Why the increased focus on climate action will require alternative investment firms to transform how they invest and market their funds
Climate change and climate action remain big themes for investors in 2021, invalidating the concerns that sustainability issues would take a back seat during a year that was defined by crises. What we are witnessing today is, in fact, mounting global climate action from regulators, standard-setters, investors, and consumers alike, which underscore the reality that addressing climate change will be an all-handson-deck challenge. Indeed, the UN has called this “the decade of action.”
The growing awareness around the climate crisis is increasing pressure on alternative investment firms to both disclose climate risks and to align their portfolios with climate-friendly investments. This represents a significant step-shift in the history of the alternative investment industry, which will require thousands of professional marketers to adapt and adjust to a new investment (and fundraising) landscape. The combination of these trends signals that the marketers of the near-future will need to be proficient in all things climate to succeed in their roles.
The market is moving rapidly towards standardized and regulated climate disclosures
The past few months have featured a flurry of developments around climate regulations and disclosures, with direct ramifications for investment firms. Leading the way is Europe, which has historically been one of the leaders on climate action through the the EU Action Plan for Financing Sustainable Growth and the Green Deal, which is a growth strategy that aims to make Europe the first climate-neutral continent by 2050. While one of the key components of this action plan is the EU Taxonomy, which helps to determine whether an economic activity is environmentally sustainable, the other is the EU Sustainable Finance Disclosure Regulation (SFDR). The EU SFDR, which went into effect on March 10, will apply to financial market participants and financial advisers and usher in a set of new sustainability disclosure requirements at both the firm and product levels. The SFDR is also designed to further help enhance the comparability of financial products, thereby clamping down on greenwashing. Already there are reports that “some commentators expect [SFDR] to set an example which the rest of the world will follow.”
The United States is also making big moves towards tackling climate-related risks across multiple areas of government. President Joe Biden announced the United States’ reentry to the Paris Accord, which took effect on February 19. The U.S. Federal Reserve (Fed) recently joined the Network of Central Banks and Supervisors for Greening the Financial System (NGFS), an international group of central banks focused on climate change risk. On the regulatory front, the U.S. Securities and Exchange Commission’s (SEC) acting chair Allison Herren Lee announced that the agency’s corporate finance division will be asked to enhance their focus on climate in their reviews of corporate filings, saying that “now more than ever, investors are considering climate-related issues when making their investment decisions.” On March 15, Lee announced that the SEC would be seeking public comments on the potential introduction of mandated climate change disclosures in response to growing "investor demand for, and company disclosure of information about, climate change risks, impacts, and opportunities."
While regulatory and legislative efforts on climate action tend to dominate headlines, there has also been a parallel rise in new voluntary frameworks and standards that investors and companies can adopt to meet market expectations for standardized disclosures on climate-related financial risks. One of them is the Task Force on Climate-related Financial Disclosures (TCFD), which was created in 2015 by the Financial Stability Board (FSB). Structured around four thematic areas of governance, strategy, risk management, and metrics and targets, the purpose of the TCFD recommendations are to help companies in disclosing reliable information to stakeholders around climate-related financial risk. Other main standard-setters in the field of climate and sustainability reporting include the CDP, the Climate Disclosure Standards Board (CDSB), the Global Reporting Initiative (GRI), the International Integrated Reporting Council (IIRC), and the Sustainability Accounting Standards Board (SASB). Recently nick- named the Group of Five, these standard-setters launched a prototype climate-related financial disclosure standard that illustrates how their current frameworks, standards and platforms, along with the elements set out by the TCFD, can be used together to develop a global standard on sustainability disclosure.
Lastly, asset managers and institutional investors are also increasingly responding to climate change. In December 2020, asset managers with a combined $9 trillion of assets under management launched the Net Zero Asset Managers initiative, committing to support the goal of net-zero greenhouse gas emissions by 2050 or sooner. In a similar vein, the United Nations-convened Net Zero Asset Owner Alliance, an international group of 33 institutional investors representing $5.1 trillion in assets under management, is asking investors to calculate and set measurable net-zero targets in their portfolios. A separate group of 38 investors with $8.5 trillion in total assets recently launched the Net Zero Investment Framework to help mainstream the practice of 'net zero investing.'
With this many government institutions, standard-setters and influential investors all pushing for climate action, it is clear that the rest of the investment community will need to rapidly ramp up their own climate commitments to meet client and beneficiary expectations and to be in compliance with government regulations.
