Introduction
While ESG and impact investing have rightfully dominated
the sustainable finance
headlines for the past few years, market attention more recently has
begun to shift toward the explosion in the issuance of sustainable bonds and
loans. While
the genesis of this growth can certainly be traced to the well-publicized wall of global capital currently earmarked
for ESG/ sustainable investment strategies (estimated by JP Morgan to reach
$45 trillion by the end of 2020), sustainable bonds and loans
have become some of the hottest products in global finance. What
makes this growth even more
compelling is the fact that these products are actually devoted
toward achieving a greater global good, be it reducing carbon
emissions, funding alternative energy sources, alleviating social injustices, battling climate
change, promoting green building, funding sustainable
transportation or delivering clean water. In an extreme rarity
for Wall Street
and the hyper-capitalist world of global
finance, issuers, investors, banks and the planet are all winners in
sustainable finance.
“Financial institutions have a societal role that goes beyond being facilitators of well-functioning economies. They also have a moral obligation as global corporate citizens to finance positive change.”
Ralph Hamers, CEO, ING
Through a series of conversations over the past several months with sustainable finance experts in the US and abroad, we have developed a thesis around:
- What is driving the sustainable finance revolution
- What the next-generation of sustainable finance bankers will look like, and
- What banks need to do to ensure they have the talent required to be successful in this new era.
1. The Sustainable Finance Revolution: Everyone Wins
Issuers/Investors
Initially,
governments and supranational organizations dominated the issuance of “green bonds” which represent the largest
subset of sustainable bonds and are focused
on addressing environmental and climate concerns. The global green bond
market has now surpassed $1 trillion in total issuance after a record surge of
sales in September. More recently, global corporations are
tapping into the sizable global investor demand for sustainable bonds, issuing
debt earmarked for specific projects or metrics that allows
them to borrow money at below-market rates.
“The future of banking lies in financing the future.”
Carlos Torres Vila, executive chairman, BBVA
SELECTED TOP SUSTAINABLE BOND ISSUERS IN 2020
- Asian Infrastructure Investment Bank
- Alphabet
- KFW
- Metlife
- CPP Investment Board
- European Bank for Reconstruction and Development
- Adidas
- Prologis
- Johnson Controls
- Daimler
- CFC
- Visa
- Bank of America
- European Investment Bank
- Bank of China
- J.P. Morgan
- Burberry
Source: Bloomberg; Russell Reynolds Associates Analysis, 2020
Nearly $200 billion worth of sustainable bonds were issued globally in 1H 2020
| Year | Q1 | Q2 | Q3 | Q4 |
|---|---|---|---|---|
| 2018 | 36 | 54 | 34 | 57 |
| 2019 | 64 | 70 | 55 | 75 |
| 2020 | 64 | 131 |
Non-traditional players have been able to establish themselves as market leaders in sustainable finance
| Rank | Company | Volume ($mil) | Mkt. Share (%) | Revenue ($mil) |
|---|---|---|---|---|
| 1 | Credit Agricole | $16,188 | 7.1 | $88.0 |
| 2 | BNP Paribas | $12,841 | 5.7 | $77.6 |
| 3 | HSBC | $12,731 | 5.6 | $76.9 |
| 4 | Bank of America | $12,084 | 5.3 | $67.3 |
| 5 | J.P. Morgan | $11,960 | 5.3 | $66.1 |
| 6 | Citi | $9,957 | 4.4 | $45.8 |
| 7 | Societe Generale | $9,390 | 4.1 | $68.3 |
| 8 | Barclays | $8,646 | 3.8 | $56.0 |
| 9 | Morgan Stanley | $8,248 | 3.6 | $43.5 |
| 10 | Deutsche Bank | $7,287 | 3.2 | $44.3 |
As banks scramble to better position themselves
in the sustainable finance market, we are beginning to see increasing demand for
capital markets professionals with ESG/sustainability credentials. Over
the past few
months, Citigroup, Barclays and Credit Suisse have all publicly announced major
buildouts of their sustainable finance teams; other global banks who haven’t
already done so are sure to follow suit.
“Climate protection must be a priority for us – in the way we extend credit, through the products we offer, the policies we implement.”
