Companies are increasingly setting environmental, social, and governance (ESG) goals, as systems to measure the impact of ESG initiatives are evolving to meet the moment.
The momentum could be a driver of new areas of business transformation, particularly if companies focus on outcomes in diversity, equity, and inclusion (DEI).
The increased focus on ESG is unmissable. During a Transforming Business roundtable in December, Insider asked the panel about a reported surge in demand for ESG investing, fueled at least in part by the pandemic.
“Millennials are value-led investors – and they’re getting older and they’re getting wealthier,” said Edward Lees, a senior portfolio manager at BNP Paribas Asset Management, and a 2020 Transformer. “So this whole demographic of up-and-coming, value-led, climate-conscious people is being joined at the same time with an explosion of democratizing investment products where you can go on your mobile phone and pick a theme and press a button.”
The focus on ESG goes beyond individual millennial investors, however, as fund managers and insititutional investors are under increasing pressure to include ESG offerings for their clients and to supplement their own holdings.
A recent Transforming Business poll* of 614 business decision-makers showed that 60% of respondents their company had set formal ESG goals. Greenhouse gas emissions topped the goals set, followed by water consumption and carbon offsets. Equity and social justice, and diversity and inclusion were also among the higher priorities.
Measurement and accountability
The pressure is on to quantify ESG investment and outcomes, including at the US government level where newly confirmed SEC chairman, Gary Gensler, is expected to focus on ESG reporting. President Joe Biden’s Leaders Summit on Climate solidified this administration’s commitment to tackle global warming.
In February, Allison Herren Lee, at that time the acting chair of the SEC, released a statement signaling the admistration’s increased focus on these initiatives. “Now more than ever, investors are considering climate-related issues when making their investment decisions,” her statement read. “It is our responsibility to ensure that they have access to material information when planning for their financial future.”
In September, the World Economic Forum (WEF) and the International Business Council (IBC) partnered with major accounting firms to create the reporting framework of 21 ESG standards, and more than 60 companies have agreed to adopt the framework.
The greater the accountability from companies, the greater the potential rewards, as investor appetite for these products grows. “The truth is, being an ESG leader does not guarantee your financial and business success, says Martin Whittaker, CEO of JUST Capital. “It’s way more complicated than that. You have to be able to assess what are companies really doing across environmental, social, and governance issues, how does that really relate to company’s short term accounting and financial performance, and how can i use that as an investor?
ESG, DEI, and business transformation
As companies race to implement ESG goals and operations, progress in these areas may drive new levels of business transformation. Diversity, equity, and inclusion (DEI), which are core tenants in the “social” portion of the ESG framework, is a crucial factor for driving products and programs that fuel innovation.
“The process of innovation as it happens within companies, and the beneficiaries of innovation, i.e. the customer, are all wrapped up in the “S” of ESG,” Whittaker said. “Knowing your customer, knowing your supply chain, what your customer wants and how you are meeting those needs – all that requires a diversity of perspectives and backgrounds, and requires companies to rethink how they do that.”
“Your progress towards innovation could be stifled if you’re not pursuing a DEI strategy,” he said.
*This SurveyMonkey Audience poll targeted individuals who work in a management capacity at their company according to the Audience panel. They included respondents from Hong Kong (n=50), Singapore (n=50), The United States (n=207), Canada (n=104), France (n=52), the United Kingdom (n=51), Germany (n=50) and India (n=50), with local translations in Germany and France. Respondents are incentivized to complete surveys through charitable contributions. Generally speaking, digital polling tends to skew toward people with access to the internet. SurveyMonkey Audience doesn’t try to weight its sample based on race or income. Polling data collected total of 614 respondents March 3-4, 2021.
Dr. Lee Braine has spent the past seven years working across Barclays’ wealth management, markets, and corporate and investment banking divisions – but his job couldn’t be further from that of your typical City of London broker or trader.
