Three investment management firms raise their ESG game
Last week, the second week of February, marked a productive one for global investment management companies in the sustainability space, with three big financial services firms announcing company firsts in the Environmental, Social and Governance (ESG) landscape.
While Wall Street giant Goldman Sachs debuted its first-ever sustainability bond, JPMorgan and Vanguard announced senior ESG hires to fill brand-new roles – the former hiring high-profile UK Labour politician Chuka Umunna to lead its ESG work, and the latter snapping up ex London Stock Exchange Group executive Fong Yee Chan as head of ESG strategy for the UK and Europe.
Pressure on investment firms to address ESG issues
While businesses across all sectors are addressing demand for ESG commitments, the financial services sector and investment management firms, in particular, have been a little slow off the sustainability starting blocks.
However, with demand for ESG advisory services growing rapidly, asset managers like Legal & General and BlackRock are increasingly putting pressure on companies to address climate crisis, lack of diversity and other ESG issues.
At the end of January, BlackRock CEO Larry Fink said the firm would take a tougher stance against corporations unwilling to provide a full accounting of environmental risks, part of a cluster of moves by the asset management firm to show it is doing more to address investment challenges posed by climate change.
Among the moves, BlackRock said it would increasingly vote against management and boards if firms don’t disclose climate change risks and plans in line with key industry standards.
With pressure mounting, awareness is turning into action and ESG in the investment landscape is starting to go mainstream with major firms making big moves.
Increased ESG action in investment
Goldman Sachs’ debut into green bonds is a big sustainability statement and follows the company’s formation in October last year of a group focused on investment opportunities in clean energy, waste and sustainability industries. Worth US$800, the bond is likely to be used to finance loans and investments made in projects and assets such as clean energy, sustainable transport and financial inclusion.
They aren’t the first though, and follow JP Morgan which entered the fast-growing market in September last year by selling US$1 billion such bonds, with four years maturity.
JP Morgan believes ESG considerations are now having an impact on everything from corporate finance strategies and investment flows to day-to-day operational decisions with Marilyn Ceci, global head of ESG debt capital markets at JPMorgan, telling Bloomberg that the company expects the sustainable finance market to expand 49% by the end of 2021 compared with 30% project in October last year.
And the firm is putting its money where its mouth is, creating a new senior sustainability position in the company and hiring ex UK shadow business secretary Chuka Umunna to fill it.
According to a JPMorgan statement, Umunna will head up the company’s ESG consultancy team and “will work closely with the firm’s regional and global ESG stakeholders and partner with team across all lines of business to help our clients successfully navigate the evolving ESG landscape.
Vanguard is also upping its ESG game, hiring an ESG executive in a newly created role to help accelerate the company’s efforts towards informing investors of its perspective on ESG topics.
As head of ESG Strategy for the UK and Europe at Vanguard, Fong Yee Chan will be responsible for developing the US$7.1 trillion firm’s approach to ESG issues in Europe, ensuring it meets the needs of Vanguard’s clients.
“The ESG landscape is evolving rapidly with new regulation, an increasing number of investment offerings and different perspectives on the best way to approach EDG,” says Sean Hagerty, head of Vanguard, Europe.
What does ESG comprise?
Environment, Social and Governance (ESG) comprises a set of principles that touches on issues from diversity and board structures to labour relations, supply chain, data ethics, environmental impact and legal requirements. ESG investing is the investment in companies that score highly on the environmental and societal responsibility scales.
Charting the rise of the chief sustainability officer
There has been a dramatic increase in the hiring of the chief sustainability officer (CSO) role among Fortune 500 companies, with demand for CSOs growing 228% in corporate America over the last decade, according to the latest report from CSO recruitment firm the Weinreb Group.
There were more first-time CSOs recruited by Fortune 500 companies in 2020 than the previous three years combined, with numbers of CSOs in corporate America soaring from just 29 in 2011 to 95 today, demonstrating the importance corporations are placing not just on reducing their environmental impacts, but also in supporting issues of social justice.
Businesses are increasingly under pressure to assume more responsible practices with customers, regulators and investors demanding increased transparency of business ESG performance.
And the past year in particular has been seen great upheaval, with increased new attention brought to “social justice, climate change, and an ever-widening political divide”, according to Ellen Weinreb, founder and CEO of the Weinreb Group, which has tracked the rising role of CSOs over the past decade.
CSO role is expanding and shifting
But it’s not just the number of CSOs that have changed, sustainability teams are getting bigger, with the average team size increasing from five professionals in 2011 to 15 today, according to the report.
This is in part due to the fact that the CSO role has expanded beyond simply ‘sustainability’ to incorporate social justice too. Sustainability isn’t exclusively about the environment anymore. The role has also come to incorporate social justice, especially with the rapid growth of, and increased attention on, environmental, social, and governance, or ESG.
And many roles recently have been renamed as such with Head of ESG or ESG Officer becoming increasingly prominent.
Women make up over half of CSO roles
What's also changed over the last decade is the percentage of women holding the title of Chief Sustainability Officer.
A decade ago, in 2011, the majority of CSO roles were held by men (72%), with just 10 of the 29 then CSO roles held by women. A decade on, in 2021, the percentage of women in CSO roles has almost doubled, now accounting for more than half (54%) of CSO positions.
However, according to the report ‘The Chief Sustainability Officer 10 Years Later’, despite the movement toward gender balance within the role and its expanded focus on social justice, in particular, in 2021 the CSO position remains overwhelmingly ‘white’.
Probably not surprising considering there are just three black CEOs at Fortune 500 firms.
How the chief sustainability officer role has grown
The first-ever named chief sustainability officer in a US publicly traded company was Linda Fisher for Dupont, who joined the chemical giant in 2004 as CSO, just at the time when innovative companies were looking at sustainability as a driver for business growth. Joining from the Environmental Protection Agency where she spent 13 years, Fisher was a corporate sustainability trailblazer, spending more than a decade as CSO here, and leading DuPont’s efforts to establish its first set of market-facing sustainability goals.
By 2006, a slew of firms had joined the CSO movement, including Mastercard, Nissan and Microsoft; and Kellogg’s became the first firm to replace a CSO with Dianne Holdorf taking over from Celeste Clarke. And by 2011, a decade ago, Coca-Cola, Verizon, AT&T and P&G had appointed their first CSOs.
In fact, it was in 2011 when Virginie Helias invented her idea of the perfect CSO job – to make sustainable consumption not only possible, but ‘irresistible’ – and pitched it P&G’s then CEO. A decade later, in 2021, and Helias is still in the job she first created.
The majority of CSOs have been internal hires, such as Peter Graf of SAP, who joined the software giant in 1996, and served as EVP for Marketing before being named CSO in 2009. The same is true at UPS, whose first-ever CSO, Scott Wicker, started at the package delivery giant 34 years before being named CSO in 2011. Increasingly, however, external hires are being made with organisations increasingly searching for more high-profile leading voices in the ESG forum.
In February 2021, JP Morgan hired former British high-profile Labour politician Chuka Umunna while just last month hotel chain Accor hired high-profile French politician Brune Poirson, who has previously championed the anti-waste law within the French government and was secretary of state for the environmental transition for three years.