Business Schools Respond to a Flood of Interest in E.S.G.

15 November 2021 by Jenny Gross
blog author

Helen Pradas-Page, Head of ESG and Responsible Investment at Acre, sat down with the New York Times to discuss the demand for expertise in ESG, climate and social impact in the banking and investment sector, and the response from US business schools.  

You can find the article below, or at the original source on the New York Times website.

Article written by Jenny Gross | NOVEMBER 13th 2021

As the number of jobs focused on environmental, social and governance issues grows, M.B.A. programs are updating their courses to meet demand from students and recruiters.

A decade ago, the hottest M.B.A. courses typically covered topics such as game theory, valuing securities and negotiating mergers. Today, some of the most popular classes are about climate finance, impact investing and social entrepreneurship.

The University of Pennsylvania Wharton School of Business now offers more than 50 undergraduate and graduate courses related to social impact. The Duke University Fuqua School of Business recently added a course to its core curriculum called “Business and Common Purpose.” At Harvard Business School, 600 students took second-year elective courses related to social enterprise last year, compared with 251 in 2012.

​“There’s been an explosion of interest from students,” said Todd Cort, a lecturer on sustainability at the Yale School of Management and the co-director of the school’s environment and business center.

This interest reflects an increase in jobs that require knowledge in environmental, social and governance, or E.S.G., topics.

Global sustainable investment topped $30 trillion in 2019 — up 68 percent since 2014, according to McKinsey. That has created more jobs in the field, which has pushed salaries higher for workers with the necessary skills. In addition, companies say they’re having an easier time recruiting junior employees than senior leaders in E.S.G. roles, which could give younger workers an advantage in climbing the corporate ladder (or allow them to start at a higher rung) than for the typical jobs for M.B.A. graduates.

Demand for workers who understand E.S.G. will likely continue to grow, said Bethany Patten, the senior associate director of the sustainability center at M.I.T. Sloan School of Management. In particular, she said, businesses will need to hire people to finance renewable energy projects and to disclose the risks they face from climate change, while investment firms will need analysts to evaluate exposure to climate change and make recommendations on sustainable investments.

The reshaping of business school curriculums also means that students whose job titles never explicitly include E.S.G. will enter the work force equipped with knowledge about topics like sustainability and equality. And that could ultimately have a significant impact on how businesses are run.

Social impact skills wanted

Companies and recruiters say that filling roles in the expanding E.S.G. sector isn’t always easy, despite the high interest among business school graduates.

Helen Pradas-Page, the head of the banking and investment sector at Acre, a sustainability recruitment firm with offices in the United States and Europe, said that about 70 percent of the sustainable finance roles her firm filled over the last three years were newly created roles. She added that recruiting for mid- and senior-level positions was more challenging.

That’s because the pool of people who have worked in sustainable finance for more than 10 years is relatively small, she said. “It didn’t exist in the form that it does today.”

PwC has found a similar challenge in its recruiting. The company said in June that it would create 100,000 new positions over the next five years, many of which are focused on climate change risks and sustainability.

“There are not enough people today that know about E.S.G. challenges to meet the demand that exists,” Richard Oldfield, PwC’s global markets leader, said.

While it is becoming more common for M.B.A. graduates to pursue social impact jobs, it is still an unconventional path. At Wharton, just 1.8 percent of students accepted jobs in social impact, compared with 61 percent of students who went into financial services or consulting. (That figure does not include students who took sustainability-focused roles at big companies where the primary focus is not social impact.) At Stanford, the percentage of business school graduates either taking jobs related to social impact or starting their own businesses in the field was 19 percent last year, an increase from eight percent four years ago, according to the school’s career center.​

Some students have been deterred from applying for sustainability jobs because salaries tend to be lower than those in consulting, where the median starting salary of Wharton graduates, not including bonuses, is $165,000 a year, according to Wharton’s career report. Many students graduate from business school — where tuition alone can cost more than $150,000 for two years — with high levels of debt and are eager to pay it off quickly.

“There’s this tension for any student who wants to pursue sustainability, which is, ‘I have massive debt, but I also want to do good,’” Ms. Patten said. But jobs at banks and investment firms that require skills in both finance and sustainability are increasingly offering salaries in line with traditional finance jobs, or not that much lower, she said.

And the size of the paycheck may not be as big a factor as it once was. A Yale School of Management study, which has not yet been published, of more than 2,000 students across 29 business schools, found that 51 percent of students said they would accept a lower salary to work for an environmentally responsible company. That rose from 44 percent from five years ago, according to the study, written by Dr. Cort and others.

Beyond E.S.G. jobs

Regardless of the proportion of M.B.A. graduates who end up in social impact fields, rising interest could help E.S.G. considerations become a bigger part of business.

Over the past two years, Yale’s Dr. Cort said, professors have begun incorporating sustainability lessons into the required core courses like microeconomics, accounting and corporate finance.

That’s important to students like Neha Dalal, who graduated from Stanford’s Graduate School of Business in June. Ms. Dalal said she chose to pursue an M.B.A. because she wanted to learn how to use financial tools to solve social problems. At Stanford, she was an officer of the impact investing club, where students invested in early stage for-profit companies that aim to bring financial returns alongside social and environmental ones. The club was so popular that a third of students in the business school’s class of 2022 applied to join last year, she said.​

Ms. Dalal, who works in philanthropy at an investment management firm, said business schools have a key role to play in teaching students about sustainability and ways to improve diversity, equity and inclusion, known as D.E.I.

She said that if students learn how to hire in ways that minimize bias and learn to invest in ways that consider environmental and social impact, they will continue to do so throughout their careers.

Business schools aren’t alone in making this shift. PwC is training large numbers of its staff — including auditors, management consultants and tax advisers — to be well versed in the challenges that climate change will pose to clients in the coming years. That includes how climate risks affect deal valuations, how companies can reduce carbon emissions and how companies can put reporting systems in place to comply with new regulations.

“Everybody in our organization has got to get to a base level of understanding of what the challenges are,” Mr. Oldfield said.

Costis Maglaras, the dean of Columbia Business School, said the new focus on social impact makes sense considering that climate change will affect every part of the way businesses operate over the coming years.

“Over the last two decades if you ask yourself, ‘What is the thing that really transformed businesses?’ It’s been technology, data, analytics,” Dr. Maglaras said. “If you were to ask what will transform businesses in the future, I believe it’s going to be climate change.”