ESG Investing and the job sector
In this TTI Network article, we talk about the surge in ESG investing jobs across the financial sector and the related career prospects. ESG investing has made a tremendous jump in the last years. Hence, a proper understanding of the term, sector and increase in ESG investing jobs is relevant.
What the reader will learn:
a. How ESG investing jobs came about
b. Where ESG investing is currently at
c. Why ESG investing job prospects are so attractive
d. How to best approach ESG investing and the right talent in it
Job trends in ESG investing
ESG (“environmental, social and governance”) investing has been gaining prominence in the last years and the corresponding surge in demand for ESG investing jobs. ESG criteria are being increasingly applied by investors - not only due to public pressure, but also because of the physical and transitional shifts caused by climate change. Data also shows the risk reduction and high returns brought by the application of ESG frameworks. From the increasing number of funds investing explicitly based on the ESG criteria, the new ESG investing jobs sector has emerged.
The rise of and demand for ESG investing jobs
The last years have experienced a surge in ESG investing. In particular, 2020 has demonstrated an upsurge in demand for services and insights. There has been a growing request for ESG investing advisors. Between January and October 2020 alone, 47% of all net investments went into responsible funds.[1]
Climate change, its causes and effects (physical as well as transitional) entail financially material issues. This is something that is already, and will in the next two decades, affect every company around the world.
Among public market investors and companies, ESG investment jobs are in high demand. What was once seen as a niche is now something that can no longer be neglected. ESG investing advisors bridge the gap between companies and their shareholders. Investors not only gain advice aligned with their values, but also a picture of the long-term landscape which enables them to survive and thrive.
The history and preface of ESG investing as a job
Looking at the last decades, investments were based on the shareholder theory by Milton Friedman shared in the 1970s and since widely accepted around the world. It argued that the only responsibility of a company is to maximize its shareholder value. The pursuit of profit and shareholder returns were the sole purpose. This worked and paid out major returns for shareholders. However, over time more and more investors took note that only striving for short-term profit is not sustainable, nor worth the price for society. In an attempt to integrate ESG issues into capital markets, ESG investing was coined in 2005 by Ivo Knoepfel in his study “Who Cares Wins”. Today, ESG investing jobs growth has been going through a major upswing. According to data from Deloitte, investors who have applied the ESG framework to at least a quarter of their investments went from 48% in 2017 to 75% in 2019.[2]
De-mystifying ESG investing jobs
Within the spectrum of responsible investing, ESG is one of the frameworks whose criteria is used by investors and advisors to analyze stocks. ESG stands for environmental, social and governance. ESG investing advisors cover a wide spectrum of issues traditionally not regarded in financial analyses. In a nutshell - ESG investing entails research on and factoring in environmental, social and governance issues along with financial analysis when evaluating stocks. It is a stakeholder, not just a shareholder, theory.
What are similar investment strategies and jobs to ESG investing?
SRI (Socially Responsible Investing) as a concept was developed before ESG. One can understand SRI as more of a screening process in line with investors core values. SRI is used to exclude companies that harm or do not meet their value criteria. There are also Impact Investors, who invest in companies which can tangibly demonstrate positive impacts along with positive financial returns. Further, there is Conscious Capitalism. Conscious Capitalism is not an investor strategy, but a set of principles that a company incorporates and expresses - a management strategy that ESG investors can orient themselves around.
ESG Investing is different to what is understood as SRI, Impact Investing and Conscious Capitalism. It actively opts in for companies which demonstrate outstanding positive environmental, social and governance impacts according to certain standards and guidelines.
Why are investors so interested to use ESG as a framework?
It’s not only the social demand and the public pressure through regulations and policies that have created large demand for ESG investing jobs. ESG investing is intrinsically linked to risk reduction. In the financial world, a great deal of the traction around ESG investing has happened thanks to its role in reducing risk. Issues such as climate change and resource scarcity concern the profits of all companies and their stakeholders. That’s why a framework facing physical and transitional risks, and incorporating current and future risk factors, pays out positively on a company’s results.
It is not only risk reduction that is seeked after in the ESG investing jobs market. Investors also started to notice that high ESG ranks correlate with high returns. Strong ESG factors demonstrate long-term thinking – a competitive advantage that cannot be underestimated. Businesses need to go through the shift of analyzing, strategizing and planning decades in advance to survive, and also to gain high profits. This is where ESG investing advisors are needed.
ESG investing jobs overperform traditional investment careers
The data already shows that ESG investments more than keep up with non-ESG investments. Morningstar found that 73% of its indexes surpassed their non-ESG comparables.[3] Morgan Stanley's Institute for Sustainable Investing released a report, “Sustainable Reality: Analyzing Risk and Returns of Sustainable Funds”, which states that the profits of nearly 11,000 mutual funds from 2004 and 2018 were in balance with traditional funds.[4] ESG investments are not a small sector where investors dispense the opportunity of higher profits for doing good. ESG investments are as beneficial as traditional investments.
Critical considerations on ESG investing jobs
What holds some back is the difficulty to measure the impacts of a company due to the lack of common terminology and mainstream standards. The sector already has the presence of various standards to measure by, such as the Sustainability Accounting Standards Boards (SASB), which simplify the measurement of performance around sustainability.
There’s the potential disadvantage for an ESG investor to not be part of a sector that doesn’t correspond with their ESG framework, thereby lagging behind a certain market segment that others are profiting from. As already pointed out, however, there is no evidence that investors have to sacrifice market returns for ESG investments - quite the opposite. ESG investments can be as or even more profitable.
ESG investment trends and job prospects
ESG has rapidly gained prominence, and the physical and transitional risks of climate change have become a reality. ESG investing advisors help companies understand their risks and mitigate them. ESG advisors combine the ESG framework with a corporate strategy that ensures high returns. It’s still an emerging job market sector, which will gain prevalence in the near future. Regarding the next decades, ESG investing will become more profitable in terms of surviving climate change, along with its physical and transitional attributes.
What does the rise of ESG reflect?
Can the rise of ESG investing jobs be seen as a stand-in for the shift that our markets and societies are making? The world faces the challenge to adapt to emerging trends, to prioritize cleaner productions, products and services, and to detach itself from the traditional forms of investing where pollution was no concerning factor. However, one should not only regard the trend of ESG investing as a necessary and dreaded shift. It has grown to a point where it can greatly enhance the world’s economy for the better – for the planet, its population, as well as positive macroeconomic trends. Companies, investors and their actions have the strength to bring about great positive change.
According to the Sustainable Signals Report, by now 95% of millennials are interested in sustainable investing.[5] It seems coherent that the current shift will hold on and expand in future decades, beyond the more urgent factor of climate change and its physical implications.
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[1] https://ifamagazine.com/article/the-irresistible-growth-of-esg-investing/
[3] https://www.pictet.ft.com/the-rise-of-esg-is-this-the-defining-moment
[4] https://money.usnews.com/investing/investing-101/articles/esg-investing-trends
[5] https://www.pictet.ft.com/the-rise-of-esg-is-this-the-defining-moment
