Enjoy this interview with Nawar Alsaadi and Esgaia's Head of Stewardship Success, Rickard Nilsson, where Nawar shares his learnings from decades in finance and engaging with companies. Today, he is the CEO and founder of Kanata Advisors, an ESG fintech boutique advisory firm focused on the intersection of finance, sustainability, and data.
Q: Nawar, you are what I would call an “Eldsjäl” in Swedish - a passionate and driving force in sustainable investing. As the founder of an advisory firm, tell us a bit about your day-to-day work?
Thank you for that kind characterization, I am absolutely passionate about the sustainable finance space, and I believe it to be the future of capitalism. As to my day-to-day work, I spend plenty of my time working with founders and teams of ESG fintech companies to find solutions to operational and strategic challenges. Outside of that, I spend plenty of time keeping up with developments in the sustainable finance space, and when I have time, share content with my many followers on LinkedIn.
Q: With your investment background, let’s delve into the do’s and don’ts of active ownership. I know you’ve driven a lot of engagement dialogues over the years, what comes to mind when you reflect back on this?
I believe active ownership has come a long way. Back when I started actively engaging with companies, in the late 2000s, engagement was the domain of activist investors, a relatively fringe segment of the investment community. Today, active ownership is widely accepted as a credible lever to drive change, manage risk, and generate returns. However, as is always the case, when an activity becomes “fashionable” a lot of pretenders get involved, and I do fear that many investment firms today are using engagement as an excuse for inaction rather than using it as a real force for change. This is not always by design, but often due to lack of proper tools, lack of expertise, and lack of proper governance structures.
Q: Being very vocal about what’s working and not in the current market, would you mind highlighting some examples here?
I believe investors have been effective in getting companies to think about and disclose their ESG performance. However, the investment community has been far less effective in getting companies to materially improve their sustainability performance. Let’s take for example Climate Action 100+, despite the collective weight of $68 trillion in assets, 700+ investors, and over 5 years in existence, less than 5% of CA100+ engaged companies have capital alignment with net-zero. And yet, 75% of CA100+ engaged companies have a net zero commitment. What this tells us is that sustainable investors are winning the commitment battle, but losing the capital spending battle. Unfortunately, nature only cares about action, and not about words, and so should investors.
Q: I’m worried that stewardship assumptions can get hyperbolised into unreasonable expectations of roles and achievements, are we asking too much of an industry whose primary concern is running money for their clients?
I think this is largely a self-inflicted wound. I am saying this because when sustainable investors got started with engagement, many used their ESG engagements as a marketing and a communication exercise, rather than framing these critical company interactions as a risk management exercise. It is incumbent on the industry to reset expectations, to educate clients and regulators, around the possibilities and limitations afforded by active ownership. Due to the uncertain nature of their business, asset managers are not expected to guarantee financial returns. As such, why should they be expected to guarantee non-financial returns?
Q: Following on the previous question, what would you focus on if you still worked in asset management?
I would create clear internal philosophy around the role and purpose of integrating engagement in the investment process. Investors need to have internal clarity on whether their active ownership program is designed to manage risk or drive impact, or both? These two goals may intersect at some point, but often they don’t. The other issue I will address is building a strong governance process around the creation, execution, and evaluation of the firm active ownership program. This is especially critical when engagements are undertaken by the ESG team rather than the investment team; lack of proper governance in this context can create significant internal friction.
Q: How do you foresee stewardship practices evolving over the coming years?
I see increased reliance on more robust engagement tools likes Esgaia. I believe many investors are still using very rudimentary and not fit for purpose tools such as spreadsheets to manage highly complex engagement tasks. When I worked with CA100+, many participants were still circulating email threads circa 1995! This needs to change.
Outside of the above, I see a growing sophistication around the use of a concept I presented over year ago, which I call Integrated Engagement, which in a nutshell is the process of assessing sustainability risks across asset classes, understanding the linkages between them, and engaging the same ESG risks across multiple asset classes at once. I applied this concept when I worked with Canada Post Pension Plan, where I led an engagement with one of our public holdings, Caterpillar, around decarbonizing their construction equipment product line. The goal of this engagement was twofold: decarbonize Caterpillar, but also reduce the embodied carbon in our future real estate developments by help bring to the market an expanded fleet of electrified construction machinery.
Q: Time for final remarks, if you could ask for one thing of investors, what would it be?
My ask or advice would be for the investment industry to invest more in ESG capacity building and sustainability education enterprise-wide, and not just for a sub-segment (ie. investment or sustainability teams). Investors need to cultivate a sustainability mindset and a sustainability culture that permeates every aspect of what they do. As they say charity begins at home, and so does sustainability. You can’t ask portfolio companies to be sustainable if your firm is unsustainable.
Nawar Alsaadi is a seasoned sustainable investment professional with over 20 years of experience, holding multiple senior roles: Senior Portfolio Manager at Canada Post Pension Plan, Director of ESG at NEI investments, Chief Impact Officer at ScopeFour Capital, and is currently CEO and Founder of Kanata Advisors. Nawar has extensive active ownership engagement experience, and have been involved in several proxy contests with TSX and NYSE-listed companies on matters pertaining to corporate governance and corporate strategy.
Nawar holds a CFA in Climate and ESG Investing, a Sustainable Investment Professional Certification, and an FSA SASB Credential. Nawar earned a BBA in International Business from Schiller International University, and an MBA from Boston University. He is also the author of five books, and an active contributor to the financial press.