A managing director in the bank’s chief technology office, London-based Braine is responsible for research and engineering across corporate, investment, and retail banking. He has a special focus on distributed ledger technology, like blockchain, as well as quantum computing.
Insider sat down for a virtual chat with Braine – who was named one of Business Insider’s 100 Transformers – to discuss what he’s working on and where the industry is going next.
Transcript has been edited for clarity and length:
Insider: You’re not an average banker. You’re a computer scientist by training. Can you tell me a bit more about your background?
Braine: I have a PhD from University College London in computer science-the particular topic was object-oriented functional programming. I used that research knowledge in banking, and that included, for example, working with financial market infrastructures when I was in my twenties to produce new architectures and new optimization algorithms. In this case, it was for securities settlement. After that, I spent quite a few years working in technology management.
Within Barclays, for these last 7 years, I’ve been working on technology innovation. The typical thing I’ve been working on is responsibility for advanced technologies that Barclays needs to be up to speed on. We work closely with a variety of stakeholders, not just [technology] vendors, but also very closely with official institutions, including central banks, regulators, and the government on the potential of these new technologies, and the risks and any issues that may lie with them.
Insider: Let’s talk about distributed ledgers-you lead Barclays’ efforts there. Why is Barclays interested in distributed ledgers like the blockchain?
Braine: Interest was initially sparked about 5-6 years ago when we were looking at bitcoin from a technology perspective. That means not as an investable asset, but at other interesting, novel technologies underlying bitcoin that could be repurposed in more traditional financial services. There are several features of bitcoin that inspire a different way of working: at the lowest level, there may be things such as consensus algorithms, hashing technique, the chain of blocks-all of those types of low-level technical things that everybody learned about in the last few years from blockchain. But higher up, there are new ways of working, almost new market models that get inspired by cryptocurrency.
For example, currently, financial market infrastructures are centralized financial institutions, and their technology is centralized-they’ve got centralized databases and centralized processing. The decentralized nature of something like bitcoin has inspired people. Could we have a different model of the market? Could we imagine decentralizing, not just the technology, but also some of the rights and obligations of participating in such a network? So to make that abstract idea a bit more concrete: imagine if you’ve got a clearing house, and currently we send all our trades to the clearing house, it performs the processing and sends us back the result. Imagine if, instead, each of the participants formed a network, they operated peer-to-peer, and that peer-to-peer model then gets translated down into the technical solution. So that’s a different way of working-you can call that a distributed financial market infrastructure.
It’s a big infrastructure change to the market-so why bother? What we see is quite a few potential benefits. These include radical simplification and rationalization. Another thread is you’re able to speed up settlement times.
Insider: Tell me about Utility Settlement Coin and the Fnality investment.
Braine: The consortium was originally called Utility Settlement Coin, and then, about 2 years ago, a group of financial institutions – so 14 banks and one exchange – strategically invested to create the new entity, which was Fnality International. They’re building a new payment system, and this is going to offer peer-to-peer settlements using an underlying blockchain platform. The money that moves on it will be one-to-one backed by funds that have been pre-deposited at a central bank, so it’s effectively a pre-funding model. It allows a number of benefits in terms of settlement.
For example, you could continue operating outside of the window when the real time gross settlement-RTGS-is closed at the central bank. You could, for example, connect to other tokenized assets to allow atomic swap between them. If you had Fnality representing the payment leg on a payment blockchain, you could imagine a security leg on a security blockchain and the two of them could do instant settlement with the appropriate interconnect between the two. A key point here is that the money being backed by funds at the central bank means that there’s lower risks associated with such payments.
Insider: You also work with the International Swaps and Derivatives Association (ISDA), right?
