Written by Acre's Ian Povey-Hall for Investment Week, published on 07.12.22, original source: Could the reallocation of human capital be a key solution to today's climate crisis?
Following the UN’s recent report announcing there is “no credible pathway to 1.5°C in place”, taking action to operationalise the Paris Agreement has never been more urgent.
The reality is that, despite the window dressing that says otherwise, the transition will only take place if long-term capital is funnelled into unequivocally credible decarbonisation-focused solutions.
The problem lies not in the fact that the market lacks these solutions, but in the startling truth that people without the necessary understanding, experience and skills have been tasked with orchestrating change quickly.
Facing pressure to respond to the way that ESG has burst into the mainstream, many organisations quickly reshuffled a few desks to tick a box.
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Although these individuals from established fund and asset managers are generally doing their best to create change, it is often incremental at best, with their training and prior experience in some ways works to their disadvantage, limiting their ability to drive impact at scale.
When it comes to ESG, we have the data to prove that we cannot continue our course without modifying our approach and outlook.
A fundamental rewiring of the financial system, specifically how capital is allocated within it, needs to happen and that begins with a change to organisational structures and the way that teams are put together.
In order to have effective last-mile integration of sustainability principles within a financial institution there needs to the combination of deep thematic expertise alongside knowledge of how these highly complex organisations and processes work in reality.
While there are individuals who have both, there are not enough to drive transition at scale in the timescales required.
Let us not be too quick to buy into the belief that there is an absence of suitable talent to progress the climate transition.
At the moment, companies are often simply looking in the wrong places for answers.
Rather than exclusively turning to what they know, i.e. individuals with extensive experience of financial services and some recent experience in ESG, companies need to integrate alternative perspectives, diverse backgrounds, and new skills to create value for investors and society beyond financial returns.
The key to meaningful change is hybrid teams that leverage sustainability experts with experience running, for example, climate risk mitigation and restoration projects and traditional investment professionals.
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This sustainability talent can come in all shapes and sizes and from a range of sectors, depending on the nature of the project in question.
These individuals have the subject matter expertise driven from years deep in the detail of how these previously ‘non-financial' factors are impacting the global economy.
This enables them to bring the broader perspectives and systemwide thinking to bear that is essential to develop investment solutions that deliver sustainable outcomes as a function of scale.
The result of such hybrid teams is a fruitful cohabitation of diverse perspectives.
Working together in this way also effectively upskills the existing resources of financial institutions, so that those from more mainstream backgrounds better understand sustainability and those from outside financial services gain insight into investment fundamentals.
This, in turn, facilitates the transition, equipping the industry with well-rounded individuals.
As companies are beginning to understand the role of recruitment and team composition within the transition, we are also seeing a trend away from large, centralised teams and towards smaller, high-quality teams working at enterprise level who can deliver the data, tools, insights and frameworks for core business units to more fully integrate sustainability themes.
Greater value can be derived from a smaller, tighter-knit group who have the intellectual dexterity to constantly be looking into the future of how these themes will impact the financial system and are experts in how to communicate and embed these principles into the day-to-day execution of financial services.
Ian manages Acre's London team and leads commercial development globally for Acre’s sustainable finance and impact investing practice. His particular focus is on executive search projects, investment team lifts and advisory work to facilitate strategic partnerships and acquisition opportunities.
Prior to joining Acre, Ian spent seven years delivering on mandates for a selection of the world's leading banks and investment management groups. He also founded the London Impact Investing Network & Climate Finance ExPress Program.