How Sustainable Finance Can Help Save the Planet with Adrian Sargent

Foreign.

Welcome to this week's Treasury Career Corner podcast where I interview treasury professionals about their treasury careers. Each and every week I talk to treasurers about how they build their careers, where they are now, where they see both themselves and the treasury profession. Going to next this week's show, joined by Adrian Sargent, the founder of ESG treasury. Esg, a relatively new company in the market and they provide treasury advice and consultancy to organizations to help them provide sustainable solutions. If you like Adrian's experience and that.

Of his new team, the new company.

Comes from the we might call the traditional world of corporate treasury. Combining Adrian's passion for all things sustainable and sustainable financing with his 20 years plus of corporate treasury experience. I know this very well because Adrian has worked a number of senior treasury roles, companies such as Morgan Stanley, hboss, Tesco bank where I really got to know Adrian because I actually took him from HBoss, sorry, HBoss. I placed him there as the head of ALM or asset and Liability Management for those of you who don't know, to Intertesco bank and then he moved on blackrock and his most recent position before ESG and setting up this was actually with Virgin Money and Virgin Money he then decided actually ESG Treasuries where it is sustainable financing stuff. He will explain that all to us throughout the program. Adrian, it's your turn. As every week, tell us about your career today if you would and how you maybe first started in the world of Treasury. Over to you, sir.

Yeah, well thank you very much and very pleased to be on the, on the podcast today. So you know, my career is spanned over 20 years so far, but it started out in accountancy. Like many people in treasury that I know, accountants, accountancy was the bedrock on which it was based and also then moved across to look at Treasury. So I actually started out in brewing.

Nice.

So I didn't want to be a typical accountant in a Big four or Big five or Big six at the time accountancy firm. I wanted to get really stuck in with the business that did something. I moved from brewing and accountancy and brewing to treasury and quite a significant shift from brewing in Edinburgh to investment banking in London. And I moved into a sort of treasury controller's role there. So again on the accountancy side. But you know, my treasury interest was ignited through internal audit and auditing. The treasury function of Scottish Newcastle as it was, you know, and that was many, many moons ago.

Yeah.

But I got an interest there and I could see that it was a sort of a dynamic area to work. It was Challenging. It was interesting. There was lots of things to keep you, the brain ticking over. So if I look at treasury overall then I think treasury really is at the heart of organizations. I think historically it's past being undervalued. The financial crisis 10 or so years ago now really brought treasurers skills and knowledge and experience to the fore, particularly in banking. But for the other corporates as well, you know, it's key and many, many treasurers will consider cash to be king but there's many other facets there as well. So you know, you have to look after cash but you really need to get into the, into the detail of the organization and you know, I see treasurer roles very much as a strategic partner to the rest of the business. So you know, from that investment banking side of things, back in Morgan Stanley in London I had a family, wanted to relocate back to Edinburgh and I moved around different banks or a different banks and financial organization should I say actually ever since and the things that have really interested me have been change and driving things forward and building teams and building functions. So I found that I've had a passion for building, changing, changing things over the years. So my expertise so far as you've mentioned before, looking to drive forward the environment, social media, governance agenda there I'm driving forward sustainable finance and use my treasury expertise as well as the network of partners and associates that I've built up. Having done a lot of research in this area to help companies, corporates and financial institutions to move into the sustainable economy.

Yeah, and with that. So we'll just go back to HBOSS days because you were, you know, one thing I would say about all of Adrian's career is you sort of got these wider leadership roles but looking at, you know, not just treasury in isolation, you know, sort of it's, you've very much sorted out a lot of the pieces of the puzzle and got people talking to each other. I know you certainly did that when they moved you from there and you know, to Tesco's and things. But with HBOSS you had this wider role, what was that like sort of massive organization and lots of different interesting roles there. But HBoss, massive, massive group. How did you, how do you get on with that?

