The term ESG Investing has steadily mainstreamed since first being coined in 2005, with a particularly significant spike in trending over the last 2-3 years, to a point where between 80-85% of the world’s largest corporates have integrated GRI’s standards and there is an estimated USD 70 Trillion AUM guides by PRIs (Principles or Responsible Investment).
Issues incorporated under the broader ESG umbrella include, amongst others; how companies treat their employees and collaboration with unions, climate related initiatives and TCFD, data privacy, human trafficking, pollution, product liability, social opportunities, corporate governance and corporate behaviour. Today, ESG investing has matured to the point where it can greatly accelerate market transformations for the better.
Carbon emissions rose in 2018 for the first time since 2014, resource shortages and extreme weather events are becoming more numerous and frequent, corporate disclosure process and standards are improving at a dramatic rate, younger generations are becoming more active and engaging their wealth towards social impact investing and regulators are requiring increasing levels of transparency into how companies -and the investors that finance them-perform on the aforementioned factors. Considering all of the previous, it remains clear that it has never been more critical for companies to effectively engage their employees and investors on ESG issues.
Some of the world’s foremost IBs and Funds have established sustainable finance-focused units that will serve as a centralised resource to guide other divisions of the company regarding knowledge, skills, and input related to environmental, social, and governance (ESG) investing. These teams won’t replace frontline investment groups and deployers of capital, rather support their ESG offerings.
Competition for employees familiar with environmental, social and governance issues is increasing as asset managers and banks scramble to gain and retain reputations as leaders in the space.
Asset managers are looking to find talent with a background in sustainable finance offerings and the ability to articulate and integrate ESG philosophies into investment schedules, which will in turn, give the manager a competitive edge in seeking business from institutional investors.
Rivalry between candidates who want ESG roles is also sharper as interest in responsible investment surges, with many from the funds and banking sectors noting that candidates are all generally strong, but the need to find individuals that had the right balance of awareness of the diverse range of issues, combined with financial nous, adds a further dimension to the hiring decision.
Although the number of roles may have increased in this space, competition for the best candidates remains fierce.
It’s not your typical plain, financial analyst skill set and the domain continues to develop and evolve, requiring hybrid sets of skills — reasoning, logic, communication and the ability to think about broader issues. Education in engineering, sustainable development or political studies now sit side by side with more traditional financial engineering and maths backgrounds.
At the core of ESG Investment remains trust and a reliance on data. There remain challenges around lack of clarity about what to measure, where to obtain the data, concerns around the overstatement of [an] investment’s impact and how the data might point towards opportunities to further expand product offerings incorporating ESG principles.
The continued development of supporting technologies, adaptation of current, mainstream skill sets across investments professionals and the ability to obtain, interpret and integrate “best in play” data fields will present ongoing and new opportunities to employees looking to put themselves ahead of the pack in this space. While ESG professionals will no doubt seek out the best possible information, perhaps companies able to collaborate on this data journey will position themselves at the forefront of emerging trends and therefore an optimal position to both benefit from the deployment of capital, and, achieve higher rates of ROI on their own investment spend?
Whatever the angle – data, employment, regulation, social or investment; the continued focus on ESG is sure to remain a dynamic part of the investments and wider financial services landscape for the foreseeable future.