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ESG within Investment Management for 2021

ESG within Investment Management for 2021

This article has been written by Lotti Hawkins, with questions asked by Maria Lettini – Executive Director at the FAIRR Initiative 

OVERALL TRENDS IN THE ESG MARKET THIS YEAR

Last year I worked on multiple stewardship hires, but since January, the majority of the positions I am currently recruiting for, and have on the horizon, are core ESG investment roles or roles responsible for working closely with ESG Analyst and ESG Research teams. The last 12 months has ignited a global push (but particularly in the US) for responsible investing, and we anticipate that hiring amongst investment firms and service providers is not going to be slowing down soon. As a result, firms will continue to need ESG investment professionals and demand for individuals with ESG experience will be high.  We have noted specific trends in the follow areas:

  • ESG research and analysis within the Fixed Income space continues to hold the spotlight this year, while investment firms are putting emphasis on ESG integration and research into this asset class. 
  • New regulations will likely affect the hiring trends; EU Taxonomy Regulation, Non-Financial Reporting Directive (NFRD), and Sustainable Finance Disclosure Regulation (SFDR). People that have had exposure to these regulations will likely be a plus when moving into a new role.
  • Specific ESG knowledge within a variety of areas such as agriculture, supply chain (labour rights, and inequality), and plastics, are anticipated trends given the risks in these areas were further highlighted in the recent pandemic. Additionally, we have seen a big increase in demand from investment firms with large or growing teams for ESG candidates with climate change expertise. 

 

HOW HAS THE MARKET PERFORMED VIS-À-VIS THE PANDEMIC?

At the beginning of the pandemic, firmwide recruitment was put on hold for a vast majority of organisations as the future was unclear – would they need to cut staff, or would the firm even survive? As time went on, ESG hiring came back to life, with new roles opening frequently particularly as confidence increased with respect to undertaking entire recruitment and onboarding processes over Zoom/MS Teams.  ESG hiring then continued and even significantly increased from a year prior. Just from looking at various financial news articles, it’s clear to see that 2020 did not prevent ESG roles from being filled. There were (and continue to be) major moves from senior ESG professionals despite the pandemic.  We also noted that as investment firms were eager to demonstrate their commitment to ESG, we subsequently saw a large shift in the seniority of roles within firms- most recruiting at the Head or Global Head level. 

Personally (and I'm very grateful!), this is the busiest I have ever been since I started the ESG desk from scratch here at Lawson Chase. My remit is diverse and global within the ESG space, and I work with investment clients predominantly on new hires, building out ESG teams or expanding into new areas of their existing ESG strategy e.g. asset class or sector specific. 

 

HOW HAVE SALARIES AND BONUSES EVOLVED HOLISTICALLY AND WITHIN EACH OF THESE ROLES?

Some clients can have a bit of a shock when building out new teams, ESG is no longer seen as an extra in a firm, it is a core part of their overall strategy now. As such, experienced professionals can come with a big price tag, they are paid well because their current firm appreciates their value and contribution, but there is also now a real focus on staff retention;  managers want to make it harder for staff to move on (if other firms cannot get to their remuneration level, it typically does not make sense for someone to change jobs). 

Overall compensation can differ substantially within the ESG space, especially between global vs European/country-specific firms.  Our experiences shows that sometimes both can have a similar base, but the bonus potential can be enormous at a global firm - often people in ESG can receive bonuses up to 100% of their base salary.  When a new opportunity arises for candidates to move from a global firm, the base offered would often need to be a big increase (especially if their bonus structure is nowhere near the 50-100% mark) to ensure they are not taking home less year on year. Candidates also want a comfort level that they could still expect to receive the current market average 15% annual compensation increase if they deliver good performance.

Specialist NGOs often struggle to attract ESG investment professionals with financial experience and an understanding of the capital markets as they are often unable to meet the above compensation levels. It is recognised that NGOs do not often offer the same level of pay as investment firms, and there is, of course, a pool of talent who are interesting in moving to an NGO at some point in their career.  However, in this current climate, it is this same pool of talent who is also  being sought after by the investment firms due to their subject matter expertise,  so making the jump to an NGO salary in the current market is often a difficult decision for candidates to make as it will affect their salary trajectory for years to come. 

 

HOW WOULD YOU DESCRIBE THE CURRENT SUPPLY/DEMAND FOR EXPERIENCED ROLES/STAFF?

In terms of new roles - the current demand is much greater than the supply of relevant and experienced ESG professionals who are considering possibility of a new role. This is an increasing ‘problem’. The vast majority of investment professionals without ESG experience are eagerly looking to transition into ESG however, understandably, recruiting investment firms want and need experienced ESG staff as they build out teams. But, there are also other factors which can make candidate searches  difficult in this environment. Certain asset class ESG knowledge, for example Fixed Income, can reduce the talent pool to a small handful. Fixed Income has been one of the hottest sectors over the past few years, and credit professionals can be reluctant to move such as they are being paid extremely well (more than the new role’s budget).  Another challenge is that often new roles within new teams do not have clear career progression trajectories given their teams are currently a work-in-progress.  New roles, new firms and new teams also may suggest that  team culture also hasn’t quite been solidified.  Candidates value a positive and supportive work environment with the ability to contribute and grow.  As many teams are new, often experienced staff are not yet ready to take a chance on a new opportunity with a firm without an established culture.  

In terms of replacement hires – some of the same issues as above are still very relevant, however it is worth noting that with replacement hires timing is usually more constrained -- as ideally there would be a period of overlap between the new staff member and the one that is departing. As a result, there often has to be a few amendments to the job or compensation package if the recruiting firm urgently needs someone in as soon as possible. 

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