Braine: Yes. One of the things we’ve been progressing for a few years relates to a new standard for data and processing, and it’s called the ISDA Common Domain Model. This model effectively provides a standard industry representation for events in the lifecycle of a trade. Currently, each institution builds their own solutions, so effectively, there’s variation in how you code it-some may code in Java and others may code in C++, so different programming languages. They may store the data in different types of databases, and they may enrich the data with extra fields. So you’ve got variation there. Then, over time, each institution must manage and maintain its data stores. So across the industry, the same high-level functionality is implemented slightly differently on slightly different data sets. And each time there’s a lifecycle event, they all need to sync up and reconcile to make sure that, yes, what’s been affected in terms of an event, the before and after, is consistent.
That’s incredibly inefficient as a solution. Imagine we had a browser for the internet, and each bank built their own browser, right? Of course we don’t do that. We have a common browser, Chrome or Internet Explorer, we download it, we use it. So that same philosophy is being applied here. A distributed ledger de facto defines the common data structure that you all must use. And smart contract technology is a common process that they must all follow.
You then start getting the opportunity to transform the industry, and all the participants. And those opportunities don’t come up very often. So I think we’re living in interesting times where this technology is just reaching the right degree of maturity, and there’s also appetite from the market participants to reduce costs.
Insider: Ok, tell me more about smart contracts, which I know you also research.
Braine: There are many, many business processes that could benefit from the rigor and standardization that smart contracts would bring. To give one example, interest rate swaps. So a few years ago, about 4 years ago, my team prototyped an interest rate swap from end to end. Complete end-to-end processing naturally fits with the idea of a smart contract, meaning the data that you construct at the beginning just flows through-you don’t transform it, you don’t switch it into completely different systems.
The way I like to view it is, smart means automatable, and contract means enforceable. Other good use-cases include trade finance, loans, bonds, and syndicated loans. It’s easy to identify 101 use cases for smart contracts; the challenge is identifying viable business cases where the industry can move together in concert, given that these are consortium plays, so you need your peers to be similarly motivated at the same time to grasp at the same propositions.
Insider: What sort of work are you doing in quantum computing?
Braine: Barclays started exploring quantum computing back in summer 2017. We did that by partnering with IBM. We set up a joint development project, and our goal initially was to learn more about quantum computing. It’s a phenomenally complex topic, where even those that have quantitative research backgrounds find it challenging to understand the details.
We decided for our first proof of concept that we would look at a settlement optimization problem. This is a particular challenge where a market infrastructure looks to optimize the settlement of a batch of securities transactions. A typical batch may have 50,000 transactions, you’ve got many potential combinations that you could settle, and you need to work out what is the best combination. It’s a problem that you typically can’t solve perfectly, so you often run an optimization algorithm for long enough in order to solve it well enough, and then you repeat the batch later.
We were inspired by [the question]: could a quantum algorithm on a quantum computer solve that problem perfectly, or perhaps better than the classical ones? We looked at candidate quantum algorithms, we worked with IBM to implement an algorithm, we constructed candidate scenarios to run through test data, and we got the results. The key takeaway is that, for the first time, an algorithm has been run for settling securities transactions on a quantum computer. Obviously, it’s only just test data and very small scale, so it’s more of a proof of concept, but we’ve demonstrated that the proof of concept works.
In terms of next steps, we’re currently exploring quantum machine learning. How many more buzzwords could you get into one conversation, right? We’ve run our first experiment comparing quantum and classical versions, and in the next couple of months, we’ll be looking to publicly release our initial findings.
Insider: In real terms, what benefits might quantum computing bring to Barclays? And when?
Braine: We need to extrapolate for when we think the hardware will be sufficiently mature to be able to run real-world use cases. For perspective, we think that will be in the range of 4-8 years from now.
In terms of the type of benefits, it’s almost like adding a special maths co-processor, and it’s able to perform a number of functions-it’s able to perform an optimization process faster than a traditional classical computer, or it’s able to perform the process and get a higher-quality result. So this could be optimizing which assets you put in a portfolio, or running a number of Monte Carlo optimizations as part of a risk model. These types of things often require huge compute resources.
