| Gemma Livermore: Hello and welcome to another episode of Seismic Sessions where we explore enablement for financial services. I’m Gemma Livermore, Head of International FS Marketing at Seismic as always, I’m joined today by Rachael.
Rachael Rowe: Hi Gemma, delighted to be here. I’m Rachael Rowe, our VP at Seismic and today we’re thrilled to dive into a topic that’s become a significant focus for businesses globally, ESG or Environmental, Social and Governance. We’re joined by two incredible guests, Valentina Christensen, Corporate Affairs Director at OakNorth and Sharon Wilson.
Sharon is responsible for implementation of ESG inclusions and exclusions across content at Schroders.
Gemma Livermore: Valentina leads OakNorth’s ESG and sustainability strategies, while Sharon heads up ESG content and communications at Schroders, where they fully integrated ESG into their investment decision making. Today, we’re going to explore the rise of ESG, the impact of the Great Wealth Transfer, how companies can promote their ESG efforts and authentically do so without falling into the trap of greenwashing, which we hear ever so often nowadays.
So lots of hot topics there.
Rachael Rowe: Yes, absolutely. I’m looking forward to getting into it. And as our regular listeners know, we work our podcast conversations around our seismic earthquake theme. So we start by looking back at tremors and where those movements of change began. And then we shift to the epicentre to explore where we are now.
And then following on from that, looking at the aftershocks. And that’s where we, really look at where things are. are going, the direction that we’re heading. So before we get started, we always start our podcast episodes by asking our guests what enabling financial services means to them. So first, if we can put that to you,
Before we get started, we always start our podcast episodes by asking our guests what enabling financial services means to them. So first, if we could put that to you, Sharon,
Sharon Wilson: I would always say that enabling financial services is what, what I do. So it’s enabling really the investment teams to be able to do their jobs. So when we’re talking about ESG and the universes that they need to invest in, sort of helping them to, decide what that is, to code that into the systems, to then providing the content, the look and feel of how we really want to sell the ESG products.
So we have lots of sustainable products. We have different types of sustainable products. We have thematic ones. We have article eight and article nine funds. So it’s really getting that content so it can state exactly what the product is doing, what the product isn’t doing, what sustainable characteristics there are within that product and how it’s going to meet them,.
Gemma Livermore: Great answer and Valentina over to you. What do you think?
Valentina Kristensen: Sure. So I would say, having been at OakNorth for the last nine years or so, I’m going to give a very OakNorth answer, which is, empowering entrepreneurs by providing them with the personalised banking services and bespoke debt finance that they need to succeed and scale.
Gemma Livermore: Love it. Okay. So let’s start by looking back at the roots of ESG. Valentina, Sharon, ESG has obviously grown in importance in recent years, but it wasn’t always a priority for businesses. So to set the stage for our listeners, could each of you give a sense as to why you believe ESG wasn’t historically a key topic for businesses and Valentina, if we can go first to you on that one.
Valentina Kristensen: Sure. I mean, I think there’s probably a whole bunch of reasons, right? I mean, again, if you sort of rewind the clock, you know, there was much more of a focus on profitability on, at least on short term profitability. So businesses are more concerned with, you know, maximising short term profits for their shareholders, you know, and prioritising the financial performance rather than, you know, environmental or social impact.
There also wasn’t really as much stakeholder pressure, whether that was from investors or, you know, customers, employees, that has also really changed, you know, public awareness of climate change, social justice, corporate governance, all those things have grown much more in the public mindset over the last few decades and years. I think you know, another big challenge is the sort of the, the lack of standardisation, you know, there wasn’t a clear or consistent way to measure and report on ESG performance, and there still, in many ways, people would argue probably isn’t, but I think it’s become a lot clearer, and there’s a lot more standardisation than there has been historically. And again, that just makes it a bit easier for those different stakeholders to understand and be able to compare the one company’s performance with regards to ESG against another.
There’s probably a few more I’ve missed, so, yeah.
Gemma Livermore: And I’m sure we’ll come on to them as the conversation unfolds because it is a big topic and hard to answer in one one question like that. But what about yourself, Sharon? When you look back, what do you think the difference was ESG not being a hot topic historically?
Sharon Wilson: So for us, it’s always been governance. And when I look back and I look back into the past, governance was very important to our clients. They were very interested in how we voted, how we were, we have numbers of companies that we invest in, that our portfolio’s investing, and how we voted on those companies. When their annual general meetings were out, making sure that we were interested in sort of what were the topics of those votes, particularly remuneration was always a big deal. So I remember it really spawning out of that and us making a decision years back on cluster munitions, that we wouldn’t invest in any companies that made cluster munitions.
And then, as Valentina said, I think our investors, the universe that really sort of come to us, our clients. they started to become very interested in climate change. And I think we set up our first climate fund or probably in the nineties because we thought that would be interesting. And we actually invested in companies that would help improve the climate.
So that started a long time ago and that fund is still running actually to this day. And then of course it got more and more with climate change really being seen, something the public were very much aware of us actually looking at a range, looking at how we could do that. And then very much so with the regulation that came in, making sure that we had funds that met those regulations.
So funds that were Article 8 or Article 9 funds, and now obviously with the upcoming ESMA naming rules and the SDR challenges that we have, really building that range. Now that range is getting much more sophisticated, but it’s definitely been a long journey.
Rachael Rowe: I think you’ve touched on a few interesting areas there that we’ll probably unpack a little bit now as we go into the tremors phase of our conversation. Because if we look at how ESG has evolved over time, and is a hot topic now, as we’ve already alluded to, it wasn’t always the case.
Valentina, from your role overseeing ESG and sustainability at OakNorth, what challenges do you think companies face when trying to position themselves as genuinely ESG focused?
Valentina Kristensen: I mean, I think it’s probably a few of the things that we’ve already talked about and some of the things that you mentioned in your intro. you know, greenwashing accusations, that’s a big challenge and that sort of links to, you know, transparent reporting. Again, it’s quite hard to report in a transparent way if there’s a lack of standardisation or a sort of a template that you can use to sort of uh measure your progress compared to the industry or compared to others in your industry It’s also very complex and difficult to measure impact right some of these things. They’re not hugely measurable, you know banks and financial institutions are used to looking at things nine quarters out, not decades out, you know, so, so I think that is something that the industry continues to grapple with. And it’s also then, I guess it goes back to the point I made around sort of balancing profitability with impact.
And, I think there’s been a sort of view that the two are sort of mutually exclusive, which obviously many businesses have demonstrated that they’re not. And in fact, if you’re a business that’s doing a huge amount with regards to ESG, you can probably find that your profits may be even better because you’re going to see, you know, more customers, more investors, have a better reputation and so on.
Gemma Livermore: Valentina, just digging into that a little bit more, obviously, you know, as we’re talking here, it seems like ESG is a no brainer, you know, ensures sustainable growth, mitigates risks, aligns with evolving investor and regulatory demands. But why do you feel that there was a need to bring in regulations around it, if it makes sense to do it?
Valentina Kristensen: I mean, there’s so many things in financial services that make sense, but it only took regulation to kind of make those things happen, unfortunately. and again, I think regulation can be something because, a lot of the time, uh, you know, it can be very burdensome to do these things if you’re not quite at the scale.
You know, there’s obviously such a range, right? You’ll have some businesses that will have entire, ESG departments and some like OakNorth where we only have one person, and actually right now we don’t even have one person. We’re currently recruiting for his replacement. You know, and, and while the function is overseen by myself, you know, it’s not a part of the business where we’ve got, you know, let’s say an entire floor or an entire team dedicated to it.
So you’ve got different levels of resource and sophistication. I would say, you know, at least at OakNorth, we know I’ve been driven by regulation. So, for example, when we published our first TCFD report, we didn’t have any regulatory requirement to do so, but we, as, you know, an organisation that’s, that’s trying to lead with regards to climate, at least, we, we felt that we wanted to, you know, publish this before we had any requirement from a regulatory perspective to do so, but regulation can be helpful because it kind of puts a line in the sand and then businesses know, okay, once we reach that point, in terms of our growth, whether it’s in terms of headcount or assets, or profits or what have you, then, you know, we know that we’re going to have to do these things. So it can help an organisation to plan for that, to make sure that it does have the resource, the team, the capabilities in house, Or has hired those resources externally so that it’s prepared to do those things. And if, if you don’t have a sort of a marking point, it can be quite hard to actually make a decision as to when to invest in that. So sometimes regulation can be a helpful enforcing function.
Gemma Livermore: It’s actually really refreshing to hear a positive stance on regulation because I quite often hear about it being an obstacle or, you know, something else that a company has to deal with. So it’s really nice to see that it’s playing a helpful role for you there at OakNorth.
North.
