Sustainable
investing has gained significant momentum in recent years, driven by increasing
global awareness of environmental, social and governance (ESG) factors.
As
we delve into the topic of sustainable investing and ESG, it's essential to
consider the latest developments and changes that are shaping this
ever-evolving landscape within financial institutions. Firstly, it’s important to acknowledge that ESG is
becoming more of a general part of the investment process and is being
integrated more - so where do we go from here?
The evolving landscape of sustainable investing
Over
the last couple of years, several important developments have occurred in
ESG.
COP26, which was held in Glasgow
at the end of 2021, really built out ESG in the UK and put it on the
map. CEOs sat up and took notice, and that really helped to drive the path ESG
has been on ever since. According to Henry Daubeney, Global Chief Accountant
and Head of Reporting at PwC UK, COP26 was a “major step to globally aligned
ESG reporting.”
A
year later, COP27 raised (and went a little way to answering) the question of
how we, both as countries and companies, will reach the goal of the Paris
Agreement - net zero emissions by 2050. The answer, according to Forbes,
is technology.
We’re
seeing this in action in real time, with many prominent insurance companies and
pension funds stepping forward with policies and commitments regarding net zero
emissions. Companies such as Aviva, Aegon,
BT
and Legal & General have made
substantial strides in aligning their operations with net zero goals,
demonstrating the industry's growing dedication to sustainability initiatives.
Aviva,
as an example, is aiming to beat the goal of 2050, and instead achieve net zero
10 years earlier. They are keen to demonstrate their approach and commitment.
In 2022, they stopped underwriting insurance for companies that make more than
5% of their revenue from coal or unconventional fossil fuels.
They
say that by 2025, “we plan a 25% cut in the carbon intensity of our invested
assets. Closer to home, we’re aiming for 100% renewable electricity for all our
offices, which total 230,231m2, combined with 100% electric/hybrid vehicle new
leases for our 1,540-strong motor fleet. [...] Fast forward to 2031, and we’re
targeting a 60% cut in the carbon intensity of investments, combined with
having Net Zero operations and a Net Zero supply chain”.
Another good example of a
financial institution committing to ESG best practices is Royal London, where asset managers include
ESG data when making investment decisions for their clients across all their
solutions. With the support of a dedicated Responsible Investment team, asset
managers are able to use in-depth analysis and insights to give a company an
ESG score and understand the strength of an investment opportunity from an ESG
perspective.
This
level of transparency allows investors and stakeholders to make informed
decisions based on a financial institution's commitment to sustainable
practices. It also highlights the increasing accountability and responsibility
that companies are embracing in the pursuit of ESG goals.
New UK regulations and their impact
The
landscape of sustainable investing in the UK has witnessed the introduction of
new advice and regulations.
The
FCA’s guiding principles go some way to targeting
environmental, social and governance considerations within the financial
services sector, requiring businesses to integrate ESG factors into their
decision-making processes and disclose relevant information to investors and
stakeholders.
The
Sustainable Financial Disclosure Regulation (SFDR) articles six, eight and
nine also aim to create more transparency around sustainable investing, and help
reduce so-called “greenwashing”.
Furthermore,
regulators such as the Bank of England, the Pensions Regulator, and the
Department for Work and Pensions (DWP) have taken a stronger stance on ESG
criteria. These industry bodies have voiced their expectations regarding
companies' adherence to specific ESG standards, placing greater responsibility
on businesses to meet these criteria.
All
this, coupled with a significant push in the right direction from investors,
means that financial services businesses are now compelled to incorporate ESG criteria
into their strategies and operations. This shift has led to a greater focus on
sustainability and responsible investing practices across the industry.
And
there’s also more to come, with a UK government consultation concluding on 30th June 2023
that will inform the scope of an ESG regulatory regime.
Geographical variations in ESG
One
reason we need more than just UK-facing regulations is that ESG requirements
and practices vary across different regions. This diversity is evident across
Europe, with each country developing its own style for approaching ESG
considerations.
Similarly,
the US exhibits regional differences, with the west coast leading the way in
prioritising ESG while the south demonstrates comparatively lesser emphasis.
New York City stands as a halfway house, where the political climate influences
businesses' more cautious approach to ESG.
And
it’s not just discrepancies between countries or regions, it’s businesses, too…
The expanding impact of ESG on executive search
The
growing significance of ESG factors is reshaping the executive search landscape. As organisations focus on specific
aspects of ESG, such as climate change or social impact, the search for
qualified professionals has become more specialised. Consequently, executive
search agencies are witnessing a shift in the spectrum of job roles related to
ESG.
We
have seen and dealt with executive ESG & Responsible Investing
roles that are anything from ‘teams of one’, with the responsibility for a
company’s entire offering, to teams of thirty plus with highly focused roles, such as Chief Sustainability
Officer and Chief Responsible Investment Officer. We’re also starting to see
the addition of ESG director-level roles where these individuals sit on the
board and help to shape and influence the direction firms undertake from an ESG
perspective.
This
rapid evolution of ESG creates discrepancies across companies. These
discrepancies can be observed in job titles, salary structures, benefits
packages and job responsibilities, emphasising the need for greater
standardisation and clarity within the field. The evolving nature of ESG
presents both opportunities and challenges for professionals seeking roles in
this field. It’s crucial to assess an organisation's commitment to ESG and its
alignment with your personal values when pursuing an ESG-focused role.
If you’re an ESG leader or currently working in
this market, we’d like to invite you to participate in a Hanover salary survey.
If you’re interested in participating, please contact Rob or Em directly. Your participation
will contribute to a better understanding of the compensation landscape in the
ESG sector.
