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Strategy and Consulting around Sustainability in ESG. With Daniel Stephens and Farzana Huysman

14.11.22

In the final episode of Season 10 of the Propcast, host Louisa Dickins is joined by Daniel Stephens, Senior Partner and Farzana Huysman, Junior Engagement Manager at McKinsey & Company.

Daniel and Farzana share what their roles at McKinsey & Company involve and the risks and strategies they’re spending most of their time on. The guests discuss the common themes and questions they get asked by clients – including finance, real estate and insurance.

In this episode you will hear about decarbonisation strategies McKinsey and Company have been focusing on and how their efforts compare to other organisations in the space. 

Resources:

Companies Mentioned:

Shout Outs:

 

Key Insights From This Episode:  

  • We’re shifting to a regime where insights into sustainability topics are shifting from voluntary to mandated – Daniel
  • Hiring new talent is of course extremely important, but I believe that in a couple of years time everyone is going to need some level of proficiency on climate – Farzana
  • The landscape is moving so fast and that’s not something we’re used to in the real estate industry, therefore a different skill set is required to understand the technical solutions and how they can monetise – Daniel

 

About Our Guests:

Daniel Stephens:

Daniel Stephens is a Senior Partner in McKinsey & Company’s Washington, D.C., office. He is the Global Co-leader of McKinsey’s Climate and ESG Finance Practice and serves financial institutions in North America and around the world on topics relating to credit risk, regulatory compliance, disclosures, reputational risk, and business building with respect to climate and ESG topics. 

Dan’s recent work includes standing up the climate risk program at a global trillionaire bank; conducting climate stress testing at a major North American bank; working with multiple banks on ESG and climate regulatory response; and building an ESG-led business model for a large global bank. 

Outside of ESG and climate, Dan serves a broad range of clients across the commercial financial services space, as well as several public finance entities, including financial regulators, government lending programs, and government distribution programs. 

Dan holds an A.B. in History from Princeton University and a J.D. with honours from Harvard Law School. He is a founding board member of Foster America, a not-for-profit that serves at-risk youth and child welfare agencies.

Farzana Huysman:

Farzana Huysman is a project manager in McKinsey & Company’s London office, where she focuses on serving financial institutions on sustainability, covering topics such as financing of decarbonisation and new green businesses, assessment and adaptation to physical climate risk, and de-risking the energy transition. 

Farzana’s recent work includes scaling transition finance capabilities at an emerging markets bank; supporting growth and innovation of climate solutions for a global insurance broker; and assessing implications of physical climate risk for a European property insurer. Beyond financial institutions, Farzana has supported strategy and digital transformation efforts for clients in life sciences and shipping.

Farzana’s background is in engineering, with an MEng in Mechanical Engineering from the University of Cambridge, and previous work in building engineering. She co-leads the London office’s pro-bono support for a UK charity tackling global poverty.

About McKinsey & Company:

McKinsey & Company is a global management consulting firm. They are the trusted advisor to the world’s leading businesses, governments, and institutions. 

They work with leading organisations across the private, public and social sectors. Their scale, scope, and knowledge allow them to address problems that no one else can. They have deep functional and industry expertise as well as breadth of geographical reach. They are passionate about taking on immense challenges that matter to their clients and, often, to the world. 

They work with their clients as they do with their colleagues. They build their capabilities and leadership skills at every level and every opportunity. They do this to help build internal support, get to real issues, and reach practical recommendations. They bring out the capabilities of clients to fully participate in the process and lead the ongoing work.

About Our Host

Louisa Dickins

Louisa is the co-founder of LMRE, which has rapidly become the market leading global PropTech recruitment platform and search consultancy with operations across North America, United Kingdom, Europe and Asia-Pacific.

To promote the industry she is so passionate about, Louisa set up the Global podcast ‘The Propcast’where she hosts and invites guests from the built environment space to join her in conversation about innovation.

About LMRE

LMRE is globally recognised for leading the way in Real Estate Tech & Innovation talent management.

From the outset our vision was to become a global provider of the very best strategic talent to the most innovative organisations in PropTech, ConTech, Smart Buildings, ESG, Sustainability and Strategic Consulting.