Rachael Rowe: Yeah, and I think, I think also building on that, there’s been something of a dark cloud around ESG, brought about by obviously the rise in greenwashing and the impact that’s had throughout the industry. Sharon, maybe you could comment on that. How do you see greenwashing having influenced the industry’s approach to ESG communications and, and, specifically from Schroeder’s perspective, how have you had to adapt to avoid that label?
Sharon Wilson: Greenwashing I think was brought in because at the beginning, when ESG and particularly sort of climate and sustainable funds there were more and more of them made in the market, regulation really helped us with what is greenwashing, what are you saying? If you’re overstating what this fund is doing, if you’re saying that you’re, I don’t know you’re sort of creating a universe and you’re actually looking out some types of Stocks shares etc from your actual investable universe that you’re proving that you’re doing it. And I think some companies weren’t really proving that they were doing that and how did you report on that?
So if you’re saying that you’ve got a transitioning fund, for example, greenwashing and regulation now states that you have to have those KPIs. So if i’m buying the fund that I want to see this improving, that it’s helping the climate. I need to see that it is improving. So you have to have the reporting in there to show and those KPIs in there to show that the stocks that you have in that fund are improving. You know, they’re, they’re using less water, they’re using less carbon dioxide, et cetera, et cetera. And you need to show that you’re doing that. So I think with the greenwashing, it, it’s something you have to be very careful of because the regulators really do watch out for what you’re doing and what you’re saying. So it’s made us very, very much aware, and regulated ourselves, I think, with our own sort of audit practices as to what we are saying, what we are doing, and how we can prove we are doing what we say we’re doing. So it’s not just even with content. So for example, the recent SDR rules made out that if your fund is not sustainable, that you can’t have pictures of, I don’t know, water, trees, et cetera, in your documentation that makes it look like it’s sustainable when it isn’t sustainable.
So there’s very sort of much rules as well, the sort of not hoodwinking anybody into thinking your fund is sustainable when it actually isn’t. And then the rules that you have really with the fund that you have labelled as sustainable. sustainable, how you report on it, how you show that you are limiting the universe, et cetera, et cetera.
It’s a challenge and it’s a challenge that, it’s ongoing because you know, new regulation is popping up all the time. So, I don’t know how Valentina is managing with a team of one, we have a much larger team and it does keep us all very much focused because of all of the changes you need to make to your fund documents, et cetera, to keep up with the regulation.
Gemma Livermore: And as we dig into that a little bit more, I know, obviously, Schroders has fully integrated ESG into its financial analysis and investment decision making. But how do you ensure that that messaging is consistent? And so that it does avoid being seen as greenwashing.?
Sharon Wilson: So what they’re saying now, so what most regulations are saying now is they’re looking at how you’re naming your fund. So if you have sustainable in the name of your fund, then you have to meet certain sustainable requirements. If you don’t, then you don’t have to meet those sustainable requirements.
One of the main greenwashing things is label your fund correctly. And in fact, you won’t be able to register your fund with, certainly the UK regulator or the European regulator, uh, if you’re putting sustainable in it or the word transition in it, if you’re not meeting certain requirements. So, you have to do that in order for them to register your fund and allow you to call it that, to actually name it that. you’re not then it’s quite clear you’re just going to call your fund European Large Cap Fund, something like that. It doesn’t say sustainable in it, you don’t have to meet all those sustainable requirements. But what we say is we’re fully integrated, meaning that we take sustainability into account for everything that we do. But that doesn’t necessarily mean it’s a sustainable fund.
Gemma Livermore: Yeah, and what about when you bring that same consistent messaging to your content creation? How do you ensure that that’s all on level as well when it comes to ESG?
Sharon Wilson: So again, you have the requirements as I sort of mentioned earlier. If it is not a sustainable fund, if it’s not sustainably labeled, you cannot have certain things. You can’t say, you can’t actually even put in your content how much carbon you’ll use, how much water you’re using, because it makes it look like it’s a sustainable fund when it isn’t. So we had to strip a whole load of that back. back and out of our funds because we had that in the mall because they are fully integrated, but because we’re not selling them as sustainable funds, we were not allowed to have that anymore. So we had to look at all of our content. We had to just take everything into account.
We had to look at them all. We had to check through everything and make sure that we didn’t say anything that we shouldn’t say on funds that were not sustainable. And also that everything we had was clear, fair, not misleading across all of our sustainable funds. So it meets with the requirements of the regulator.
Gemma Livermore: And I imagine that was a headache in itself trying to make sure that that was the same across the board. I think, with my marketing head on I can imagine you’d need everything sort of in one place to check that.
Sharon Wilson: Oh, you would. And, and also just trying to get everybody to understand because, because at Shroeders we have so much content. Even though, you know, we have a lot of it on Seismic, it’s easy to look at it. You want something like AI to go through and pull it all out and see where you’re saying certain things. And, and making sure that you’re, where you say it, it should be there. Where you’re saying it, it shouldn’t be there, it’s removed. So yeah, there was a lot of searching, a lot of word searching, a lot of, sort of like AI reports sort of set up to look for things, like Genie and stuff, our sort of chat GPT’s, looking for, for words, certain words, etc.
Gemma Livermore: I think that’s where technology has really helped us in this space. I can’t imagine doing all of that when I look back at my career, say, 20 years ago when I started without that support.
Sharon Wilson: Yeah, it made it much easier.
Rachael Rowe: So let’s move to, to the epicentre of our conversation today. And this is really around how companies can promote their ESG efforts without falling into the trap of greenwashing. So building on a lot of what Sharon’s already discussed about the approach that’s been taken at Schroders.
Valentina, how do you ensure that OakNorth’s ESG initiatives resonate authentically with internal and external teams?
Valentina Kristensen: I mean, look, I think it’s about any communication, right? The easiest way to communicate something with authenticity is probably to be authentic and honest about it. not trying to put sort of, I would say a PR spin on things. I think if you are a business that doesn’t necessarily have the strongest ESG credentials today.
That’s fine. Lots of businesses are still quite early in the journey, but then just own up to it and say, this is where we’re at. We know these are things that we need to work on. These are the steps we’re going to be taking, you know, these are the things we’re going to be doing and, and look, hold us to account, right?
If, if you don’t feel like we’re progressing in the way we need to, or we’re not at least, you know, communicating how we’re progressing in a way that you feel is clear, then, you know, please let us know. I think from OakNorth’s perspective, you know, from day one, we’ve, we’ve never lent to businesses like Fossil Fuels, Mining, Gambling, Adult Entertainment, creation or, selling, for example.
So there’s a few, few areas that we’ve never really, touched, but then we also know that there are lots of our customers that, you know, the end of the day, we service SMEs. So there are some that are pretty far in their journey, some that are. very much in a nascent stage and don’t have any kind of sustainability strategy.
We ourselves have set some pretty ambitious targets. So we want to be net zero by 2035. I don’t know if we’ll get there, you know, it’s, it’s an ambitious target, but I think you just need to keep your stakeholders informed as you go along, right? There may be interim targets that you won’t meet. And there might be very clear reasons as to why you’re not meeting those.
What you don’t want to do is kind of not say anything, miss a target, then someone calls you out on it, and then you say oh yeah, yeah, well actually it’s because of this. It’s much better to say, we don’t think we’re going to hit that target. you know, well ahead of time. These are the reasons why this is the sort of revised target, or this is what we’re going to do instead.
And it’s just about that sort of transparency and keeping those, those stakeholders informed. I mean, there are lots of industry today where you actually, in some ways, need to have, a worse carbon footprint in order to create some benefit in the longterm. Let’s take electric vehicles, for example, right? The creation of batteries and electric vehicles requires lithium. Lithium mining is a, is not a particularly environmentally friendly activity. But you know in the short to medium term, we’ve got to do that until unless we find, you know another technology, because that will enable us to get the long term benefit. So again, I think just sort of explaining some of these things being up front and transparent about where you are with targets, if targets are going to change rather than sort of being on the back foot and waiting to be found out and then having to kind of try to rebuild trust thereafter. It’s much harder
Gemma Livermore: Yeah. and I think you summed it up really well there is to be authentic. You just need to be honest. I think that’s a really powerful message there and a simple one as well. But Sharon, if we, we try and give our listeners as many takeaway tips as possible, what practical steps can marketing teams take to ensure their messaging remains credible and to avoid any perception of being disingenuous? So much. Yeah. Yeah,
Sharon Wilson: So for us, because I’m particularly talking about, I’m not talking about Schroeder’s carbon footprint here. I’m talking about the funds that we invest in the sustainable fund range that we have.
So for us, it’s really looking at what the regulators say is understanding those regulations. And they’re not that easy to understand. I think that’s where some companies have tripped themselves up because of the voting requirements. because it’s not just sort of what you have to say that you’re not going to invest in the fund.
