In this episode we’re joined by Gary Kendall, Head of Climate Strategy Implementation at NatWest as our focus turns to the implementation of ESG strategies, a topic that is centre stage at COP27, and exemplifies the need to track action rather than targets.
We discuss why we can’t just set ESG targets internally and focus on achieving them to bring about the system level change that is needed and how independence, an open and transparent approach and bringing your stakeholders along with you, all play key roles in fully integrating ESG as a long term ambition at an organisation.
Join us as we chat about what lessons we've learned implementing our own ESG strategy, whose role is it to drive cultural change and the common areas that businesses fall short when it comes to implementation despite having strong ambitions.
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About NatWest Group
NatWest Group is a relationship bank for a digital world. We champion potential; breaking down barriers and building financial confidence so the 19 million people, families and businesses we serve in communities throughout the UK and Ireland can rebuild and thrive. If our customers succeed, so will we.
Alongside a wide range of banking services, NatWest offers businesses specialist sector knowledge in areas such as sustainable energy, commercial property and technology, as well as access to specialist entrepreneurial support.
Tim Phillips:
Welcome to the latest episode of A Just Transition brought to you by RBS International. My name's Tim Phillips. And welcome as always... I suppose I should say a big Just Transition welcome, as always, to my cohost, Bradley Davidson, ESG Lead at RBS International. Hello Bradley. Do you think I was a bit “local radio” there?
Bradley Davidson:
I loved it though. Hi Tim.
Tim Phillips:
It's got good energy, hasn't it. Bradley, we're usually talking about making an impact outside the organization – but today, we're bringing it closer to home, aren't we? What are we discussing this time around and who is that guest over there?
Bradley Davidson:
Today, our focus turns to the implementation of ESG strategies, a topic that is set to be centre stage at COP27. Last month, we had the pleasure of speaking with Jessica about the progress towards Sustainable Development Goals, which exemplifies the need to track action rather than targets. To help us tackle today's topic, we're joined by Gary Kendall, Head of Climate Strategy Implementation at NatWest Group. Welcome to the podcast, Gary.
Gary Kendall:
Hi Brad. Hi Tim. Thanks for having me.
Bradley Davidson:
For our listeners, who don't have the pleasure of working with you, could you start by telling us a little bit about your role?
Gary Kendall:
Okay. Formally, Head of Climate Strategy Implementation and I work within the NatWest Group Climate Centre of Excellence. My role, I joined the bank about six months ago and my first impressions are that there's really an extraordinary amount of work and energy, resources dedicated to responding to this climate challenge. I think if there's anything lacking, it's maybe alignment and focus. There's no shortage of resource. Maybe we could organise those resources to sort of maximise their impact slightly better.
I see my role breaking down into four key areas. The first I'll call intelligence. Obviously, as the Climate Change Centre of Excellence, we're expected to have expertise and insight and experience that maybe isn't available to everyone. Raising and disseminating that intelligence is obviously important. I characterise that as inculcating a sort of spirit of systems thinking. The next would be alignment. We've got a lot of resources dedicated towards figuring this out, but alignment means also developing the right enabling mechanisms, policies, processes, systems and tools and things like that.
The third would be focus. The focus there would be on the commerciality of our responses. How do we use that intelligence and that alignment to tap into the commercial opportunities that are implied within this transition to net zero. The fourth area would be collaboration. We know that what we're trying to bring about is system-level change. It's very, very difficult, if not impossible, for one actor to bring that about on their own. If we want to catalyse wider change, we're going to have to find new partnerships, collaborations and maybe different stakeholders that we can partner with than those that we might have partnered with in the past.
Tim Phillips:
Gary, that's quite a shopping list. You've got a lot to do. Maybe that's just trying too much? Couldn't you simplify it by saying you'll get most of the work done when it comes to ESG strategies by setting targets and achieving those targets rather than the systemic change you're talking about?
Gary Kendall:
No because I've been trying that for a large part of the last 16 years since I've been a practising sustainabologist. It's very, very tempting to go for those weaker points of leverage. It's tempting in part because it's much easier, but they are weaker points of leverage and you don't bring about the kind of change that's necessary.
What we're in the business of is organisational change management. This is an interesting thing that I've come across in my career. Often times people imagine that we're specialists or that I'm a specialist in climate change. On some level, yes, but being a specialist in climate change makes you a generalist. You have to know something about everything to be able to be a specialist in climate change because climate change …
Tim Phillips:
Ah, I get it. Yes.
