Update on my personal leadership challenge

Having now completed the first year of the MSt Sustainability Leadership at the CISL, I would like to provide an update and reflect on the personal leadership challenge which I set myself at the beginning of the course.

This challenge was to continue to inspire finance leaders to further integrate ESG considerations into investment decision-making.

Through my current role as Advisor – Capital Markets for A4S, I had the opportunity to influence at my own level the incorporation of ESG factors into investment decisions within the global financial industry through a few projects.

The first two projects have now been completed. One was the launch of an Asset Owners Network in the UK and the second one was the A4S Finance Leaders Forum, a high-profile event which was hosted by His Royal Highness The Prince of Wales at Saint James’s Palace on July 9th and 10th, 2018. The aim of this event was to inspire sustainable investment decision-making across the whole of the financial community from investment management companies, investment banks to asset owners via stock exchanges as well as financial regulators, large corporates, investment consultants and rating agencies. A great outcome was that the C-level executives from large financial institutions around the world who attended this event have committed to drive the integration of ESG factors within their organisations further and as soon as possible.

Furthermore, I am currently working on the international expansion of A4S. This project should also participate to the expansion of the sphere of influence of the A4S project and hopefully help increase its advocacy actions on a global level. My work on the strategic aspects of this project should be completed by mid-September 2018 when I leave the project to go back to the industry where I am hoping to take a role in strategic partnership management, corporate engagement, investor engagement or client relationship management and make a difference to the sustainability agenda.

In the meantime, I will dedicate a few months in the autumn to my dissertation on “ESG Second-Opinions and Ratings: An Investigation into how they are perceived by UK Investment Managers”. The research will aim to assess what investment managers think about these second opinions and ratings, examine issues with existing methodologies (such as levels of consistency, transparency, comparability, reliability and granularity), determine whether investment managers consider them as a valuable input into the investment process and make recommendations for improvements to the methodologies. 

Ultimately, I would like to share these findings with the investment community in the form of a guide published by A4S (His Royal Highness The Prince of Wales’s Accounting for Sustainability project) and freely accessible on its website. I am hoping that this will be the catalyst for further improvements to the methodologies of these ESG second opinions and ratings.

In addition, I would like to reflect on my personal leadership challenge and on this first year of the MSt Sustainability Leadership. The past twelve months have been a very intellectually challenging but also enriching experience for me since, in spite of a strong interest in sustainability, I had a lot to learn about this topic when I embarked on the course. My role for A4S has hugely contributed to building up my knowledge and provided me with an excellent opportunity to keep abreast of the regular and substantial changes around environmental, social and governance matters currently taking place within the financial community and the regulatory environment.

One other goal of mine would be to add another personal leadership challenge to my current one: becoming a trustee of a voluntary adoption agency. As you are probably aware, the link between poverty and child abuse or neglect has been well documented and all too often these children are taken into care and sometimes eventually adopted. Here are a few examples of coverage of this topic:

https://www.jrf.org.uk/report/relationship-between-poverty-child-abuse-and-neglect-evidence-review

https://www.jrf.org.uk/sites/default/files/jrf/migrated/files/parenting-poverty.pdf

I feel that, as an adoptive parent myself together with my business, communications and management background, I have a contribution to make by helping a voluntary adoption agency further promote the adoption of children in the UK who, for a variety of reasons, end up being forgotten and are never given the opportunity of a permanent family. I have started talking to a few agencies and I shall update you on this in a few months’ time.

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FINANCING THE TRANSITION TO A LOW (OR NO) CARBON ECONOMY: FINANCE LEADERS HAVE A HUGE ROLE TO PLAY!

In its 2016 New Climate Economy report, The Global Commission on the Economy and Climate stated that a huge US$4.1 trillion of net incremental infrastructure investment would be required to finance a low-carbon transition up to 2030.

Finance leaders have a substantial role to play in shaping this transition to a low (or no carbon) economy and some may even argue a duty to do so. Indeed, they are best placed to influence the channelling of funds into green projects around the world.

But who are these finance leaders? Some may think that investment management companies are the main actors within the financial community to do so. However, investment management companies do not make the financial community on their own and there are many other actors who can influence the integration of environmental factors into the investment decision-making.

The Prince’s Accounting for Sustainability project identified the a number of stakeholders as having a unique position to influence the transition to a low (or no) carbon economy. 

CFOs and their finance teams are the ones who can influence the allocation of funds within their organisations and drive the incorporation of more sustainable practices into their business models.

 

 

Asset owners such as pension funds and sovereign wealth funds handle vast amounts of money. In its report “Sovereign Investors 2020: A growing force”, PWC estimates sovereign wealth funds’ total assets under management to reach USD 15tn by 2020. Imagine the impact this would have on the transition to a low carbon economy if most of these funds were invested in “low carbon emission” projects? 