So you’ll have a whole list of exclusions, things that you are not doing. You’ll have inclusions, which are things that you absolutely will do with respect to voting and engaging with the company and and showing really that you’ve met with companies. One of the things that you have to do for governance, say on transition fund or on improving fund is show that you’ve actually met with the, some of the companies, engaged with them, talks about how they’re going to improve, highlighted things that you think aren’t particularly good for the environment, and how are they going to work on that, and then you show that they have improved. And that’s one of the things that you do with an improver fund. You say we invested in these 30 stocks, we spoke to the company 15 of them have quite clearly improved on you know, they’re not using so many pesticides, etc, etc They’re not mining for coal anymore. They’re using other things. So you have to have those metrics, you have to be very organised and you really really have to understand those regulations So I think that’s where people can get tripped up on because they are confusing and you do need a team to really pick through them depending on the type of fund you have and the label that you’re giving it.
Rachael Rowe: I think we’ve got similar themes of transparency, clarity of communication, authenticity, metrics, and being clear about what those metrics are. How, when, when the rubber hits the road, if you’re looking at how you’re actually able to maintain transparency and integrity throughout your organisation regards to your ESG messaging. How do you approach that? And I guess probably start with you, sharon, with that one.
Sharon Wilson: So we approach it really by actually categorising our funds into certain labels. Heard me mention many a time, transitioning funds, thematic funds, improving funds, sustainable funds. They’re all slightly different labels and they all mean different things. So we have to, we have to, we have something that we’ve built called just our framework, our ESG framework on which all of these labels hang. And that starts off with really what the universes are that the fund managers can invest in, what benchmarks they have. Checking that the exclusions that we have in the fund. So the metrics that we’re using meet the actual exclusions that the funds are saying that they’re going to have. We reconcile that regularly. Then we have to show that the reporting on the fund, has to be clear that we are doing what we’re saying we’re doing. So we have that. So that follows on down. And we also have regular meetings in house. We have quarterly meetings where we look at all of our, our sustainable funds, our ESG labelled funds and make sure that, we’re doing what we say we’re doing. So we really do actually govern ourselves quite well on this. Because the last thing we want is to be accused of greenwashing or have a fine slapped upon us. It’s just so bad for reputation, so bad for business, that we want to be as clear and understand everything and do what we say we’re doing and do it properly.
Rachael Rowe: Yeah. And I think Valentina mentioned, you know, that, that magic word that trust, and I think that that’s so, essential for organisations. It takes so long to build. And so such a short space of time, it can be eroded. So I guess technology plays a really important part in being able to do this at scale, on an ongoing basis, within Schroeder’s Sharon, how do you approach that?
Sharon Wilson: So, you’ve heard me mention metrics. So, for example, um, you heard Valentina talk about things like adult uh, entertainment. You have certain sort of domestic weapons. You’ll have, alcohol, number of things that really a sustainable fund is prohibiting, and some of them go down to zero, some of them go down to a percentage of revenue.
So, you’ll say, say a maximum percentage of revenue for the tobacco value chain. You may have tobacco at zero, that you don’t want to be involved in the manufacturing of tobacco, but you may want to invest in supermarkets, which do sell some cigarettes. And so you sort of have those revenue limits on certain things.
And so that you can explain why you have those and those metrics are provided usually by one of the many named benchmark providers, and we code them in, we check with them, we code them into our systems and that keeps those exclusions alive. So if a fund manager goes to trade on something and one of those metrics has been updated it will stop that trade from going through and it will explain, it will come up saying that it’s, it’s excluded because of, I don’t know, it’s got tobacco in it, it’s got alcohol in it, whatever it has. So we have all of those coded, checked, reconciled, and if a fund manager say, for example, something does hit that and it gets excluded and they disagree with it, we’ll engage with the benchmark provider if we think it’s wrong and we’ll look at the latest report of the fund and we’ll engage with the benchmark provider to change that because you say, look, that they’re not being so bad.
They’re not producing that anymore. So can we now buy this fund? But there’s so much work that goes into this and so much engagement down to that last look at what we can and can’t do, and we’re living and breathing it now, quite frankly.
Gemma Livermore: And Valentina. I guess for our listeners, it would be really good to hear your side, from a smaller organisation with a smaller ESG team, how you deal with that?
Valentina Kristensen: So, I mean, I think, as you say, we’re a small organisation, so we kind of had the benefit of being able to look at every business that, that applies for a loan with us or applies to open an account with us. We have a sort of initial vetting process, so just more to check that the business is of the right size and then kind of similar to, to what Sharon explained, you know, we’ll have
certain businesses that, that we will exclude, again, we’re pretty upfront about that. So it’s very rare that we’ll have, let’s say, you know, a business in the adult entertainment industry applying to open an account with us or applying for a loan with us, but if they do, you know, we just sort of say, you know, you can see here, a little bit about, you know, who we are and who we lend to.
I think, you know, from our perspective, it’s more about trying to find those businesses where, not only, you know, they might have, they might have a significant challenge in their transition journey, but also there’s a big opportunity and where we feel that with OakNorth support, with access to, you know, fast, flexible funding that we can provide, they could actually, you know, transition, they could become a leader in this space, and then potentially gain, you know, more customers as a result.
So from our perspective, it’s not just about looking at our portfolio and seeing where there might be potential challenges. Oh, there’s a business here that’s really, you know, got a really bad carbon footprint or that, you know, isn’t, would not score well from an ESG perspective, you know, how can we look to exit that business or to, to stop working with a business like that?
But more, how can we support that business in its transition to greener operations and actually see it more as an opportunity?
Rachael Rowe: And I guess, it’s time to move to the aftershocks. So if we look to the future, ESG is set to continue evolving. What do you both see as the key opportunities and challenges for businesses navigating this space? Valentina, as ESG becomes more embedded in corporate strategies, challenges do you foresee for companies in keeping up with regulatory demands, as well as stakeholder expectations?
Valentina Kristensen: So yeah, so I mean, look, I think there’s, as I kind of started, or alluded to in my previous response, we do see a lot of opportunity here, if you kind of, I mean, at Oaknorth, we, we actually split the economy into about 274 different subsectors, so, we don’t sort of just, you know, bucket businesses into, let’s say hospitality and leisure or education and healthcare, try to look, you know, several layers deeper than that and say, okay, you know, where might you be in the supply chain? So one of our customers, they, deliver cash to ATMs across the UK and they have a fleet of 300 armoured vehicles. Obviously. to convert those armored vehicles into, electric vehicles, same level of protections, will require a significant investment. So it might not be immediately obvious that that’s a business where there’s an opportunity to help them in their transition journey, because.
You know from an outsider looking in it’s like, oh, well, it’s just it’s a business that delivers cash and has you know, 300 vehicles, but then again you kind of have to look at the individual customer and start to say well actually an investment of x they know to electric vehicles or they could convert their existing fleet into electric and still, you know without sacrificing the safety elements of you know, moving cash around the country. Equally there might be some businesses that are already leading the chart in their respective industries, so a number of other clients There are two homes, they actually deliver, build, ultra sustainable net zero homes.
So, you know, everything from the cavity wall insulation, double glazing, geothermal heating, solar panels, and there’s a very large portion of the market that actually will pay a premium for a home like that. You know, the sort of very eco conscious consumer. And so there, the conversation, or the opportunity is more, how can we help you to do even more of this?
And then as I say, there are some customers that are, you know, much smaller them, it’s sort of having the conversation. They might not appreciate that they actually, they might think we can’t do anything And then you delve a bit deeper and you find out, oh, okay, well, you’re recycling, or actually, you know, you’ve got a, you know, an electric vehicle salary sacrifice scheme, or, or who knows, right? They might have a number of things that they’re doing already, which means they do have some, you know, initial workings of a sustainability strategy, even if on paper they don’t think they do.
And so working with those customers to help you an organisation identify where they might be able to support that right now. I
Gemma Livermore: so Valentina, maybe we can dig in there about how businesses, particularly obviously those in financial services, can remain adaptable as we see rapid changes in ESG regulations and public sentiments looking forward.
Valentina Kristensen: I think, it kind of goes back to something that we’ve also talked about really through the whole conversation, which is the team. There’s so much changing regulation. There’s so much changing consumer sentiment and also there’s also changes politically, that’s less of an issue in the U.K but if you look at somewhere like the U.S For example, obviously, with the upcoming election, depending on who ends up in the White House, the conversation with regards to climate change and ESG more broadly could be very, very different. So I think it really comes down to building climate confident teams, you know, making sure that your teams feel empowered to have these conversations with the different stakeholders, whether it’s investors, whether it’s your customers, and that they also see the value in it.
Right. And the opportunity, I think from our perspective, if, if our finance directors or essentially our relationship managers, the people who are at the front line speaking to customers, if they don’t feel confident in having these conversations or identifying where the, potential opportunities may be, with the example I gave before of, um, you know, the business that has a fleet of vehicles. that deliver cash to aTMs across the UK, um, you know, no one’s going to know the customer better internally than the person who is dealing with that customer day in day out. So we really do have to rely on them to help us identify those opportunities, and have those conversations with customers. So I really think it comes down to building climate confident teams. Those are the teams that will, you know, be ahead of regulation that will help to get the stakeholders internally and externally on board that will help to have those conversations to get that buy in top down and to ensure that, um, the different members of the team who might be engaging with customers, you know, feel confident in the conversations they’re going to be having with them.
