Author: Emma Wallis and Sarah Dudney
Is there a big enough talent pool for ESG investing?
As asset managers increasingly integrate ESG into their investment processes as a way to identify risks and opportunities, demand for expertise is outstripping supply. Investment firms would be well advised to develop a recruitment and retention strategy specific to ESG, and many are already doing exactly that, reveal Emma Wallis and Sarah Dudney.
Environmental, social and governance (ESG) analysis has become a deeper seam of business at many investment firms, with several managers integrating ESG analysis into their investment processes across the majority of strategies. The need for greater expertise as the sector evolves has exposed a skills gap.
“Demand is outstripping supply at a great rate. Everybody is going to have to be more creative in terms of where and how they look [for people],” said Emma Hunt, an independent advisor specialising in ESG integration.
For the past two decades, responsible investment professionals were generalists with a broad range of skills, who built the case internally and put the architecture in place. Now specialists are needed to fill out the breadth and depth. “We need quantitative researchers, qualitative researchers, risk management swots, stewardship nuts, you get the picture. We need more of every discipline,” Hunt observed.
BNP Paribas Asset Management is a case in point. It established its Sustainability Centre in July 2017, bringing together its capabilities in ESG integration, research, stewardship and social investment. Since then, the centre’s team has grown to 19 from 11. Notable hires within the past six months include Mercer’s Jane Ambachtsheer as global head of sustainability, Adam Kanzer from Domini Impact Investments as head of stewardship Americas, and Carbon Tracker’s Mark Lewis as head of climate change investment research. BNPP AM is “trying to have the most diverse team [by] ways of thinking, gender, nationalities and backgrounds,” said Helena Viñes Fiestas, head of sustainability research & policy.
Recruiting from Wider Afield
Given the relatively small pool of experienced responsible investment professionals and high demand for expertise, investment firms would be well advised to develop a recruitment and retention strategy specific to ESG. A diverse slate of candidates should be fielded for any position, especially for ESG where expertise often lies outside the investment industry and flexible thinking is paramount.
There are not many seasoned buy-side analysts with more than five years’ experience researching ESG, so recruitment is more a question of cultural fit and “philosophical hue,” according to Eric Borremans, head of ESG at Pictet Asset Management.
To address the myriad of skills required, fund managers are building diverse teams. AXA Investment Managers’ (AXA IM) 16-strong RI team includes previous professional backgrounds such as legal, engineering, journalism, data analytics and non-profit. Impax Asset Management has also built a multi-disciplinary team of people with scientific, engineering and industrial experience, people with deep expertise in different geographies, as well as those “knitting it all together,” said CEO Ian Simm.
Adam Gillett, head of sustainable investment at Willis Towers Watson (WTW), described the skill-set as a T-shape. The stick of the T represents specialisation and deep knowledge. The horizontal bar represents “cross-discipline skills, the ability to knit together disciplines and understand the big picture. The ability to connect the dots, grapple with complexity and bring it all together to make investment decisions.”
The investment industry needs more ESG researchers who can “distil, synthesise, articulate,” who are good at storytelling and who can condense their insights into practical investment decisions, said Matt Christensen, global head of responsible investment at AXA IM.
Recruiting Young Professionals
Another approach to bridging the skills gap involves finding graduates or junior professionals with a passion for sustainable investing. Younger professionals tend to be more aware of ESG issues and may have studied ESG during their MBAs.
Neville White, head of SRI policy and research at Edentree, has hired people from non-profits with no investment experience, as well as junior professionals from other financial sectors. In September 2018 he hired a commodity broker who had tried to take a more sustainable approach at his previous firm and convinced White “he really wanted to do this for a living.”
The extent to which managers are adding headcount hinges upon whether they are building a large team or placing a couple of responsible investment specialists in a coordinating role, and then devolving the effort (as at First State Investments and Pictet have done.)
Pictet’s four-strong ESG team identifies sources of ESG data, liaises with IT, coordinates voting and engagement, issues central lists for exclusion, and organises training and working groups. Then the firm’s financial analysts cover ESG issues, so there is no split between the financial and extra-financial view. “When you’re driving a car, you need one driver. You’re not going to add another driver to look at the road beyond the next 500 metres,” Borremans explained. “One person has to reconcile all that information and draw a conclusion, which is what integration is all about.”
First State has established committees to draw 50 people into the responsible investing effort. CEO Mark Steinberg chairs the Responsible Investment Steering Group and the investment teams are accountable to him for integrating ESG, which “gives it a different gravitas in terms of its importance,” said Will Oulton, global head, responsible investment. First State also has an ESG Committee comprising representatives from each investment team, a Marketing and Communications Working Group, a Distribution and Sales Group, and a HR Working Group focusing on employee engagement, diversity and training. “We are working to develop knowledge and skills across the entire organisation – not just investment professionals but also [people] selling, promoting and justifying what we do. It’s an organisation-wide challenge,” Oulton said. “It’s a change management programme as opposed to a responsible investment programme, so wherever you sit in the business, you can see it.”
In the same vein, Robeco launched its Sustainability Ambassador Programme in 2018, identifying ambassadors in RFP writing, marketing, sales, event management and other functions. Each investment team has one specialist driving ESG integration, as well as key performance indicators (KPIs) relating to ESG, said Masja Zandbergen, head of ESG integration. “[CIO equities Peter Ferket] was our sustainability fund’s first manager, so he’s very committed to the topic and that’s more important than having targets,” Zandbergen added.
Several managers see ESG as integral to making better decisions using richer information, which means that all investment professionals need to understand these issues. “ESG elements are evermore becoming mainstream in analysing and valuing risk,” said Roelie van Wijk-Russchen, global head of responsible business & public affairs at Aegon Asset Management. “Integration of ESG in all of our investment processes is what we do today. For tomorrow’s investment analysis more impact-oriented options will be likely […] More and more of our clients, NGOs and regulators include the Sustainable Development Goals in their ambitions.”
Key Performance Indicators
Kempen Capital Management’s chief investment officer Lars Dijkstra instituted a 2018 key performance indicator for all investment team heads to visibly integrate ESG into their processes; KPIs for engagement were also introduced. Narina Mnatsakanian, director, Responsible Investment, is now having discussions with HR about hiring KPIs. “All new hires need to have a certain level of knowledge and affinity,” she said. “It needs to be part of the selection process.”
Ensuring that an organisation's top-down commitment to sustainability has a practical impact on investment decisions is key to attracting and retaining ESG specialists, who want to work for firms with genuine conviction. It’s also important to consultants and asset owners.
Claire Jones, principal at Lane Clark & Peacock, said that although a firm might have a central responsible investment policy in place, if a portfolio manager can’t articulate it or give examples of how the policy has affected investment decisions, LCP will mark down the manager’s rating for responsible investment. The Universities Superannuation Scheme (USS) also asks external managers to demonstrate with examples how they integrate ESG into their investment and stewardship activities.
As a yardstick for the industry’s progress, almost 20% of investment strategies rated by Mercer in 2018 achieved ESG1 or ESG2 (the top ratings, denoting a high level of ESG integration.) That compares to just over 10% of strategies in 2013, said Sarika Goel, senior responsible investment research specialist.
Ascertaining whether firms take ESG seriously “helps weed out asset managers who are unlikely to give long-term active value to their clients,” WTW’s Gillett concluded. “It helps give insight into who are the best ones that will keep flourishing [versus] those who aren’t really at the races.”
Emma Wallis is insight & content strategist, and Sarah Dudney is a client partner at The Buy-Side Club, the talent strategy and recruitment firm.