I met Sacha so many years ago I can’t remember how it happened. At that time, he was Director of Corporate Governance of Legal & General Investment Management (LGIM), a large British asset manager that now has around $1 trillion dollars in assets under management. Sacha led a number of important initiatives regarding climate and sustainability issues more generally. We’ve kept in touch over the years. In a recent call, I pitched him the idea of doing an interview with me and he kindly agreed.

Sacha Sadan, Director of Sustainable Finance at the UK Financial Conduct Authority

Eccles: Sacha, thanks again for taking the time to talk with me. I know you have an interesting background, tell us a bit about that.

Sadan: I was born in the 1970’s in the east end of London, my upbringing shaped by stories of my great grandmother in the Jewish resistance who saved many families from Poland. Growing up in the east end, I witnessed injustice firsthand and have always stood up for the underdog. My mother’s volunteer work on anti-racism left a lasting impression on me.

Eccles: You had some impressive and strong women in your life! What about your early education?

Sadan: I ended up at an all-boys school that, shall we say, had room for improvement after falling out the catchment of ‘slightly better’ schools. My Mum immediately became a school governor to help raise standards. The lesson being – never give up, there is always something you can do to help improve.

Eccles: So, from this only okay school, how did you get interested in finance?

Sadan: As a young teenager in the 1980’s I invested my small earnings from a job at the bookstore WHSmith in the British Gas and British Telecom privatisations. This early exposure to the world of finance brought me into contact with the “really clever” people, often feeling the weight of imposter syndrome. I was the first member of my family to attend university. I studied economics at Manchester and now lecture there as an Honorary Professor.

Eccles: Hey, cool! I didn’t know you were also a professor! But you didn’t go into an academic career you went into finance. Tell me how that happened.

Sadan: Breaking into the London finance scene was challenging. Without a network, I sought alternative routes. I applied for many graduate schemes and many firms didn’t’ even send a rejection. Luckily my fabulous mentor at Universities Superannuation Scheme (USS), the UK pension fund for academics, gave me my break in 1994 as a portfolio manager in equities. I spent nine years in that competitive environment, thrived on the “us against the world” mentality of the in-house investment team v. external asset managers. Despite numerous jobs offers, I stayed to properly learn the trade. I experienced the full investment cycle including the tech boom and bust.”

Eccles: Please tell me a bit more about this job.

Sadan: At USS, I learned the importance of meticulous record-keeping and analysis. Using a paper dealing book, I tracked every transaction (with a blue pen, red pen, and a ruler!) noting undervalued stocks also seeming poorly managed. I adhered to first principles, gauging the integrity of CEOs asking investment bankers, “which CEO’s keep asking about their daily share price moves?” This enabled me to separate those with a long-term view from those focusing on the short-term stock price.

Close up on a typewriter’s letter keys…Close up on a typewriter’s letter keys… (Photo: iStock)

Eccles: Very old technology, Sacha! But sounds like you were putting your toe into what became known as Governance and ESG (before it got politicized).

Sacha: That’s fair to say! Turns out I had a knack for distinguishing between companies with poor governance records, and those genuinely invested in their future long before ESG ratings. The concept of financial stewardship evolved over time, influenced by frameworks like the Cadbury Code. Since core principles remain unchanged, I firmly believe it’s crucial not to be swayed by new buzzwords and technology. As Lord Acton said in 1837, “Absolute power corrupts,” and Charlie Munger’s adage, “Show me the incentives and I’ll show you the outcomes,” remains relevant.

Eccles: Wise words! What did you do after USS?

Sadan: After nearly a decade there I moved to Gartmore in 2002 to gain a broader perspective at a commercial asset manager. This transition was eye-opening, especially working with hedge funds, which honed my skills as an investor. I learned some analysts lacked a deeper understanding of the entire financial ecosystem beyond sector specialism, and it made me appreciate the difference between microanalysis and whole markets as complex systems. But good governance was still a great indicator.

Eccles: When did you move to LGIM?

Sadan: I joined them in 2012 in the new role of Director of Investment Stewardship. Many thought I was taking a step backward. I didn’t feel that way at all. LGIM was a quiet powerhouse in the industry, index funds – actively owned and influential. I never anticipated my career would veer towards stewardship, but my early experiences revealed stark differences in how businesses were managed, and I wanted to help all corporates become their best over the long term.

Eccles: Please explain more what you mean.

Sadan: Some executives genuinely care long term, while others consider their roles temporary, focusing on short-term gains rather than a strong legacy. When I started in governance, even at LGIM, the consensus was to abstain from voting when investors weren’t in favour. Drawing together my contact book from a background in risk and fund management, I encouraged shareholder collaboration to influence companies. This led to the Financial Times crediting me as being one of the leading architects of the Shareholder Spring in 2012. It was an empowering and dynamic period which started a fundamental shift in the accountability and management of UK companies, with many more coming on board with issues like board diversity- having had constructive signals on what owners cared about.