Rachael Rowe: That’s a really great perspective and I was very interested with you kind of positioning that as being ahead of regulation, and I guess that that’s going to be a challenge for everybody within the industry as the standards attached to ESG continue to evolve. And so, a question for you, Sharon, around that, what challenges do you foresee for Schroder’s, in terms of keeping ESG strategies aligned with client expectations and regulatory change?
Sharon Wilson: So, our clients in particular are asking for more and more, ESG sort of alignment and reporting. So, very much because they want to show themselves if they’ve got their own net zero targets, they want to show that their investments are also meeting those requirements. So if they’ve got pension funds or their own sort of investments, or if it’s a white label fund, you know, that we’re investing for a fund that they’re selling themselves, they want to show that it’s meeting the requirements.
And so really the challenge that we have is getting that information to them because they want reporting, they want statistics, they want us to to show it, be able to sort of look through. Are there underlying holdings in that, portfolio and show them what the carbon weighted position is in that portfolio, how much water it’s using, et cetera, et cetera. how much fertilizers, all these sort of PAIs that we have, uh, principal adverse indicators that the regulator has asked us to work by to show what we’re doing and on what we’re doing on do no significant harm, etc. So there’s so much reporting, so much that they want us to do, that they’re constantly engaging with us And saying, can you, give us this information?
Can you give us that information? And that information is hard to pull out of a portfolio of stocks and holdings. So that’s where our real challenges are, where we’re looking to build the tools, we’re having to build our own in house proprietary tools to pull that information out and deliver that to our clients.
But that is definitely what they’re asking us for. And they’re asking us even to pull their portfolios together. So where they have different types of investments with us, they want one score over all those investments. So that’s really what we’re working on. How we can really look through to the investments that we have in our portfolios, how we can score them, how we can show that they’re going against climate change, how they’re going against some sort of theme.
We have funds that there may be be sort of an energy transition in funds. So how they’re showing there what we’re doing, what, what sort of closing down on coal was opening up on cleaner fuel, et cetera. So those are the real challenges that we have with clients requesting that, that reporting and that level of investment for us.
And that’s where we’ll beat our peers by being able to do that, because that’s what we’re getting asked more and more to do.
Gemma Livermore: So I love this part of the podcast where we talk about the aftershocks and how things are going to look into the future, I don’t think we’ve ever had one where we haven’t mentioned AI. So it seems timely to bring it in now. Given the rise of technology and aI, how do you see Schroders using these tools to stay on top of ESG developments and communicate them effectively to investors?
Sharon Wilson: Well, we have, in everybody’s objectives, we have an AI objective to make sure that we gone on certain courses understand what it can do. We have our own in house sort of ChatGPT called Genie that we use. We’ve all used co pilot etc. So very much so it’s one of the things that we are told to concentrate on and see how we can, with limited resources, continue to expand and grow and get more out of the technology that we have.
So AI is the definitely in everybody’s daily tasks now. We look where we can use it, where it can help us. We look at it as a sort of an able assistant that sits alongside us. So you can ask it to do certain things with copilot. Of course it can write your emails. It can go to the internet and find things for you.
It’s very, very good with our ChatGPT version. It helps you, be a bit more concise with certain things, but also you can load on documents and you can look for things. So as I mentioned earlier, when I said we used it to look at greenwashing, where we mentioned sustainable, improving certain words, we do that now for all of the investment management agreements we have. We’ve checked through everything to look at what commitments we have and that they’re all up to date. It would have taken so much longer without aI. And so it’s very, very much in our values now at Schroders that we are to use AI. We are to embed it into our daily lives and make the most of it and enrich really what we can do utili
Gemma Livermore: And it really is that heavy lifter, like you say, that, enabler, I guess, of everybody. And Valentina, any thoughts on aI from your side?
Valentina Kristensen: Yeah, I mean, I think, you know, from our perspective, we really sort of, advocates of the hybrid approach, I think, with everything, you know, we think that technology can be a huge enabler and a huge efficiency unlocker, but, there’s still a need always to have a human involved in the process, right?
Even with, you know, using tools like chat GPT, I’m sure we’ve all had the experience. You read through something and you think, Oh God, that doesn’t make any sense or it’s completely wrong and you have to be, you know, the person that would be doing the sense check, and that’s really something that we really live and breathe throughout the whole organisation. We are a digitally led tech led business. But then, you know, we do a lot of things that I suppose would be considered more traditional, and things that actually even the big banks don’t do, like inviting customers into credit committee to actually discuss their borrowing needs directly with the decision makers.
And that’s because while you know, the data might be telling you something and on paper you think, you know what, this is a really good business to lend to, then maybe you meet the business and, you know, actually it seems like the management team don’t feel aligned they seem to be pulling in different directions or you just don’t get a sense this is a business that you you could really add value to for you know over the long term and vice versa. Sometimes you know the numbers on paper tell one story and then you meet the team you meet the business, you can see how passionate they are and how you know on top of the numbers they are and what a clear plan and strategy they have in place and that can really give you the confidence as a lender to say this is a business you want to work with. So I think you know All of the use cases that Sharon mentioned, but appreciating that humans still have a very important role to play in, and we feel a hybrid approach is, is the best one.
Rachael Rowe: Before we wrap up, what one piece of advice would you give to marketing teams looking to authentically promote their ESG efforts? Valentina, if we start with you first.
Valentina Kristensen: So I would, I mean, it’s basically a summary of the conversation. I would just sort of say, let actions, You know, drive the narrative and be transparent along the journey. You know, that’s the best way to ensure that your stakeholders, you have the buy in from a different stakeholders, that you’re being authentic and that you build trust, not just in what you’ve achieved to date, but also what you hope to achieve in the future.
Rachael Rowe: That’s a great answer. And a lot of it, and I think that a lot of the theme that we’re hearing today is around authenticity and trust and really internalising that the the metrics and the processes and the systems to support it. Sharon, from a much larger organisation schroders, what advice would you give?
Sharon Wilson: Well, we have all of our funds labelled, so marketing have the within organisation and having know what the funds do. We’re very clear for our outlook for the funds, where we’re aiming to get our funds, what Schroeder’s itself as a obviously does how important ESG is to us. So that’s one of the things that we stamp on everything.
And we work globally with all of the different regulators that we have, making sure that we understand what their rules are because they’ve all got slightly different rules. And therefore, wherever our funds are registered, we make sure that all of the marketing teams understand What the number one, issues are with those regulators and what the number one exclusions are. So, for example, I think in Australia, they’re very against using nuclear power and tobacco. They’re not like that elsewhere. So it’s getting the marketing teams to understand who they’re marketing to, what their audience is, but being very clear about what Schroders itself does, how important ESG is to Schroders and how we’re aligning ourselves with all the different types of labels and sustainable funds that we have and also the performance. So, you know, looking at actually, you know, the performance of our funds.
Gemma Livermore: And Sharon for those listeners that are just embarking on this journey now, I know I’ve heard you in the past on different panels talk about the need to have all of your content in one place As a starting point to enable you to start focusing on ESG. Could you talk about that a little bit more?
Sharon Wilson: Yes, so, by having, all of your content in one place, what you can do is you can have so if we’re talking about a vision for, a type of an impact fund, for example, there may be certain slides that should go across all of our impact fund range, and our thematics fund range. So we have these shared slides and the risk considerations are the same and the disclaimers and disclosures are the same. So we have them all on Seismic. We actually have an ESG folder on Seismic where all of our our marketing teams, all of our teams can go into and they can see what’s allowed, what’s not allowed. So all the rules on there, but also we have shared slides that the ESG team have put together that you can put into your content that are approved and complied. So you can just drop them and you don’t have to re comply them. And also just to give them an idea of what
they can and can’t do, but we have regular training so that they know what they can and can’t do. So there’s online training that I think we do twice a year to make sure everybody’s up to date with the rules and the regulations.
Gemma Livermore: That’s great. And I honestly I could have carried on this conversation for so long I think it’s so important to have these narratives as both of you have pointed out. It’s quite hard to, understand the regulations sometimes. And so it’s really nice to hear how other people are tackling it and how they’re starting the journey.
And so thank you to both of you for being on board today. I’m sure it’s been as fascinating for those listening as it has for me. So really excited to see how companies will continue to navigate in this space. And perhaps it’s one that we could revisit in a year’s time and see what’s changed and how adaptable we did have to be in the end.
Rachael Rowe: Absolutely. Thank you both for joining us.
Valentina Kristensen: Thank you very much for having me on.
