The political backlash against ESG in the US will die down in the wake of the next presidential election, predicts Robert Eccles, visiting professor of management practice at University of Oxford’s Saïd Business School and an adviser to KKR.
In a discussion at the London offices of PEI Group, publisher of New Private Markets, Eccles returned frequently to the topic of pragmatism in sustainability, highlighting the need for less polarised discussion about how to address global challenges like the energy transition.
Eccles has long been a vocal figure in the ESG community. He currently chairs KKR’s sustainability expert advisory council, and has previously served as chair of the Sustainability Accounting Standards Board.
A few takeaways from the discussion:
Though the “political theatre” around ESG in the US has garnered a lot of media attention, the reality is that it is not a major issue for most fund managers.
“When you talk to these people in the big asset managers and you say, ‘how much time is this taking up?’, it’s not much,” he explained.
The backlash against ESG is unlikely to be a long-term issue, Eccles said, even though the debate may persist through the next US presidential election. “Five years from now, are we going to be talking about this? No,” he said.
- Further reading: KKR was one of a number of firms to address the relevance of sustainability to financial outcomes in its annual report earlier this year.
The energy transition
Despite the urgency of the energy transition, there is still a need for private markets firms to invest in coal, oil and gas assets. Eccles said: “There are some private equity firms that have said they are not going to do fossil fuels. KKR has not taken that position… I’d rather [fossil fuel assets] have a responsible owner like a KKR, and there’s others, that’s really going to manage them in a responsible way.”
As a result, notions of managers achieving net zero in their portfolio can be “tricky”, at least in the short term.
In a similar vein, Eccles warned that the need for the energy transition to be conducted in a just manner means that compromises may have to be made, and that dirty energy sources may take longer to be phased out. “Just transition means maybe we’re going to have natural gas for longer than we want. Maybe not, but let’s have the conversation.”
PE model as a sustainability driver
Private markets investors have not been subjected to the same pressure as those in the public markets “to be woke or not be woke”, but have instead developed their practices “because they see that it creates value”, he added.
The asset class is, in Eccles’ view, is better placed than others to take the lead on sustainability, because “they can bring capital but they can [also] help you negotiate the ESG stuff, because they’re in supply chains”.
KKR’s sustainability council
Eccles also expanded on the role of KKR’s sustainability expert advisory council. Established in 2021, the board features prominent names from across the ESG world, including Ford Foundation’s Roy Swan.
“The role of the SEAC is to push KKR,” Eccles said. “Our role is to challenge them, to bring up issues that maybe they haven’t thought about, and we were very careful in how we put it together.
“We advise KKR, we don’t get involved in investment decisions. They are free to take our advice or leave our advice, and I think that’s good.”
Eccles also encouraged other firms to implement similar structures.