Best practices for marketers facing questions about an investment management firm's approach to climate change
Marketers are in a unique and critical position as the investor-facing representatives for many alternative investments firms. Therefore, they have an important responsibility in guiding how their firms are responding to the increased demand around climate-related issues. In our conversations with leaders in the field, three best practices stood out for marketers seeking to be ready for a future defined by climate action.
- Develop a baseline level of knowledge: The regulatory and standard-setting environment is constantly evolving, and the alternative investment industry should expect to face increasing pressure and scrutiny around climate-related reporting and investment activities. Therefore, marketers must ensure that they are aware of such regulatory changes, as well as new industry standards, that will have an impact on their firm’s ability to generate returns and attract institutional capital. This could involve attending industry events, reading academic papers, following the news, and interacting with others in the field. Even setting aside five hours each week to catch up on the latest developments can make a big difference in achieving at least a baseline level of proficiency on the topic of climate change.
- Hire climate experts to bring added credibility: Sustainable investing and climate change are both highly specialized fields that require decades of experience to truly attain an expert level of knowledge. To be successful in the climate era, marketing teams must be comprised of professionals that have the right mix of expertise and knowledge. This is especially important because as the awareness around sustainability challenges increases, so too does the demand for ESG and climate experts. However, the relatively nascent nature of the space increases the risk of greenwashing (and competence washing) by firms, hindering progress towards climate goals. Understanding that “awareness does not equate to expertise,” it is imperative to acknowledge that highly technical fields, such as climate change, require experts that can be embedded alongside marketers in shaping the firm's position on climate change. These experts can also play a role in responding to investor DDQs, representing investment firms at climate-focused groups, and attending sensitive client meetings.
- Work collaboratively with others across the firm: A single marketer or even a marketing team can’t be expected to be the answer to all climate-related questions and concerns that an alternative investment firm may face. To truly be climate-ready requires an interdisciplinary approach that brings together different departments and specialists, from the C-suite to ESG specialists to compliance officers. Marketers should be integrated as members of this larger team, and work to ensure alignment across the firm. One way to do this would be to host weekly or bi-weekly meetings that bring together different members of the team to discuss shared challenges and align on goals.
Of course, climate change is just one component of 'ESG' and the larger sustainable investing universe. Alternative investment firms will also continue to face increased demands on diversity, equal pay and governance issues. While climate change will likely be the most urgent and top-of-mind issue for the investor community, it is important that alts firms take the lessons they learn in building out their climate-oriented processes and products and apply those lessons to other focus areas like increasing workforce diversity and creating an inclusive culture. As best practices and investor expectations evolve, investment firms (and their marketing teams) will be expected to keep up.
We will explore other developments and best practices in sustainable investing in future newsletters. In the meantime, please feel free to contact us for additional insights or data about hiring and fundraising trends across the alternative investment universe.
Sincerely,
Sasha Jensen
Sasha Jensen
linkedin.com/in/mssashajensen
News Corner on Climate Change
Here is a selection of recent articles about ESG and climate change that provide additional color on this topic.
Barron’s: Markets Want Climate Risk Disclosure. Time to Give It to Them.
Barron's: New EU Regulations on Sustainable Investing Could Hit U.S. Funds Soon
Bloomberg: Most Investors Still Fail to Back Climate Resolutions
Bloomberg: Pimco, Fidelity Among Firms Devising Net-Zero Investing Standard
Bloomberg: SEC Signals Tougher Rules for Corporate Climate Disclosures
Financial Times: CFA offers certification in sustainable investing
Financial Times: Greenwashing in finance: Europe’s push to police ESG investing
Financial Times: The role of business in climate change
Financial Times: The Fed is catching up on climate change
Financial Times: Time to clean up climate reporting standards
Financial Times: UK pension schemes face new climate risk reporting rules
orbes: Climate Change Risks Should Be A Priority For U.S. Bank Supervisors
FundFire: Climate Change Will Be Front and Center for Investors in 2021
FundFire: ESG's Banner Performance in 2020 Opens Flow Gates
Institutional Investor: The Pressure Is on Private Equity To Take ESG Seriously
IP&E: Net-zero asset owner group seeks asset manager blended finance action
IP&E Real Assets: Regulation: What SFDR means for infrastructure funds
Pensions & Investments: Net-zero initiative signs up 30 managers with $9 trillion in assets
Responsible Investor: EU regulators cut number of mandatory reporting indicators in final SFDR draft
Responsible Investor: Euro central banks to commence TCFD disclosures for investment portfolios
Responsible Investor: US Fed governor supports mandatory disclosure of climate risks
SEC: Public Input Welcomed on Climate Change Disclosures
The Hill: SEC to update climate-related risk disclosure requirements
The Hill: SEC creates task force for climate, ESG violations
The New York Times: As Winter Sweeps the South, Fed Officials Focus on Climate Change
The Washington Post: A surge in green financing boosts climate businesses
Wall Street Journal: EU to Make Fund Managers Back Up Sustainability Claims
Wall Street Journal: The Green Investing Standard That Could Set the Global Bar
Recent ESG Moves
Here is a selection of recent marketing moves and promotions specific to the ESG space. We also included a list of several non-distribution moves in the ESG space, which usually serve as a precursor for the eventual hiring of marketing professionals with ESG expertise. We will continue to parse our data on the ESG talent landscape in future newsletters. Moves are listed in alphabetical order by last name.
