In the past five years, it could be argued there was never a better time to have been in the sustainable investment market. Associated inflows were significant, those with the right skills had the pick of the best jobs in the market, compensation levels were unmatched and there seemed to be no sign of the hiring goldrush abating. It is clear looking back, that there was a palpable headiness in the market that created a bubble, forcing a talent race that was ultimately going to be unsustainable, both for clients and candidates.
This may seem a rather dismal assessment of the status quo, however, it is in fact, the opposite. Now that the panic hiring has slowed, what is left in its place is a far more measured approach to a reset in the market that will likely offer more security to those carefully considering their next career move.
Has ESG hiring really slowed down?
The answer to this requires some nuance and due context. Such a heavy-handed question would be somewhat crude, perhaps a better phrasing would be this; has ESG hiring become more considered? The answer would be a resounding yes, and this considered hiring pattern is both welcome, and well overdue. ESG means very different things to many different businesses, even those who occupy the same sectors and markets. While some might argue those firms with an established foothold in the industry have fared better, one could equally argue that those firms who watched and waited before launching their strategies, have leaner functions that ultimately achieve the same goals.
There will always be leaders and laggards, but we tend to find peer comparison is the most effective and common measurement. In our client discussions, there is concern that some ESG departments have become cost centers at a time when cutting costs has never been more prevalent, and as a result, strong conviction is essential. As a search firm in this sector, we place both investment and non-investment professionals, the distinction and labelling are becoming more important in the context of hiring requirements.
Investment and non-investment positions within ESG
In recent years on LinkedIn, we have seen sustainability professionals proudly showcasing recently attained investment qualifications, and investment professionals showcasing recently attained sustainability qualifications. This has been part of a concerted effort by many businesses to upskill their employees on either side of the fence. Such an effort has yielded positive results for many firms, bringing both those in the business and advising the business onto the same page. Recently, in a discussion with a ‘global head of ESG strategy’ for a well-known active manager, there was a concern that despite upskilling both groups, there still existed a ‘them’ and ‘us’ mentality which often created conflicted relationships. Perhaps this was more evident in conventionally integrated fund environments as opposed to thematic or impact strategies, but their point resonated, and has since been made by numerous clients.
Senior sustainability professionals are constantly up against it trying to demonstrate impact, value, and additionality when it comes to their relationship with the business, it is probably the main frustration that we hear. In many ways, the job has become harder in the face of tougher market conditions, political backlash disseminating from the US and seemingly unending levels of regulation and reporting requirements, not to mention increased pushback from the business. There has been a debate focused on ideologues and operators, many platforms will indicate that they have the experience but often do not differentiate between the policy, disclosure, and engagement side versus fundamental portfolio analysis.
Compensation patterns in an increasingly benchmarked sector
When it comes to the delicate topic of compensation, as a search firm supporting a booming sector like sustainable investment, often there can be a fine line to tread managing expectations between clients and candidates. Ultimately, we would always advise a firm to future-proof themselves against ESG-related wage price inflation, ensuring stronger retention rates within their heavily staffed functions. There has been a high amount of talent movement over the past five years, and many functions are still bedding-in new hires among teams that have experienced significant upheaval. It would be ignorant to say part of this was not due to incredibly attractive compensation across the market.
Many ESG positions and skillsets have now found their price point base, and indeed their ceiling, with upward variance often coming from firms who were a little late to the party and now struggling to attract the right candidates. These are more the exception than the rule. With broader compensation equivalence to be found amongst peers, candidates are challenged to identify other motivations to move, and this often comes down to a firm’s commitment to ESG, and the sense of purpose and impact that comes with it. Increasingly, now that the bidding wars for talent have slowed, candidates are pickier when it comes to joining new firms. It must also be noted that the glory days of outsized remuneration packages we have seen over the last five years are largely at an end. There will always be exceptions, but ESG team leaders are more frequently having to justify mounting fixed costs to the business.
A mixed picture ahead for ESG hiring in 2024
If recent news about JPMAM and State Street is anything to go by, we can expect some asset managers to shout less from the rooftops about their sustainable investment efforts and sit a little more under the radar while market mechanisms work their way through the various geopolitical shifts taking place. In some cases, it seems that a sustainable investing function can be almost ‘too fit for purpose’ with a certain towing of the business line required to avoid ruffling feathers. In saying that, we do not expect hiring within sustainable investment to slow down due to these factors, but for hiring to take place through more of a commercial and value-based lens, ultimately this should create more alignment across the business.
In the numerous discussions we have at this time of year with clients and candidates alike, there seems to be a commonality, options are being considered. For clients, it is often how best to go about hiring in the current climate; are the popular sustainability hires of old from NGOs, investor networks and research institutes being replaced in favour of more financially literate and investment savvy professionals with a more quantitative mindset? And for candidates, are the major institutional and private investors that talked a great game but couldn’t provide the platform for more progressive purpose-led sustainability professionals going to seek out firms with stronger commitments to creating positive changes through their investments? Time will tell.
Tom Strelczak is director and founder of TWS Search Partners
