S&P Global CEO: 'China for us is a very important market'

Yahoo Finance’s Julie Hyman, Myles Udland, and Brian Sozzi speak with S&P Global CEO Doug Peterson about the company’s merger with IHS Markit, and 2021 outlook.

Video Transcript

JULIE HYMAN: So I want to ask you first of all, before we get to the deal, I do want to ask you about your economic outlook given the expected vaccine rollout because I know you're looking for a dip in economic activity in the fourth quarter. As we start to see more broad distribution of the vaccine, what then happens beginning next year?

DOUG PETERSON: Well, we see next year a growth level overall through the entire year of about 5% after a down 4% this year, but there probably will be a slight shift from our original forecast. This recent surge in COVID cases will probably slow down growth in the first quarter, but we think that as the vaccine starts rolling out that this will provide a surge of growth in the second, third, and fourth quarters next year.

The one factor which we're still looking at quite closely relates to stimulus. Will Congress come back with a stimulus program that will allow people, especially SMEs, to make it through the next quarter? This is going to be a tough quarter with the COVID, with the lapse of the stimulus programs. So the stimulus program and vaccines, those are two very critical factors to see what's going to happen with economic growth.

BRIAN SOZZI: Doug, Brian here. When I saw this deal cross the wires, the $44 billion deal for IHS, I immediately thought, you know what? Doug is making a play. He is saying data is the new oil. Would you agree with that?

DOUG PETERSON: Well, data is definitely what people are looking at, and the way that data becomes the oil is when you can actually use it. And this is one of the beauties of our ability to merge with IHS Markit, and that is that not only do we have the data, the content, the research, the benchmarks, we also have the data-science teams and analytical teams that can turn that data into usable products that get embedded in people's workflow.

MYLES UDLAND: And you know, Doug, thinking about that-- and I think about our audience here at Yahoo Finance. It tends to be more of a retail-oriented audience, and they've seen the tools that are available to them on the public and free side increase over the last, you know, 10, 15 years. From your end on the proprietary side, the data that you guys have access to, the indexes that you can build, how much has the financial data market changed in the last 10 years, and where do you see that heading over the next 10?

DOUG PETERSON: Well, we think about-- if you talk about the last 10 years, let's think about what it's going to look like 10 years from now, both for a consumer retail audience as well as for institutional investors, institutional customers.

The world is changing. The way people use AI, visualization-- think about the use case of somebody who's an index investor. Today we have the S&P 500 and the Dow Jones. Those are part of our company. And we're going to bring in fixed-income indices as part of our portfolio with IHS Markit.

When you can start putting those together in new ways to have multi-asset-class indices, when you can think about retirement, the baby boomers who are going to start retiring, there's going to be a whole new set of tools that people can use for asset-class allocation, for ways to think about their own retirement, their own portfolios, and this will also apply to institutional investors as well.

And the same way we looked at the index business, we're going to have the same opportunities with ESG, with energy transition, with the way that debt capital markets put together the information we have from the credit markets, the risk modeling, and then the workflow tools that IHS Markit has.

JULIE HYMAN: So as you're looking at that deal and all of the data that you guys compile collectively, the two companies, what's in the highest demand? What do your clients want to know the most about right now?

DOUG PETERSON: What we're seeing is that obviously when our clients are looking at opportunities where they see that we do things together, our investors are looking to opportunities for us to put the businesses together and get scale. Scale is something that's so important for us that's going to deliver the growth. It's going to deliver the opportunities to find savings as we put together our data as we manage technology across this entire portfolio.

And very importantly, that scale is going to give us as well a very large cash flow, free cash flow in just within a couple of years of over $5 billion. And we believe that we can continue to invest a billion dollars a year on technology and still generate $5 billion of free cash flow.

BRIAN SOZZI: Doug, the consensus on the Street appears to be that you have some pretty sizable opportunities in structured finance and then in ratings in China. What are your plans in each of those areas next year?

DOUG PETERSON: Yeah, structured finance is something that obviously goes in and out depending on interest rates, on how people are thinking about their balance sheets. We see right now the mortgage market-- the retail mortgage market has been quite active. There's probably opportunities for that to start becoming more securitization.

With interest rates low, a lot of banks and other organizations have been continuing to keep their assets on their balance sheet that they might traditionally put into structured finance vehicles. But we see the opportunity for us with IHS Markit to have the reference data along with the ratings data along with the research in a new way to provide services to our clients.

