The Rise of the Sustainable Banker

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:

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

Source: Bloomberg; Russell Reynolds Associates Analysis, 2020

Nearly $200 billion worth of sustainable bonds were issued globally in 1H 2020

SUSTAINABLE BOND VOLUMES (USD $BILLIONS)

YearQ1Q2Q3Q4

2018 36 54 34 57

2019 64 70 55 75

2020 64 131

Source: Refinitiv, 2020; Bloomberg; Russell Reynolds Associates Analysis, 2020

Non-traditional players have been able to establish themselves as market leaders in sustainable finance

SUSTAINABLE BOND LEAGUE TABLE (AS OF SEPTEMBER 2020)

RankCompanyVolume ($mil)Mkt. Share (%)Revenue ($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

Source: Sustainable Finance Review, Refinitiv, 2020; Bloomberg; Russell Reynolds Associates Analysis, 2020

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

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

NEXT-GEN SUSTAINABLE BANKER

“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 finance

DCM 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 acumen

INVESTORS / ASSET OWNERS

Experience on the buy side evaluating energy, power, and/or renewable investments

ENERGY, 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)

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 leaders

SUCCESSION

Embed conversations about sustainability and sustainable finance into your succession management framework and succession planning

REWARD

Integrate sustainability into the objectives, incentives and remuneration of sustainable finance leaders, as well as board members and C-suite

DEVELOPMENT

Make sustainability and sustainable finance a core focus of leadership development and crucible experience

As 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 purpose

CONSUMERS

Purchasing decisions Brand equity

EMPLOYEES

War for talent

Employee engagement and retention

REGULATORS

Social license to operate Public private partnerships Taxation and subsidies

Going forward, all bankers will be sustainable bankers. The race is on, and banks that act quickly and decisively will find themselves well positioned for this coming wave of transformation.

Author

Beijing Zhu is a member of Russell Reynolds Associates’ Financial Services sector Knowledge team. She is based in New York.