4 tips to build, scale a world-class asset-management sustainability strategy

Asset management and private capital fund managers have a unique value chain that shapes their culture, key performance indicators and customer. That is why generic corporate environmental, social and governance (ESG) approaches, developed for traditional service industries, don’t work, and why you need a custom asset-management sustainability strategy.

These entities need tailor-made sustainability functions due to the nature of their business — they need to attract investment and deliver strong shareholder returns on that investment to warrant further investment. Dave Stangis, chief sustainability officer (CSO) at Apollo Global Management, spoke about this approach at a recent Impact Leaders Lab event. 

“Our supply chain is investment, and our product is investment returns, so helping our deal teams as well as our marketing and communications organizations to tell that story has been critical,” he said. “We’re creating something that is, as we call it, ‘Apollo-esque.’ It’s ours and we’re not shy talking about it. We’ll debate anybody on our approach as we’re building it for us, not for somebody else.”

So, how can you create a bespoke approach to sustainability that pays dividends? 

1. Design for a global consumer 

Most private capital fund managers are operating on a global scale and working with a geographically disparate customer base. That means any sustainability function needs to have global oversight to stay one step ahead of the exploding regulatory environment and how it affects the financial services sector.

There’s a rapidly growing catalog of global regulations that affect fund managers, shaping their investment portfolios and creating additional reporting requirements. These range from the European Union’s Sustainable Finance Disclosures Regulation (SFDR) to the U.S. Securities and Exchange Commission’s proposed ESG-related rules.

The sustainability team will need the internal expertise to both meet their own compliance obligations and advise international clients in a variety of markets about how their investments may be affected.  

2. Create an internal center of excellence 

Generalist ESG practitioners are unlikely to be the right fit for private capital players.

Instead, sustainability leaders need to take a surgical approach to identifying the right talent — drawing from differentiated talent pools to fulfill specific functions within the business. 

They need to find individuals who excel on climate accounting, legal and strategy, as well as those who can respond to specific marketplace needs, such as the growing role of sustainability within credit risk.

This approach creates an internal center of excellence, giving firms a competitive edge. Stangis explained that this is the case at Apollo. 

“Everyone has got a lane, they own it, they’re known for it, and they have a personal brand,” he said.

3. Align ESG with commercial objectives

Private capital firms are uniquely placed to act as a catalyst for sustainable development as they simultaneously accelerate their progress toward commercial objectives. In 2023, sustainable equity funds outperformed traditional asset classes, generating median returns of 12.6 percent. 

Rather than creating a siloed sustainability function, foster a culture of collaboration and international partnerships. Identify ways that sustainability can drive progress toward existing business goals, as well as improve social and environmental impact. 

Ensure sustainability teams are working side by side with different functions within the business to incorporate ESG risks and opportunities into the fundamental investment process to drive better financial outcomes.  

4. Connect the dots

To amplify the reach of sustainability strategies within private capital, make sure there are connected management systems in place. For example, ensure that the board is implementing clear, scalable governance rules. Also, design overarching systems to gather and share data that can be used to build actionable insights for investors. 

This approach extends to employee management and corporate culture as well. It’s important to embed an ESG-focused mindset in people from the minute they join an organization, regardless of which team they’re joining. 

At Apollo, for example, Stangis sends out personal notes to every new hire within their first month and incorporates relevant content into employee orientation materials. He also holds Zoom calls open to anyone interested in understanding more about climate reporting, carbon offsets or credit strategies and its relevance to their role. 

It can be complex for CSOs to build an asset-management sustainability strategy. But the right approach to embedding ESG into an organization can turn into both a commercial advantage and opportunity.

Shannon Houde is an ICF-certified executive coach and talent strategist with over 20 years’ experience as a trusted adviser to evolving change leaders from directors to CEOs.