Sharon Wilson: Thank you. |
| Gemma Livermore: Hello and welcome to another episode of Seismic Sessions where we explore enablement for financial services. I’m Gemma Livermore, Head of International FS Marketing at Seismic as always, I’m joined today by Rachael.
Rachael Rowe: Hi Gemma, delighted to be here. I’m Rachael Rowe, our VP at Seismic and today we’re thrilled to dive into a topic that’s become a significant focus for businesses globally, ESG or Environmental, Social and Governance. We’re joined by two incredible guests, Valentina Christensen, Corporate Affairs Director at OakNorth and Sharon Wilson.
Sharon is responsible for implementation of ESG inclusions and exclusions across content at Schroders.
Gemma Livermore: Valentina leads OakNorth’s ESG and sustainability strategies, while Sharon heads up ESG content and communications at Schroders, where they fully integrated ESG into their investment decision making. Today, we’re going to explore the rise of ESG, the impact of the Great Wealth Transfer, how companies can promote their ESG efforts and authentically do so without falling into the trap of greenwashing, which we hear ever so often nowadays.
So lots of hot topics there.
Rachael Rowe: Yes, absolutely. I’m looking forward to getting into it. And as our regular listeners know, we work our podcast conversations around our seismic earthquake theme. So we start by looking back at tremors and where those movements of change began. And then we shift to the epicentre to explore where we are now.
And then following on from that, looking at the aftershocks. And that’s where we, really look at where things are. are going, the direction that we’re heading. So before we get started, we always start our podcast episodes by asking our guests what enabling financial services means to them. So first, if we can put that to you,
Before we get started, we always start our podcast episodes by asking our guests what enabling financial services means to them. So first, if we could put that to you, Sharon,
Sharon Wilson: I would always say that enabling financial services is what, what I do. So it’s enabling really the investment teams to be able to do their jobs. So when we’re talking about ESG and the universes that they need to invest in, sort of helping them to, decide what that is, to code that into the systems, to then providing the content, the look and feel of how we really want to sell the ESG products.
So we have lots of sustainable products. We have different types of sustainable products. We have thematic ones. We have article eight and article nine funds. So it’s really getting that content so it can state exactly what the product is doing, what the product isn’t doing, what sustainable characteristics there are within that product and how it’s going to meet them,.
Gemma Livermore: Great answer and Valentina over to you. What do you think?
Valentina Kristensen: Sure. So I would say, having been at OakNorth for the last nine years or so, I’m going to give a very OakNorth answer, which is, empowering entrepreneurs by providing them with the personalised banking services and bespoke debt finance that they need to succeed and scale.
Gemma Livermore: Love it. Okay. So let’s start by looking back at the roots of ESG. Valentina, Sharon, ESG has obviously grown in importance in recent years, but it wasn’t always a priority for businesses. So to set the stage for our listeners, could each of you give a sense as to why you believe ESG wasn’t historically a key topic for businesses and Valentina, if we can go first to you on that one.
Valentina Kristensen: Sure. I mean, I think there’s probably a whole bunch of reasons, right? I mean, again, if you sort of rewind the clock, you know, there was much more of a focus on profitability on, at least on short term profitability. So businesses are more concerned with, you know, maximising short term profits for their shareholders, you know, and prioritising the financial performance rather than, you know, environmental or social impact.
There also wasn’t really as much stakeholder pressure, whether that was from investors or, you know, customers, employees, that has also really changed, you know, public awareness of climate change, social justice, corporate governance, all those things have grown much more in the public mindset over the last few decades and years. I think you know, another big challenge is the sort of the, the lack of standardisation, you know, there wasn’t a clear or consistent way to measure and report on ESG performance, and there still, in many ways, people would argue probably isn’t, but I think it’s become a lot clearer, and there’s a lot more standardisation than there has been historically. And again, that just makes it a bit easier for those different stakeholders to understand and be able to compare the one company’s performance with regards to ESG against another.
There’s probably a few more I’ve missed, so, yeah.
Gemma Livermore: And I’m sure we’ll come on to them as the conversation unfolds because it is a big topic and hard to answer in one one question like that. But what about yourself, Sharon? When you look back, what do you think the difference was ESG not being a hot topic historically?
Sharon Wilson: So for us, it’s always been governance. And when I look back and I look back into the past, governance was very important to our clients. They were very interested in how we voted, how we were, we have numbers of companies that we invest in, that our portfolio’s investing, and how we voted on those companies. When their annual general meetings were out, making sure that we were interested in sort of what were the topics of those votes, particularly remuneration was always a big deal. So I remember it really spawning out of that and us making a decision years back on cluster munitions, that we wouldn’t invest in any companies that made cluster munitions.
And then, as Valentina said, I think our investors, the universe that really sort of come to us, our clients. they started to become very interested in climate change. And I think we set up our first climate fund or probably in the nineties because we thought that would be interesting. And we actually invested in companies that would help improve the climate.
So that started a long time ago and that fund is still running actually to this day. And then of course it got more and more with climate change really being seen, something the public were very much aware of us actually looking at a range, looking at how we could do that. And then very much so with the regulation that came in, making sure that we had funds that met those regulations.
So funds that were Article 8 or Article 9 funds, and now obviously with the upcoming ESMA naming rules and the SDR challenges that we have, really building that range. Now that range is getting much more sophisticated, but it’s definitely been a long journey.
Rachael Rowe: I think you’ve touched on a few interesting areas there that we’ll probably unpack a little bit now as we go into the tremors phase of our conversation. Because if we look at how ESG has evolved over time, and is a hot topic now, as we’ve already alluded to, it wasn’t always the case.
Valentina, from your role overseeing ESG and sustainability at OakNorth, what challenges do you think companies face when trying to position themselves as genuinely ESG focused?
Valentina Kristensen: I mean, I think it’s probably a few of the things that we’ve already talked about and some of the things that you mentioned in your intro. you know, greenwashing accusations, that’s a big challenge and that sort of links to, you know, transparent reporting. Again, it’s quite hard to report in a transparent way if there’s a lack of standardisation or a sort of a template that you can use to sort of uh measure your progress compared to the industry or compared to others in your industry It’s also very complex and difficult to measure impact right some of these things. They’re not hugely measurable, you know banks and financial institutions are used to looking at things nine quarters out, not decades out, you know, so, so I think that is something that the industry continues to grapple with. And it’s also then, I guess it goes back to the point I made around sort of balancing profitability with impact.
And, I think there’s been a sort of view that the two are sort of mutually exclusive, which obviously many businesses have demonstrated that they’re not. And in fact, if you’re a business that’s doing a huge amount with regards to ESG, you can probably find that your profits may be even better because you’re going to see, you know, more customers, more investors, have a better reputation and so on.
Gemma Livermore: Valentina, just digging into that a little bit more, obviously, you know, as we’re talking here, it seems like ESG is a no brainer, you know, ensures sustainable growth, mitigates risks, aligns with evolving investor and regulatory demands. But why do you feel that there was a need to bring in regulations around it, if it makes sense to do it?
Valentina Kristensen: I mean, there’s so many things in financial services that make sense, but it only took regulation to kind of make those things happen, unfortunately. and again, I think regulation can be something because, a lot of the time, uh, you know, it can be very burdensome to do these things if you’re not quite at the scale.
You know, there’s obviously such a range, right? You’ll have some businesses that will have entire, ESG departments and some like OakNorth where we only have one person, and actually right now we don’t even have one person. We’re currently recruiting for his replacement. You know, and, and while the function is overseen by myself, you know, it’s not a part of the business where we’ve got, you know, let’s say an entire floor or an entire team dedicated to it.
So you’ve got different levels of resource and sophistication. I would say, you know, at least at OakNorth, we know I’ve been driven by regulation. So, for example, when we published our first TCFD report, we didn’t have any regulatory requirement to do so, but we, as, you know, an organisation that’s, that’s trying to lead with regards to climate, at least, we, we felt that we wanted to, you know, publish this before we had any requirement from a regulatory perspective to do so, but regulation can be helpful because it kind of puts a line in the sand and then businesses know, okay, once we reach that point, in terms of our growth, whether it’s in terms of headcount or assets, or profits or what have you, then, you know, we know that we’re going to have to do these things. So it can help an organisation to plan for that, to make sure that it does have the resource, the team, the capabilities in house, Or has hired those resources externally so that it’s prepared to do those things. And if, if you don’t have a sort of a marking point, it can be quite hard to actually make a decision as to when to invest in that. So sometimes regulation can be a helpful enforcing function.
Gemma Livermore: It’s actually really refreshing to hear a positive stance on regulation because I quite often hear about it being an obstacle or, you know, something else that a company has to deal with. So it’s really nice to see that it’s playing a helpful role for you there at OakNorth.
North.