Christian Sewing, CEO, Deutsche Bank
BARCLAYS EXPANDS LEADERSHIP IN ESG BANKING (AUG 2020)
Barclays announced new additions to its investment bank teams leading environmental, social, and governance-related finance work with clients, with appointments in equity capital markets, debt capital markets, and advisory. “Barclays has clear guidelines and targets in place for our work, to reduce significantly the impact that finance has on climate change. Through these appointments, we are demonstrating our ongoing commitment to ensure that Barclays is at the forefront of the financial services industry’s work around all ESG-related topics,” said Joe McGrath, global head of banking.CITI CREATES NEW TEAM OF BANKERS FOR ‘FAST-GROWING DEMAND’ IN ESG BONDS (JULY 2020)
Citigroup has created a new team of bankers dedicated to generating sustainable bonds as the US investment bank continues its push into environmental and sustainable banking, which it says will surge in the wake of the coronavirus crisis. Senior dealmakers in London, New York and Hong Kong have been shifted into the new team, called global sustainable debt capital markets. Philip Brown, head of Citi’s public sector DCM business, has been handed responsibility for the new unit, which was created in response to fast-growing demand from clients for socially responsible DCM solutions.CREDIT SUISSE RESTRUCTURES BANKING TEAMS WITH ESG FOCUS (JULY 2020)
Credit Suisse unveiled sweeping changes to its structure to reduce costs and prepare the bank for its next chapter under new chief executive Thomas Gottstein. Among the changes, Credit Suisse said it would combine oil, gas, utilities and renewables teams into its energy and infrastructure group. The group will be led jointly by Jonathon Kaufman and Tom Greenberg. The bank also unveiled the creation of a new ESG advisory unit, led solely by Tom Greenberg, which will help new and existing clients look at their ESG issues and advise on sustainable growth and finance opportunities.BANK OF AMERICA ESTABLISHES SUSTAINABLE MARKETS COMMITTEE (JANUARY 2020)
To accelerate Bank of America’s progress, identify new opportunities and build on the company’s sustainable finance efforts, the company established a sustainable markets committee in January 2020, co-chaired by Vice Chairman Anne Finucane and Chief Operating Officer Tom Montag. The committee has renewed the bank’s focus on developing sustainable finance – including policies, research, capital, and investment products. As part of this effort, Karen Fang entered a new role as head of sustainable finance. In this role, she works across lines of business to support the initiatives of the Committee.
Source: Financial News;
Financial Times; Business Wire; Company Press Releases; Russell Reynolds
Associates Analysis, 2020
2. Implications on Talent: The Rise of Next-Gen Sustainable Bankers
Over the past
several years, almost all global banks have been steadily reducing headcount
across investment banking and capital markets. Many senior and experienced
bankers have either retired, transitioned to in-house corporate strategy roles
and/or investment management, or left the industry altogether. The pipeline of
mid-level talent has also been greatly eroded, as the value proposition of a
career in banking has paled in comparison to FinTech, venture capital and
private equity.
The
unanticipated boom in sustainable finance has left banks scrambling to reassign
bankers and capital markets professionals into these roles, or to recruit more
credible practitioners from the outside. However, there are very few
banks with a long-term track record of domain expertise in sustainable finance,
and the leaders in this regard do not come from
the traditional bulge-bracket global players. Instead, it is within the smaller
European banks based in France, Germany, Spain, the Netherlands and the Nordics
where the best-in-class sustainable finance talent resides. This
has led to an unusual reversal of traditional recruitment patterns, with the
big US and UK banks all seeking to hire bankers from their much smaller
European rivals.
Our conversations
have also shed light on what
these next-generation sustainable bankers will look like in terms of
experiences, competencies and attributes. Next-gen sustainable bankers will
differ from traditional bankers in that they are more likely to have a global
perspective, follow a more creative career trajectory, adopt a
solutions-oriented advisory approach, and be more agile and innovative.
