The changing face of ESG
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Ali Curi: Markets ConversatION is an ION podcast where we discuss topics of importance to capital market participants with product owners, subject matter experts, and industry leaders. 

Steven Strange: The term ESG, it's too vague. Does it really cover everything? Does it really highlight the goals of what you're trying to do?

People have broken it down going, "Well, are you looking at the E, environmental, are you looking at the social, are you looking at the G, the governance. What are you actually doing? And you need to be more specific." 

Ali Curi: Hi everyone, and welcome to Markets ConversatION. I'm Ali Curi. On today's episode, we explore the shifting landscape of ESG investing amid major political and regulatory changes. With the U.S. exiting the Paris climate agreement, and financial institutions scaling back climate commitments, ESG strategies face new challenges. 

Joining us is Steven Strange to discuss how investors and asset managers can adapt. 

Let's get started. 

Steven Strange, welcome back to the podcast. 

Steven Strange: Thanks for having me.

Ali Curi: Before we get to our conversation, Steven, tell us a little bit about your background and your role at ION. 

Steven Strange: Yeah, sure. So I head product management for the asset management side of ION markets. So focusing on the asset management community, front office technology, from portfolio optimization, investment management and investment compliance.

Ali Curi: Great, thank you. Steven, a little under two years ago, you and I spoke about ESG investing in the context of investment principles, regulatory differences, and cloud technology, and how AI can enhance transparency and compliance. There's been some changes since then. Share with us an overview of the significant political and regulatory shifts currently taking place.

Steven Strange: Sure. Yes. A lot has changed since we last spoke on this subject. And to be honest, it feels like it continues to change daily. But previously, there was always a push for more regulation in this space. But this was also happening alongside many other regulations. So the asset management and the investment community were feeling a lot of pressure.

There was a lot of pressure on them. Whether how do I meet this regulation? How do I source the data? There was also a political drive against some of these initiatives. So I'm arguing they're too vague, they're a cost to business, they're unnecessary, and it became overly complicated. Some firms were accused of greenwashing.

There was a lot of frustration, a lot of push for change, and we're starting to see a lot of that now. 

Ali Curi: Steven, let's start with the impact of the U.S. withdrawal from the Paris Climate Agreement. How do you think President Trump's decision to exit the agreement will influence global ESG investing trends, particularly among U.S.-based asset managers? 

Steven Strange: So it's certainly going to have an impact. And most of the asset management community, especially in North America, would agree that U.S. sustainability changes will influence investment decisions. However, there still is a sentiment to continue ESG impact allocations, prioritize sustainable investments, and the rise of ESG funds has been debated for years.

So it's not necessarily tied to just this decision alone. People have been questioning this, as I mentioned previously, whether there's too much greenwashing, does there need to be more transparency? So there may be a slowdown in the label of ESG funds. Maybe there'll be more targeted funds. But yeah, certainly it will have some impact.

Ali Curi: Let's start with dissecting a little bit of financial institutions retreat from the climate pledges because several major financial institutions have recently withdrawn from net zero alliances. And they have scaled back their climate commitments. So what factors do you see driving this trend? And again, what implications does it have for the future of sustainable finance?

Steven Strange: Yeah, this is a great question. And again, we're seeing this every week. There seems to be an update in this area, but I think it's, there's a lot of different pressures, whether it's regulatory and legal risks from some of these firms around particular ESG policies. There's some political backlash, especially in the U.S. at the moment, of which direction firms should be going in? And people are just looking at how could they implement some of these targets, and maybe they need to review some of these targets. But the main thing with any alliance is you need industry wide collaboration. We're seeing larger institutions withdraw, and then others tend to follow, because if there isn't collaboration how are you going to meet your goals?

Yeah, but regardless, I do think there is a drive for sustainable investing. Maybe not this particular framework, at this point in time, but the drive is still there. 

Ali Curi: Unfortunately, it looks like other entities might have to step up because with the U.S Federal Government stepping back from climate initiatives, do you see, for example, state government or international bodies stepping up to lead in sustainable investing?

Steven Strange: Yeah, this is going to be an interesting area to watch because when we spoke previously, it was always looking at, everybody was trying to follow a somewhat common goal. And we'd look at the Americas, EMEA, APAC, and there was still a lot of difficulty within those particular regulations.

But now, there's a strong drive in the E.U., certainly China, they're expanding green bonds and renewable investments. The U.S. state level, certainly in California and some other states that, may go in a different direction than the federal level. So there's a lot of change. There's a lot of areas to watch of who's going to lead the way. So one to watch.

Ali Curi: Let's talk a little bit about the E.U., because they're considering easing their sustainability reporting requirements in order to enhance their global competitiveness. How might these changes affect global ESG standards and the strategies of asset managers that operate across different jurisdictions?

Steven Strange: There's been a lot of pressure to de scope some of the E.U. regulations around CSRD and CSDDD. It really does become a debate of going, it's not just about weakening all sustainability regulation, it's a chance to review and refine what's acceptable. Because when, with any regulation, there's always a consultation period, what impact does it have on the firms? How will I get the data? How am I going to report this? Is it more of a burden? Is it going to put some firms under pressure that they can't exist? So I think what was interesting is, it's not necessarily weakening, but re-reviewing the scope of this regulation. And the proposal has come out, the omnibus simplification package. And it is being reviewed, but it already, just reported yesterday, it's causing some tension between the U.S. and the E.U., because the U. S. companies will still be impacted if they have any trade within the European Union. So I think it's still going to be debated and try to figure out, what is the goal? How do we strike a balance between environmental goals versus company costs and finding a balance will be key.