Rachael Rowe: Yeah, and I think, I think also building on that, there’s been something of a dark cloud around ESG, brought about by obviously the rise in greenwashing and the impact that’s had throughout the industry. Sharon, maybe you could comment on that. How do you see greenwashing having influenced the industry’s approach to ESG communications and, and, specifically from Schroeder’s perspective, how have you had to adapt to avoid that label?
Sharon Wilson: Greenwashing I think was brought in because at the beginning, when ESG and particularly sort of climate and sustainable funds there were more and more of them made in the market, regulation really helped us with what is greenwashing, what are you saying? If you’re overstating what this fund is doing, if you’re saying that you’re, I don’t know you’re sort of creating a universe and you’re actually looking out some types of Stocks shares etc from your actual investable universe that you’re proving that you’re doing it. And I think some companies weren’t really proving that they were doing that and how did you report on that?
So if you’re saying that you’ve got a transitioning fund, for example, greenwashing and regulation now states that you have to have those KPIs. So if i’m buying the fund that I want to see this improving, that it’s helping the climate. I need to see that it is improving. So you have to have the reporting in there to show and those KPIs in there to show that the stocks that you have in that fund are improving. You know, they’re, they’re using less water, they’re using less carbon dioxide, et cetera, et cetera. And you need to show that you’re doing that. So I think with the greenwashing, it, it’s something you have to be very careful of because the regulators really do watch out for what you’re doing and what you’re saying. So it’s made us very, very much aware, and regulated ourselves, I think, with our own sort of audit practices as to what we are saying, what we are doing, and how we can prove we are doing what we say we’re doing. So it’s not just even with content. So for example, the recent SDR rules made out that if your fund is not sustainable, that you can’t have pictures of, I don’t know, water, trees, et cetera, in your documentation that makes it look like it’s sustainable when it isn’t sustainable.
So there’s very sort of much rules as well, the sort of not hoodwinking anybody into thinking your fund is sustainable when it actually isn’t. And then the rules that you have really with the fund that you have labelled as sustainable. sustainable, how you report on it, how you show that you are limiting the universe, et cetera, et cetera.
It’s a challenge and it’s a challenge that, it’s ongoing because you know, new regulation is popping up all the time. So, I don’t know how Valentina is managing with a team of one, we have a much larger team and it does keep us all very much focused because of all of the changes you need to make to your fund documents, et cetera, to keep up with the regulation.
Gemma Livermore: And as we dig into that a little bit more, I know, obviously, Schroders has fully integrated ESG into its financial analysis and investment decision making. But how do you ensure that that messaging is consistent? And so that it does avoid being seen as greenwashing.?
Sharon Wilson: So what they’re saying now, so what most regulations are saying now is they’re looking at how you’re naming your fund. So if you have sustainable in the name of your fund, then you have to meet certain sustainable requirements. If you don’t, then you don’t have to meet those sustainable requirements.
One of the main greenwashing things is label your fund correctly. And in fact, you won’t be able to register your fund with, certainly the UK regulator or the European regulator, uh, if you’re putting sustainable in it or the word transition in it, if you’re not meeting certain requirements. So, you have to do that in order for them to register your fund and allow you to call it that, to actually name it that. you’re not then it’s quite clear you’re just going to call your fund European Large Cap Fund, something like that. It doesn’t say sustainable in it, you don’t have to meet all those sustainable requirements. But what we say is we’re fully integrated, meaning that we take sustainability into account for everything that we do. But that doesn’t necessarily mean it’s a sustainable fund.
Gemma Livermore: Yeah, and what about when you bring that same consistent messaging to your content creation? How do you ensure that that’s all on level as well when it comes to ESG?
Sharon Wilson: So again, you have the requirements as I sort of mentioned earlier. If it is not a sustainable fund, if it’s not sustainably labeled, you cannot have certain things. You can’t say, you can’t actually even put in your content how much carbon you’ll use, how much water you’re using, because it makes it look like it’s a sustainable fund when it isn’t. So we had to strip a whole load of that back. back and out of our funds because we had that in the mall because they are fully integrated, but because we’re not selling them as sustainable funds, we were not allowed to have that anymore. So we had to look at all of our content. We had to just take everything into account.
We had to look at them all. We had to check through everything and make sure that we didn’t say anything that we shouldn’t say on funds that were not sustainable. And also that everything we had was clear, fair, not misleading across all of our sustainable funds. So it meets with the requirements of the regulator.
Gemma Livermore: And I imagine that was a headache in itself trying to make sure that that was the same across the board. I think, with my marketing head on I can imagine you’d need everything sort of in one place to check that.
Sharon Wilson: Oh, you would. And, and also just trying to get everybody to understand because, because at Shroeders we have so much content. Even though, you know, we have a lot of it on Seismic, it’s easy to look at it. You want something like AI to go through and pull it all out and see where you’re saying certain things. And, and making sure that you’re, where you say it, it should be there. Where you’re saying it, it shouldn’t be there, it’s removed. So yeah, there was a lot of searching, a lot of word searching, a lot of, sort of like AI reports sort of set up to look for things, like Genie and stuff, our sort of chat GPT’s, looking for, for words, certain words, etc.
Gemma Livermore: I think that’s where technology has really helped us in this space. I can’t imagine doing all of that when I look back at my career, say, 20 years ago when I started without that support.
Sharon Wilson: Yeah, it made it much easier.
Rachael Rowe: So let’s move to, to the epicentre of our conversation today. And this is really around how companies can promote their ESG efforts without falling into the trap of greenwashing. So building on a lot of what Sharon’s already discussed about the approach that’s been taken at Schroders.
Valentina, how do you ensure that OakNorth’s ESG initiatives resonate authentically with internal and external teams?
Valentina Kristensen: I mean, look, I think it’s about any communication, right? The easiest way to communicate something with authenticity is probably to be authentic and honest about it. not trying to put sort of, I would say a PR spin on things. I think if you are a business that doesn’t necessarily have the strongest ESG credentials today.
That’s fine. Lots of businesses are still quite early in the journey, but then just own up to it and say, this is where we’re at. We know these are things that we need to work on. These are the steps we’re going to be taking, you know, these are the things we’re going to be doing and, and look, hold us to account, right?
If, if you don’t feel like we’re progressing in the way we need to, or we’re not at least, you know, communicating how we’re progressing in a way that you feel is clear, then, you know, please let us know. I think from OakNorth’s perspective, you know, from day one, we’ve, we’ve never lent to businesses like Fossil Fuels, Mining, Gambling, Adult Entertainment, creation or, selling, for example.
So there’s a few, few areas that we’ve never really, touched, but then we also know that there are lots of our customers that, you know, the end of the day, we service SMEs. So there are some that are pretty far in their journey, some that are. very much in a nascent stage and don’t have any kind of sustainability strategy.
We ourselves have set some pretty ambitious targets. So we want to be net zero by 2035. I don’t know if we’ll get there, you know, it’s, it’s an ambitious target, but I think you just need to keep your stakeholders informed as you go along, right? There may be interim targets that you won’t meet. And there might be very clear reasons as to why you’re not meeting those.
What you don’t want to do is kind of not say anything, miss a target, then someone calls you out on it, and then you say oh yeah, yeah, well actually it’s because of this. It’s much better to say, we don’t think we’re going to hit that target. you know, well ahead of time. These are the reasons why this is the sort of revised target, or this is what we’re going to do instead.
And it’s just about that sort of transparency and keeping those, those stakeholders informed. I mean, there are lots of industry today where you actually, in some ways, need to have, a worse carbon footprint in order to create some benefit in the longterm. Let’s take electric vehicles, for example, right? The creation of batteries and electric vehicles requires lithium. Lithium mining is a, is not a particularly environmentally friendly activity. But you know in the short to medium term, we’ve got to do that until unless we find, you know another technology, because that will enable us to get the long term benefit. So again, I think just sort of explaining some of these things being up front and transparent about where you are with targets, if targets are going to change rather than sort of being on the back foot and waiting to be found out and then having to kind of try to rebuild trust thereafter. It’s much harder
Gemma Livermore: Yeah. and I think you summed it up really well there is to be authentic. You just need to be honest. I think that’s a really powerful message there and a simple one as well. But Sharon, if we, we try and give our listeners as many takeaway tips as possible, what practical steps can marketing teams take to ensure their messaging remains credible and to avoid any perception of being disingenuous? So much. Yeah. Yeah,
Sharon Wilson: So for us, because I’m particularly talking about, I’m not talking about Schroeder’s carbon footprint here. I’m talking about the funds that we invest in the sustainable fund range that we have.
So for us, it’s really looking at what the regulators say is understanding those regulations. And they’re not that easy to understand. I think that’s where some companies have tripped themselves up because of the voting requirements. because it’s not just sort of what you have to say that you’re not going to invest in the fund.
