At Sibos 2022 in Amsterdam, we interviewed Adrian Whelan, the global head of regulatory intelligence at Brown Brothers Harriman, prior to his panel discussion titled “Green, Clean, and ESG: Rewiring Capital Markets for a New Generation of Responsible Investors.”
Whelan emphasized that Millennials and Generation Z are poised to advocate for a market focused exclusively on Environmental, Social, and Governance (ESG) criteria. As they inherit approximately $30 trillion in assets from baby boomers, asset managers will face increasing pressure to align with ethical, sustainable, and socially responsible investment principles. This shift could herald a transformative period for the securities market, as investments lacking these credentials may face heightened scrutiny.
To effectively tackle ESG issues, Whelan advocates for enhanced communication between banks, asset managers, and their communities. Drawing from his own experiences growing up in a lower socio-economic environment, he noted the importance of understanding diverse perspectives from an early age. He argued for a more comprehensive focus on socio-economic diversity within the industry, alongside gender and racial considerations.
Whelan acknowledged that one of ESG’s biggest challenges is its inherent complexity. He pointed out the amalgamation of three distinct concepts—environmental, social, and governance—into a single framework, complicating discussions and assessments. Asset managers often grapple with competing priorities; for instance, while addressing the “S” in ESG necessitates evaluating workforce composition, complete and transparent disclosures are not always available. Amid growing concerns about climate change, numerous UN Sustainable Development Goals (SDGs) risk being overlooked.
On the governance aspect, Whelan noted that while effective governance is fundamental to banking operations, the scope of “governance” extends beyond structural integrity to encompass elements such as cybersecurity and workforce diversity. He remarked, “I think ESG is too broad a church.”
Despite the challenges of navigating ESG complexities, Whelan asserted its pervasive importance across all sectors of capital markets. “Every organization must engage with ESG in some capacity, whether driven by regulation or commercial imperatives. Lacking a coherent ESG strategy can become detrimental to your narrative,” he warned. While regulators are tasked with identifying instances of greenwashing, institutional clients must present evidence of their genuine commitment to ESG, relying on data rather than marketing rhetoric.
Europe is spearheading efforts in corporate disclosure; however, Whelan pointed out that numerous regulatory initiatives suffer from a deficiency in objective data analysis. Emotional and political biases often cloud the evaluation process, contributing to a culture war over risk management and capital allocation based on ideology rather than sound judgment.
Whelan concluded by highlighting the necessity for ESG approaches to vary by region. “ESG cannot be uniformly defined across diverse geographical and economic landscapes. The conditions in India, for example, differ drastically from those in the UK, the Nordics, or the US. A standardized ESG framework simply does not align with global realities.”