And that’s why we’re exploring this for research-not because we think it could be perfectly used in the next year or two, but because we’re learning, building a foundation. I would almost call it quantum awareness, where we’re raising our awareness so that we could leverage it when the powerful machines come along in a few years’ time that we could use for real world use cases.
Insider: Where is financial technology going next? How does that fit with traditional banking?
Braine: There are a number of key themes, one being machine learning and artificial intelligence. So the application of that technology, we’ve seen it deployed with fantastic effect, whether that’s search or shopping or similar. There’s great opportunity for those technologies to also be applied within financial services, particularly to further improve the customer experience.
Other key technologies include cloud computing.
Insider: Are you worried about disruption from tech startups?
Disruption is at the heart of my day job. We’re often looking to see what technologies have potential for disruption, and to see how we could leverage or partner with third parties that have such potentially disruptive technologies-and also to understand the risks and potential issues that are associated with them-so that we’re able to have a sensible position in order to be able to advise the business.
Often if we’re going to pick certain technologies, it may well be the case that what’s viewed as a potential disruptor to Barclays could also be viewed as a potential partnership opportunity in terms of optimizing and improving some of our own internal processes.
Innovation depends on talent, and also attracts it. Business decision-makers polled by Insider report that talent is a top investment priority, and also that a major benefit of digital transformation is recruiting top talent.
Digital transformation has also made the talent picture in companies more complex. AI and other applications change the nature of some roles, and creates uncertainty in individuals unsure about how automation might impact them.
A new sense of urgency around DEI is also redefining priorities for many companies.
Culture of innovation
To drive transformation, business leaders have to source and keep the right talent, and to create a culture of innovation. The global pandemic changed, possibly for good, the way companies viewed remote work, and potential hires who might not be local. Chris Greenough, chief marketing officer at Everise, a Singapore-based company, said in an Insider interview that the pandemic had given the company access to a new range of talent.
“As work shifted to at-home, we were able to attract a different kind of worker,” he said. “We gained access to people who wanted a lifestyle change that didn’t involve office politics; older people who wanted a secondary income; people who wanted flexible hours; and disabled people who couldn’t commute and had previously been marginalized.”
A greater desier for flexibility has also driven hiring policy. “Talent, and in particular innovators, wants to shape their work environment around their life; offering a compelling place to work sometimes requires new strategies and added flexibility to respond to the needs of our employees,” said Karin Raguin, VP of talent management and corporate responsibility at LVMH. “This is what creates a genuine sense of safety and belonging where innovation and creativity can flourish.”
Raguin also says transformational talent needs to feel they can try new things without fearing dire consequences for failure. “Trial, testing, and sometimes failure are all key to developing innovative ideas,” she said, “so it must be clear to employees that they should aim for excellence, rather than perfection.”
Automation and upskilling
The global pandemic has increased the pace of automation, which creates uncertainty for some workers who might not see their skills translating to this new future. James Smith, UK managing director of AutoStore, a robotics company whose CEO, Karl Johan Lier was featured as a Transformer, told Insider that companies have a huge opportunity to upskill more traditional workers to keep the jobs, and maintain their company culture.
“Whether we like it or not, demand for businesses to be able to operate on multiple channels and platforms is increasing dramatically, and traditional ways of working and fulfilling demand can no longer keep up with this growth,” he said, adding that upskilling is central to this. “You can either follow the inevitable growth and evolution of technology or you risk becoming redundant as a business and as a professional.”
Increased urgency around DEI
The global focus on social justice and racial inequity has sparked a sense of increased urgency and focus around DEI practices and leadership. Kara Helander is the chief inclusion and diversity officer at the Carlyle Group, and one of this year’s Transformers, told Insider that the focus on these issues right now presents companies with an opportunity to drive meaningful change.
One of the initiatives rolled out by the Carlyle Group focuses on hwlping employees mitigage unconscous bias. “It’s not so much where you start, but are you taking concerted, tangible action to make change around it? That applies to us and it applies to the companies in our portfolio,” Helander said. “You don’t want people to not take action because they aren’t where they should be.”
