An increasing focus among investors on sustainability risks, growing political pressure and emerging regulation has placed Environmental, Social and Governance considerations at the very top of today´s business agenda and positioned ESG as a key differentiator for long-term business success.
On June 24, Capco and Simmons & Simmons brought together leading experts from the worlds of industry, consulting and academia to share their views on the opportunities and challenges arising from the transition to a greener economy.
Session moderators Olaf Clemens, Partner at Capco, and Harald Glander, Partner at Simmons & Simmons, opened proceedings with an overview of the current dynamics surrounding ESG. “We are truly at an inflection point: Environmental, Social and Governance principles have made their way from being a catchy phrase for marketing or communication purposes to a regulatory framework that is informing business decisions and investments,” noted Olaf Clemens.
Harald Glander added: “It has been predicted that global ESG assets are on track to exceed $53 trillion by 2025, representing more than a third of the total assets under management. This redirection of capital into sustainable investments will clearly have an impact on the real economy. However, while ESG is being redefined, there are challenges around the consistency and interpretation of the regulations, the implementation of the related processes, and the available metrics and data.”
These comments were echoed by Karsten Loeffler, Chair of the Sustainable Finance Committee of the German Federal Government: “We are now at a stage where there is no other option than to reflect sustainability criteria in everyday financial market practice, whether that is banking, investment managers, asset owners. It is here to stay.”
As Jennifer Wu, Global Head of Sustainable Investing at J.P. Morgan Asset Management, noted, not only has there been a significant rise in the market volume associated with sustainable finance, but there is also an ongoing shift in how ESG is perceived. “Where we were traditionally thinking about ESG as it relates to certain types of values, we are now really looking at ESG as data and information – ESG is no longer just about values-based investing, it is being integrated into traditional value investing,” she said.
Given a growing number of ESG-oriented regulatory requirements, a clear understanding of the provisions imposed by regulation is clearly fundamental. As Steffen Hoerter, Head of ESG at Munich Re Investment Partners, noted: “You have got to be consistent in what you are communicating to your clients. Sustainable investment strategies need to be true to their label. You need to transparently state what sustainable outcome the investment strategy aims to deliver and what not. Sustainability very rarely is a digital 0/1 status. Mostly it is about sustainability transition.”
Turning to the evolution of the sustainable finance market, Ioannis Ioannou, Professor at London Business School, said: “We need to allow enough flexibility for [ESG] metrics to be more dynamic as issues emerge or gain momentum within society.” This makes strategic longer-term planning more challenging for companies, as what is considered sustainable today may no longer qualify tomorrow.
Drawing on his insights on the degree of traction ESG principles are gaining within the US market, Mehrzad Mahdavi, Executive Director at the Financial Data Professional Institute, also highlighted ongoing uncertainties around sustainable finance. “There is a level of confusion because things are in the state of flux, in terms of lots of different regulations that are coming to the fore,” he said. “It takes time for all these things to take effect and become really deployable.”
Throughout the session, ongoing challenges around the quality and availability of ESG-related data – and making optimal use of that data – was a topic to which the panellists repeatedly returned. This data-related strand of the global ESG conversation will be explored in greater depth during our next webinar, planned for the early autumn.
Author: Marcus Fleig
Watch the recording here:
ABOUT THE SPEAKERS
Dr. Steffen Hörter was appointed Head of ESG at Munich Re Investment Partners (MRI) in March 2021. MRI is an ESG-driven systematic investment management specialist of Munich Re. The company collaborates with Munich Re Markets to serve clients from the global life and pension industry to design and implement attractive and sustainable savings and retirement products. Previously, Dr. Hörter spent five years as Global Head of ESG Integration & Solutions at Allianz Global Investors. There he was responsible for worldwide ESG integration into Allianz GI’s investment strategies, ESG portfolio implementation advisory for institutional clients and ESG thought leadership.
From 2018 to 2020, Steffen was a member of the EU Technical Expert Group Sustainable Finance, Brussels, advising the EU Commission on EU Climate Transition and Paris Aligned Benchmarks as well as on the Benchmarks’ ESG disclosure. Between 2020 and 2021 he was also a member of the Sustainability Accounting Standards Board (SASB) Investment Advisory Group.
