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Strategy & Consulting Around Sustainability in ESG with Daniel Stephens & Farzana Huysman

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Nov 15, 2022

Summary: 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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