With global vaccinations increasing, companies are beginning to look ahead and figure out their new normal, and ensure they have the right talent to drive growth in a changed world. “In the year ahead,” Ranguin said. “Whether businesses recover will be dependent on their talent and that talent’s ability to navigate uncertainty and drive innovation needed to rise beyond incremental challenges.”
This SurveyMonkey Audience poll targeted individuals who work in a management capacity at their company according to the Audience panel. They included respondents from Hong Kong (n=50), Singapore (n=50), The United States (n=207), Canada (n=104), France (n=52), the United Kingdom (n=51), Germany (n=50) and India (n=50), with local translations in Germany and France. Respondents are incentivized to complete surveys through charitable contributions. Generally speaking, digital polling tends to skew toward people with access to the internet. SurveyMonkey Audience doesn’t try to weight its sample based on race or income. Polling data collected total of 614 respondents March 3-4, 2021.
The events of the summer of 2020, prompted by the death of George Floyd in late May, unleashed a wave of unrest across the country.
At the Carlyle Group, a global private-equity investor with 256 companies in its portfolio and $246 billion in assets under management, the events struck the firm’s chief inclusion and diversity officer deeply.
Kara Helander, the corporate leader tasked with helping steer the firm’s D&I activities, has since detected an opportunity to exact upon the momentum fomented by that moment – and is actively working to harness that energy and make changes endemic to the Carlyle Group’s internal HR processes.
Last summer, the firm finalized and implemented plans presented by Helander; Carlyle’s diversity, equity, and inclusion council; and its head of talent to implement a new set of criteria for assessing candidates who are in the running for a promotion to the managing director level.
The criteria examine their success in demonstrating inclusive leadership and management, tying the possibility of getting a promotion to more than just success in participating in a live deal, but to the ethos that managers create within their teams.
“What you want to be looking at is: Is it credible? Are they making progress over time? Are they making this a big part of their definition of what the modern leader and manager has to be good at?” Helander told Insider in a recent interview.
In addition to assessing the track record of MD candidates, specifically in terms of their success in exemplifying inclusive leadership, the Carlyle Group has also asked all of its employees to establish a goal related to diversity, equity, and inclusion for themselves this year.
Earlier this year, Insider took a look at the ways that the Carlyle Group is helping the companies it backs to diversify their teams and create more inclusive workforces and company culture.
The Carlyle Group and executives from one of its portfolio companies, the packaging supply manufacturer Novolex, told Insider how they worked together to broaden Novolex’s hiring aperture. The steps they detailed resulted in the appointment of two additions to Novolex’s board – both women – and helped the industrials firm triple its total number of diverse plant leaders.
A career spent championing diverse leadership
Helander has spent her career helping business leaders identify ways to support diversity, equity, and inclusion on their teams.
Before joining the Carlyle Group in 2018, she spent time as the head of her own consultancy that focused on helping companies implement corporate social responsibility and diversity and inclusion strategies.
Prior to that, she was a managing director at BlackRock. She also served as the asset manager’s global head of corporate social responsibility and oversaw the implementation of the firm’s first global diversity and inclusion and philanthropy strategies.
The firm isn’t stopping with its promotions review process. It’s also rolled out an internal training program to help educate other employees on how to mitigate unconscious bias.
That program is called “Better Decisions,” and, so far, more than 80% of Carlyle’s employees have partaken in the training and developed an action plan for their own personal development in this arena.
“It’s not so much where you start, but are you taking concerted, tangible action to make change around it? That applies to us and it applies to the companies in our portfolio,” Helander said. “You don’t want people to not take action because they aren’t where they should be.”
Looking to the future, the Carlyle Group announced an ambitious D&I-focused goal in the summer of 2020. The firm has committed to filling 30% of the board seats at all of its portfolio companies with members who come from diverse backgrounds by the year 2023.