Yeah, so HBOSS was my first role back in, back in Scotland having left Morgan Stanley and I joined HBoss A after Halifax and Bank Scotland came together. So again it was a time of change and I had a number of different roles there which were interesting and challenging and we were very much sort of looking at the post merger Bringing the right structure in place and getting the right controls in place, linking in with the overall strategy and the risk management. So a lot of the roles there were very much focused on asset liability management, either overseeing different parts of the group or actually doing it for different divisions of the group. You know, and there was a lot of interesting elements there where you needed to get into the detail to understand the business, understand the products, understand their strategy, to then pull out what the different risks were there and then assess whether or not the current processes were aligned and effective. And then if they weren't, then you know, you need to challenge and go to the various MDs and chief execs for the different areas and the CFOs. And so there is something here, I believe there is a risk here. I've done some scenario analysis, here's some recommendations for reducing the risk, changing the products and the like. And that's when the interesting debates start as well. But interesting if one of my last roles at HBOSS was in group strategy. So I've always had a view to developing myself, I've had a view to challenging myself as well and I've had a view to giving things a go. So my last role at ageboss was giving it a go in group strategy. There was a couple of roles that became available in that small team. So there was about eight or nine people in the total group strategy area. So I was in there as the treasury expert at the time, just before the financial crisis. So, you know, it was a very interesting area there to be talking to the senior executives in the firm and the group treasurer and others about how do we protect the balance sheet, how to protect the liquidity, how do we make sure that the overall strategy is working? Well, obviously it was a difficult time and Lloyds eventually bought HBoss. But having worked through that, it was very interesting to see the exec working and the different decisions that were being made through that particular crisis point as well as the financial markets were going through, one would say, a turbulent time.

You moved on from that to the newly established at that time, Tesco Bank. So you were sort of developing it though. They had some stuff that was a carve out, as it were, and that's when we first, first met and everything else. Talk us through maybe the sort of you're going into a fresh setup. What was your pick list? What was your top priorities again, because people listening might be going in similar situations. What would you say is that these are the key things to keep at the front of your mind.

So Tesco was a joint venture with the Royal bank of Scotland. Tesco then bought out the Royal bank of Scotland share. But because it was Royal bank of Scotland, the Royal bank of Scotland ran all the systems, ran all the processes. And so when I joined, I think there were three or four people in treasury at that particular time. And we relied very heavily on the RBS systems and processes to supply data. So very much it was a, it was a setup from, from scratch of all the processes you need to do. So I was had the title of Head of Asset Liability Management at Tesco bank, but that involved looking at the flow of data to understand what the different liquidity risks were or the different interest risks were. Making sure I can understand what the overall strategy is, looking at ILAPs and ICAPs, which are capital and liquidity assessments that you do for the regulator, as well as diverse as looking at securitization and bringing the securitization bit of understanding through and developing that theme as well. So it was a very challenging time, but it was very rewarding as well because it was an exciting time to be building something new. At the time, Hesco bank was very much one of the key players, one of the key initial challenger banks looking to shake up the banking market, looking to put customers first and all that good stuff. So it had a very good purpose in looking after customers and shaking up the banking or what was deemed a stale banking market at that particular time. One of the things I would say having been through a build phase in a sort of dynamic environment and we had, we had the regulator talking to us a lot through that particular time, largely because it was just after the financial crisis, there was lots of new regulation coming. They were very concerned that there was going to be other banks that were going to fail. So therefore, you know, one of the things as you're going through a really busy period, I would always say it's always important as an individual to sort of make sure you look up from the day job and make sure you realize that although you're having a, hopefully having a great time because it's exciting and interesting work, that you also need to remember that there is life outside work as well. So one of the things I learned through that particular sort of phase was I was very engrossed in the work that I was doing. There was a lot to do, it was exciting, it was dynamic. But what I perhaps looking back, what I perhaps didn't do was actually sort of lift my head up from the parapet or above the parapet and just sort of look at what was going on around me in my own personal life as well. So, you know, one of the things there was that I was working very hard through that. But you need to sort of just take time and take stock and remember that you've got a life outside, get.

Your balance and get a balance right as well.

Exactly.

So then you made the move to blackrock. You know, good old, you know, good role, you know, international. There's like, you know, a bit more international than perhaps, you know, the, the Tesco role. Obviously not as international, but you got that great, you know, international experience.

Yeah. So BlackRock obviously is a very large and influential organization. So I had the opportunity to join as the international Treasury Director there. So I looked after the treasury operations based outside the Americas. And it was a growing organization. It had grown quickly following the financial crisis through some significant acquisitions. It today is obviously one of the major preeminent financial institutions of the world with significant influence and significant investments in a lot of other companies. But one of the items there is you can run an international treasury operation from a desk in Edinburgh and with technology these days, you can communicate around the world. So you can have the right information flow, you can have the right influence. You just simply have to make sure you're a little bit flexible on the timing of those things to make sure you can talk to all parties around the world as necessary. One of the things I did find there was that with Tesco, I was at the head office and I was engaged. I occasionally went along to see the CEO without some issues. I could pop along and see the cfo. You know, people were very, very local and very, very handy to see what I found personally with BlackRock at the time and the role I had there that you had to be very, very independent. I reported into the group treasurer who's in Manhattan, New York, and you know, that was four and a half thousand miles away. So there was a time zone difference. You had to be very independent there as well, which was. Which was fine. I enjoyed that element. I enjoyed the responsibility of look after the items I was assigned and do what I thought were necessary for that. What I missed though was that sort of engagement with the senior exec or feeling being at the heart of an organization. So when I reflected back with both HBOSS and also Tesco is that there was that ability to feel engaged because Morgan Stanley as well, actually reflecting there, Morgan Stanley was growing a lot. So although it was a US organization, when I was at Morgan Stanley as well, they were growing significantly. There was engagement with The CFO there about strategy, about understanding how things were developing. The treasury was very, very handy as well when it moved from the financial control into treasury roles. So therefore there was that engagement and feeling part of that drive forward. On reflection, what I found with BlackRock is that you were just a bit further remote. Important for me, or what I've learned over the years, it's important for me to feel engaged and be truly at the heart of the organization rather than as a sort of perhaps a satellite office, albeit a large satellite office.

