Interview with:Naim Abou-Jaoudé, CEO, Candriam Investors Group
18 Jul 2017
The 2008 financial crisis sent shockwaves around the globe, bringing to startling light a system that had gone unchecked and unbridled for far too long. The consequences were the worst recession the world has seen since the Great Depression and a still-ongoing overhaul of the financial industry.
In the years that have followed, banks and other financial institutions have, unsurprisingly, experienced ever-increasing scrutiny. Importantly, this scrutiny comes not only from local and international regulators, as was once the case, but also from the broader public, clients, employees and investors.
Today, the focus is on creating greater sustainability for the entire industry and for society as a whole. From the very smallest to the biggest of players, long-term viability is imperative. As such, in addition to new regulations, legislation and worldwide best practices, it is also essential for sustainability to begin from within. Though such a transition may be difficult for some, it is well within reach if one has forward-thinking leadership in place that is willing to take bold steps and embrace change.
Given the industry’s current state of development, a number of players have begun to look to the future by incorporating greater sustainability in everything they do. In light of this trend, European CEO spoke to Naïm Abou-Jaoudé, CEO of Candriam Investors Group and Chairman of New York Life Investment Management International, about how financial institutions can achieve greater sustainability in future, and what this goal means for the industry.
Change in the air
“The financial crisis provided a wake-up call for the financial services industry, showing the world that conviction without responsibility, while potentially lucrative over the short term, is unsustainable and potentially dangerous over the long term”, said Abou Jaoudé. Though many are still adjusting to this change, the landscape of the financial sector is undergoing a significant shift. This can be attributed to the external pressure of compliance with industry codes of sustainable conduct, such as the Global Reporting Initiative and UN Principles for Responsible Investment, together with a growing call for environmental, social and governance (ESG) products and services. Demand in this regard is particularly noticeable among institutional investors.
Today, the focus is on creating greater sustainability for the entire industry and for society as a whole
The sector is now expected to manage financial risks in a more viable manner, with a particular focus on risk management, so as to support national and international development goals and facilitate the transition to a green and low-carbon economy. “While there are clear leaders that thrive under such circumstances, when looking at the industry average, there is probably still some way to go”, said Abou-Jaoudé.
Some of the most pressing issues that require attention are ethical conduct, bribery and corruption. “Regulatory and civil claims still exist, though there is still a reputational risk to resolve”, Abou-Jaoudé explained. “There is also the need to have internal codes of conduct as part of ‘business as usual’ for every institution, no matter how big or small.”
Also lacking in the industry at present is a suitable level of awareness among organisations about their own environmental impact. In order to overcome this, the wider industry must focus on corporate lenders, according to Abou-Jaoudé; the appropriate management of environmental risks in lending portfolios can reduce potential future losses and liabilities significantly.
There is also, of course, the endemic risk of climate change. Despite environmental discourse becoming omnipresent across all levels of business, basic blunders still occur. One such example is the financing of harmful developments. “Even though we have seen a withdrawal of several institutions, there is still a large portion of the industry that finances environmentally controversial projects”, explained Abou-Jaoudé.
Other more operational challenges include inadequate levels of accountability. “The industry still faces a lack of appropriate transparency in regards to products, charges, terms and conditions. This results in a loss of trust from customers and other stakeholders, which in turn leads to a loss of market share”, said Abou-Jaoudé. “Better reporting is also needed, as the data currently being reported externally is not as robust as other financial information that is reported. Corporate responsibility data quality can really help with this.”
An understanding of what sustainability actually means is a vital starting point for any organisation. “Sustainability typically has two broad definitions: literally, it refers to the ability to maintain a certain rate or level, while more recently, it is increasingly used in reference to resources, lifestyle and the environment”, said Abou-Jaoudé. “As a CEO, both of these definitions are central to the way I manage the business. I want to build an organisation that is innovative and conviction-driven, yet diversified and focused on the long term, thus ensuring a platform for growth built on solid foundations. I’m also committed to being a responsible and engaged actor within the industry by allocating our capital in a way that achieves return on investment, while also maximising positive impacts for society.