Gary Kendall:
... is the container within which everything else is happening. The way I describe it is we're doing the decathlon. I can do a pretty good 100 metres, but we've got 100-metre specialists, so I can't compete with them, but they can't throw a javelin or do a pole vault and I can do a pretty good one of those too. The role of the generalist in a world of specialisation is to be able to shuttle between these islands of specialisation to be able to traverse these oceans of ignorance and to be able to connect the dots and see the linkages and to zoom out and see the big picture.
On these islands of specialisation, it's very tempting to just get more and more powerful microscopes and get more and more precise data and miss the big picture. We get more and more precision about less and less things. It really is important to be able to go up in a hot air balloon and see the entire landscape and then bring that intelligence back down to those islands of specialisation and maybe give them a tweak here and there.
Bradley Davidson:
We often see separate teams responsible for the environmental and social aspects of a strategy. The tide seems to be turning with colleagues coming together, teams coming together. Do you think that's a positive change?
Gary Kendall:
Yes, in the sense that those divisions were anyway arbitrary in the first instance. I had a problem with the world view in which we had these separate silos of activity as if we've got Venn diagrams and there's a circle. There's the economy and then there's a circle that's society and a circle that's the environment and sustainability is about getting the overlap, where those three circles intersect. It's of course complete nonsense. It's just a flawed conception of reality.
The way I'd describe it is we have nested systems. We've had life on planet Earth or what we might want to call the environment, the living world, for about 3.6 billion years. We've had human societies for maybe 150,000 years. We've had economies for maybe a couple of thousand years, anything that would approximate complex economy that we have today with complex systems of trade and so on and specialisation.
It's patently obvious if you just think about it for more than a few seconds that you can't have an economy and business without a functional society and you can't have a human society without a functioning ecology. These are nested. We've been taught to reduce these problems and to kind of separate them and to put them into boxes. That reductionist approach to solving our complex problems is part of the problem.
Tim Phillips:
Can I reduce something to a box though for a second? Usually, I leave Bradley to talk about the three-letter acronyms, but I have one for you, corporate social responsibility, CSR. A lot of funds have corporate society responsibility programmes. How does that fit in with the sort of focus on social strategies that you're talking about here?
Gary Kendall:
I suppose the glib answer is that if you have a corporate social responsibility unit or division or product line or whatever, then it begs the question: what else are you doing? Is the rest of your business irresponsible or disconnected from social relevance? If it is, that might be your problem. If you have to have a niche area of focus called corporate social responsibility, then you're probably doing it wrong. The way I describe it is even the idea of having environmental and social strategies, that's problematic. We have business strategies that are more or less relevant to the socioecological context within which we're operating.
There's really a strategy that's developed that is either responsive to or oblivious to some of these systems pressures. If you're doing it right, you don't need a corporate social responsibility programme.
Tim Phillips:
Gary, you're talking big picture. You talk very big picture and very long view. It is fascinating to hear because it's not the sort of conversation that you usually hear, but there is a huge focus, and there's been a huge focus on what we've been talking about on carbon in ESG in the last four or five years. There's likely to be for the next decade, isn't there? What actions can our listeners take to fit in their ambitions for what they do around carbon with the more holistic ESG strategies that you talk about?
Gary Kendall:
I know I'm going to keep pulling it out to big picture and I know you're going to keep trying to draw me back in, but I'm a firm believer that if we re-frame the problem, we might arrive at better responses, but if we continue using tried and tested heuristics, we'll continue making the same mistakes that we've always made, which is that we think that this is an engineering challenge and it's not. It's a cultural challenge, but to try and make it practical, the problem isn't climate change. The problem is that we have an economic system that is in ecological overshoot while failing to meet societal needs.
The economic system's kind of failing on its own terms. The economy should be in the service of societal ends. Just take a look around. You can see that it's been doing pretty well for a couple of hundred years, but it's coming apart at the seams. Now, the key thing there is it's been doing pretty well for a couple of hundred years. Since we started tapping fossil fuels, we've had an unbelievable energy surplus that has been denied to every other living species on Earth. A number of things, of course, make human beings special.
By the way, there are a number of things that make every species special. If you were an octopus, you'd probably think that human beings were pretty pathetic actually. There are a few things that we do exceptionally well and one of them is that we tap energy from outside of our bodies. We've been doing that ever since we first discovered fire. Now, for several tens of thousands of years, that was still... That activity still existed within a renewable energy constraint. In other words, you can set stuff on fire to the extent that you can make stuff grow and then chop it down and set it on fire.
