In a first of this series, Tom Strelczak, founder of an independent search firm TWS, explores some of the recruitment trends in senior level ESG and sustainable investment roles within the asset management sectors of London and New York.
ESG and sustainable investment is now one of the highest growth areas across the asset management industry. This tremendous acceleration over the past 12-18 months has led to a significant shortage of ESG talent in the marketplace as firms scramble to hire from a small pool of candidates.
ESG market snapshot
While the equities market has historically been where ESG criteria have been most practically applied, we are now seeing an increased focus across all asset classes. Hedge funds and the private markets have also jumped on the bandwagon, largely incentivised by investors who more frequently demand more accountability from whom they choose to invest with.
It is safe to say that the pandemic has shone a light on the ESG market, acting as a stimulus for firms previously lagging in their approach. What used to be a fringe team in many businesses, ESG has now been heavily integrated into the investment process and occupies a prominent place in marketing strategies across the industry. This uptake across the market has created a highly competitive environment with respect to identifying talent for growing ESG teams. With a finite number of professionals in the market, one observes a merry-go-round of talent, with firms engaged in bidding wars for top candidates in this space.
Other event- led driven talent shortages
Of course, we have seen such skills shortages in the past. Casting out minds back to the period following the global financial crash, there was a similar emphasis when firms had to build (at pace), teams to deal with increased regulatory pressure. Regulatory compliance had always existed, but firms required dedicated professionals to deal with enhanced legislation and monitoring of progress.
The same is happening now within the ESG talent market. It must be noted that with regulation increasing around sustainability, these two areas are unlikely to be mutually exclusive moving forward. The increased presence and adoption of sustainability led reporting requirements across the market will give rise to yet further resourcing needs within many businesses.
ESG ‘band aid’?
While the instant effect of a skills shortage is a significant supply/demand driven talent war, there are other initiatives that address the same problem. For example, both the CFA and PRI offer qualifications to investment and non-investment professionals alike, allowing people from all backgrounds the chance to improve their awareness of key themes and applications. This also allows companies with a large workforce the chance to repurpose existing employees as opposed to hiring more instantly effective sustainability experts. While this might appear to some as an ESG competency ‘band aid’, the truth is that even hiring thematic sustainability experts may require the additional cost of upskilling in the language of finance and investment.
For firms with a much leaner structure and smaller headcount, where sustainability proficiency is non-existent, there need to be greater efforts than simply branding an existing member of senior management with a ‘head of ESG’ title.
At this point, for firms looking to set the right tone internally and externally with investors, especially as PRI signatories, bringing in external expertise is often unavoidable. As a business, we specialise in advising management on these talent strategies and executing on subsequent mandates. Once hired, we continue our work with these firms and ESG practitioners in building market leading sustainability divisions.
Assuming a firm has evaluated the possibility of hiring from within the business with limited success, the next step is invariably partnering with a search firm. At this point, it is important to accept that simply offering a competitive package and a decent sounding title is not going to attract the best talent. Salary data within the ESG sector has long been unreliable. There are far too many variables to the background of entrants into this market to stamp them with generic values. Good candidates can choose between multiple opportunities and there are larger considerations at play.
See also:- Linking ESG to executive pay
In our experience, sustainability intentions need to come from the top of the business and permeate through the organisation. Paying lip service to ambitious responsible investment professionals will be sure to fall on stony ground. Companies should be wary of overpromising and underdelivering when it comes to candidates who thrive on shaping a company narrative around ESG and being part of innovative new strategies.
The industry is rapidly evolving its approach to ESG issues and being able to clearly articulate what this means to candidates joining a business is paramount.