“Sustainability is at the heart of Candriam; not only in the way we manage our own business, but also in the way we invest money on behalf of our clients worldwide. Over 20 percent of our assets under management are in socially responsible investments (SRIs). We believe that sustainability comes through acting with conviction and responsibility.” Indeed, the company’s very name reflects this fundamental positioning: “It embodies the values we stand for. Our own staff is responsible for creating the Candriam acronym: conviction and responsibility in asset management.”
Seeking to lead by example, Candriam has a number of initiatives in place to ensure it practices what it preaches at all levels of the company. For example, there is the Candriam SRI rating from the company’s own in-house SRI team, which ensures the organisation is up to standard and up to date for all relevant regulations and guidelines, while there is also the annual sustainability report that records Candriam’s progress and publicises it for all stakeholders.
Seeking to lead by example, Candriam has a number of initiatives in place to ensure it practices what it preaches at all levels of the company
Among the emerging trends in the area of sustainability – be they social, technological or environmental – Abou-Jaoudé finds most inspiration in the digital tech revolution. “It continues to be a fascinating trend, both in terms of the speed at which it has progressed and the disruption that it has caused to the status quo. From peer-to-peer platforms and smart grids, to agricultural robots and medical wearables, there is a range of companies doing great work in ESG.”
As the CEO of an investment group, Abou-Jaoudé strives to incorporate these trends into Candriam’s company strategy. For example, the group has an in-house digital working group, which seeks to identify new opportunities to improve its business, products and services in light of the most cutting-edge digital and technological advances. This particular division of Candriam has enjoyed great success in recent years. As Abou-Jaoudé explained: “The digitalisation of financial services has been a rapidly evolving trend in recent years, and our digital working group has pioneered some exciting innovations in the space.”
For example, the group is developing an open-access accredited SRI training academy to enable distributors to learn more about sustainable and responsible investment. “We have also worked on a report builder, where clients can customise a report themselves with the relevant information bricks”, said Abou-Jaoudé.
In recent decades, free market economics and technological innovation have helped to create considerable wealth. However, the majority of this wealth is held by a tiny minority of the global population, producing an increasing disparity between the richest and poorest members of our society.
Abou-Jaoudé identifies a number of reasons for this alarming trend. “First, there is the search for cost reduction within a lower economic growth environment. There is also an inclination towards social dumping”, he explained. Other causes include mass migration as a result of internal and regional conflicts, as well as international policies in taxation and international transfers. “Ultimately, in the globalised world’s quest for efficiency and profit maximisation, we have reached a point where the social costs have become too high.”
This has gone on for far too long: now is the time for change, and the financial services industry is a perfect place to start given its ability to promote social inclusion. “If different groups within a society no longer feel that their economic and political system is broadly fair, this can mean the end of the social contract”, said Abou-Jaoudé. “This leads to unrest and instability – not the kind of environment conducive to the long-term health of economies and businesses.”
Despite a sense of urgency, however, not enough is being done to tackle social exclusion. Many companies and individuals are simply resistant to change, which is compounded by policy frameworks that are stuck in the past, and a general difficulty in passing new regulations. “This is concerning, as our current economic growth model creates many social costs and systemic risks”, said Abou-Jaoudé. “Technological disruption and globalisation have led to a situation in which, too often, the winners take everything and most are left behind.”
This is where governments must step in. Thankfully, this is exactly what is beginning to happen. “Environmental externalities are increasingly being tackled by regulators, which means that both companies and investors are becoming aware of the challenges of climate change. For example, mobilisation around energy transition is at last gathering pace. However, we’ve not yet seen the same sense of urgency and international mobilisation for social externalities.”
Initiatives such as the Copenhagen Declaration and Programme of Action have served to help the cause. “This is clearly a positive step in the right direction, especially in terms of the recommendations made for eradicating poverty, targeting gender equality and improving access to education”, said Abou-Jaoudé. “That said, as is often the case with such programmes, to be effective, they must be followed up by an assessment framework and dedicated budgets.”
