In a world where climate change is the subject of intense debate, often as much political as scientific, Nathalie Wallace is determinedly among the convinced.
“We think that climate risk can have a long-term impact on asset valuation and the long-term performance of companies,” she said, referring to increasing climate volatility as an “emergency” and a “crisis.”
She is an active participant on the local climate protection committee in Cambridge, Massachusetts, where she lives, and laments the regular inundations of Boston, where she works. “It is sinking,” she said.
As global head of environment, social and governance (ESG) investment strategy for State Street Global Advisors — the investment management arm of the giant American financial corporation State Street — the main part her job is to help clients reach an understanding of the risks that climate change poses to their assets and their business strategies.
Last week, she was in the Middle East talking to some of the biggest investors in the world — the sovereign wealth funds that manage the energy-generated assets of these oil-rich nations — about the challenges they will increasingly face as the world heats up.
“Climate change is associated with many risks. One is the physical risk companies are exposed to. The second is the litigation and legislation risk. In Europe we have much more regulatory pressure but around the world there are increasing measures against companies that are polluting or are not ready for climate change. Finally, there is a financial risk, the potential risk of stranded assets that companies are exposed to,” she said.
The phrase “stranded assets” is certain to trigger concern in regional policy making circles, evoking images of revenue-earning oil and gas being left in the ground in a world that has decided it can no longer take the environmental cost of burning fossil fuels.
It seemed an especially appropriate time to be having the discussion. Outside State Street’s Dubai offices, the temperature was in the mid-40C degrees — hardly uncommon in a Gulf summer. But that was not far off the temperature that day in Wallace’s native France and other parts of Europe, nor in New York a few days earlier when power had failed in central Manhattan. This summer in the western world has given the climate change lobby plenty of ammunition.
Wallace has most of the arguments at her fingertips. Her visit to the Middle East is a response to the One Planet Summit series of meetings launched by President Macron of France, in partnership with other climate-conscious countries after the Paris Accord on climate change in 2015.
Her mission is to put some financial meat on the bones of the Paris agreement, and explain to big business and finance why climate change matters to their businesses.
Six of the world’s biggest sovereign wealth funds (SWF) — four from the Middle East, including Saudi Arabia’s Public Investment Fund, as well as the funds from Norway and New Zealand — are involved in the initiative.
They reached out to eight of the world’s biggest financial groups, including State Street, which between them have about $15 trillion of assets under management, to help the SWFs come up with solutions to the climate challenge.
“Governments even in the GCC are saying we have to do something, are launching green initiatives, diversifying the economy away from oil dependency. More people want to have ethical and sustainable climate investment products. It’s a global trend, and the Middle East might have started a bit later, but it’s absolutely there now,” she said
Wallace said she is not yet at the stage of asking the funds for money. Her job, she explained, is twofold: First, to promote corporate engagement on the issue of climate change and encouraging companies and institutions to “integrate climate risk into their businesses.”
BIO
BORN
• France
EDUCATION
• Institut Supérieur de Gestion, Paris
• French Society of Financial Analysts
CAREER
• Baring Asset Management
• Wellington Asset Management, Boston — Assistant VP
• Batterymarch Financial Management, Boston
• Delta Partners, Managing Partner, Boston
• Ceres Inc, Director
• Guest Lecturer, Northeastern University, Massachusetts
• I2 Venture — Founder
• Trade Adviser, New England
• Global Head, ESG Investment Strategy, State Street Global Advisors
Secondly, she wants to come up with solutions to the corporate concerns of the big wealth funds on climate and devise climate investment solutions. “We have built a platform to be able to align the capital of our large clients with the low carbon economy in the future, and with the Paris agreement objectives,” she said.
Wallace added: “I’m not here to convince them that they have to do it, but to show them that there are solutions that are financially sound — they will not be going outside of their investment mandate at all,” she said.
Climate change is being increasingly recognized as a pressing problem by many governments, policymakers and business people. Mark Carney, governor of the Bank of England, highlighted the need to recognize the risks in a recent speech, and the European Commission has set up new guidelines around sustainable finance.
Of course there is one big climate change doubter: President Donald Trump has pulled the US out of the Paris Agreement and scrapped many of the environmental regulations put in place by preceding governments. He is an advocate of the coal industry, and makes light of the fires that raged in bone-dry California last summer.
Wallace said that Trump’s indifference to environmental risk was a concern, but pointed out that there were many other policymakers in the US who were aware of the need for action.
“Trump has removed or changed the incentives for the economy to adapt to climate change, or to deal with asset and economic dislocation. But that’s really being done in Washington, and if you look at the state level, for example in California, or with Michael Bloomberg in New York, or in Massachusetts, you see a different picture.
“In 40 cities across the USA all the mayors are getting together, recognizing that urban centers are the largest polluters. So these mayors have got together, but like everything in the USA it is bottom up. You don’t see it as much, but it’s happening,” she said.
Wallace contrasted Trump’s skepticism about climate with the policies of Saudi Arabia and other Gulf countries that are close allies of the US but which do not share his environmental views. “It’s fascinating to me that Riyadh has this 2030 vision with diversification of the economy, which has some significant sustainable objectives in it. Donald Trump has been trying to do the opposite of Riyadh’s initiative of looking long term and seeing how to position the economy today.”
But although you sense that climate change is Wallace’s passion, her job at State Street also carries responsibility for the other two letters in the ESG acronym — social responsibility and governance.
There have been challenges too in these areas, involving largely traditional societies on a fast-track to modernization. Corporate social responsibility has faced the challenge presented by the subordinate role women played in Gulf economies, while governance was largely a matter of whim for corporations often controlled by the state or by powerful merchant families. “We’re talking here about fast moving, fast emerging countries which have to deal with a lot of social disruption.”
But here too, change is under way. “What we’ve seen over the past two years is the realization that society is changing and that a big part of the workforce is missing. We’ve seen that in Abu Dhabi, for example, with the push to include more women in the workforce and the objective to have 50 percent of women in the public sector and government.
“So really we’re seeing a big change on the social side with the implementation of policies on gender diversity. The region is coming from a slow start but it’s catching up,” she said.
In governance, too, she believes there has been an improvement over the past decade. “It was unfortunate we had the global financial crisis which hit the region particularly hard, given its exposure to trade and to oil. But one of the unlikely outcomes was a reinforcement of governance and the institutional framework to be able to respond to international pressure.”
She pointed to financial free zones like the Dubai International Financial Center and Abu Dhabi Global Market as examples of institutions that incorporate governance and rule of law in their thinking.
Her visit to Riyadh also showed her that progress is being made on these issues.
Wallace admits to getting frustrated at the slow pace of implementation of ESG policies, particularly on the environment. “Climate is an emergency situation and a crisis. We are making good progress but we need to act fast,” she said.