TRADITIONAL BANKER
- Narrow industry expertise
- Regional focus
- Lockstep/linear career progression (e.g., from analyst, MBA, associate, to banker)
- Reactive approach to client inquiry
- Product orientation (sells what the bank has to offer)
NEXT-GEN SUSTAINABLE BANKER
- Global citizen/global perspective
- Has lived and worked on multiple continents
- Creative career progression (e.g., from analyst, MPA/MPP/MBA in sustainable finance, NGO, to sustainable finance)
- Solutions-oriented approach as a trusted advisor
- Transformational orientation (agile/entrepreneurial/innovative)
“Today, all bankers are sustainability bankers.”
Dan Cozine, deputy head, global credit markets Americas, BNP Paribas September 2020
Next-Generation Sustainable Banker Archetypes
CORPORATE & INVESTMENT BANKERS
Experience could include commodities finance, broader energy, power, and natural resources banking, project financeDCM PROFESSIONALS
The most plug-and-play source of talent, primarily residing within smaller European banks and delivering a sustainability domain expertise combined with a capital markets acumenINVESTORS / ASSET OWNERS
Experience on the buy side evaluating energy, power, and/or renewable investmentsENERGY, CORPORATE, OR NGO LEADERS
Experience in energy related
corporates, NGOs, or not-for-profits
Within this
pool, backgrounds are split between sustainability strategy and capital markets
or corporate finance
Usually hired
at the Director level into banks to focus on
sustainable finance strategy
SUSTAINABILITY CONSULTANTS, RESEARCHERS, AND RATINGS EXPERTS
Experience at third party research or consulting firms focusing on ESG performance, metrics, and strategies (e.g. Sustainalytics)3. Embedding Sustainable Finance into Your Organization and Leadership Culture
What
actions should banks take now to ensure they are building
a robust sustainable finance team and embedding sustainability into their
organization? The key areas to focus on are selecting the right rising star
talent, planning for succession and ensuring a robust talent pipeline, rewarding
top performers who exhibit a sustainable mindset, and integrating
sustainability competencies into mentorship and development plans.
SELECTION
Seek talent from banks and geographies that are more advanced in sustainable finance, and apply next-gen sustainable banker archetypes when selecting senior leadersSUCCESSION
Embed conversations about sustainability and sustainable finance into your succession management framework and succession planningREWARD
Integrate sustainability into the objectives, incentives and remuneration of sustainable finance leaders, as well as board members and C-suiteDEVELOPMENT
Make sustainability and sustainable finance a core focus of leadership development and crucible experienceAs the world deals with the simultaneous global crises of COVID-19, racial injustice, and climate change, sustainable finance will be crucial to fund the major global public and private initiatives that will be required over the coming years. As such, we expect the sustainability transformation to unfold in a similar fashion to the digital transformation which has occurred over the past decade.
“Every business has a responsibility to tackle today’s global challenges. At Santander we’ve worked together to deliver profit with purpose – ensuring that our day-to-day operations help more people and businesses prosper in a sustainable way.”
Ana Botín, executive chairman, Santander
The first phase will be a race for talent - the sustainability revolution will require a new breed of finance leaders to deliver cutting edge sustainable solutions. These leaders will combine subject matter expertise (e.g. in carbon emissions, public health, etc.) with a global perspective and an entrepreneurial mindset that will allow them to engage across multiple stakeholders. These types of leaders are in high demand but short supply, and most companies will simultaneously be looking to develop capabilities in-house in addition to seeking the best external talent.
“We remain laser focused on incorporating sustainability principles into everything we do to help ensure business success, improve our operations and contribute to a strong global economy. Our clients, colleagues and stakeholders expect no less.”
Michael Corbat, CEO, Citi
The second phase will be embedding sustainability throughout the organization. This will be accomplished by demonstrating both internally and externally the commercial imperative of embracing sustainability. Clients, investors and employees are all demanding a clear articulation of how sustainability is integrated into the culture and corporate strategy of an organization. Failure to do so will result in lost business, investor pressure, and the inability to attract and retain best-in-class talent.
The case for sustainable business: companies are facing pressures from multiple stakeholders to address the sustainability of their business, with implications for all aspects of company operations.
INVESTORS
Governance pressure Focus on long-termism Corporate purposeCONSUMERS
Purchasing decisions Brand equityEMPLOYEES
War for talent
Employee engagement
and retention