Sustainable investing has been accelerated by the COVID-19 pandemic, affirming a trend already underway, which is forcing asset managers to hire more skilled professionals, pushing up salaries and creating a shortage of specialist talent.
A new CFA Institute report, The Future of Sustainability in Investment Management: From Ideas to Reality, revealed 85 per cent of CFA Institute members surveyed now said that they take environmental, social and/or governance (ESG) factors into account when investing, up from 73 per cent just three years ago. The study found that 90 per cent of investment professionals expect their firms’ commitment to ESG research will increase, up from 72 per cent just two years ago.
The global study includes the perspectives of over 7,000 industry participants, including investors, investment practitioners and ESG specialists, who noted the scarcity of specialist talent. Indeed, the demand for ESG professionals is rising fast as more funds flow into the sector. The deeper and more specialised the ESG expertise needed, the more specialists who hold those skills will command a premium salary, and indeed, participants in our survey noted the relative scarcity of talent.
The lack of skilled professionals is also revealed by careers networking site LinkedIn. An analysis of approximately 1 million investment professionals found that less than 1 per cent had disclosed sustainability-related skills in their LinkedIn profiles, the report found.
Across all investment roles with sustainability-related expertise, these professionals received on average more LinkedIn Recruiter InMails over the past 12 months compared with all other investment professional talent pools on LinkedIn, the report found.
The main argument for the long-term need for specialists is that the data are getting more complex and the generalist approach of the past won’t work any longer. It is not possible for someone with another “day job” to stay on top of sustainable investment and ESG developments; not keeping up is a risk. So asset managers are hiring more ESG investment experts – opening up expanding careers opportunities for ESG specialists.
Opportunities for scarce talent
Yet not all firms can afford ESG specialists. Some smaller firms choose to outsource sustainability capabilities while slowly building up internal expertise. We suggest, however, that all firms should at a minimum have an ESG champion who is a strong leader, to meet investor demand for sustainable investments.
While finding talent can be hard, keeping it too can be difficult. Because sustainable investing experts tend to be people who want to make a difference, it is not just about compensation; if a firm won’t move fast enough, those professionals more easily move on to another asset manager that better fits with their values and may offer a more attractive career path.
While the gender split for all investment professionals is 74 per cent men-26 per cent women, among ESG analysts, it is more balanced: the split is 58 per cent men-42 per cent women, and among ESG portfolio managers, it is 65 per cent men-35 per cent women. About one-third of investment organisations have dedicated ESG specialists, and a third have portfolio managers conducting ESG analysis. Training in ESG issues has increased in the last three years, but still fewer than half (31 per cent) of respondents said their firm provides ESG training.
Broad skills needed
To be proficient in sustainable investing, investment teams need to fully understand all parts of what sustainability means for the investment proposition. Asset managers that incorporate sustainability into their business models need access to specialist knowledge to enrich their investment capabilities and to source the data needed to make investment decisions.
Sustainability experts need many skills, including technical expertise as well as good communication skills. ESG experts may be called on to do many different tasks, and a combination of technical skills, soft skills, and T-shaped skills will distinguish the most successful ones. A greater focus on reporting will require technical expertise, and the increased client interest will mean that ESG professionals may need to spend more time interacting with clients.
ESG experts may also need to conduct data analysis, including looking at alternative data from news sources, social media, government websites, and satellite data, among others. Natural language processing and related programs are used to process such data in some firms. Increasingly, quantitative modelling skills are in demand to incorporate ESG data in decision-making.
The role of an ESG specialist may also involve talking to many internal stakeholders to explain the issues and relevance and engaging with companies and clients externally. Good communication skills are needed. ESG professionals must be able to sit down with company management or ask tough questions at annual general meetings and be able to listen well and build trust with external organisations.
So, the career opportunities are many and varied and for professionals who develop ESG expertise the benefits can include a salary premium. Finding new areas for investment while having positive real-world impact is also inspiring for many who move into a career of sustainable investment management.
Lisa Carroll, chief executive, CFA Societies Australia