So you’ll have a whole list of exclusions, things that you are not doing. You’ll have inclusions, which are things that you absolutely will do with respect to voting and engaging with the company and and showing really that you’ve met with companies. One of the things that you have to do for governance, say on transition fund or on improving fund is show that you’ve actually met with the, some of the companies, engaged with them, talks about how they’re going to improve, highlighted things that you think aren’t particularly good for the environment, and how are they going to work on that, and then you show that they have improved. And that’s one of the things that you do with an improver fund. You say we invested in these 30 stocks, we spoke to the company 15 of them have quite clearly improved on you know, they’re not using so many pesticides, etc, etc They’re not mining for coal anymore. They’re using other things. So you have to have those metrics, you have to be very organised and you really really have to understand those regulations So I think that’s where people can get tripped up on because they are confusing and you do need a team to really pick through them depending on the type of fund you have and the label that you’re giving it.
Rachael Rowe: I think we’ve got similar themes of transparency, clarity of communication, authenticity, metrics, and being clear about what those metrics are. How, when, when the rubber hits the road, if you’re looking at how you’re actually able to maintain transparency and integrity throughout your organisation regards to your ESG messaging. How do you approach that? And I guess probably start with you, sharon, with that one.
Sharon Wilson: So we approach it really by actually categorising our funds into certain labels. Heard me mention many a time, transitioning funds, thematic funds, improving funds, sustainable funds. They’re all slightly different labels and they all mean different things. So we have to, we have to, we have something that we’ve built called just our framework, our ESG framework on which all of these labels hang. And that starts off with really what the universes are that the fund managers can invest in, what benchmarks they have. Checking that the exclusions that we have in the fund. So the metrics that we’re using meet the actual exclusions that the funds are saying that they’re going to have. We reconcile that regularly. Then we have to show that the reporting on the fund, has to be clear that we are doing what we’re saying we’re doing. So we have that. So that follows on down. And we also have regular meetings in house. We have quarterly meetings where we look at all of our, our sustainable funds, our ESG labelled funds and make sure that, we’re doing what we say we’re doing. So we really do actually govern ourselves quite well on this. Because the last thing we want is to be accused of greenwashing or have a fine slapped upon us. It’s just so bad for reputation, so bad for business, that we want to be as clear and understand everything and do what we say we’re doing and do it properly.
Rachael Rowe: Yeah. And I think Valentina mentioned, you know, that, that magic word that trust, and I think that that’s so, essential for organisations. It takes so long to build. And so such a short space of time, it can be eroded. So I guess technology plays a really important part in being able to do this at scale, on an ongoing basis, within Schroeder’s Sharon, how do you approach that?
Sharon Wilson: So, you’ve heard me mention metrics. So, for example, um, you heard Valentina talk about things like adult uh, entertainment. You have certain sort of domestic weapons. You’ll have, alcohol, number of things that really a sustainable fund is prohibiting, and some of them go down to zero, some of them go down to a percentage of revenue.
So, you’ll say, say a maximum percentage of revenue for the tobacco value chain. You may have tobacco at zero, that you don’t want to be involved in the manufacturing of tobacco, but you may want to invest in supermarkets, which do sell some cigarettes. And so you sort of have those revenue limits on certain things.
And so that you can explain why you have those and those metrics are provided usually by one of the many named benchmark providers, and we code them in, we check with them, we code them into our systems and that keeps those exclusions alive. So if a fund manager goes to trade on something and one of those metrics has been updated it will stop that trade from going through and it will explain, it will come up saying that it’s, it’s excluded because of, I don’t know, it’s got tobacco in it, it’s got alcohol in it, whatever it has. So we have all of those coded, checked, reconciled, and if a fund manager say, for example, something does hit that and it gets excluded and they disagree with it, we’ll engage with the benchmark provider if we think it’s wrong and we’ll look at the latest report of the fund and we’ll engage with the benchmark provider to change that because you say, look, that they’re not being so bad.
They’re not producing that anymore. So can we now buy this fund? But there’s so much work that goes into this and so much engagement down to that last look at what we can and can’t do, and we’re living and breathing it now, quite frankly.
Gemma Livermore: And Valentina. I guess for our listeners, it would be really good to hear your side, from a smaller organisation with a smaller ESG team, how you deal with that?
Valentina Kristensen: So, I mean, I think, as you say, we’re a small organisation, so we kind of had the benefit of being able to look at every business that, that applies for a loan with us or applies to open an account with us. We have a sort of initial vetting process, so just more to check that the business is of the right size and then kind of similar to, to what Sharon explained, you know, we’ll have
certain businesses that, that we will exclude, again, we’re pretty upfront about that. So it’s very rare that we’ll have, let’s say, you know, a business in the adult entertainment industry applying to open an account with us or applying for a loan with us, but if they do, you know, we just sort of say, you know, you can see here, a little bit about, you know, who we are and who we lend to.
I think, you know, from our perspective, it’s more about trying to find those businesses where, not only, you know, they might have, they might have a significant challenge in their transition journey, but also there’s a big opportunity and where we feel that with OakNorth support, with access to, you know, fast, flexible funding that we can provide, they could actually, you know, transition, they could become a leader in this space, and then potentially gain, you know, more customers as a result.
So from our perspective, it’s not just about looking at our portfolio and seeing where there might be potential challenges. Oh, there’s a business here that’s really, you know, got a really bad carbon footprint or that, you know, isn’t, would not score well from an ESG perspective, you know, how can we look to exit that business or to, to stop working with a business like that?
But more, how can we support that business in its transition to greener operations and actually see it more as an opportunity?
Rachael Rowe: And I guess, it’s time to move to the aftershocks. So if we look to the future, ESG is set to continue evolving. What do you both see as the key opportunities and challenges for businesses navigating this space? Valentina, as ESG becomes more embedded in corporate strategies, challenges do you foresee for companies in keeping up with regulatory demands, as well as stakeholder expectations?
Valentina Kristensen: So yeah, so I mean, look, I think there’s, as I kind of started, or alluded to in my previous response, we do see a lot of opportunity here, if you kind of, I mean, at Oaknorth, we, we actually split the economy into about 274 different subsectors, so, we don’t sort of just, you know, bucket businesses into, let’s say hospitality and leisure or education and healthcare, try to look, you know, several layers deeper than that and say, okay, you know, where might you be in the supply chain? So one of our customers, they, deliver cash to ATMs across the UK and they have a fleet of 300 armoured vehicles. Obviously. to convert those armored vehicles into, electric vehicles, same level of protections, will require a significant investment. So it might not be immediately obvious that that’s a business where there’s an opportunity to help them in their transition journey, because.
You know from an outsider looking in it’s like, oh, well, it’s just it’s a business that delivers cash and has you know, 300 vehicles, but then again you kind of have to look at the individual customer and start to say well actually an investment of x they know to electric vehicles or they could convert their existing fleet into electric and still, you know without sacrificing the safety elements of you know, moving cash around the country. Equally there might be some businesses that are already leading the chart in their respective industries, so a number of other clients There are two homes, they actually deliver, build, ultra sustainable net zero homes.
So, you know, everything from the cavity wall insulation, double glazing, geothermal heating, solar panels, and there’s a very large portion of the market that actually will pay a premium for a home like that. You know, the sort of very eco conscious consumer. And so there, the conversation, or the opportunity is more, how can we help you to do even more of this?
And then as I say, there are some customers that are, you know, much smaller them, it’s sort of having the conversation. They might not appreciate that they actually, they might think we can’t do anything And then you delve a bit deeper and you find out, oh, okay, well, you’re recycling, or actually, you know, you’ve got a, you know, an electric vehicle salary sacrifice scheme, or, or who knows, right? They might have a number of things that they’re doing already, which means they do have some, you know, initial workings of a sustainability strategy, even if on paper they don’t think they do.
And so working with those customers to help you an organisation identify where they might be able to support that right now. I
Gemma Livermore: so Valentina, maybe we can dig in there about how businesses, particularly obviously those in financial services, can remain adaptable as we see rapid changes in ESG regulations and public sentiments looking forward.
Valentina Kristensen: I think, it kind of goes back to something that we’ve also talked about really through the whole conversation, which is the team. There’s so much changing regulation. There’s so much changing consumer sentiment and also there’s also changes politically, that’s less of an issue in the U.K but if you look at somewhere like the U.S For example, obviously, with the upcoming election, depending on who ends up in the White House, the conversation with regards to climate change and ESG more broadly could be very, very different. So I think it really comes down to building climate confident teams, you know, making sure that your teams feel empowered to have these conversations with the different stakeholders, whether it’s investors, whether it’s your customers, and that they also see the value in it.
Right. And the opportunity, I think from our perspective, if, if our finance directors or essentially our relationship managers, the people who are at the front line speaking to customers, if they don’t feel confident in having these conversations or identifying where the, potential opportunities may be, with the example I gave before of, um, you know, the business that has a fleet of vehicles. that deliver cash to aTMs across the UK, um, you know, no one’s going to know the customer better internally than the person who is dealing with that customer day in day out. So we really do have to rely on them to help us identify those opportunities, and have those conversations with customers. So I really think it comes down to building climate confident teams. Those are the teams that will, you know, be ahead of regulation that will help to get the stakeholders internally and externally on board that will help to have those conversations to get that buy in top down and to ensure that, um, the different members of the team who might be engaging with customers, you know, feel confident in the conversations they’re going to be having with them.
