How successful leaders will take ESG further: BlackRock's alternative investment chief Pam Chan

Pam Chan is the Chief Investment Officer and global head of the Alternative Solutions Group at BlackRock. This is a $10 billion platform investing across the private market space, from private equity and credit to infrastructure, to even wetland mitigation and music. Her work considers how the private market can help push forward goals like sustainability and meet ESG criteria - environmental, social and governance standards that socially-conscious investors can use to measure the non-financial success of a company.

To truly live up to ESG criteria, leaders will need to get better at partnering, explained Chan, and open themselves up to new perspectives and approaches. They'll need to continue to drive innovation and trust despite a range of technological, economic and geopolitical disruptions. In short, they'll need to work and think differently.

To achieve that, here's what she suggests:

Expand your network
Thinking differently starts with expanding your networks, said Chan. Leaders with wide networks are less likely to make assumptions about different groups or types of people.

She suggests brainstorming which voices you haven't heard from in a while or at all. "There's so much value in people just feeling like they've been heard."

Then make a plan to build new connections. Sharing a meal or a tea can forge deep relationships that can lead to new understanding and solutions. "I don't think there's any shortcut to just spending more time together."

Get uncomfortable
Thinking differently also requires leaders challenging themselves to develop new perspectives. It's about "putting yourself in situations where you can have conversations that make you feel just a bit uncomfortable, that are not going to be congruent with your own views or predispositions."

The conversations that result from these moves will lead to new solutions and approaches you haven't quite considered. Those conversations "are going to surprise you, open your mind," said Chan.

In a podcast recorded at May's World Economic Forum Annual Meeting, Chan explains more about how leaders can find new ways to collaborate and innovate - and how ESG investing can help achieve big goals.

Meet The Leader / Linda Lacina: Can you define alternative investments for us?

Pam Chan: They are everything outside of listed assets, so everything outside of that. I think the reason why they're important is a couple of things. One is that it's a pretty big space and growing. So, it's about $15 trillion today, growing to $23 trillion in the next few years, so it’s going to be pretty substantive as a market. It's also getting more heterogeneous and not just bigger, but more asset classes and more ways to invest.

I think 2 is they enable us to take a longer-term view, which I think, especially given the market volatility we see these days, is particularly important as we think about overall purpose and goal of a particular enterprise.

And I think 3 is related to that point is the ability to be actively engaged with the company, asset or enterprise through the private markets, because you have a greater proximity to the asset. You've actually manufactured it. You haven't bought a listed ticker. You have negotiated with the management team, kind of what you want that investment to look like, what governance influence and control you want to have, and ultimately what outcomes — which I think makes it particularly pertinent from a sustainable investing perspective.

Meet The Leader / Linda Lacina: And 10 years from now, as these gain more ground, how do you think the world will change? What's the before and after?

Pam Chan: Yeah, I think that there's going to be more and more focus on stakeholder capitalism.

I think the idea that companies need to both create value for, and be valued by, their stakeholders is going to become even more important in a world where trust is sometimes tenuous at best.

I also think that there's going to be more need for engagement and dialogue and partnership, so that we can figure out all these hard problems together. I don't think we can figure them out alone, is the issue. So, I think we will need to do a lot of convening on that point.

Meet The Leader / Linda Lacina: ESG has gotten a little bit of pushback recently, the markets have been a tough run. What are people overlooking about ESG?

Pam Chan: Yeah, I think there's a couple of things, right? I think the term ESG gets thrown out a lot, and people mean totally different things. So, my first part of the answer would be to say that actually be specific about what you mean, because impact investing where you're looking for additionality is very different than screening for ESG risks. Now they're related, but they're different and distinct. So, I think being more specific as we talk about it, I think is important. Because that also helps us safeguard the integrity of what we're trying to do. So that's the first thing.

I think that on the go-forward basis it is actually going to be more and more important. I actually think everything that is going on in the world has only accelerated the need to think about investing sustainably. And I mean that not just from an 'E' perspective, but also from an 'S' perspective and a 'G perspective. So, those are some of the things that I would offer. It is really how are we defining that, and be specific.

Meet The Leader / Linda Lacina: You talked a little bit about trust earlier. This is a complex time. There's not a lot of trust around. How do we build that back?

Pam Chan: I don't think there's any shortcut to just spending more time together. I think it's really hard to despise or hate someone that you spend time with. It's really easy to tokenize or other-ize someone when they are abstract, but when they're sitting with you sharing a cup of tea or glass of wine or a meal, it's really hard to have those types of feelings. So, I think the first thing is just spending more time and engaging and having conversations.