McKinsey (2009) identified four broad ways in which investment banks can both contribute to and profit from the shift to a low carbon economy i.e. promote carbon transparency, drive innovation amongst the issuers to whom they provide financing as well as industrialise the market for carbon and financing the low-carbon economy.

Insurance companies can also influence a transition to a low carbon economy through climate-linked catastrophe bonds and innovative insurance products such as the Carbon Capture and Sequestration Liability Insurance, recently launched by Zurich.

Financial exchanges have already launched a number of low carbon products such as Certified Emission Reduction (CER) future contracts as well as low carbon indices.

Credit Risk agencies have a role to play in developing more comparable and transparent metrics which would help investors make better informed decisions when investing in so called low carbon emission projects.

The accounting community and more particularly accounting bodies can support the transition to a low (or no) carbon economy by incorporating environmental considerations into their courses’ syllabi and so can business schools and universities whose many students are the finance leaders of tomorrow. 

Governments, regulators and policy-makers will also have a substantial role to play in driving this change by enabling a supportive regulatory environment.

In short, investment management companies are not the only actors of the financial community spectrum who can contribute to a shift towards a low (or no) carbon economy and it is through a concerted effort that all the above actors will make a difference.

 

  

 

Inspire finance leaders to further integrate Environmental, Social and Governance (ESG) considerations into their decision-making

My personal leadership challenge over the next two years is to continue to inspire finance leaders to further integrate ESG considerations into their decision-making.

A number of finance leaders have started to integrate sustainable investment decisions into their investment strategies or business models. However, more can to be done and numerous barriers to long-term sustainable investment decision-making need to come down. The financial community and companies’ finance departments are still very much characterised by short-termism and self-interest. They are only very slowly shifting their focus on providing short-term profits to shareholders to a more encompassing stakeholder model aimed at the creation of long-term and “shared value” for the wider society as defined by Porter and Kramer (2011). Some argue that private effort is insufficient. ClearBridge Investments (2017) noted the scepticism from many investors about the benefits of a sustainability approach and their misunderstanding of ESG performance drivers. Other obstacles include: a misalignment between the interest of owners of capital and investment professionals, investment products failing to meet the needs of responsible investors, the lack of consistency and comparability of ESG data as well as skills needed for ESG analysis, the lack of harmonised policies, and also clarity on fiduciary duty and the omissions of ESG factors by advisory firms when making recommendations (PRI, 2017).

I imagine that sounds like a huge challenge to a lot of people and it certainly does sound like this to me. Having said that, I feel that I have something to bring to the table when it comes to helping with this challenge.

I do not pretend to inspire the entire financial community all on my own to change its attitude to investing and integrate ESG considerations more into their decisions. However, I believe that through my current role as Advisor – Capital Markets for HRH The Prince of Wales’ Accounting for Sustainability project (A4S), I can add value to this agenda.

My personal leadership style is generally recognised as democratic. Democratic leaders use participation and collaboration to build consensus. They value creativity and encourage group members to share ideas and opinions resulting in them feeling more engaged. They usually inspire trust and respect from their followers. These leadership traits should help me when trying to build engagement from the financial community.

More particularly, I am currently focusing on the launch of A4S’ Asset Owners Network whose aim is to inspire this community to integrate ESG considerations into their investment decisions. This new network will provide an opportunity for the Chairs of pension funds and sovereign funds to share sustainable knowledge and best practice.
Another project on which I am currently working is the A4S Finance Leaders Forum, a high-profile event which will be hosted by His Royal Highness The Prince of Wales at Saint James’s Palace in July 2018. The aim of this event will also be to inspire sustainable investment decision-making but this time across the whole of the financial community from asset owners, to investment management companies via stock exchanges as well as financial regulators, large corporates, investment banks and rating agencies.
My participation in these projects is more at a strategic and engagement level drawing from my 20 year-experience in business development as well as people and strategic management within the capital markets. As such I believe my role adds value to this agenda. Nevertheless, I cannot help to regularly feel that I could do so much more or that what I have achieved so far is only a drop in the ocean of what needs to be completed. Then, I try to remember that the task is gigantesque and that only through the sum of individual efforts like mine and strong collaboration between all stakeholders involved that substantial change will be achieved.

I have another project in the pipeline which is to research how the methodologies used by providers of second-opinions and ESG ratings are perceived by investment managers and how they could be improved. The word in the industry is that there is a plethora of these and they are not consistent, transparent and comparable enough. I hope that this research would contribute to the improvement of these methodologies and that my work could be useful for the definition of a commonly used methodology by investment management companies.

