Heads roll as UBS fillets its corporate governance, sustainability and impact investing teams

The ESG paradox: regulation goes up, investment action goes down…huh?

I’ve been telling anyone who’s interested recently that I don’t think ‘ESG’ is in good shape.

I didn’t start this Substack with the intention of reporting a slew of redundancies. 

My intention was to kick-off discussion about what I thought was and wasn’t working in ESG.

But I’m seeing similar patterns of redundancies at asset managers as I have reported recently in ESG research and media; or, at the very least, a recruitment freeze. 

Nothing is moving right now, or not in an encouraging direction. 

As one respected recruiter said recently: “the juniorization of ESG teams is more common than growth hires.”  

All that in an environment where I see headlines or research (not all bad, indeed, some very good) proclaiming ‘The Death of ESG’ almost daily. 

You’ll note that I’m still using the increasingly unpopular three-letter term; this is mostly because I don’t believe this is a crisis of semantics, although I do think semantics have a part to play (that’s a whole other piece in itself).

I do, however, think we are in something akin to an ESG liquidity crisis, when confidence evaporates and market forces dry up: clients/managers stop investing, lenders stop lending, marketeers stop marketing, hirers stop hiring, thinkers stop thinking, etc, etc.

Some might say this is a good thing. But at the least, they should offer up alternatives to a polycrisis underpinned by capitalism as it stands. Just pointing to the need for better policy makes me go, duh…what do you think people in ESG have been pushing for?

And better policy is hard work!

And, there is a lot of good work going on at the EU’s Platform on Sustainable Finance to stress test and refine the existing regulations.

The ESG pushback has been highly political, and it sucks. But can we say it was unexpected, nor some of it undeserved (greenwashing, fragility of ESG thinking, etc)?

I optimistically believed, however, that we’d arrived at a point where the regulation would start to do the proper, thought-out, heavy-lifting for ESG (as it rightly should) - at least on climate - and over time on governance and social norms/progress. 

But I don’t think it is at the moment; although I can’t be certain (can anyone right now?). I’m very interested in views here.

On the contrary, what I’m seeing right now is a shift to an overload of compliance and reporting, which will not make the difference in sensibly guiding/encouraging capital towards fiduciary, sustainable ends.

To that end, I think some of the debate we are starting to see on the regulations is really important.

LSEG’s reality check in recent days on the EU Taxonomy here is important:

https://www.lseg.com/en/insights/reality-check-8-years-after-first-eu-taxonomy-conversation

As is The University of Edinburgh’s recent critique on SFDR: https://www.research.ed.ac.uk/en/publications/eus-sustainable-finance-disclosure-regulation-does-the-hybrid-rep

Anecdotally, I’m hearing that a number of asset managers have watered down their SFDR label commitments significantly, without any fuss so far from clients.

There’s a good Linked-In debate on all of the above here: https://www.linkedin.com/feed/update/urn:li:activity:7253038231460413441/

At a thoughtful level above these regulatory reviews, everyone should be reading and contributing to the discussion papers concerning the academic literature on ESG written by Harald Walkate and Tom Gosling, titled: Does Sustainable Investing Work? 

Or Professor Alex Edmans’ recent paper on Rational Sustainability: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4701143

I’m a reporter though: I like chasing down news. And joining the news dots, for me, is part of trying to be an informed commentator. 

And the headline that I have stuck on my ‘ESG liquidity crisis’ news story is: Regulation goes up, action goes down. 

More on that in a mo.

In related news, UBS has filleted its corporate governance and impact investing teams across institutional asset management and private wealth management.

Departures in the last few (quiet, summer) months at UBS have included (not exclusively)

• Hans-Christoph Hirt, Managing Director, Head of Impact Engagement, Sustainable Investing

• Paul Clark, Executive Director, Head of Stewardship

• Christine Chow, Managing Director and Head of Active Ownership

• Narina Mnatsakanian, Global Head of Impact Investing

And:

• James Gifford, Head of Sustainable & Impact Advisory (UBS Wealth Management) and members of that team.

That’s a lot of well-known heads rolling! 

Some of these have been reported, but it’s in the round that you really see the effect. 

UBS has not disbanded its governance, sustainability or impact presence, but it appears to have seriously ‘juniorfied’ it: good, younger staff no doubt, but not at the same level/ experience/contacts - or salary for that matter - as those staff that have departed. It’s a pale imitation of what it was.

I got the familiar comment from UBS that they don’t comment on individual departures and that their ambition remains to be a global leader in sustainability and support their clients in the low carbon transition. 

But I understand that most, not all, of the above senior heads were made redundant. Paul Clark left voluntarily to take up a new role as Global Head of Stewardship at Northern Trust Asset Management.

And not all of the departures come from the same UBS silos; for example, James Gifford, the former CEO of the UN PRI, was working for UBS’s wealth management impact investment operation, and was made redundant alongside colleagues in that team.

The UBS sustainability wealth outfit had been pretty successful in bringing in high net worth money of some Sfr27bn in assets into cleantech, healthcare tech and education tech strategies before Russia’s invasion of Ukraine set fossil fuel prices alight and crushed relative performance in sustainability strategies.

Now, it’s true that UBS has been through a massive merger with Credit Suisse since March 2023, meaning significant overlap in asset management roles, huge cost cutting and thus redundancies over time.

UBS says it is bringing together the best of both organizations to expand its range of sustainable finance products and services.

It doesn’t look like that to me.

My sense is that in ESG, the overlaps at UBS and Credit Suisse were less significant, although undoubtedly there. 

Credit Suisse Asset Management (CSAM) had been building a sustainable investing team under Jeroen Bos as Global Head of Sustainable Investing before he left in November 2023 to become Global Head of Equity at AXA Investment Managers. Christine Chow was a rare transfer to UBS from the CSAM unit, which was all but decimated at the time of merger.

UBS had been building its impact strategy on the institutional side: Narina Mnatsakanian, another former senior PRI staffer, was a relatively new joiner in Jan 2023 to grow the impact product line. 

But the UBS institutional impact assets were small, and pennies get crushed by steamrollers.

Still, it seems curious to me that UBS has let go of respected senior capacity (Chow and Hirt) in its engagement and voting operations; not insignificant for a $1.7 trillion AUM global asset manager.  

People tell me this is not just a UBS story, but part of bigger cuts across the asset management industry (continued shift to passive, increased competition in active management) that could hit ESG hard, maybe harder than other areas because ESG’s influence was already marginal within fund managers.

Neil Farrell at Farrell Associates has put together a decent overview of where he sees recruitment in ESG and asset management more broadly.

https://www.farrellassociates.com/newsletters/140/public-markets

I’m more pessimistic. 

I believe that if we don’t get the sustainable finance regulations right in terms of smart, pragmatic changes over time that alter pricing and strategic behaviour to drive real change in business R&D/competition, and then investment decision making (of all hues), then much of everything else is noise and distraction, or worse still, unnecessary, costly data and information. 

More of the latter will continue to hurt ESG in a cost-sensitive environment.

We now have a whole heap of regulations out there, notably the EU Sustainable Finance piece, where we need to work with regulators to urgently assess, review and quickly amend where necessary; no mean feat in itself! 

At the same time, we need to quickly review what is or isn’t working in the US pump-prime, tax-incentive green push under the Inflation Reduction Act, and China’s policy-backed green shift. 

If not, particularly in Europe, we will end up with a world of excess sustainability reporting and compliance, ripe for lobbying (fair enough), but where we will carry the blame. 

The slew of recent redundancies across ESG says the market has made its mind up, for now, about what this all means. 

Regulation goes up, action goes down.

We need to change that narrative fast.