I think, secondly, it's also about putting yourself in situations where you can have conversations that make you feel just a bit uncomfortable, that are not going to be congruent with your own views or predispositions.

I think that oftentimes we find ourselves surrounded by people who think the same way that we do or come from similar backgrounds. And I think actually pushing ourselves to get out of that zone and actually have conversations that are going to surprise you, open your mind. I think that's really important to building trust. And then you realize actually that the other person is probably just as well-meaning as you, it's just that we haven't had the conversation.

Meet The Leader / Linda Lacina: You say that as we are here. Annual Meeting, first time in two years. For me, it's the first conference that I've been to in a very, very long time. When was the last time that you were at an event like this with this many people?

Pam Chan: This is definitely also my first time post-Omicron.

Meet The Leader / Linda Lacina: I feel like there's a sort of a renewed joy with this sort of thing. I've had just a couple of events recently where people have been able to come together and I feel like people are excited to go. I feel like people are excited to come together. Do you think that is going to help in this moment, that people are eager to see each other?

Pam Chan: Absolutely. I really think that we are, whether you're introverted or extroverted, we are all social beings.

I think lockdown has demonstrated on the downside that we cannot survive without other people on the outside. On the upside I think though it has demonstrated true resilience. I think bringing people together sounds so simple, but there's also a little bit of serendipity at events like this, where you end up meeting someone you never thought you would and you end up having a conversation you never thought you would, that opens your mind. And so, I think you can't know the things you don't know you want to talk about, right? But if you meet someone, I think that's part of the gateway to greater knowledge and really fostering curiosity. I actually think the curiosity and the trust are very much tied together.

Meet The Leader / Linda Lacina: We talked a little bit about some of the changes that are going on. Businesses changing, the role of business is changing. How do you feel about that?

Pam Chan: One good thing coming out of the pandemic is that we have started to embrace flexibility insofar as how people work, where they work, when they work, which I think allows people to maybe bring a more holistic self to work where previously it was a more zero-sum, situation. But I think that raises some challenges around culture as well, and how you foster the innovation that you just described, because you may not run into someone by the water cooler anymore. So, I think that's going to be a challenge for business leaders to figure out — and this is something that we're very focused on: how do you maintain that really special culture, and that has made the enterprise what it is but also enable the flexibility? I think that's going to be critical.

I also think really digging deep on what the next generations are looking for. Survey after survey shows that they want to see their values in the companies that they are consumers of or that they invest in, etcetera. And so, I think determining what those things are. And actually, I think that means in some cases changing your business model in order to deliver the things that they will find valuable.

Meet The Leader / Linda Lacina: How can leaders rise to this occasion? What is a specific thing that they can do to make sure that they're moving in the right direction? Is it a change in mindset? Is it a change in approach?

Pam Chan: I think to actually brainstorm which voices they haven't heard either in a while, or they haven't heard at all. I think that's important, because not only will you learn from that, but there's so much value in people just feeling like they've been heard. I think a lot of the issues that we talked about earlier and insofar as trust and everything else is because people don't feel like they're part of the conversation.

And so, what I would encourage is actually having dialogue with those voices that you're like, “oh, I actually have no idea what that constituency is thinking or what that stakeholder is thinking. I need to reach out and have that dialogue.”

It sounds so simple, but I think that oftentimes you can go a long time without re-engaging and the world is changing so fast. I mean, just think about it. I feel like I'm in a space-time continuum warp, right, with COVID, but 2022 versus 2019 is so different, right? In the grand scheme of things, three years is not very long, but I think the rapidity, the velocity of change, of what those stakeholders need, what they're focused on, what they're scared about, is incredibly important. And I actually think particularly now as we go into a much more uncertain macro environment where we're trying to think about how to make transition inclusive and ensure that we're creating collective wealth. I think those are, those are big questions that require all the perspectives at the table.

Meet The Leader / Linda Lacina: And how can anyone get started with that? What's something that leaders can do?

Pam Chan: In my mind it actually seems pretty simple, right? Like if it's someone that you've never talked to before, a constituency that you've spent less time with, but they are an important stakeholder in your success, you need to kind of reintroduce yourself. I think that's really important.

