Ultimately, it is leadership and guidance from the top that sets the tone for businesses to thrive, and this is no different when it comes to ESG. “Leadership is critical in delivering ESG success,” says Kristina Kloberdanz, chief sustainability officer at Macquarie Asset Management. “ESG is not effective if it operates in a silo or is bolted on, it needs to be integrated throughout the business.”
This does not mean leaders have to be permanent members of a sustainability or ESG committee, says Kloberdanz, but they need to be engaged and understand why a focus on sustainability is worthwhile. “ESG specialists provide the sustainability expertise to influence and integrate, but it is important that there are representatives from across business functions to bring viewpoints from other stakeholder groups.”
Himanshu Saxena, CEO at manager Starwood Energy Group, agrees that all business units should take an active role in incorporating ESG factors. He says: “Cross-functional ESG committees comprised of individuals from each business unit add more value as they enhance accountability and any organisation’s ability to integrate ESG initiatives across the organisation.”
Cross-pollination also helps to ensure that an understanding of ESG is not left to chance depending on the personalities in a management team. “Effective ESG leadership is about having diversity of experience, thought and perspective,” says Shuen Chan, head of ESG at Legal & General subsidiary LGIM Real Assets.
At manager Actis, all of the firm’s portfolio companies have established a sustainability committee to provide senior leadership oversight of sustainability performance, strategy and targets.
“Our sustainability committees comprise a member of the Actis sustainability team and the sustainability director in the portfolio company’s management team, and are chaired by a board member, with other senior C-suite management from across the business in attendance,” says James Magor, director of sustainability at the firm. “This ensures all senior decision-makers are fully aligned on the strategy and the goals.”
For Paul Yett, director of ESG and sustainability at manager Hamilton Lane, if a manager has an ESG representative who also functions as the investor relations specialist for LPs, and perhaps reports to the head salesperson, it may suggest ESG is not fully embedded in the firm: “It all starts at the top of the house. It is about making ESG part of your DNA and showing that your board of directors really care.”