China for us is a very important market. We see the Chinese regulators committed to reform, committed to opening up the Chinese market to foreign investors. Right now, there's only about 3% of the Chinese bonds are owned by foreign investors, and the Chinese regulators are interested in seeing new ways to open up their market, bring in more foreign capital.

We've seen recently that other large financial institutions have 100% operations in China. We've been there now for over a year with a rating agency 100% owned, and we're seeing a steady interest and growth in that interest in our ratings and our methodology, which is bringing a global methodology and a global approach to credit ratings to the Chinese market.

So as the Chinese market reforms, as you get institutional investors, the middle class starts having savings that they want for the long term. We think that this will be a growth market for us in the long run.

JULIE HYMAN: Well, speaking of another growth market, I want to touch on something that you brought up, which is ESG, which I know that you have been talking about for some years now. We on the show have talked a lot about sort of the seeming gap still between ESG desires and reality on the ground. And so maybe you can talk to us a little bit about that gap and whether it is indeed being closed and how much closer we are to-- particular on the environmental side, I would say, but on the social and governance sides as well, how much some of these long-awaited changes are actually starting to be implemented?

DOUG PETERSON: Yeah, ESG is going to become a very critical factor for investors to make decisions about their portfolios. The question that's been coming up from investors, whether it's retail investors that are asset owners or it's institutional investors, increasingly in the United States-- it started in Europe and moved into Asia, but increasingly in the United States is where are the funds that I have being invested? What is the impact, environmental or climate impact, the social impact? What's the quality of the governance of the organizations I'm investing in? And we see an increasing demand for people to have the right kind of data, the analytics, the disclosure that will allow them to make an informed decision.

And we've been doing two things. One is we've built a portfolio of products and services through acquisitions and also through our own growth to build information about climate, about ratings, about how it goes into credit. And with IHS Markit, we also are going to bring in a whole new set of data about carbon registries, about metals that are used in batteries, about electric vehicles and the way they're performing. And putting this together will give us the ability to provide a much broader set of data and analytics to those that are interested in ESG.

The second thing I'd say is that as a company, we believe that we need to operate at the highest standards of ESG ourselves if we're going to be a credible ESG data provider. So we've ensured that we have strong governance. We have diversity at our board. We're ensuring that we have the best social practices this year during COVID. We started with our philosophy that we put our people first. We've been investing in health and mental-health programs for employees so they have what they need to work from home. We've also invested in technology to work from home.

And then when it comes to the climate, we have an ESG report. We've reported through a framework that's called the Task Force for Climate-Related Financial Disclosure, which we think is very important for our company to have started to model that directly and show how you can disclose and can be a leader in disclosure because we think disclosure is so important for ESG. But we can bring it together and then provide the data and the analytics and the tools that people can make informed decisions.

BRIAN SOZZI: Doug, just a couple more weeks in the year. What has this year been like for you as a leader at your company? But also too, you know, when you talk to your friends, let's say, on the Business Roundtable, what are you hearing from them? How has the year been like for them? And what are some of their plans for next year?

DOUG PETERSON: Yeah, the Business Roundtable, as you know, we have a very active board of directors that has been talking about the external environment. A year ago, a little bit over a year ago, we discussed the change in the purpose of a corporation, which was a very important shift for us. But this wasn't just a shift from one day to the other. It's something that we've been doing for years.

And if you think about that shift from a single purpose of a corporation to shareholders to talking about the other stakeholders, which are our employees, our suppliers, our communities, our customers, we've been doing that for a long time. It's not an and. It's an or. I mean it's not an or. It's an an. It's providing value for all of those constituencies.

But when we talk about going forward, we're looking at very important topics. We're looking at racial equity. We're looking at how we can ensure that there's immigration reform, about infrastructure. We're looking at climate. We're looking at ESG, all of the themes that investors, our employees, our communities are talking about. The Business Roundtable on its own is looking at these to see how we can help support a transition that's taking place in our economy as well to support the new administration.

JULIE HYMAN: Well, looking forward to continuing the conversation about all of these issues and pointing out also that that transparency, that data issue about these things is also very important.

Doug Peterson, it's always good to get some time with you. S&P Global president and CEO, thank you.