What is the ideal ESG job?

It is an interesting question because the integration of Environmental, Social and Governance (ESG) into the capital markets has resulted in a number of new and different ESG positions. I see five archetypal ESG positions:

• Smokejumper
• Face
• Policy and governance
• Sustainability all-rounder
• Thematic expert

Smoke jumper

The first position is the what I term ‘smoke jumper’ after the firefighters who jump out of planes into forest fires. The ESG person, usually just one person, is used by multiple investment teams in times of ESG crisis. A ESG crisis is a high impact event with material impacts on stock prices such a major sexual harassment scandal, regulatory cheating, environmental disaster, national protest or product recall. The investment team may have considered the event to be highly unlikely or too difficult to integrate into their existing investment process.

Source

The ESG person is called into a meeting with the investment team and asked about the event while news is still breaking and the stock of the company in question is down on the day. The questions range from ‘how could we have known about this beforehand?’ to ‘why would investors view this incident as negative for the stock price? and ‘how should management respond?’ The ESG person may have some knowledge of the issue at a broad level but would have only spent the time between the first news article and the current meeting researching the issue for this company. They will talk about the usual likely impacts on reputation and brand as well as some previous case studies.

The ESG person or another analyst will then analyze the impacts of similar events on another companies. The data will provide an average total decline in stock price for the event and the likely time taken for the stock to regain its pre-event price. The ESG person will also be asked about metrics which could have provided indications of the risk of the event to the company in advance. Using ESG data, the ESG person might find a small set of metrics and be tasked with analyzing the rest of investment team’s holdings.

Face

The face role is the ESG person who attends the array of conferences, panels, symposiums and industry meetings around ESG. This person has a title like ‘Head of ESG’ so that their appearance on these gatherings can be advertised as part of the marketing. The person will speak about the investment company’s ESG journey and how important ESG is to the company’s management.

The type of person in this role can vary from experienced financial professionals looking for a change of pace to former leaders of NGOs. The role is to market and bolster the ESG credentials of the firm at these gatherings. The person may attend more than three ESG events per week and be a mainstay at the major ESG investment conferences in key ESG investment cities such as San Francisco and London.

Policy and governance

The main activity of the policy and governance person is to handle the voting of shares in shareholder resolutions. The person may also create marketing documents on how the firm votes its shares and be involved in crafting resolutions with particular shareholder advocacy groups.

However, if the company holds a substantial number of positions in different companies, this person may have to recommend how the firm should vote on shareholder resolutions in many companies across multiple stock exchanges in potentially multiple languages. For example, the global equity investor, BlackRock, holds positions in more than 6,000 companies across the globe and, up to a few years ago, had less than 10 people dedicated to share voting. Another complication can be that multiple investment teams within a firm hold shares in the same company and have different views on a particular shareholder resolution.

The policy and governance person is a niche role and the person does not generally need investment credentials or even education that is common in investment like finance or economics.

Sustainability all-rounder

The sustainability all-rounder is a higher level role for a person with high stature in the sustainability community. The firm that employees a sustainability all-rounder is usually an investment firm with a history of active engagement with their investment companies. The primary role of the sustainability all-rounder is to engage with companies owned by the firm about broad sustainability issues, such as climate change and diversity, and push them to undertake actions such releasing annual sustainability reports and providing ESG data to key ESG data providers. The sustainability all-rounder pushes the company’s management to be better sustainability citizens on the basis that it will be positive for the company.

For the firm, it can report that it has a high profile sustainability person on staff to relevant investors and that its companies are undertaking the appropriate sustainability actions. There may also be an implicit agreement that if the company undertakes the sustainability all-rounder’s suggested actions, the sustainability all-rounder will speak on behalf of the company to the sustainability community if an incident occurs.

Thematic expert

The final archetype is the thematic expert although there can be a thematic expert within an investment team and within an ESG team. The thematic expert is a person with a focus on a particular ESG theme such as climate change.

If the person is outside an investment team, it is likely that person undertakes large projects examining the risks and opportunities for that theme to the firm. These projects will be presented to the investment committee or board of directors to keep them informed of the firm’s exposure to the issue. There may also be specific questions developed for the investment teams to ask company management.

If the person is within an investment team, then the investment team is likely to invest along a particular theme. For instance, a resource efficiency theme may have a thesis that resources will have to be used more efficiently over time as a result of responding to climate change. So the investment team will have a person who specializes in climate regulation and climate-related technologies.

The key element of this position is that it is issue or theme specific. The difference between being in an investment team and outside is whether the person has a role in the final investment decision.

Ideal ESG position

There is no ideal position for every person in the ESG space but I have some thoughts for a person considering ESG:

• There are two valuable commodities in the investment world: ideas and relationships.
• In the long term, an investment firm’s success is its returns so its a good idea to have a positive impact on those returns whatever the position.
• There is still uncertainty about ESG integration into investing having a material positive effect on addressing society’s great challenges so if you are looking for a job that guarantees an effect, an ESG role may not be suitable for you.