But once you've tapped the solar battery of fossil fuels, then you can release energy that's accumulated from... sunlight that's accumulated over several million years. You can release it at the click of your fingers. We've effectively created a time machine and we did that about 250 years ago when we invented the steam engine. Since then, we've imagined that we've been making progress on all of these other dimensions of interest to us. That looks to be the case except we're only counting one side of the ledger.
We talk about how many people have been raised out of back breaking poverty and all the rest of it, but there is a consequence. The consequence is that we've been reversing that process of geological sequestration of carbon and we've been taking that carbon out of those geological sinks and we've been sticking it back into the atmosphere. That is upsetting the energy balance of the planet which is threatening to undo all of the economic progress that we've made by setting stuff on fire. That's the issue. We have an economic system that's in ecological overshoot.
If you understand it like that, you can start to see the folly of this fixation on carbon as opposed to this pursuit of infinite growth on a finite planet because all of that growth... Every single cent of economic activity depends on energy being converted from one form into another.
Tim Phillips:
Just to follow up on that one though, Gary, I completely agree with what you're saying. It's fascinating. It's difficult to narrow down into a business agenda. I'm thinking about items to hold meetings about, that sort of thing. Do you struggle with that?
Bradley Davidson:
Just to add to that, whose role is it? What you're saying about having that larger cultural change, I recognise we need that. Whose role is it to drive that? To Tim's point, when you're looking at your own culture and what you can do beyond your organisation, how can you be part of that change? If we're saying carbon is too specific, which I think we all agree, it is a start, albeit quite late, given we've known about these issues for some time... I am going to drag you back to practicals now. What are the roles that government play, private markets play, other NGOs can play?
Gary Kendall:
To try to make it as practical as possible then, I think the role of business is in developing solutions to societal problems now because we find ourselves in a situation where the scale of our problems, it's reaching a point that is overwhelming our capacity to respond through traditional means, which is to say when we face an existential threat, then we have participatory, democratic processes or maybe not, depending where you live in the world, but we have some other public institutions that have to resolve those problems for us.
The correct role of government is provide that functional infrastructure within which business can just do whatever they want as long as it's legal and profitable. I think we're on the cusp of a paradigm shift that is equivalent to the Copernican Revolution. That world view has placed business at the centre of our concerns and actually it's not. It's peripheral, but it can be still very consequential and important. By the way, there's an astonishing, untapped commercial opportunity in putting these goggles on and looking at the world through these lenses of where are the problems that I have the capacity to solve.
For instance, I understand you spoke about the SDGs on a previous episode. In my previous role, I was really thinking about the SDGs across the continent of Africa working for a bank in Johannesburg. My role there was much more expansive. It was about how do you use the SDGs to reveal new business opportunities. The SDGs are a catalogue of unmet client needs. It's like getting a mail order catalogue and leafing through it and thinking, "Well, if this is the future that we need to create, all of these unmet needs imply problems that need to be solved that aren't otherwise being solved through government intervention."
I'd say to make it practical, where you see the sustainability problems, you see an innovation opportunity that will result in returns to shareholders because you will be rewarded if you are solving an unmet need.
Tim Phillips:
Bradley, I'm always delighted to have you next to me to tell me about the things I don't know about or the things I've never experienced. You are living this transition that Gary is talking about because you lead the ESG team at RBS International. In your own implementation of this, what lessons have you learned? What things might you do differently if you did it again?
Bradley Davidson:
The catalyst for this discussion is because across NatWest Group we do have a centre of excellence that doesn't sit in any one business. I actually think that over time that will be crucial. We have individuals sitting in that team like Gary, who whilst he'll say he's not an expert, he definitely is, to be able to challenge us. He's not necessarily stuck with us sat in the business. He's able to challenge in the way that we need. He's able to stimulate thoughts across the business.
Having that independence somewhere within your organisation, it is incredibly important. I think we talk about independence of decision making, conflicts of interest, they are terms that our listeners will be familiar with when we're talking about financial points, but also we can now look at that through ESG and actually say, "Well, where are your interests? What are your reward systems like?" I'm rewarded for the performance of our business, but actually Gary can come in and say, "I think you could do that better. I think this is how you should be thinking about that in a different way." We've got that collaborative process.
When I jump in during this conversation, these are the similar discussions we're having internally across the business, where we've got that open and transparent approach. I do think that's key. With any workforce strategy, you want challenge to be able to come through. You want to be able to have discussion. Looking at the independence within a fund and where those incentives sit I think is important and clearly timely as we're here. The other piece is this idea of full integration versus specialism.
