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

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


FULL EPISODE TRANSCRIPTMitch:
(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: (