Pragmatism is the name of the game in sustainability, says Jenn-Hui Tan, chief sustainability officer (CSO) at Fidelity International. A year into his C-suite level role — and his 16th year with the investment manager — Tan espouses the importance of pragmatism within and without the company. “That’s probably the theme of sustainability for this year. How do you apply sustainability to the changing investment and macroeconomic environment?”
Tan, who had been based in Singapore since 2011, shifted to the UK in August 2023 following his new appointment. Formerly the global head of stewardship and sustainable investing, the “additional piece” added to Tan’s plate “is the sustainability of our own business”, he says.
“Most CSOs will tell you that the work of a CSO is very varied; you need to be a lot of different things,” says Tan. “You need to be a sustainability evangelist across many different topics, which include, obviously, things like climate change, nature loss or diversity in the workplace [and] so on. You need, increasingly these days, to be quite good at interpreting and implementing regulation because that’s a lot of the direction of travel for sustainability.”
Speaking to The Edge Singapore while on a personal trip to Singapore last month, Tan says today’s CSOs also need to be “quite good at soft skills”, such as influencing and persuading key stakeholders — both internal and external.
“The reason for that is because although the sustainability team — my team — is the centre of expertise for the organisation, the actual delivery of sustainability doesn’t sit with us; it sits with the functional areas … Whether it’s procurement, HR or [the] CFO, you’ve got to ensure that those teams are set up in the right way to embed the required elements of sustainability.”
See also: MAS launches Singapore-Asia Taxonomy, world's first to include 'transition' category
Supporting Tan is Fidelity International’s sustainability team of 36, located across the UK, Hong Kong, Japan, mainland China, Singapore, Australia and Luxembourg.
Although sustainability knowledge sits within this team, Tan says “that doesn’t lead to any kind of change” unless they combine that with the “softer side” of stakeholder management.
“No one day looks like another day; you can be meeting industry associations, policymakers, regulators, boards — both our own internal boards and also investee company boards — senior management team, portfolio managers and analysts. There’s a sort of a broad mix [of people] that we end up interacting with,” says Tan.
See also: A US$12 bil climate fund is readying a rare bond issuance
Trade-offs
Outside of the company, pragmatism has already taken root; investors have curbed their enthusiasm following a pandemic-era euphoria for environmental, social and governance (ESG) themes.
The sustainable investing landscape has gotten more complicated, says Tan, no thanks to a complex geopolitical and macroeconomic environment in recent years.
“We’ve gone from an environment where we were setting targets and raising levels of ambition to now trying to implement [them]. When it comes to implementation, what companies are discovering, of course, is the need for trade-offs — short-term financial objectives against longer-term sustainability goals — and what’s the right level of those trade-offs.”
Tan sees “dual-track pressure” arising from greater scrutiny amid accusations of greenwashing, along with a higher interest rate environment laced with more geopolitical uncertainty. “This is a challenging time for companies to be operating in a sustainable way. Our view is that companies still want to do the right thing, but they need to have the economic incentives to do the right thing.”
Hence, Tan is not calling for more onerous financial services regulation but more supportive industrial and economic policy.
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He cites the low-carbon transition as one example. “How do you define what transition means? How do you mandate corporate transition plans and better disclosures? All of that is important, but none of that is enough if there is no economic incentive for companies to transition.”
Tan adds: “If it’s cheaper for companies to continue to use fossil fuels or other forms of production, then that’s what they’ll continue to do. Until you create the economic conditions that make them want to transition their businesses, none of the scaffolding — the definitions, the taxonomies and plans — none of them will change the actual economic imperative of companies to make that change.”
Does the sustainable investing sector today require a carrot or a stick? Tan thinks “it’s never one or the other”. “It’s never: ‘Oh, the markets can solve climate change as a bottom-up, voluntary, market-led endeavour.’ Neither is it the sole responsibility of governments to fix any problem that has externalities the size of this thing. It’s always a partnership of the two.”
Rising interest
Fidelity International, which was originally founded in 1969 as an international subsidiary of the US-based Fidelity Investments, was spun off in 1980. It is now an independent firm and operates in more than 25 locations.
According to Tan, Fidelity International’s underlying client data indicates that interest in sustainable investing “has not gone away”.
“That said, I think the performance of ESG-themed products, in particular, has been impacted over the last one to two years, particularly in a higher interest rate environment, because a lot of the stocks associated with ESG are more growth-oriented. They have longer-dated paybacks, and those tend to be more adversely impacted in a higher interest rate environment.”
Investors who had jumped aboard the ESG investing bandwagon during the Covid-19 years developed a misconception that screening methods could guarantee better financial returns while accomplishing sustainable outcomes.
“The current environment has shown that there are times in a cycle where that will be true — where they will move together — and there are times in a cycle where that will not be true — where they will come apart. We’re in one of those phases now where that is not true. So, you need to be quite clear: are you investing for financial value or are you investing for values?” Tan asks.
Transition finance is another “dynamic” concept on the horizon, says Tan, and one that is notoriously difficult to define. “Transition [finance] is more [centred] around what is economically and societally possible at any one given time. That’s partly why the desire to try to create technical standards around what transition means is inherently a very challenging one.”
National priorities can also shape how market regulators decide which emissions-intensive sectors or projects are acceptable, at least temporarily.
For example, the Monetary Authority of Singapore (MAS) launched in December 2023 the Singapore-Asia Taxonomy for Sustainable Finance, the world’s first taxonomy to pioneer the concept of a “transition” category. According to MAS, “providing clarity on what constitutes sustainable and transition financing” will help to reduce the risk of “greenor transition-washing”, as financial institutions will be able to identify and disclose how their financed activities and labelled products are aligned with the Taxonomy.
However, such lucid regulation remains scarce in other markets. “I understand why people want to define and measure it because there’s a higher level of greenwashing risk attached to transition finance,” says Tan. “Actually, more time should be spent not just on the definitions but on creating investible projects; that’s where the greatest gap is. Where is the supply of investible projects? They need to have an appropriate market-level rate of return on their investment. What are the economic incentives for companies to want to make those long-term investments in transition?”
Pragmatic attitude
The discussion of economic incentives circles back to Tan’s point about pragmatism. “For sustainability to really take hold, you have to show that it adds value to that particular department, that it either reduces costs, improves productivity or represents a more efficient way of working.”
Altruism is much harder to defend in a corporate setting. “If you frame it as if it’s a good thing to do, or it’s the right thing to do, inevitably, when conditions are tough, it’s going to be examined. Is this a ‘nice to have’ or is this a ‘must-have’? For it to be in the ‘must-have’ category, it has to represent an improvement to the business,” he adds.
Many who enter the industry are “drawn by idealism” and “the opportunity to touch these bigger issues”, says Tan. “That opportunity is still there, but its delivery needs to be pragmatic, and that’s true not just of interacting with colleagues [in] my own department, but also of engaging with other companies. We have to understand the constraints [and] the economic environments in which other companies operate in … That’s what I mean by having a pragmatic attitude to the delivery of sustainability.”
Photos: Albert Chua/The Edge Singapore