Organisations – Candriam included – can play their own part in promoting inclusive society too. “As asset managers, we need to do our bit, both in the way we manage our own business and the way we invest our clients’ wealth. We want to invest in companies that have a sustainable, positive impact on society”, said Abou-Jaoudé. “For example, we can address the real systemic risks caused by climate change, and we can look into labour rights abuses or unfair tax arbitrage. We want to have impact as owners, so we must engage with the companies we invest in and consider their social policies, or the fairness of their global supply chains.”
Environmental externalities are increasingly being tackled by regulators, which means that both companies and investors are becoming aware of the challenges of climate change
In this way, the financial industry is becoming a pivotal player when it comes to promoting social inclusion. Abou-Jaoudé explained there are two principle reasons behind this: “Both economic activities and the launch of new innovative projects require funding, and the financial industry is at the source of this relationship between investors and entrepreneurs. Banking activities have a direct proximity with the public.”
What’s more, taking this step is not actually detrimental to business. “The three biggest challenges facing the industry today are also its three biggest opportunities. If we get these right, it will ultimately ensure we change the world for the better, while getting them wrong would mean failing our obligations to future generations.”
The three areas in question are “climate change and energy transition, disruptive technologies and economies, and working conditions throughout the entire production and supply chain”. To turn these challenges into opportunities, Candriam guides its investors through the promotion of its SRI approach. This involves incorporating low-carbon investment solutions, as well as robotics and digitalisation. Investments in green bonds, solidarity funds, and microfinance solutions are other key areas that investors can embrace, while more research on the impact of these challenges and opportunities on portfolio investments will help the cause in the long run.
Candriam also advises its clients to understand the nuances of sustainability, rather than treating it as a one-size-fits-all concept to be ticked off. “Sustainability is something that results from responsible decisions that apply to one’s specific business model”, Abou-Jaoudé explained. “The best piece of advice when seeking improved sustainability is to begin with small initiatives that contribute to a more sustainable micro-environment, which in turn will contribute to a more sustainable world. For instance, a good starting point is to raise awareness among staff members, since they are your ambassadors and the drivers of actual change.”
We the people
When asked where he draws his energy and inspiration from, Abou-Jaoudé does not hesitate: “From my three sons. It’s amazing to see how fast they grow and how at ease they are with the rapid pace of change surrounding them. They inspire me through their laughter and challenge me to do things differently to keep up with future generations.”
Of course, challenging oneself and striving for change, particularly when faced with resistance, is no small feat. But it’s up to the leaders of organisations and industries to take such bold steps, even in the face of adversity. “Promoting change is all about promoting the positive personal impact that change will bring and, in doing so, setting the right example”, said Abou-Jaoudé. “You have to believe in the change yourself. Be a defender – show them the bigger picture and personal upside in order to turn resistance into adherence.”
While spearheading change is certainly an accomplishment, Abou-Jaoudé is clear Candriam’s biggest achievement since he took the helm is actually the people around him. “I definitely take pride in the longevity of service from our staff. Our group strategic committee shares over 13 years of making decisions side-by-side, and our investment team has an average experience level that is among the highest in the industry”, he explained. “I have always aspired to foster a corporate culture in which people feel engaged and inspired, where they source energy to work as one cohesive unit, with the values of the organisation present within each and every person.”
In a bid to continue progressing the group towards greater sustainability, the company will soon launch the Candriam Institute for Sustainable Development, with the aim of promoting innovative research into sustainable finance. Also central to the foundation is delving into exactly how the financial sector can contribute to sustainable growth within a more inclusive society.
The institute will sponsor academic research and support programmes with a positive impact on society. For example, it plans to introduce an inclusivity initiative, which will help people with disabilities acquire work experience. “Through the institute, we want to be an even more active advocate across the financial community – a responsibility we take very seriously”, Abou-Jaoudé concluded.