With environmental issues now a top priority for the investment world, Alastair Sewell’s undergraduate degree in biology is finally paying off.

Having graduated from the University of Bristol as a biologist in 2002, Sewell almost left the sciences for good after taking his first job at the US-based Fitch Ratings agency in 2004. 

Returning to university once more in 2008 to become a Master of Business Administration (MBA), Sewell then climbed the ranks at Fitch from analyst to associate director and director. 

Now a senior director of fund and asset management for Europe, Middle East, and Africa (EMEA) and Asia-Pacific, Sewell is closely focused on ESG and green finance, and feels like his career has gone “full circle”.

“I originally crossed over from biology to finance into business largely because of statistics,” he said. 

“In biology you become quite a good statistician, and that’s a directly transferrable skill to finance.

“And now here we are, around 20 years later, and this upswell of interest in ESG and sustainable finance makes some of those lessons I learned all those years ago studying biology suddenly more applicable today.”

TFG’s Deepesh Patel spoke to Sewell about ESG’s relationship with global money markets and money market funds (MMF).

Global money markets and ESG

In his role at Fitch, Sewell covers funds of all varieties – including trade finance funds – but Fitch’s principal coverage is of money market funds. 

“We rate an enormous volume of money market funds, simply because they are so large and, for corporate treasurers, they are a mainstay of their operating cash requirements,” said Sewell. 

Despite spanning three continents, Sewell’s brief is mainly focused on Europe, where he says the market is coming into a new regulatory cycle, which is partly the result of greater regulatory attention after the shock of COVID-19 to the sector.

With ESG issues now high on the agenda for money market funds, Sewell said Fitch’s method of analysing the risk profile of such funds is a work in progress.

“You could argue that a money market fund, which is by definition a short-term investment vehicle, shouldn’t be able to contribute to ESG,” he said. 

“But the fact of the matter is, it can. Just like any other entity, it can send capital, it can direct capital to certain areas of the economy, or indeed away from certain other areas.” 

In September this year Fitch launched Sustainable Fitch, which offers a range of ESG Ratings products at both an entity and an instrument level for all asset classes globally. 

As Sewell explained, Fitch’s ESG Ratings offer scores for corporates and for banks, which allow an investor to see the ESG risk profiles of each, their standalone ESG risk profile, and their traditional credit rating.

While admitting that there are difficulties and challenges to the ESG ratings framework and methodology, Sewell said it nonetheless must be pursued, as such ratings are quickly becoming mandatory.

“It’s required because of the upswell of investor interest in this area,” he said, “which means that, to fail to address those challenges to find practical solutions would effectively lead to a competitive failure of the investment manager.

“It’s a problem that all investment managers are very, very focused on at the moment.”

Themes and trends – MMS/trade finance

In terms of the trade finance funds that Sewell covers, he said the sector has experienced multiple shocks this year – not only in the form of COVID-19, but also from unexpected events such as the collapse of Greensill Capital.

But for Sewell personally, one of the key questions for the sector is that of liquidity management.

“Where investors may require a certain level of liquidity, and the fund can only provide a certain level of liquidity, then there’s a mismatch, and that means there is a question of liquidity management,” he said.

“So what the events of this year have really brought into focus is what happens when there is that risk, that mismatch. There’s the governance of that, and there’s addressing that balance, and there are ways to do it. 

“I hope that what this episode will have taught the industry is where the issues are, and perhaps how to address some of those issues so that the future can have more certainty.”

Money market funds, regulation, ESG

Going forward, Sewell said he believes that regulation is currently the biggest question mark in the money market funds sector, closely followed by ESG. 

“Money market funds are coming into a new regulatory cycle, and the COVID-19 experience showed there were some shortcomings,” said Sewell. 

“Regulators have opened the books again, so I think that’s going to be quite significant, with quite a lot of development there for the industry to digest.

“And then on top of that, the client imperative, the business imperative to implement ESG, but to do it in a way that is tangible, and can make a difference to end-investors.

“So there are significant challenges, but significant opportunities for those to get the mixture right.”

Finally, for businesses looking to implement some of the new ESG strategies into their day-to-day operations, business processes, and wider strategy, Sewell said the key risk will be to avoid what he calls “over-step”, as in over-promising and under-delivering.

“I think there’s an awful lot of learning still to be done by almost everyone in the markets. I think regulatory standards are still evolving as it relates to ESG,” he said.

“I think trying to do too much too soon will run the risk of running afoul of future investor preference or indeed future regulation. 

“So I think, for the industry, the challenge is moving forward and making progress, but not making too much progress, so that they’re caught out by something as yet unknown.”