Logo of the U.K. Financial Conduct Authority

Eccles: You know I closely followed your work during those years. Needless to say, I was surprised when you left LGIM to take a job at the FCA! How did people react to that move?

Sadan: People were shocked when I left the private sector to take on a regulatory role! But the move made sense to me. Over the course of my career, I spent nearly a decade each at three great firms. This enabled me to master my trade, and my diverse experience equipped me with an unusual perspective on the industry. Many in ESG cannot speak the language of a CFO.

Eccles: And what is that?

Sacha: One of the most valuable lessons I’ve learned is the importance of honesty, delivered with tact. As well as supporting great companies. I’ve made tough decisions, voting against chairmen and advising CEOs to step down. However, I always approached these situations with empathy, understanding the challenges of running a complex business and, ultimately, wanting them to be successful. Most work is done privately. My extensive network across the industry is built on mutual respect, even when opinions differ. “My word is my bond” is a great City tradition. I’m passionate about the privilege of managing money on behalf of investors and pensioners, and in that role need to have respect, humility, and a drive to fight for the best returns possible when trusted to manage people’s savings responsibly.

Eccles: Couldn’t agree more although not everyone approaches it that way. But how did you end up at the FCA?

Sadan: The decision by the FCA to appoint the first ESG Director in 2021 was driven by the explosive growth in this area which I had observed during my tenure at LGIM. The rapid expansion of ESG was creating significant challenges, with promises outpacing regulatory developments. The FCA CEO, Nikhil Rathi, knew my background and beliefs and after a rigorous recruitment process, I was honoured to join. Our goal was global convergence among regulators.

Furthermore, my background an underdog has always led for me to have a natural inclination to protect consumers, like Mr or Mrs. Jones, who may not have the knowledge or power to safeguard their own investments. My commitment to consumer protection has been a driving force throughout my career and aligns with the FCA.

Hand drawing Compliance flow chart concept on transparent wipe board isolated on white. (Photo: iStock)

Eccles: Sacha, you’ve now been at the FCA for three years so you have a good sense of what a regulator’s role can be in sustainable finance. Let’s dig into that.

Sadan: Let’s start with the basics. A regulator can set requirements, supervise proactively to promote firm behaviour in line with expectations and take action where fundamentals are not met. And of course, continue to use influence and convening powers to help develop the necessary financial services ecosystem. Always believing that financial solutions are possible across markets, we know that “money speaks.”

Eccles: Got it but let’s dig into this more and be more specific.

Sadan: I co-chair, the IOSCO Sustainable Finance Taskforce (STF) which is at the forefront of addressing financial ecosystem complexities for global securities regulators. Many people view regulators as focusing on policies, rather than more practical, industry-led solutions. There’s great opportunities to integrate specialist practitioner experience with codes of conducts or voluntary guidelines. My approach has been to solve problems across the entire investment ecosystem, involving auditors, ESG ratings providers, asset owners, asset managers, and investment consultants, as well as introducing regulation. Having international standards has to be the aim. I think it’s important that each part of the investment chain can provide materially important disclosures to help price risks and opportunities.

Eccles: You didn’t mention proxy voting firms and their role is now quite a controversial one, at least in the U.S. What’s your take on them?

Sadan: I think that asset managers, on behalf of owners, should take control of their voting decisions rather than outsourcing this responsibility. At LGIM, we held annual roundtables with asset owners to understand and integrate their priorities, emphasising fiduciary duty and the importance of not blindly following proxy voting outcomes. Ownership has responsibilities with stewardship a key component. Asset managers should decide voting policies and confidently outsource these to proxy voting agencies to action. Owners can choose managers who hold similar beliefs for managing their money.

Eccles: Let’s talk some more specifics.

Sadan: We need to focus on systematic change using a pragmatic toolkit. A good example is financial/investor materiality. I’ve worked with IOSCO to endorse and support the International Sustainability Standards Board (ISSB) to help set global standards for investors to price risk and opportunity in sustainability.

Eccles: Mention of the ISSB, which you know I’m a big supporter of, gets us to ESG, now a highly politicized topic.

Sacha: There is significant interest in sustainable finance, particularly on the pensions side, and challenges posed by greenwashing and recent anti-ESG sentiments. Support from regulators and policymakers can ensure sustainable finance shows relevance and materiality in a continuous process. Saying “I think about ESG before making an investment decision” is not going to be good enough to get an ESG label.

The FCA’s work on sustainable labels on investment funds is an example. To avoid excluding swathes of sectors, an “improver” label is included, influencing and explaining what sustainable outcomes are being targeted for improvement. If you want to solve a problem such as climate change “stay and influence and improve – do not leave the room.”

Eccles: Couldn’t agree more about “stay and influence and improve.” You and I have talked many times about the futility of exclusion and divestment for changing corporate behaviour, even in the most controversial industries. But “improver” is just one label. Please tell more of the story.

Sadan: The FCA introduced the Sustainable Disclosure Regulation (SDR) to help consumers navigate sustainable investment, reduce greenwashing, and build trust. Over 15,000 people tested the package of measures, opportunities for international interchangeability were sought at every stage.