Distribution Roles
- Chris Anker joined RWC Partners as Head of Sustainability and Integration. Anker was previously a senior analyst for investment policy at Columbia Threadneedle Investments.
- Fong Yee Chan joined Vanguard Group as Head of ESG Strategy, UK and Europe in February 2021. She was previously Director of Sustainable Investments at FTSE Russell.
- David DeVos was named Global Head of ESG at LaSalle Investment Management. The firm also appointed Elena Alschuler as Vice President of Sustainability for the Americas. Reporting to the global COO, DeVos will be responsible for ESG programmes, such as the firm’s initiatives on climate change, and health and wellness. Alschuler will partner with DeVos in executing sustainability initiatives in North America. Prior to LaSalle, Alschuler worked for View Inc. where she led real estate activities.
- CBRE Global Investors named Robbie Epsom its new Head of ESG for Europe, Middle East and Africa. Prior to this, Epsom was associate director within the sustainability advisory services arm of environmental consultancy WSP Global.
- Caroline Gibert was concurrently named Managing Director of Business Development & Investor Relations as well as Head of ESG with Natixis Investment Management-owned private equity firm Flexstone Partners in January 2021. She joined the firm in 2014 in a BD & IR role and, prior to joining, she spent five years with Omnes Capital where she focused on the marketing and investor relations functions dedicated to the mid-market buyout funds. Previously, she worked for Amundi Asset Management in international marketing and sales and responsible for funds distribution for institutional clients.
- Roger Lewis has joined River and Mercantile in a new role as its group head of ESG. He will be responsible for implementing and overseeing the group’s ESG philosophy and core principles across its various investment divisions and integrating these important factors within the firm’s investment processes and asset management activities.
- Abbie Llewellyn-Waters was promoted to Head of Sustainable Investing at Jupiter Asset Management in January 2021 in London. She was previously a Manager of the Sustainable Equities Fund at the firm.
- Martina Macpherson joined Oddo BHF as Head of ESG Strategy for asset management and private equity. Macpherson joins from Moody’s where she was a senior vice president focused on the firm's ESG & Engagement strategy.
- Alpha FMC hired Troy Mortimer to join as a director as part of the ESG and responsible investment
Non-Distribution Roles
- Virginie Derue was promoted to Head of ESG Research at AXA Investment Managers in February 2021 in Paris. She was previously Head of Corporate Credit Research at the firm.
- Sina Dorner-Müller will join the Credit Suisse ESG Specialist Team as an Associate in January 2021, based in Zurich. She was previously an Associate in Sustainability Investment Research at Robeco.
- HSBC Global Asset Management named Nathalie Flury and Michael Schroeter as Co-Heads of Sustainable Healthcare Equity. Before that, Flury and Schroeter were partners at Viopas Partners, a Swiss firm focused on sustainable healthcare.
- Michael van der Meer will join the Credit Suisse ESG Specialist Team as a Manager in January 2021, based in Zurich. He was previously Head of Sustainable Investment Research at Robeco.
- Timothy Oehmigen will join the Credit Suisse ESG Specialist Team as an Associate in January 2021, based in Zurich. He was previously a Sustainable Investment Research Associate at Robeco.
- Angela Saxby will join the Credit Suisse ESG Specialist Team as a Manager in January 2021, based in Zurich. She was previously Senior Analyst of Sustainable Investments at Robeco.
- Karim Sayyad will join the Credit Suisse ESG Specialist Team as Vice President in January 2021, based in Zurich. He was previously Senior Analyst of Impact Investment, Private Equity at Nordea.
- Jon Wallace was promoted to Environment and Sustainability Fund Manager at Jupiter Asset Management in January 2021 in London. He was previously an Investment Associate that focused on the "green technology space" for the firm.
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