And then with yourself, you sort of made the move that you joined Virgin Money as the treasury operating officer, perhaps talk about Virgin Money and then how it's then led to you. You know this because you've been there six years and then it's sort of the next role for you, which I think is fantastic actually, and we'll really bring out in the rest of the show. But sort of the move to Virgin, you know, great organization, you know, what's it been like there?

Virgin again was took me back to when I was at Tesco in many respects, not only because there were some similar individuals there at Virgin. Virgin was an Edinburgh based head office. It had the right aspirations and the right purpose. It was UK centric, it was Edinburgh centric. So when I reflected back on the blackrock, I could become more engaged again with driving the business forward or understanding that drive forward as well. And the role of the treasury officer was broad, which also gave me a lot of items there in order to be interesting. So I joined Virgin Money back in 2014. Its balance sheet has grown significantly. So it grew, I think it was around about 12 billion when I joined and it then grew to over 40 billion. And then Clydesdale bank took over Virgin Money as well. And now the Humble group is at 90 billion. So you can see there that it's obviously an exciting period to be with company that's growing. It's also your ability to be engaged because you're close to the senior management and the board and the executives there as well, is engaging and it gives you that dry purpose there to really be engaged. So, you know, over those, over those six years, seen a lot of change. Again, regulation has changed in the banking sector. There's new regulation coming out all the time, which adds some challenges to weave that into the operating model, but also to look at how to stabilize, how to manage teams, how to make sure that you understand the overall strategy of the group and how that's impacting the treasury responsibilities or liquidity and interest rate risk, credit Risk and all those different elements there is very interesting and the role of the treasurer spans many different areas there as well. So it gave me that ability to be engaged and proactive across the piece there. So you know, that was really a very interesting, interesting role. And actually when I reflect back, you know, I've changed roles reasonably frequently I think for many, for many individuals. I reflect back in my HBoss day five, six, within seven different roles. I think over that sort of seven year period. I was at HBOSS and I just found it interesting to take on new challenges there. And although I was treasury operations officer for six years, there were significant challenges through that period that kept me interested and made the role varied and diverse as well. So things from developing teams to system selections to organizational design were some of the aspects that I got involved with there which has kept it interesting and exciting.

We're going to move into Adrian's next evolution, if you like in sustainable financing and things like that and why he's got passion for that. But just whilst we're in that sort of world of you've done all these different roles with interest, really interesting organizations of hboss, well known name and everything else obviously then got bought out but you know, you've still got, you know, big, big corporate names. We've got, you know, just, you know, just in the past few days in the news you've got a fintech is out there buying a bank. So it's sort of the poacher gamekeeper on that sort of comparison. And there's a lot of this is massive amount of change in the banking market that you know, perhaps the banking market hasn't really changed externally for that long internally that it's had to, you know, I know that, you know, we, we do some banking recruitment, you know, more for not necessarily the big, big players because a lot of the time they, they use the big recruitment companies and when they say that we need someone, you know, recruited for Vanquish bank, the group treasurer there, national bank of Kuwait, number of big roles but interesting companies and everything else. But now there's this sort of change in the market, this not C shift but where are you seeing it? I know we didn't discuss this before the show but what are your just your quick thoughts on that sort of thing for a moment?

