4 tips to develop and expand an elite asset management sustainability plan

The separate value chain of asset management and private equity fund managers defines their customer base, KPIs and culture. You therefore need a tailor-made sustainability plan for asset management, because conventional environmental, social and governance (ESG) business techniques designed for traditional service sectors are ineffective.

Due to the nature of their operations, these organizations require specially designed sustainability activities to attract investment and generate significant returns for shareholders, which in turn warrants additional investments. At a recent Impact Leaders Lab event, Dave Stangis, Chief Sustainability Officer (CSO) of Apollo Global Management, discussed this strategy.

So how do you design a profitable, tailor-made sustainability strategy?

1. Create for the global consumer

The majority of private equity fund managers deal with a client base that is geographically dispersed and operates globally. Therefore, global oversight is necessary for every sustainability function to stay abreast of the rapidly evolving regulatory landscape and its implications for the financial services industry.

Global laws are expanding rapidly and impacting fund managers by reshaping their investment portfolios and adding new reporting requirements. These include the European Union’s Sustainable Finance Disclosures Regulation (SFDR) and the United States Securities and Exchange Commission’s proposed ESG-related regulations.

The sustainability team requires in-house knowledge to meet their own regulatory requirements and to advise global clients in many regions on the potential impact on their investments.

2. Establish a Center of Excellence within

Private capital players are unlikely to be a good fit for generalist ESG practitioners.

To fill specific roles within the company, sustainability leaders must take a surgical approach to finding the right staff from talent pools that differ from each other.

They need to find experts in climate accounting, law and strategy, in addition to those who can adapt to specific market demands, such as the increasing importance of sustainability in credit risk.

By establishing an internal knowledge center, this strategy gives companies a competitive advantage. According to Stangis, this is the situation at Apollo.

3. Harmonize ESG with business objectives

Private equity firms have a unique opportunity to both accelerate their progress toward economic goals and act as catalysts for sustainable development. With an average return of 12.6 percent in 2023, sustainable equity funds outperformed traditional investment categories.

Foster global alliances and a collaborative culture rather than a separate sustainability function. Determine how sustainability can increase social and environmental impact while advancing current business objectives.

To improve financial performance, ensure sustainability teams work closely with different business divisions to integrate ESG risks and opportunities into the core investment process.

4. Join the dots

Ensure that there are interconnected management systems to increase the reach of sustainability measures within private capital. For example, ensure that the board puts clear, scalable governance standards into practice. Create comprehensive systems that collect and disseminate data so investors can develop actionable insights.

This strategy also applies to corporate culture and personnel management. Regardless of which team someone joins, it is critical to instill an ESG-focused attitude in him or her from the moment he or she joins a company.

For example, Stangis includes relevant information in employee orientation materials and personally writes a note to each new employee within the first month of joining Apollo. In addition, he offers Zoom calls to anyone who wants to learn more about climate reporting, credit methods, carbon offsets and how they relate to their work.

Developing a sustainable asset management plan can be a challenge for community organizations. However, properly integrating ESG into a business can be both business-friendly and beneficial.

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