Finally, I am planning to explore how I could contribute further to this challenge by taking on a senior management role within a large organisation to help build strategic partnerships with various stakeholders (e.g. governments, investors, local communities, non-governmental organizations (NGOs), and other companies) in order to bring sustainable change to the industry.

 

Should I keep my “old” car for now?

2025 is less than seven years away and by then cars on the road in many countries will look very different to how they do now.

Although predicting the future is always difficult, I thought that I would do some research on this subject before embarking on the costly and potentially unnecessary purchase of a new car. What I found was quite enlightening and I thought it may be worth sharing with you.

The Climate Group launched EV100, a new business campaign aimed at fast-tracking the uptake of electric vehicles (EV) and its required infrastructure at the Climate Week in New York City in October 2017.  Helen Clarkson, its CEO explained: “We want to make electric transport the new normal. There are two fundamental problems to be addressed. Transport is still the fastest growing area of carbon emissions, as the shift to electric vehicles is not happening fast enough; and mass system change, even with Government intervention, needs much greater customer demand”.

“EV100 will use companies’ collective global buying power and influence on employees and customers to build demand and cut costs. The members being announced today see the business logic in leading a faster transition and addressing local air quality issues in their markets. They are setting a competitive challenge to the auto industry to deliver more EVs, sooner and at lower cost.”

Unilever, IKEA Group, Deutsche Post DHL Group, Baidu, LeasePlan, HP Inc., METRO AG, Heathrow Airport, PG&E and Vattenfall are the first 10 companies to have signed up to this initiative and have committed to replacing their diesel/petrol vehicle fleets with electric vehicle fleets and installing electric battery charging infrastructure by 2030. LeasePlan is planning to have replaced its entire fleet with electric vehicles by 2021. They recognise that there is a real business case since it will create long-term savings and boost competitiveness whilst enabling their organisations to make a significant contribution towards the protection of the environment.

Given this step change in adopting electric cars, I thought it would be useful to explore the matter further. Speed was one of the reasons why most people did not wish to own an electric car until very recently, but the arrival of Tesla on the market dramatically changed people’s perceptions (although cost, battery technology and charging infrastructure are still barriers to mass market adoption). The British inventor, James Dyson, said last September that he is planning to launch a “radically different” electric car by 2020.

However, I realised that the electric battery charging infrastructure is not quite ready in my country and that the £60,000 entry point price for a Tesla Model S is definitely well over my own definition of a reasonable budget for a car. In my view, they are not an investment but are consumer products instead, which depreciate in value over time.

I subsequently wondered whether I should perhaps keep my “old” petrol car for now (not so old really since after 11 years, it is still in very good condition and will certainly still run for quite a few more years) and then consider sharing a car – when mine would eventually break down. By then, the infrastructure for charging electric cars would have hopefully improved, battery capacity increased and their cost reduced substantially.

After all, my family and I only need a car at the weekend. So, do we really need a car when we could just hire one as and when needed? There are a number of car sharing schemes around these days. A quick Google search took me to the Zipcar and RideLink websites. Zipcar has quite a few parking spots within less than half a mile from my house and one literally 150 yards away. Many of my friends already use car sharing schemes and praise their benefits. They are apparently very convenient with numerous parking spots in large cities. This comes with user friendly booking systems (although some may argue that the need to book in advance results in a loss of spontaneity) and, since they reduce the number of cars manufactured, they are a green and sustainable solution for future transportation.

There are also talks about self-driving cars making their way to the market very soon. BI Intelligence explained recently that by 2020, there would be nearly 10 million cars with one of its self-driving car features on the road. General Motors is apparently ready to launch mass production of self-driving cars.

Finally, my partner mentioned over dinner last night that a number of manufacturers are currently studying the feasibility of testing self-flying cars. Whether this is a viable idea in the near future is not the point here but it definitely made me think.

So, should I buy a new car now out of a mixture of vanity, fear of being seen in an old car by other parents at the school gates, envy of our next-door neighbour’s top of the range latest petrol guzzler or should I follow my own instinct as someone who cares deeply about the environment?

With so many future options on the horizon my conclusion was that I just do not need a new petrol car and will keep my not so “old” one for now. There is a high probability that, in a few years’ time, the cost of electric cars will have substantially decreased, battery capacity will have substantially increased and the charging infrastructure will have vastly improved. Who knows… I may not even want to be seen in my very own car and will instead take pride in riding around (or even flying) in a fully recyclable, user operated fully autonomous or shared scheme electric car sporting a big flashy Zipcar- or equivalent type logo!

I hope that by sharing my very own thought process with you, I have made you ask yourselves a few questions and prompted you to consider how through your very own car ownership, you could actually play a significant part in a more sustainable future for our planet.