The fintech is an interesting one because my experience with sort of banks that are growing and developing, it's a difficult play because if you think about how a bank grows, a bank needs to be funded so therefore they need to raise that funding from somewhere. If it's a retail bank, it needs to raise it from retail customers and the market is such that in order to raise the funding you need to pay a high rate, high deposit rate to your retail customers. Therefore you can grow your funding in that way. But also if you're going to sort of your lending book, say mortgages is a prime example, in order to lend money to mortgage customers, you need to be at the bottom of the market, low rate, top of the league table, which means a low interest rate for the customers. So the perennial issue with any challenger bank coming in and a new entrant there's is very much they need to get critical mass in order to make a profit. Because quite often if you look at the league tables of deposits and mortgages, then the rates could be quite similar and there's no margin in between that to actually pay for staff and all the running costs of a bank, which is difficult. So the key thing here is that there's an evolution of the technology there. I know that a couple of the larger banks, for instance Robert Scotland, have got bo, which is a new challenge bank. So a lot of the larger banks are looking at technology and saying, how do we build our own tech bank? And therefore they could perhaps transition their current customers across to that new technology. So, you know, it's an interesting dilemma there. In order to grow scale, I think there has to be some unique proposition from the sort of the fintech elements where they are able to get the funding at the right price and lend out at a higher margin in order to generate the returns, to basically pay for all the operations, technology and people as well as do a return to investors as well. So, you know, it's a challenging space for the new entrants there. Yeah, and I can see that, you know, through the fintech revolution or evolution, there's a number of large institutions, we're looking at which ones they should buy to incorporate them to their own estates. Yeah.

Bolt in and sort of integrate and everything else, where to sort of keep up with things as well.

It's just on that if you look at the, you know, a lot of the larger institutions have got large legacy technology. Yes, it's a burden, should we say there. So, you know that a lot of the cost of transition is moving the data and moving to new platforms there as well. So that's one of the other key challenges there.

Apologies, it was just whilst we're on the phone because I've got Adrian here, so that's why I wanted to ask him. It Just sort of occurred as breaking news, as it were. So that was one of the reasons I thought, God, I've got someone that actually knows this space better than I do, really. And that's actually what I wanted to ask Adrian. But one of the things that Adrian is doing from here is you're springboarding into something fresh, new. We saw a great speech which I think we've got a link to, or we'll put a couple of links in the show notes to some of the interviews you've done about sustainable financing. Can you explain to me what ESG is rather than just three letters and what you're going to do with it? What, what is this and why should people contact you?

ESG stands for environmental, social and Governance.

What does that mean?

It's the umbrella sort of three letter acronym you could is there for doing the right thing for the environment. So climate change is obviously the big thing there, that is there for the environment also making sure that you're doing the right thing by improving the environment, greenhouse gas emissions, making sure they're controlled, carbon offsetting, all those sort of key things that hearing in the press these days, the social side of things, that's all about doing the right thing for socially deprived areas. Or if you take a large mining company, making sure they're looking after the environment around that particular mine site and doing the right thing there for the social impact of business. And then governance is the element where you're basically running companies that are well governed. You've got diverse boards, you've got the right structure in place to make sure that things are challenged, you've got the right number of non execs, all that stuff. So ESG really is that overarching banner of, I like to say, doing the right thing. If you think about say taking things out of the environment, mining or oil, then you need to make sure you're putting things back. So you're planting trees and you're putting things back into society where you're mining. One of the key things there is it links to. I don't know if people have heard about the United Nations Sustainable Development Goals. They were developed a couple of years ago and there are 17 goals there. And the United nations said, look, we really want the world to develop and look after people, look after the environment and basically sort of make the world a better place. So environmental, social, governance is underpinned and supported through United nations now development goals. And it's all about doing what I like to say is doing the right thing there. So I've Always had a desire to help, put it that way. And what I sort of want to do now is I want to use my treasury experience to try and help corporates and banks or any organization move to the sustainable economy. So, you know, I've done a dissertation recently with the association of Corporate Treasurers, so I've done the Advanced Diploma in Treasury Management recently and passed that. So I'm going to be a fellow of the association of Corporate Treasurers. Through that dissertation, I focused on sustainable finance and I got a lot of contacts now, a lot of partners working with and trying to drive forward the sustainable economy, sustainable finance. So one of my beliefs is that where possible, corporates and banks should issue finance through the sustainable route. And what I mean by that is they should link the debt they're raising to improving the green elements, the environmental elements of the organization or the social elements. And they can do it via refinancing or even better, the new initiatives that are there and help companies and banks and the overall economy transition to that sustainable economy. And I know one of the things, if we look to the future, one of the things I hope is that similar finance will be the norm. Therefore debt that's issued or loans that are granted, the norm will be that they're sustainable, they're green, they're social, or they're green and social, which is a sustainable element. Where you bring those two together, non sustainable finance will become the smaller party in the market and therefore it will be sustainable finance as the norm.

And then with that, okay, being green is key and everything else. But why, why do people need help to do this? Surely they can just do this themselves. They can go out to the market by green bond or they can just raise the funds like this. And yeah, well done, you've ticked that box. Is that what it's like?