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Ali Curi: There's been some reframing recently on say, DEI initiatives. The Wall Street Journal had a headline recently, a couple of weeks ago, that read, "Don't call it ESG, call it resilience." I think there's a little bit of reframing there going on. There's a growing emphasis on "resilience" within ESG frameworks, right? Focusing on climate related risks. So my question is, how should asset managers integrate "resilience" into their investment strategies and what benefits might this shift offer? 

Steven Strange: This is an interesting question because it highlights something that has been happening for years in terms of the actual debate of the term "ESG."

It's too vague. Does it really cover everything? Does it really highlight the goals of what you're trying to do? So people have broken it down going, "Are you looking at the E, environmental? Are you looking at the social? Are you looking at the G for governance? What are you actually doing, and you need to be more specific." So I think this is another way of really pushing the agenda of being more specific about what your goals are. Yes, we can say resilience, which is another way of looking at environmental goals. And we try to take actions to be resilient, whether it's climate change or other environmental goals.

But really, I think it comes down to, rather than just putting a new term in place, what are you trying to achieve? And if that's a fund that has specific goals, or if that's a firm that has specific goals, and it really comes down to the specifics of that, as opposed to a new term. 

Ali Curi: That hyper focus can sometimes be a good thing. Let's talk about regulations for a minute, because divergent regulations within the challenges that ESG face rank pretty high. With different ESG rules popping up in various regions, how can asset managers keep their strategies consistent and handle the challenges that come with it? 

Steven Strange: And this is another great question. It's always been a challenge. So we're talking a lot about ESG regulation here. It happens with a lot of global regulations. And certainly if you're a global asset manager, you need to be able to adopt and you need to be able to meet these requirements, whether it's the USA PAC or Europe. So it is a challenge, I guess it always comes down to, "Is there enough time to be part of that consultation period?" So you can try it, say look, "This works in one region, it doesn't work in another. How are we going to adopt to this?" And try work through some of those challenges before it actually becomes an effective law.

So yeah, I think the real challenge is, how you have these collective forums and have to be able to speak and participate to see if it's going to make sense for the asset management community.

But it's going to be certainly difficult. And we've saw it two years ago, we're still seeing it today. 

Ali Curi: Steven, despite the political headwinds against ESG initiatives right now, there's a lot of evidence that suggests that investor demand for sustainable investments remains pretty strong. How can asset managers align their offerings with investor expectations in this polarized environment?

Steven Strange: There was such a strong growth. And again, it comes back to this "ESG" term. There was a number of ESG funds launched and it was pretty broad, as I said, just put across this ESG label, but you're seeing more targeted funds now, as I mentioned with specific goals that, we're going to see more of that that are likely to launch go this fund has this goal and it is specific and it's not under this broad label, but there was such a rise that I think it was inevitable that there'd be some slowdown and, now looking at niches and carving that out and seeing where the investor demand lies and being able to respond to that. But I certainly don't think it's going away and there's evidence that investor demand certainly does still exist.

Ali Curi: Let's look ahead a little bit and considering the current political and regulatory landscape, what do you foresee as key trends and challenges for ESG investing in the next, say, three to five years? 

Steven Strange: So this is interesting thinking of three to five years, we're going to have to monitor this closely.

Personally, I believe the sustainable investing drive will grow, as I said, we're seeing evidence of this. It may not come under an ESG label. It may be more targeted. We may have different frameworks of measuring it. There is a bit of a learning as we go in some cases. Some of the demands to produce data when you suddenly go down the value chain and supply chain, trying to figure all that out is costly.

So I think it's trying to take a step back and work out. How do we meet the actual goal? How do we allow it to be practical? How do we allow it to be practical to actual firms? How do we allow it to be practical to asset managers who need to invest in these firms and report on it? And just taking a step back, it's just going to be a watching game at this point to see how the different global regulations change.

As we talked about Europe, it's going to be interesting to see APAC, which is very strong in this area, to see how the different jurisdictions there propose different regulations. But the reality is everybody's going to need to, as an asset manager, adopt and be flexible and have the technology in place and have the people in place, the resources in place, able to handle new regulations as they come.

Ali Curi: Yes, those are some really good points because clearly ESG investing is not going away. It's just going to evolve. There's still plenty of momentum in the space from what we've seen. What is the one big thing you hope listeners would take away from this episode? 

Steven Strange: I think the one big thing would be This is an area to watch, it's in real time, we don't have all the answers.

There's a lot of analysis happening. There's a lot of things changing, as I mentioned daily. So I think the real takeaway is keep tuned. We need to see what's happening out there. We need to monitor it. We need to report on it and just make sure you're aware of everything that's happening. 

Ali Curi: Great, something to keep an eye out for. Now let's talk about productivity. What practical or digital tools are indispensable for your job? 

Steven Strange: So I work in product management. So I spend a lot of time engaging with people in the asset management community. And I say people, meaning I use a practical skill of listening.

It's listening to get real insights. What are the trends? What are the obstacles? What are the challenges? And then analyzing this and thinking, "How can we respond to it?" And then when we think of actually using practical tools, we have a number of digital tools that we can use to then add these requirements to our roadmap, prioritize them, and make some of those ideas become a reality.

Ali Curi: Great, I think that's some excellent advice. Steven Strange, thank you for sharing your insights. Always good to see you. Let's do it again soon. 

Steven Strange: Thanks for having me. 

Ali Curi: And that's our episode for today. You can follow ION Markets on X and on LinkedIn. 

Thank you for joining us.