A few responsible questions for Societe Generale’s new head of sustainability for the Americas
Karl Pettersen was recently appointed Chief Sustainability Officer for Societe Generale in the Americas. In his new role, Karl aims to promote a client-centric and pragmatic approach to Sustainability for our clients in the region. We asked Karl a few questions about his new position.
Karl, the Chief Sustainability Officer position you’ve recently been appointed to is in addition to your duties as Head of Ratings Advisory for the investment banking division. What was the inspiration for adding the Sustainability role (and does it complement your other duties)?
Actually, the new sustainability role flows fairly naturally from my role advising companies on their credit rating strategies, which increasingly includes an ESG (Environmental, Social, Governance) component. As traditional corporate finance conversations and ESG conversations have started to intersect more and more, I’ve had the advantage of engaging with many of our clients on how these different mindsets mesh (or don’t), how thought processes need to be re-shaped, while also encountering the wide range of challenges that companies face when trying to respond effectively to sustainability demands.
For example, one of the biggest hurdles around sustainability today is the lack of a complete and consistent language. Not only do different areas of sustainability require different taxonomies, but different market participants will often speak different languages as well. So, while some parts of the dialogue are becoming more consistent, by and large it remains very challenging to have an effective conversation when we’re all still figuring out the language.
Being able to communicate about or understand often very technical aspects of ESG targets seems like it would be a fundamental issue for companies developing their sustainability strategies. Is progress being made on this front?
The conversation is heading in the right direction, certainly, but it also points to something deeper. I think one of the risks we face is that we can become overly focused on the technical and methodological aspects of ESG and get distracted from the underlying conversation. ESG asks that we re-think how we meet both economic and societal needs, and so is a lot about how companies develop new principles, new mechanisms, a different public voice, and a different sense of identity -- these processes are profound and need to happen independently of how fast the language of ESG develops. In this context, absorbing, understanding, and distilling different viewpoints will be extremely useful in figuring out company priorities. Within the corporate finance world, for example, equity investors and ratings agencies have been very influential forces pushing for a common understanding of sustainability, around which we can communicate more effectively.
So even if the language of sustainability will remain a work in progress, areas like credit ratings already give us important principles and analytical signposts that we can expand on and apply to shaping the conversation.
How else has your experience with ratings advisory prepared you for advising on sustainability?
I think my perspective - seeing ESG challenges through more of a credit ratings lens initially - can add a lot of value to SG’s corporate clients. For one thing, it has become essential from a credit analysis perspective for companies to seek a specific balance of stakeholders – this mindset also lies at the core of sustainability. Credit ratings analysis has been emphasizing this over the past decade, so I think many of the tools and frameworks and communication tactics that we employ in the ratings conversations will increasingly begin to intersect with sustainability and are, in fact, already being adapted. Additionally, as rating agencies become a consolidating voice in ESG, I think companies will begin to approach the topic more closely to the way they have needed to approach credit ratings, i.e., as something that goes to the core of their corporate identity in many cases and requires deep and constructive dialogue. Guiding this kind of dialogue is an area where we will be able to create value quickly.
Can you give us an idea of how SG can help a corporate client manage its sustainability goals? Are there specific tools, products that SG has developed, or skills that SG is particularly adept at that you’ll use to help clients with Sustainability?
SG has developed a leading global presence in many areas of sustainability, be it from our long-standing and public commitments to supporting the energy transition, to our thought leadership in articulating new products and structures and creating new stakeholder relationships. Sustainability is a vast topic, that touches on both micro and macro features in each region – as a result, sustainability is also a global conversation with a local inflexion. For example, the ESG conversation in North America will look different than it does in Europe and will again look different in various Latin American countries, because each marketplace and local “social contract” are constructed differently.
With this backdrop, I believe SG has the right combination of global experience, local relationships, financial technology, analytical firepower, and advisory “DNA” to play a definitional role in this conversation, and to accompany our clients in figuring out what the optimal sustainability response needs to look like in the Americas. This response can be specific types of corporate actions, precise financial undertakings, or changes to existing policies and governance. Crucially, because sustainability is a response to expressed societal needs, an effective response needs to directly address the specific actor we are working with, as well as the specific need they are trying to meet. There is no one-size-fits-all, but there are common principles that need to be expressed in this situation-specific way, and we have the wherewithal to add business momentum to this expression.
What are the biggest challenges Corporate clients have when trying to achieve their Sustainability goals?
Again, currently the lack of common language is confusing, both in terms of deliverables and in terms of who should be part of the conversation, internally and externally. There is also a balance that clients need to identify among their own internal vision for ESG, their need to comply with external pressures, and the need to make sure that they don’t accidentally gloss over parts of the conversation.
So, compliance is one thing, but deliberately seeking a new compromise is a more difficult proposition and requires a very clear cultural foundation. And I believe this is the most difficult part: sustainability demands a cultural shift, and one that can only be validated by stakeholders in the end. This is a kind of conversation and vulnerability that many corporations are not accustomed to embracing in the scope that ESG requires. So, corporations are being asked to actively engage in a risky conversation, even as the language is still being defined, and that is understandably a very daunting exercise.
Lastly, sustainability is often broken down into Environmental, Social and Governance. Does your role in developing SG’s business proposition include all three of these aspects of corporate responsibility?
Certainly. Also, it is easy and seductive to classify sustainability into these three factors, especially because the global conversation has tended to gravitate more to well-publicized “E” factors so far, and therefore has supported this classification. An attractive notion then becomes that certain thought reflexes that work for E can be applied to S and G, thereafter. However, my concern is that these topics are in fact different enough and local enough that the same approaches won’t be applicable.
I think we need to think increasingly in terms of the unifying principles behind E, S, and G (i.e. carefully allocating “social capital” in addition to economic capital) and promote principles of what constitutes an appropriate response to ESG - a response that is public, permanent, consequential, and useful. What the ask and the response are will necessarily vary with regions, sectors, and over time, but what matters will be having the right response mindset.
Unless otherwise stated, any views or opinions expressed herein are solely those of Karl Pettersen and may differ from the views and opinions of others at, or other departments or divisions of, Societe Generale (“SG”) and its affiliates. No part of Karl Pettersen’s compensation was, is or will be related, directly or indirectly to the specific views expressed herein. This material is provided for information purposes only and is not intended as a recommendation or an offer or solicitation for the purchase or sale of any security or financial instrument. The information contained herein has been obtained from, and is based upon, sources believed to be reliable, but SG and its affiliates make no representation as to its accuracy and completeness. The views and opinions contained herein are those of the author of this material as of the date of this material and are subject to change without notice. Neither Karl Pettersen nor SG has any obligation to update, modify or otherwise notify the recipient in the event any information contained herein, including any opinion or view, changes or becomes inaccurate. To the maximum extent possible at law, SG does not accept any liability whatsoever arising from the use of the material or information contained herein.
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