Sustainable investing boom prompts fierce fight for talent

Competition to secure experts in sustainable investing has led to a battle for talent that is driving bidding contests by fund managers and pushing salaries up by half for top hires.

Head hunters and executives say competition is so intense that people are fielding multiple job offers, on top of concerted efforts by current employers to retain them.

“We have a big ESG team and we haven’t lost too many of them, but I think they are the stars of the asset management world right now. Once upon a time, it was the star equity manager; now it’s the star ESG professional,” said Mark Versey, chief executive of Aviva Investors.

Efforts to align investments with climate goals and social good have been building for a decade, but have taken off in the past few years. According to data from Morningstar, assets in sustainable funds grew 53 per cent year-on-year to $2.74tn in 2021.

Demand for people to manage these investments has exploded as a result, but the pool of qualified candidates is small. In a CFA Institute analysis of 10,000 investment jobs advertised on LinkedIn, 6 per cent required sustainability skills, yet less than 1 per cent of the 1m investment professional profiles included in the study listed these skills on their profiles.

In response, fund managers are not only poaching staff from rivals, they are also taking the unusual step of hiring from outside the industry as they struggle to fill vacancies.

Consultancies, data providers like MSCI and the Big Four professional service firms are all being tapped by recruiters. Others are raiding energy, technology and venture capital businesses or simply buying up teams wholesale.

Head hunters have also begun looking even further afield in government departments, engineering consultancies, NGOs and multilateral development banks.

“I’ve never seen it so intense, and it has been like this for the past 18 months. ESG used to be a small part of what we do; since September, it’s taken up a huge amount of our time,” said Rachael Ferguson, managing director at headhunter Leverton Search.

Ju-Hon Kwek, a senior partner at McKinsey who leads its North American Asset Management Practice, said that the search for skilled senior ESG staff in asset management has become “an intense game of musical chairs in reverse, where more chairs are being added in each round”.

“As more managers decide to move sustainability and impact investing to the core of what they do for clients, you could see a world where this gets more intense across multiple fronts,” he added.

Examples of job moves abound. Among 50 teams tracked by Frost Consulting that have moved to new companies in the past 3 years, more than 40 per cent have been ESG professionals. “When you consider that ESG staff represent maybe 10-15 per cent of total investment staff, you can draw your own conclusions,” said Neil Scarth, principal at the firm.

Anne Simpson, the former head of corporate governance at Calper’s, the largest public pension scheme in the US, moved to asset manager Franklin Resources in January. Two senior ESG managers left HSBC Asset Management to lead departments at UK fund managers Jupiter and GAM in the past year. Another left to lead ESG indexing at MSCI in September. Earlier this month, JPMorgan Asset Management announced two senior ESG hires from other firms.

Other asset managers have opted to buy in talent and the infrastructure to support it wholesale. US-based Affiliated Managers Group bought a majority stake in privately held Parnassus Investments, a boutique ESG investor with $49bn under management, for $600mn in October, bringing AMG’s dedicated ESG investments to $80bn.

Companies have also begun hiring in-house ESG regulatory and compliance specialists as the industry grows.

“ESG disclosure requirements have grown exponentially, and many firms are struggling to keep up with the volume of data requests from their clients in addition to mandatory reporting requirements,” said Lucia Ruck Keene, headhunter at Blackwood Group.

As a consequence, pay gaps between ESG staff and other investment roles are closing fast. “[Hiring] used to be cheaper because sustainability was popular and everyone wanted to do it,” Ferguson said.

Candidates are often fielding multiple offers that can be significantly above their current salary. Ruck Keene said that for recruiters: “It’s quite difficult to get people over the line. Nobody wants to lose their ESG specialist. We’re seeing compensation increases of 30 to 50 per cent.”

Part of the problem is finding staff with experience. Younger people are flocking to the industry — a phenomenon recruiters say should ease the squeeze in the coming years — but “the hardest people to find are those who have the subject matter expertise and the financial literacy to work at an asset manager”, said Paul Bodnar, BlackRock’s global head of sustainable investing.

Education is another key factor. Though the CFA Institute started offering a certificate in ESG investing last year, few business schools currently have programmes that offer both financial and sustainability training to the same level. It’s still “pretty church and state”, said Robert Eccles, an expert on sustainability reporting and strategies at the University of Oxford. “Finance people think it’s all BS, sustainability people don’t know finance.”

In addition to the extra staff costs, ESG investment strategies are expensive to run, at a time when margins across the industry are already under pressure. But the scale of interest and inflows makes it feel like an imperative for most fund managers.

“It wasn’t so long ago that ESG was considered philanthropy and a way to lose money [but] now the Rubicon has been crossed,” Eccles said.