At LMRE we are fully committed at all times to exceed the expectations of our candidates and clients by providing the very best advice and by unlocking exclusive opportunities across our global network in the UK, Europe, North America and Asia-Pacific.

 

Timestamps:

[2:03] Daniel: Can you tell us more about what your role is?

  • I run our climate sustainable finance practice and a huge part of that is real estate finance. We work with big real estate investors, insurance firms and asset managers helping them answer how sustainability is going to impact their financing business and what they can do about it.

[3:07] Farzana: Can you tell us what led you to McKinsey and what is your role?

  • My background is in mechanical engineering but within McKinsey I work at the intersection of financial institutions and sustainability. So, essentially working with banks and insurers looking at how the sector can help to unlock the net zero transition. 

[4:27] Daniel: Are risks always visible in a portfolio and how do you assess risk when it comes down to climate?

  • I like to think about what the financial impacts are in properties today and how they may manifest.
  • We’re interested in things like whether the expectation of future physical risk causes potential buyers to devalue this property now, therefore the need to anticipate future impacts.

[7:29] Farzana: What do you spend most of your time doing?

  • Essentially, the bulk of the work I am focusing on is working with, for example banks, that have set net zero commitments and are trying to reduce their finance emissions. 
  • They can do this by either divesting any high emitting assets or lending that they’re doing or we can support them in investing in technologies that help to reduce the emissions of their existing assets.

[9:49] Daniel: What are the risks associated with transitioning to net-zero?

  • A change in public policy is one of the largest risks and it is not always foreseeable as they rely on political processes.  
  • Public policy can cause certain goods or services to rise in price and therefore be consumed less.

[12:07] Farzana: Would you like to add anything to the risks associated with transitioning to net-zero?

  • One of the big things to highlight is data, in order for a bank to work out their finance emissions they need to have a view of what the emissions linked to every asset are, and this requires a huge amount of data tracking.
  • Another risk is choosing which technology they should invest in, this can vary from country to country and certain technologies are more advanced in certain markets. 

[15:34]  Daniel: What strategies are clients going for when trying to balance rising energy prices, maintaining a profit and pushing forward to net-zero?

  • There are firms across industries who haven’t made sustainability commitments yet as they are waiting for regulatory landscapes to be more clear. 
  • Some may seem to not be doing much on the surface but they’re collecting all the data, identifying opportunities and becoming much smarter behind the scenes.

[17:27] Daniel: What are the major trends and changes you’ve seen within ESG and real estate since working at McKinsey?

  • The shift in the quality of data is a big trend that is happening.
  • Another inflection point is that increasingly investors are looking to understand ESG more and in particular what part of ESG may have a financial impact on the business.
  • We have been in an era that has been about the construction of new green buildings, we are now shifting to a phase where we’re dealing with much harder topics such as in aviation and transforming current real estate stock to make it more efficient.

[20:03] Farzana: What trends have you seen in ESG and the finance and insurance sectors?

  • I see the leaders as those who can convene partnership across the entire value chain of these technologies.
  • You see a number of these partnerships emerging and they will be able to meet targets in sustainability much quicker than smaller set-ups.  

[24:35] Daniel: What are the key questions that clients in real estate should be asking?

  • It is very early days, there is certainly a theme around energy efficiency and in some markets that’s going to be about regulations and others it’s going to be because it improves the value of a property. 
  • The most interesting thing happening is the blocking and tackling in the engine room, a lot of firms don’t have the data to understand their portfolio in detail. 

[27:33] Daniel: Do you think there is a skill gap at the moment that needs to change?

  • The landscape is moving so fast and that’s not something we’re used to in the real estate industry.
  • A different skill set is required to understand the technical solutions and how they can monetise. 

[29:21] Farzana: What are the two most important questions you can ask as a business owner when trying to make your business more sustainable?

  • Number one is “What do I focus on?” There is so much out there in terms of climate solutions that you could tackle, and businesses need to make a decision on the breadth and the depth of these solutions to inform the capabilities and the resources they need to build up.
  • Number two is “How do I get the skills in?” Hiring new talent is really important but I also believe that everyone is going to need some level of proficiency in climate.

 

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