Dr. Hörter is a lecturer of sustainable investing in insurance companies at EBS Business School Oestrich-Winkel. He studied at the Universities of Regensburg, Edinburgh (UK) and at the Catholic University of Eichstätt, where he received his PhD from the WFI Chair of Finance and Banking.
Ioannis is a Professor, an Advisor and a keynote speaker on sustainability leadership and corporate responsibility. He is considered a leading authority on how companies strategically integrate ESG factors into their processes and structures and how the investment community perceives, evaluates, and reacts to such corporate attempts to integrate ESG.
Prof. Ioannou graduated magna cum laude from Yale University, majoring in Economics and Mathematics and holds a Ph.D. in Business Economics from Harvard University and the Harvard Business School.
He is currently Associate Professor of Strategy and Entrepreneurship at London Business School and regularly publishes in top-tier peer-reviewed academic journals. He is by far the most highly cited strategy scholar of his graduating cohort. Moreover, among his numerous advisory roles, Prof. Ioannou is a member of the ESG Advisory Board of the DWS Group, a member of the World Economic Forum Experts Network specialising in sustainable development, and a member of the Advisory Board of AXS Investments Institute for Sustainable Investing.
Karsten Löffler is Managing Director of the Green and Sustainable Finance Cluster Germany (GSFCG), a private-public collaboration to foster sustainable finance in Germany. In addition, he heads the UNEP Collaborating Centre for Climate & Sustainable Energy Finance at Frankfurt School of Finance & Management. He is a member of the EU Commission’s Platform on Sustainable Finance, working on the EU Taxonomy, and he chairs the Sustainable Finance Committee to the German Federal Government. Previously, Karsten worked for Allianz Group for 28 years.
Karsten is a certified international investment analyst and member of the German Science Platform Sustainability 2030. Representing Allianz, he was inter alia chairing UN Environment Program Finance Initiative (UNEP FI) climate change advisory group, was on the management board of ClimateWise, member of the Geneva Association’s extreme events and climate risk working group, and advisor to the Global Innovation Lab for Climate Finance.
Following an apprenticeship as a bank clerk at Dresdner Bank, Karsten studied at the Georg-August University in Göttingen.
Mehrzad Mahdavi is a technology entrepreneur with focus on breakthrough digital transformation for the fintech, energy, and industrials sectors. He is a recognized expert and frequent keynote speaker on the application of AI, data science, IoT, and Cloud computing in multiple industry sectors. Mehrzad has served in executive management roles at Fortune 500 companies as well as startups. He is currently the executive director of the Financial Data Professionals Institute (FDPI), providing chartered designation for the financial professionals working in the fast-growing fields of AI and data science. Mehrzad is a trusted advisor for Fortune 500 firms in the field of digital transformation.
Mehrzad holds a PhD in Nuclear Science and Technology from the University of Michigan and a Bachelor of Science in Electrical and Electronics Engineering from the University of Illinois at Urbana-Champaign.
Jennifer Wu has been the Global Head of Sustainable Investing at JP Morgan Asset Management since February 2019. In this position she coordinates efforts of continued ESG integration, research and thought leadership, investment stewardship, and development of innovative strategies. She also leads the Sustainable Investing Leadership Team (SILT), a global team of senior leaders focused on sharing best practices for sustainable investing across asset classes.
Prior to JP Morgan Asset Management Jennifer was part of BlackRock´s Sustainable Investing Team where she led the creation of innovative investment solutions by combining bespoke sustainability related insights with BlackRock's technology and risk analytics to deliver both purpose and performance to clients' portfolios across asset classes. Jennifer started her career in venture capital and private equity focusing on technology and renewable energy as a research analyst and subsequently a portfolio manager.
Jennifer received her Master of Science in Economics from the University of Edinburgh in the UK as a Chevening Scholar and her Bachelor of Science in Finance from the National Cheng-Chi University in Taiwan. She enjoys trail running and has completed 5 marathons and multiple long-distance mountain races.
ESG: DEFINING THE FUTURE OF SUSTAINABLE FINANCE
Financial institutions will need to embrace high volume data processing, drawing upon machine learning and artificial intelligence and leveraging data analysis and harvesting via smart analytics. The scale and complexity of the managing and storing data means cloud technologies may also need to be considered they look to map an optimal path forward to a future model of sustainable finance.