We are taking the approach where we're fully integrating ESG as the long-term ambition. We are starting with carbon and we continue to expand. This podcast is called A Just Transition because we recognise the social implications of climate change. Gary will tell me we shouldn't think about them separately or sequentially, but that is where we're at the moment.
Tim Phillips:
Tell him, Gary.
Bradley Davidson:
But actually I have the pleasure of working with an incredibly brilliant team. They're all motivated, want to do the right thing, bringing different skill sets to the table, diverse thinking, but because we're going for a fully integrated approach, we can't deliver system-wide change even internally on our own. Bringing colleagues with you on that journey, investing in internal capabilities will be crucial. As Gary said earlier, no one individual within an organisation or no organisation within the system can drive the change that we need.
We have a set of behavioural pillars and we have a set of targets. One of our behavioural pillars is this idea of energising colleagues. It says that we want to be transparent internally about what we're doing, where we've potentially made mistakes. We want to show our working to all of the colleagues inside RBS. We want to be informative and we want to be engaging. The more colleagues that are interested in what we are doing and willing to bring their own expertise to the table, the more successful we will be.
We need to utilise all of that existing knowledge across the organisation to try and drive change because to Gary's point, I have a certain skill set. Our credit teams will have a different skill set and a different way of thinking of things. Our frontline teams will have a different way of thinking about things and so our job is more to enable that discussion and enable them to get involved so that they can bring that expertise and say, "Well, this is how I would think about it through this new lens."
I would say make sure you're bringing as many stakeholders with you. You shouldn't have an isolated ESG team or committee. You should have that plus a number of champions across your organisation. Bring your FDs with you. Bring your investment committee with you. Your decision makers should have a baseline knowledge of what you're trying to do to be able to make the right decisions. That I think is the main lesson that we've learned. The benefits are materialising now because we're having much better conversations than we were even having a year ago because we've invested in that capability and those discussions.
ESG is not a niche anymore. It is mainstream. You need to make sure that you're operating in that way as well. Gary, as you said, you previously worked for a bank in Johannesburg. Do you see common areas that businesses fall short when it comes to implementation despite having those strong ambitions? Are there key themes throughout your career?
Gary Kendall:
Yes. I'd probably turn it around and say what's clear to me is what marks out of the organisations that get it right and all the organisations that are getting it or at least threaten to get it right, the organisations that are doing the right sort of things... We still may fail, by the way, but the organisations that are giving me most hope... I say this with a little bit of a heavy heart because I didn't want this to be true, but I've come to the conclusion that it's true you need a CEO who gets it. If you don't have that, you're dead.
Everywhere I've ever worked that hasn't had that, I've had to suppress those feelings of hopelessness and believe that you can lead from anywhere. We don't have to subscribe to "the great man theory." Of course, it doesn't have to be a man, but let's say the great individual theory, but unfortunately... I'll put it this way. If you look at any company that is doing outstanding things on this agenda... I'm talking about the larger agenda of sustainable development or whatever, you never find a company who you go, "God, they're doing amazing things, but shame about the CEO." It's always, "I'd love to go and work for that person. They are leading that organisation in a different direction."
One of the things that attracted me to NatWest is that I think we have a CEO who is fluent and authentic on this agenda. That gives you a fighting chance. There's still a lot of work to be done, but if you haven't got that, it's very difficult.
Tim Phillips:
Bradley, Gary was talking earlier about the additional benefits of this kind of thinking throughout the organisation. Is that something that you've found? I don't know. It's what economists would call spillovers, isn't it? Those additional benefits to having that culture that's centred on ESG.
Bradley Davidson:
Absolutely. Look, I think there's many benefits that spillover from the initial target which has to remain that kind of environmental and social development piece. Fundamentally, as Gary's alluded to, having a society that works for everyone and therefore being able to prosper as a business is part of that society. We've actually touched on ESG as part of a workforce strategy before in some of our conversations, but I do think it's worth reiterating.
Starting with the basics, any organisational culture should aim to increase employee satisfaction. Research tell us that satisfied workforces produce better results. That is a known across the industry as well, but as ESG has moved from the niche to the mainstream, we're now seeing correlation between satisfaction and ESG performance. Fundamentally, I believe that employees want to know and see how their work is making a difference. Even if we speak anecdotally without the research that supports their view, I'm sure we'll have listeners who can relate to finding their own purpose through their work.