I think we constantly need to reintroduce ourselves and why. What is our purpose right? From, our perspective, from a BlackRock perspective, our purpose is to help more and more people achieve financial well-being. We say that all the time and it manifests itself in different ways. But what we need to do is actually think about who are those stakeholders.

Again, for whom we need to create value and who we want to value us. And then once you have that list of those stakeholders, then to go in and say, okay, within this group of stakeholders, who have I not talked to recently, or who do I not really know what they're, I don't know what they're thinking right now. Again it sounds so simple. But it's all dialogue based. If you come at it with the right intention, the right thoughtfulness and you are present in those meetings, I do think you will be delightfully surprised.

Meet The Leader / Linda Lacina: You talked a little bit about people's worries. What do you worry about? What keeps you up at night?

Pam Chan: So actually, after having read Why We Sleep, I try to sleep more and I apparently have been a good sleeper since I was young, per my mother. But I think insofar as what keeps me up at night, it's actually the divisiveness that I see.

Myself, as a Chinese-Canadian woman, there's been no shortage of really appalling, just simply unimaginable things, at least that I wouldn't have imagined 10 years ago, for instance, happening kind of all around us. And so, I think that the divisiveness — that keeps me up at night.

Ny own view is that we're much more similar than we are different. But we end up in our own lanes in such a way where we're insulated from everybody else. So, they don't feel like you have a shared experience. So, it's how do you create not just the forum for convening, but also the curiosity to then empathize with somebody else, so that you don't get some of these things happening? So, I think that that really keeps me up at night.

I also think that I worry that we are not doing enough fast enough. As we think about transition, but also doing it thoughtfully, right? So, you can't go fast and not thoughtfully. You have to do both. And I think it's a huge endeavour, right?

We're talking what, 125 trillion to get to net zero by 2050? With technologies that have not yet even been created, right, to your point on innovation earlier. So, I do worry about that as well, which then gets me back to my original point, which is that we all need to work together, right? There's no single person that is going to figure it all out and so I think the importance of collaboration and like that collective action and intelligence makes actually events like this really important.

Meet The Leader / Linda Lacina: I feel like we've moved from this founder mentality, where there was one innovator, one mind, one inventor that would create change, create something amazing. Whether it was a Henry Ford or Steve Jobs to a time now where we need to build those innovations collectively.

How do we make sure that everybody understands that we need to move to that mindset? Like what's the change that would need to happen?

Pam Chan: Well, I think a couple of things. One is that we need to think about what the narrative and the overarching goal is. I think that sounds like again, a trite comment, but I think if we actually all buy in and are aligned on a goal, that goes a long way. And back to the definitional point about ESG, when there's conflicting definitions it's hard to align, right? So, I think that's one thing, to foster kind of collective action, as you said.

I think the second thing is actually making sure that all those participants know that their contributions are valued, because I think a lot of people may unsubscribe because they don't think they have anything to contribute to that dialogue, whether it's because, you know, in transition, they're not a scientist or what have you. But I think this is such an overarching issue that everybody has a part to play, and I think it's just underscoring that they do.

And then lastly, it's about kind of beating the drum. I guess there's no other way to describe it aside from familiarity, I think, breeds trust in a lot of ways. So, the more we talk about things, whether it's transition or whether it's mental health, all the things that, frankly, we've not talked about very much previously, but now are coming to the fore. I think the more we talk about it, the more people will think about how can I help in that particular realm. Then hopefully you give them also the tools, the conduit, I suppose, to make their contribution.

Meet The Leader / Linda Lacina: What gives you hope?

Pam Chan: What gives me hope? I really think it's about the resilience. I know that the last few years, and even going forward and even today, is a pretty difficult time and has been a pretty difficult time. But I am constantly inspired by the fact that humans are remarkably resilient. We've been pretty well evolutionarily designed, right? And so that gives me hope, right? I even here have been talking to a bunch of people where the post-COVID world has only energized them to do more. And some of the issues that we're seeing have only kind of instigated more passion around what they need to do in their respective realms. So, I think that's one thing.

I also think the thing that gives me hope is actually the amount of openness. There's openness about kind of bring your whole self to work.

Do we have more work to do? Absolutely. But I think the dialogue is out there. We are more open about mental health and emotional wellbeing. We're more open about all the things that one needs to do beyond just your professional identity, that give you satisfaction and gratitude, energy. Also, the things that pain you. And I think that actually having a really open dialogue about things that were really tough to talk about before is a step in the right direction. More to come, but I think a step in the right direction and I've been really heartened by the amount of openness.

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