The framework includes anti-greenwashing rules, understandable labels, marketing rules, consumer-facing detailed information with distributor requirements. The labels only include products with specific sustainability goals as part of the investment objectives – for example, firms can’t call their products ‘sustainable’ or ‘impact’ unless they are using/ qualify for a label.

Disclosure alone isn’t a silver bullet solution. We wanted the regime to show other jurisdictions, how it’s possible to introduce robust consumer protection rules to help the market to grow with credible claims.

Sacha Sadan speaking at the Eurofi Conference in Ghent in February 2024 on a panel titled “European Sustainability framework implementation: remaining data challenges (availability, usability and simplicity)”

Eccles: You’ve done a lot of great work in the past three years. What are your plans for the next three to five years?

Sadan: Mostly implementing our existing five focus areas to be embedded across the FCA, and working with our fellow regulators internationally.

Firstly, the FCA has received positive feedback on our anti-greenwashing efforts with eight examples. However, some supervisory work and enforcement will be needed for outliers.

Second, with estimated 60% of the world expected to use the ISSB standards, this adoption should happen in UK next year. IOSCO is also working on assurance standards with the audit regulators. Assurance is crucial, and the Big Four accounting firms are eager to get involved and make sure numbers are verified and can be used for investment purposes. Training and capacity are being built.

Third, the FCA initiated the development of an industry-led Code of Conduct for ESG data and ratings providers in 2023. Hong Kong is using the same code, with Japan and Singapore using something similar. Recently the Chancellor of the Exchequer announced that the FCA will be able to regulate ESG ratings. The FCA supports this move, aiming for pragmatic implementation. I believe ESG ratings providers prefer a practical regulatory approach based on international principles.

Fourth, we will continue to work on SDR labelling, ensuring funds using these labels genuinely meet the criteria for sustainability. This involves educating Independent Financial Advisors (IFAs) to advise effectively, supported by the recently formed IFA Advisory group. Good rules need education and guidance to be a success. More funds in UK using the labels to help allocate capital will lead to better customer outcomes.

Fifth, the FCA has worked closely with the Transition Plan Taskforce (TPT) where I was on the lead steering group to develop a framework for credible net zero transition plan disclosures. It’s not good enough to say, “We’re going to be Net Zero by 2050” and only have PR around that. Companies must have a credible, scrutinizable plan. UK and global regulators are working together better than ever before. This TPT is now inside the ISSB tent and can be used globally. The UK will demand reporting transition plans soon.

Eccles: All important topics but all a lot of work so good luck with all this!

Sadan: Thanks. Both sides of the ESG debate sometimes forget the push for sustainable practices often comes from within companies, driven by employees. This approach necessitates practical answers and solutions, as it is rooted in the genuine concerns and aspirations of the workforce. Employees are increasingly aware of the environmental and social impacts of their companies’ operations and are pushing for changes that align with their values and the long-term interests of the business. A huge retention tool.

A new modern industrial or commercial building on a corner of a street on a beautiful day of summer or early autumn. The grass is green, the trees are full of green and some yellow leaves. The sky is blue without cloud and there is some flowers and plants in the foreground. (Photo: iStock)

Eccles: This raises the more general question of the role of the corporation in society.

Sadan: For sure. According to the FCA 2022 Financial Lives Survey, 79% of consumers believe businesses have a wider social responsibility than simply to make a profit. These expectations range from how a firm treats its employees such as health & safety, training, firm diversity and how they address these issues. Consumers are increasingly demanding corporate accountability and transparency in sustainability, pressuring firms to show their commitment through concrete actions and policies. Not just words or advertising.

Eccles: As you know, this issue is at the basis of the “ESG Culture Wars” in the U.S. but that is not your problem! Anything else on your mind?

Sadan: This issue is related to another topic, the importance of distinguishing sustainable finance from the often-confused realm of ethics. Companies can simultaneously make money and employ people in a long-term sustainable manner; the key is integrating sustainability into business strategies without being perceived as an additional burden, but instead essential to help secure future profits. R&D is about future profits in new uncertain areas. By integrating material sustainability into their operations, companies can secure long-term success, sometimes benefitting the environment and society, and boost reputation and market competitiveness.

Eccles: Well said! Any final thoughts?

Sadan: Significant progress has been made in sustainable finance in recent years, with the UK playing a leading role in the global debate. There is still a considerable journey ahead with the responsibility not resting solely on corporations but the entire investment chain, investors, regulators, other stakeholders—and crucially consumers also making their voices and wallets heard. We all need to talk the language of business and opportunity – new areas of growth are being created and technology solutions will appear. Think about recent electric vehicles or organic food – so many new areas will drive growth in the future and solve some of our complex problems.

Eccles: It’s been great having you as a friend for many years. I appreciate you. I also hope to see you next time you are in the US and grab a beer. Although nothing compares to having a pint at a British pub.

Sadan: Same here and the next time you’re in London the pint(s!) is on me!