Well, it's a little bit complex at the minute. So the marketplace is not yet homogenized. I would say there's various, what we call accreditors, so that there are various institutions that rubber stamp the bond issuance to say that is green. But it can be quite a complex marketplace out there as well. So therefore what I hope to do is be able to guide people through that particular marketplace, understand the different nuances, use the partners that I've got as well to help companies change. So one of the key elements there, when I say different partners, there's a couple that I've working with that have been doing sustainability for decades. The key there is if you can actually issue sustainable finance and issue debt in the marketplace, you need to make sure it's aligned to your overall corporate strategy as well. So it is a bigger change for the corporate or the bank to make sure that they're aligning their overall corporate strategy in support of that finance as well. So it's where, again, the treasurer can be key and instrumental in the overall strategy of the organization. And one of the interesting facts I dug out and has been publicized more recently as well is that actually there is significant demand for stable financing market. Therefore, you're likely to have cheaper issuance costs, sort of lower spread, and a bigger or greater diversity of both debt and equity investors as well. So there are some very clear benefits for the company of issuing and therefore also protecting the longevity and sustainability of the institution itself.

With treasurers, if they're thinking about it now, they're sort of sitting around saying, look, we must do something about this. They sort of contact you, what's the process? If you like, if that's the right way to do it. You know, as you're starting to discuss it with them, they. They're saying, right, what are the key things they need to be thinking about? You know, is it the funding profile or, you know, how would you describe what's the sort of typical. Without giving too much? Because this is why they'd employ you, Adrian. But what sort of, you know, what's the thought process for a treasure sitting at the desk now? Maybe listen to the podcast, the Way into Work.

I see.

That's something we need to look at. What do they need to think about first?

Yeah, so I mean, I've got three key principles that I think about, right. I think about strategy, process, and review. So you've got to think about alignment with the strategic goals of the organization. You know, so if you're looking at finance, does that align to the goals of the organization? There's a number of examples where, say, all companies issue green finance, but that's actually contradictory in its own right. You know, the market is moving from black to green. So understanding what that means. And so, you know, I'm very happy to talk to talk to anybody about that. I'm passionate about this, so I enjoy talking about it. You know, so what does it mean? How big is the market? What's the opportunity in the market? Where's the market going? So that's a strategy. So understand the strategy of the organization and also treasury for the process you need to go through, then you can't just issue finance and issue any issue debt. You don't need it. So do you need to issue debt? Do you need to refinance some debt that's maturing? So identify the need. You need to then establish the criteria that you're looking to meet. So if you're looking at greening your company, then how are you going to do that? What are you going to do it with? Why is it going to be green? Making sure it goes through that accreditation process. So there's a number of accreditation providers out there that there's a requirement there to do a sort of an RFI RFP to choose one, make sure it's aligned to your own company's goals and you get on with individuals there as well. And then there's also the what sort of debt you want to issue. Do you want to issue medium term note, do you want to go down the securitization route? What's the right debt for the organization and what's the market for that debt as well? And then the third thing of review is you've got to make sure that you set up the right process to continually validate that debt you've issued is still financing green social, Greenland social development and causes that you've set out in your prospectus. So you've got to make sure that you do that on a regular basis and also you've got to make sure you get that assurance on an annual basis as well to make sure that you still maintain credibility. So overall there's a piece here where you need to maintain credibility of the debt you've issued and alignment to the overall strategy of the organization. So as I say, there's three core principles that I think about the strategy, the process and then the continuous review.

And you're at the early stages. That's why it's still evolving, an evolving space and sort of it's early days and you know, because five years ago, well, 10 years ago didn't even exist. We weren't talking about it, I don't think in the comment, certainly weren't talking in treasury terms, nothing I'd ever heard of and things and then suddenly it sort of comes in the mainstream. That's now where do you see it developing to before we sort of look back over your career and sort of summarize that as we approach the end of today's show. But where do you see the future of green finance and everything else? Sustainable finance as it were.

So I mean if you look back then you're right, it's just over 10 years ago when this sort of market started to develop sustainable bonds. There's now over 1 trillion sustainable bond been issued. But if you look at the overall bond market, and you know that's a small fraction of the overall bond market. So, you know, I see that as investment is required and as a transition to the sustainable economy, you know, putting the environment first and make sure you look at the social factors, then I actually see there is a huge opportunity for sustainable finance to be mainstream. So you're looking at the significant amount of the market moving to sustainable finance. And that being the norm, the new issuance is expected to top $1 trillion annually in the early 2000s. It needs to in order to support the greening and the climate change elements there as well. So there is that.