Now, these benefits also extend beyond current employees so attracting talent is difficult, especially those with an ESG skill set which we have touched on. Recent data indicates that strong, purpose-led strategies track favourably with Millennials and Gen-Z, who will soon make up the majority of the workforce. Additionally, we're starting to see a positive compounding effect, where existing ESG performance attracts the right talent. That enhances future performance and so you're creating a positive feedback loop for your own organisation.
I think when we discuss any solution or any strategy, you need a workforce with the right skill set, with the right ambition who want to bring their best selves and their best work to you every day. That goes for all corporate, financial institutions. It doesn't matter. That is just a fundamental to being an employer. Using ESG and really demonstrating how you're making a difference and how you're driving change and again coming back to that openness internally I think will benefit multiple financial institutions including funds.
We're still early in the journey to widespread ESG integration, but the outlook looks strong for those getting it right today. We are short on time, but I want to get this one in, Gary. COP26 focused on target setting whereas COP27 aims to tackle implementation. What would you like to see from COP27?
Gary Kendall:
I think this is pretty low bar. What I'd like to see is the UNFCCC stays on the rails because what we've seen in the geopolitics around the world since COP26... I mean, the external context was extremely different, still emerging from COVID. Everyone was still wearing masks and so on. Now, we've got out the other side somewhat. I don't want to speak too soon, but seems we've come out the other side of the pandemic. Now we find obviously that there's armed conflict in Europe. There's tension between the US and China.
Getting together and reaffirming... Not to mention the politics in the United Kingdom at the moment... which is still for now holds the COP presidency. Coming out of that or rather in the context of that, if COP27 can keep the show on the road and show that multilateralism and cooperation between UN member states is still the way forward and that this kind of fracturing individualistic, every man for himself approach to the future is going to fail, that's probably at the moment the best that I can hope for.
Tim Phillips:
You say you hope for it, Gary, and you say it's a low bar. Do you think we'll clear that low bar?
Gary Kendall:
I think we are getting to a point where the can has been kicked just maybe one too many times. I've been to three COPs. I was in Copenhagen COP15, Durban COP17 and then Paris COP21. We're seven years after Paris. I remember that feeling when the gavel came down on the Paris Agreement, that feeling in the room, in the plenary that, "We've actually done it now. We've just got to get busy with implementation." Now, seven years later, it's like, "Oh well, COP27, okay, let's talk about implementation."
At least we're coming back together and we're still talking. That's going to be particularly difficult this year with everything else that's going on. I think as well we're running out of carbon budget. We're running out of space. Emissions are still rising. They need to be falling very, very sharply if the Paris Agreement's going to stay alive. You might say that the measured, conservative, balanced, rational response to this is panic. It's that the irrational response is complacency and calm. We really are in a emergency situation now. We need something dramatic to happen.
Bradley Davidson:
You talked there about dramatic change being required. This podcast is called A Just Transition. What does a just transition mean to you?
Gary Kendall:
The transition that we're going through, to be successful, it has to be inclusive. It has to be representative. The way I describe the paradigm shift that we need is for the last 250 years or so, we've operated within this paradigm that is extractive, exploitative, exclusive and excessive. What we need is a paradigm that is regenerative, reciprocal, representative and restrained. That's the shift that we need.
Now, for me, it's not decarbonisation and don't forget the just transition. They're intrinsically interwoven because we cannot achieve this transition unless we do it in a fair, inclusive, just way. Remember that the justice is not only justice for those who are in vulnerable industries, let's say sunset industry. The justice is for those who have done nothing to create this problem and who are the most vulnerable to the effects of climate change. We have to think about justice in that broader sense and keep that in view. Of course, we will not succeed if we try and throw certain industries under the bus. We have to bring everybody along with us and, hence, it's got to be inclusive and representative.
Tim Phillips:
Thanks, Gary. You really blew the doors off it today. I mean that in a good way. It's been great having you on.
Gary Kendall:
Thanks guys.
Bradley Davidson:
We can continue this conversation in the office. I'll be pestering you soon, Gary. Don't worry.
Gary Kendall:
Good to see you, Brad. Thanks Tim. I enjoyed it. I'd be delighted to come back another time.
Tim Phillips:
Thanks to everyone also for listening to this. We hope you enjoyed it. Please remember to subscribe, give us a review, five stars as always. Watch out as well for Bradley's news updates. Bradley, you owe us one.
Bradley Davidson:
I do owe you one indeed. On that note, see you next month.