Rachael Rowe: That’s a really great perspective and I was very interested with you kind of positioning that as being ahead of regulation, and I guess that that’s going to be a challenge for everybody within the industry as the standards attached to ESG continue to evolve. And so, a question for you, Sharon, around that, what challenges do you foresee for Schroder’s, in terms of keeping ESG strategies aligned with client expectations and regulatory change?
Sharon Wilson: So, our clients in particular are asking for more and more, ESG sort of alignment and reporting. So, very much because they want to show themselves if they’ve got their own net zero targets, they want to show that their investments are also meeting those requirements. So if they’ve got pension funds or their own sort of investments, or if it’s a white label fund, you know, that we’re investing for a fund that they’re selling themselves, they want to show that it’s meeting the requirements.
And so really the challenge that we have is getting that information to them because they want reporting, they want statistics, they want us to to show it, be able to sort of look through. Are there underlying holdings in that, portfolio and show them what the carbon weighted position is in that portfolio, how much water it’s using, et cetera, et cetera. how much fertilizers, all these sort of PAIs that we have, uh, principal adverse indicators that the regulator has asked us to work by to show what we’re doing and on what we’re doing on do no significant harm, etc. So there’s so much reporting, so much that they want us to do, that they’re constantly engaging with us And saying, can you, give us this information?
Can you give us that information? And that information is hard to pull out of a portfolio of stocks and holdings. So that’s where our real challenges are, where we’re looking to build the tools, we’re having to build our own in house proprietary tools to pull that information out and deliver that to our clients.
But that is definitely what they’re asking us for. And they’re asking us even to pull their portfolios together. So where they have different types of investments with us, they want one score over all those investments. So that’s really what we’re working on. How we can really look through to the investments that we have in our portfolios, how we can score them, how we can show that they’re going against climate change, how they’re going against some sort of theme.
We have funds that there may be be sort of an energy transition in funds. So how they’re showing there what we’re doing, what, what sort of closing down on coal was opening up on cleaner fuel, et cetera. So those are the real challenges that we have with clients requesting that, that reporting and that level of investment for us.
And that’s where we’ll beat our peers by being able to do that, because that’s what we’re getting asked more and more to do.
Gemma Livermore: So I love this part of the podcast where we talk about the aftershocks and how things are going to look into the future, I don’t think we’ve ever had one where we haven’t mentioned AI. So it seems timely to bring it in now. Given the rise of technology and aI, how do you see Schroders using these tools to stay on top of ESG developments and communicate them effectively to investors?
Sharon Wilson: Well, we have, in everybody’s objectives, we have an AI objective to make sure that we gone on certain courses understand what it can do. We have our own in house sort of ChatGPT called Genie that we use. We’ve all used co pilot etc. So very much so it’s one of the things that we are told to concentrate on and see how we can, with limited resources, continue to expand and grow and get more out of the technology that we have.
So AI is the definitely in everybody’s daily tasks now. We look where we can use it, where it can help us. We look at it as a sort of an able assistant that sits alongside us. So you can ask it to do certain things with copilot. Of course it can write your emails. It can go to the internet and find things for you.
It’s very, very good with our ChatGPT version. It helps you, be a bit more concise with certain things, but also you can load on documents and you can look for things. So as I mentioned earlier, when I said we used it to look at greenwashing, where we mentioned sustainable, improving certain words, we do that now for all of the investment management agreements we have. We’ve checked through everything to look at what commitments we have and that they’re all up to date. It would have taken so much longer without aI. And so it’s very, very much in our values now at Schroders that we are to use AI. We are to embed it into our daily lives and make the most of it and enrich really what we can do utili
Gemma Livermore: And it really is that heavy lifter, like you say, that, enabler, I guess, of everybody. And Valentina, any thoughts on aI from your side?
Valentina Kristensen: Yeah, I mean, I think, you know, from our perspective, we really sort of, advocates of the hybrid approach, I think, with everything, you know, we think that technology can be a huge enabler and a huge efficiency unlocker, but, there’s still a need always to have a human involved in the process, right?
Even with, you know, using tools like chat GPT, I’m sure we’ve all had the experience. You read through something and you think, Oh God, that doesn’t make any sense or it’s completely wrong and you have to be, you know, the person that would be doing the sense check, and that’s really something that we really live and breathe throughout the whole organisation. We are a digitally led tech led business. But then, you know, we do a lot of things that I suppose would be considered more traditional, and things that actually even the big banks don’t do, like inviting customers into credit committee to actually discuss their borrowing needs directly with the decision makers.
And that’s because while you know, the data might be telling you something and on paper you think, you know what, this is a really good business to lend to, then maybe you meet the business and, you know, actually it seems like the management team don’t feel aligned they seem to be pulling in different directions or you just don’t get a sense this is a business that you you could really add value to for you know over the long term and vice versa. Sometimes you know the numbers on paper tell one story and then you meet the team you meet the business, you can see how passionate they are and how you know on top of the numbers they are and what a clear plan and strategy they have in place and that can really give you the confidence as a lender to say this is a business you want to work with. So I think you know All of the use cases that Sharon mentioned, but appreciating that humans still have a very important role to play in, and we feel a hybrid approach is, is the best one.
Rachael Rowe: Before we wrap up, what one piece of advice would you give to marketing teams looking to authentically promote their ESG efforts? Valentina, if we start with you first.
Valentina Kristensen: So I would, I mean, it’s basically a summary of the conversation. I would just sort of say, let actions, You know, drive the narrative and be transparent along the journey. You know, that’s the best way to ensure that your stakeholders, you have the buy in from a different stakeholders, that you’re being authentic and that you build trust, not just in what you’ve achieved to date, but also what you hope to achieve in the future.
Rachael Rowe: That’s a great answer. And a lot of it, and I think that a lot of the theme that we’re hearing today is around authenticity and trust and really internalising that the the metrics and the processes and the systems to support it. Sharon, from a much larger organisation schroders, what advice would you give?
Sharon Wilson: Well, we have all of our funds labelled, so marketing have the within organisation and having know what the funds do. We’re very clear for our outlook for the funds, where we’re aiming to get our funds, what Schroeder’s itself as a obviously does how important ESG is to us. So that’s one of the things that we stamp on everything.
And we work globally with all of the different regulators that we have, making sure that we understand what their rules are because they’ve all got slightly different rules. And therefore, wherever our funds are registered, we make sure that all of the marketing teams understand What the number one, issues are with those regulators and what the number one exclusions are. So, for example, I think in Australia, they’re very against using nuclear power and tobacco. They’re not like that elsewhere. So it’s getting the marketing teams to understand who they’re marketing to, what their audience is, but being very clear about what Schroders itself does, how important ESG is to Schroders and how we’re aligning ourselves with all the different types of labels and sustainable funds that we have and also the performance. So, you know, looking at actually, you know, the performance of our funds.
Gemma Livermore: And Sharon for those listeners that are just embarking on this journey now, I know I’ve heard you in the past on different panels talk about the need to have all of your content in one place As a starting point to enable you to start focusing on ESG. Could you talk about that a little bit more?
Sharon Wilson: Yes, so, by having, all of your content in one place, what you can do is you can have so if we’re talking about a vision for, a type of an impact fund, for example, there may be certain slides that should go across all of our impact fund range, and our thematics fund range. So we have these shared slides and the risk considerations are the same and the disclaimers and disclosures are the same. So we have them all on Seismic. We actually have an ESG folder on Seismic where all of our our marketing teams, all of our teams can go into and they can see what’s allowed, what’s not allowed. So all the rules on there, but also we have shared slides that the ESG team have put together that you can put into your content that are approved and complied. So you can just drop them and you don’t have to re comply them. And also just to give them an idea of what
they can and can’t do, but we have regular training so that they know what they can and can’t do. So there’s online training that I think we do twice a year to make sure everybody’s up to date with the rules and the regulations.
Gemma Livermore: That’s great. And I honestly I could have carried on this conversation for so long I think it’s so important to have these narratives as both of you have pointed out. It’s quite hard to, understand the regulations sometimes. And so it’s really nice to hear how other people are tackling it and how they’re starting the journey.
And so thank you to both of you for being on board today. I’m sure it’s been as fascinating for those listening as it has for me. So really excited to see how companies will continue to navigate in this space. And perhaps it’s one that we could revisit in a year’s time and see what’s changed and how adaptable we did have to be in the end.
Rachael Rowe: Absolutely. Thank you both for joining us.
Valentina Kristensen: Thank you very much for having me on.
Sharon Wilson: Thank you. |
