How She Leads: Erika Karp, UBS
<p>How the global head of research at UBS discovered she was a <span style="line-height: 18px; ">"</span><span style="line-height: 18px; ">naturally a sustainable investor with a skew toward long-term thinking," </span><span style="line-height: 18px; ">and what she's doing about it.</span></p>
How She Leads is a regular GreenBiz feature spotlighting the career paths of women with influential roles in sustainable business. In this edition, Maya Albanese interviews Erika Karp, managing director and head of global sector research at UBS, a financial services company that offers wealth management, asset management and investment banking services.
Karp, who will be a featured speaker at the 2013 GreenBiz Forum in New York on February 20-21, is in charge of two dozen of the investment bank’s most senior analysts and chairs the firm’s global investment review committee.
Karp was named one of the nation’s “Top 50 Women in Wealth” by AdvisorOne. She is a founding board member of the Sustainability Accounting Standards Board, a member of the program design advisory council for Harvard Business School's executive education program on "Innovating for Sustainability” and a member of the World Economic Forum. Her work has been featured by Investor Relations Magazine, the Financial Times, Bloomberg BusinessWeek, Wharton Magazine and Forbes, to which she is a regular contributor.
An edited transcript of the conversation follows.
Maya Albanese: Could you explain your career leading up to UBS?
EK: As an undergraduate at the Wharton School, I studied economics while a lot of people were studying finance. I wanted to understand history and behavioral finance and develop a framework for thinking. After school, I decided to go into sales. If you can sell, or articulate the value proposition that you have to offer, then you will always be able to make a living. I went to IBM and sold telecommunications systems for a while. I learned a lot there about the value of client partnerships and long-term relationship management. Next, I wanted to pursue more work in finance and be in New York, so I went for an MBA at Columbia. I went on to do institutional equity sales for Credit Suisse First Boston on Wall Street before eventually being recruited to work at UBS about thirteen years ago.
MA: “Sustainability” is not in your title, but how is it integral to what you do?
EK: I am the head of Global Sector Research at UBS, which means I manage a team of strategists and analysts around the world and get them to collaborate and provide the best possible predictive insight to our clients. When you’re managing a diverse team of really senior thought-leaders, you have to be creative to figure out how to optimize their coordination. I need to ask all kinds of different questions and think long-term. Understanding corporate sustainability, or what I like to call ESG (Environmental and Social Governance) analysis, is just systematically and creatively pursuing different avenues of inquiry and systematically asking long-term questions. Some say that these long-term factors are not important to finance, but I argue that they are. They affect both risk and opportunities. How do you measure a company’s ability to leverage its human capital? You can get signals from its employee retention rate or its ability to understand the community in which it operates. Sustainability is also to some degree a proxy for corporate quality.
MA: Why are you passionate about sustainable finance? Was there an "aha" moment?
EK: There were a few moments of truth when I realized that I am naturally a sustainable investor with a skew toward long-term thinking. I happen to care about the environment, social justice, and behavioral finance; and you can’t completely separate personal values from how you do your job. Another moment was probably when my language started to evolve. Language is so powerful and can be used in a really engaging, constructive, and positive way, or it can be used in a very divisive and destructive way. The way we use words in the financial industry is especially important, because value judgments can alienate people, or they can stimulate dialogue. For example, I typically don’t use the term SRI (Socially Responsible Investment), because then I may be implying that all the other investments are irresponsible. It is also unfortunate when the term “sustainable investment” is just seen as something green for tree huggers; that’s way too narrow in scope.
Photo of Erika Karp courtesy of UBS
MA: How does your position and sustainability fit into the UBS corporate structure?
EK: We have a three-person ESG strategy team led by Julie Hudson in London. The ESG team constantly partners with our 500 expert industry analysts and provides them tools, like our UBS Global ESG Analyzer offering an industry-based framework. With 60,000 publicly traded companies out there across dozens of sectors and industries, we need serious expertise in every industry to collaborate with ESG. Sustainability can’t be a side component; it must be integrated within every function of the business.
MA: What tools do big banks have to promote sustainable development?
EK: It depends on which regions, industries and companies you’re talking about. An example: A big shipping logistics company knows that it potentially represents 50 percent of the GDP of some small nation in which it operates. That company must be conscious of the need for prosperity of that small nation’s people and environment, because if the community fails, then they can’t operate either. Thus, in order to understand the financial objectives of our clients, we have to understand that our client has a vested interest in the local community. Who are our clients’ clients?
MA: Why is diversity an important issue in sustainable development?
EK: Diversity of thought comes from diversity of experience. From my viewpoint, it drives creativity and productivity, deepens dialogues, and leads to entrepreneurship and growth. [Research shows that] both internally and externally, [diverse groups are] seen as lower functioning, despite proof that they are actually higher functioning and have better outcomes. Diversity may create more conflict in the group, but they’re the groups coming up with the best answers. In this way, diversity is profitable.
From my own personal experience- I came out on a trading floor on Wall Street before there were many gay people or who were outwardly gay. By the time I came out, I had become more productive and creative as a result.
MA: How would you rate top-down support for sustainability at UBS?
EK: I wouldn’t be sitting here today talking on the subject if there wasn’t solid top-down support for our efforts to prove the business imperative. UBS has really had an overhaul in its senior leadership. Although it is still a work in progress and there may be varying degrees of engagement, with assuredness I can tell you that key executives are extremely supportive of the principles of sustainable investing.
MA: What is a challenge you face in your work?
EK: One of the biggest challenges is continuing resource constraints. We are often asking people to do more and more with less and less. The recent financial environment has exacerbated this situation. Now, we must address the crisis of confidence in capitalism. The reality is that capitalism is the most productive economic system we know today -- when it’s done RIGHT. We need to be conscious of the concentration of economic power that lies in the private sector. We need to harness that power to make positive change in the world. Issues of income inequality, healthcare, and education, must be addressed by big scale initiatives and CAPITALISM. Capital markets need to lead and the government needs to put in place the structures to facilitate it.
MA: What are you especially proud of accomplishing in this role?
EK: I am proud of the product and process innovation that I’ve brought to our research product team. We’re now able to be more global, make better predictions and we’re more progressive. It’s challenging to be someone who takes the long-term view all the time, even when there may be short-term costs, but I aspire to be both fearless and persistent in response to the challenge.
MA: Where would you like to see sustainability in 10 years?
EK: I’d like to see sustainability as a standard part of the investment process; a systematic analysis considering every single material factor that relates to economic outcomes, including environmental and social factors. I would like to UBS to be perceived as a financial institution that facilitates prosperity. In terms of my job, that’s the hardest one to answer. Ten years ago, I never would’ve guessed I’d be sitting here answering these questions with you.
MA: What advice would you give others aspiring to work in a role like yours?
EK: You need a visceral understanding of economics and psychology in conjunction with self-awareness. To that I would add salesmanship, persistence, and authenticity. And transparency is crucial. Everyone has his or her own agenda, so you may as well be transparent about yours. Anyone who wants to know anything about you can just look it up. Searchable data, mobility, and social media all mean that companies may as well be transparent too. Transparency is transformational, both personally and professionally.