicitly into our business for years. It's covered through five main areas; corporate governance, human capital and management, responsible investments, risk management, and the environment. Altogether, we aim to have a positive impact in the communities where we live, work, and invest. A couple of examples here, Adam, just to highlight that in 2019 we reduced our greenhouse gas emissions by 5% and we actually expect to improve that year over year in 2020. We have a social impact joint venture through which we have financed 21 community development projects and underserved communities across the country. Examples of these are things like, elder care residences and affordable housing. As of the third quarter of 2020, we have made $285 million direct investments to support community development and economic opportunity. So we, we find that, I would say that our corporate responsibility report is a great summation of all the work that we've done, but it is something that we've been working on from an ESG front really from inception of the organization.

Adam: (06:23)
I think that's amazing all the things that you're, you're doing from a, from that perspective. I think one of the challenging, challenging question that many businesses are thinking about these days is how do you balance the principles of ESG with return objectives with, to which remain a key priority, not only for your shareholders, but also for your employees and other stakeholders. And then how do you answer this question and what experience do you have as the CFO implementing this agenda and balancing these various strategies?

Serena: (