A $1 Trillion Manager’s Europe Boss Says ESG Stood the 2020 Test
(Bloomberg Markets) -- Marie Dzanis, head of Northern Trust Asset Management for Europe, the Middle East, and Africa, had no idea how much environmental, social, and governance investing would be put to the test when she announced at a company press briefing in January that the 2020s would be the “decade of ESG.” What followed were months of market turbulence, a global economic crisis during a brutal pandemic, Black Lives Matter protests, and wildfires in the U.S. Almost every theory about why ESG matters and works has been played out before the world’s eyes this year.
The 53-year-old native of Harrisburg, Pa., who moved to London from the U.S. for her current role in early 2018, says she was glad to see the market embrace investing values that both she and the $1 trillion asset manager have long promoted. Companies abiding by ESG rules turned out to be more resilient during the coronavirus crisis than others and treated their employees better, she says, offering their investors an extra layer of protection in a pandemic-rocked market.
From its yearly low on March 23, the MSCI Europe ESG Leaders Index has returned 46% through Oct. 14, compared with 43% for the MSCI Europe gauge, in U.S. dollar terms. According to Citigroup Inc., about 50% of all new exchange-traded funds in Europe, the Middle East, and Africa this year were ESG-related, accumulating about $4.2 billion in assets, compared with $3.8 billion for new non-ESG funds. Seeing a surge in demand for ESG products, Northern Trust in July launched two new ESG bond indexes.
In two interviews with Bloomberg News’s Ksenia Galouchko—one in person in early March right before the U.K. went on lockdown, the other one over a video call in July, after restrictions had been relaxed—Dzanis talked about starting in finance in the 1980s, being a female leader, hiring people that think differently, flexible work arrangements, and Northern Trust’s ESG actions.
First interview: March
Ksenia Galouchko: What was it like coming from the U.S. to lead the EMEA business?
Marie Dzanis: With any new assignment, I think you have to take a lot of time upfront to understand where you can add value. So the first thing I did was sit down and have 150 hours of meetings with people and the staff. There’s a lot of things that you need to do, from regulatory preparations to understanding the dynamics of the business. I like to pride myself as being an engaged manager. I actually walk around very slowly when I’m visiting an office. I think that’s important because when you do, you make yourself available. If you look like you’re rushing through something, people will be hesitant to say: Would you mind if I ask you a question? That was a little tip and trick that I’ve learned after many years in management.
KG: Why do you think there are still very few female CEOs of major asset management firms?
MD: I fully anticipate that we’re going to see more women and ethnically diverse [people]. That’s important to us as a firm. That’s one of the things about this firm that resonates with me: It understands talent and knows how to coach talent. It starts with the hiring process—having a diverse slate of candidates, being creative with how you source candidates, and also moving away from the traditional “hire the people that look like me” and seeing the value in hiring people that are cognitively diverse. [You have to ask yourself:] Do I hire someone who I get along with great or another candidate who can bring something different because that will elevate our business? That’s why when we think about diversity, it’s diversity in gender and ethnicity, but it’s also in cognitive diversity, which is key.
KG: Do you think the finance industry is becoming more flexible toward employees with little kids and other personal factors since people are able to work from home?
MD: I see the future to be more about managing to outcomes. I will share a story. In the U.S. we had this one person, a very successful individual, who we were managing to outcomes. We decided that once they hit a certain level of metrics and they’re doing well and they surpassed that, we will [allow them to] have a little bit more latitude, and they would not have to work 9 to 5. What wound up happening is this individual wound up working longer hours, becoming more successful because they felt empowered.
KG: How did it feel starting out in the finance industry when there were very few women?
MD: So with my first job, I cold-called the company, got through to the gatekeeper … and got the job. And at the time, this was 1989, it was very different: It was myself and there was another woman. I was in sales, and they gave me an extensive training program on the phone and the phone book. I would cold-call people and say, “Hi, it’s Marie.” But the interesting thing was the dynamics in the office: Everyone was beating their chests, and saying buy, buy and sell, sell. [When I found the one woman in the room] she was curled up and wearing a flouncy skirt. Back then women tried to wear ties and dress like men, and she was very feminine. She would call up and say [in a friendly voice]: “Hi, I have a municipal bond that I think you’d like. I only have $10,000 of it, but I think you’d like it.” Guess who was the No. 1 salesperson in the office? She was. What that taught me from an early day was that your style can be one of the most powerful things that you have.
KG: Now, years later you’re head of asset management for EMEA for a massive financial institution. One of your firm’s keen interests is in ESG. What differences, if any, have you noticed between ESG investing in Europe and the U.S.?
MD: It has been a longer part of everyday life by far. The strongest example would be in the Netherlands and Nordics. This is a critical mission for them. And we look at Ireland and the U.K., which have made profound moves to understand metrics and have transparency around ESG reporting. They have a lot of programs that they’re looking at that are fossil fuel-free, ex-nuclear, and clean and green, and those are strategies that we actively work on with consultants. And even the once fossil fuel economy of the Middle East, they truly do look to things like climate change to be a moment that they can springboard off of and implement differently in their portfolio. The reality is, ESG is the future.
Second interview: July
KG: We’re now in July, which seems years away from our meeting in March. Back then you were quite excited about the prospect for ESG investing. How have ESG strategies overall performed during the pandemic?
MD: Hopefully I’ll be able to quantify that for you a little bit, but I want to take a step back. First of all, I think globally people are convinced that ESG works because they saw it in action. When you think about the E aspect here, there were distinct trade-offs that people saw when there was no traveling, no commute, no pollution. The fish came back into the canals of Venice, and parts of the Earth revitalized. The letter S, we learned that diversity at the leadership table [was] better for employees. People realized that this thing works. And from a governance standpoint, if you have companies that are well set up operationally, they’re able to have business resiliency.
So ESG funds actually did outperform in the second quarter. There was a Morningstar study that had 72% of sustainable equity funds ranked in the top half of their category, and 43% ranked in the best-performing quartile. The companies that were set up that way did very well. The proof point to this is if you look at the MSCI World ESG Leaders Index, it outperformed the cap-weighted MSCI index. This was across all ESG. It was not just an equity occurrence; there were tighter spreads in fixed income. I threw down a gauntlet a year ago, I said it was the year of ESG. Then I said it was the decade of ESG. Through market volatility and the most extreme times, we’ve learned this is indeed the case.
KG: How have Northern Trust’s environmental, social, and governance products been doing?
MD: Over the past one and a half years we launched about nine products that were all ESG in their constructs. Most recently, we launched the IG Euro-corporate ESG fund, and that’s very successful on the back of the high-yield fund that we launched in December. Both of those look at risk measures and incorporate ESG [by excluding companies that don’t meet certain standards], but then it adds the best-in-class process with an in-house optimization. With fixed income, in [the] ESG [category] spreads have been tight throughout market volatility and uncertainty. That’s been a very good early [indication] the investment thesis worked.
It’s a really good time, and we’re super excited that the world is waking up to the proof that ESG does work. And there’s logic and sustainability in this strategy. It’s a perfect convergence of conviction and client needs.
Galouchko is a European stocks reporter at Bloomberg News in London.
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