Jordan Locke, a recruitment consultant in Acre's Global Sustainable Finance & Impact Investing Team, sat down with Business Insider alongside a group of industry experts to discuss the current ESG talent shortage, ‘greenwashing’ and the rapid pace of change.
You can find the article below, or at the original source on Business Insider’s website.
Written by Rebecca Ungarino | January 26th, 2022
More money than ever is chasing environmentally and socially sound companies. But the sustainable investing boom has not been without growing pains.
The notion that institutional and small investors can back companies that are socially responsible — or ensuring their bottom lines are safe from climate change — has been a boon for Wall Street and Silicon Valley. Investors are seeking out companies that they can feel good about backing, and employers see a strong environmental, social, and governance (ESG) awareness as part of a friendly public image.
That has led to a flourishing industry. Asset managers are launching funds labeled as sustainable; firms are creating new roles to oversee sustainable investments; and a new crop of sustainability-minded startups are drawing large funding rounds. Last year from January through November, assets in sustainable stock funds rose 45% to some $1.3 trillion, a record, according to RBC Capital Markets.
Despite the industry's warm and fuzzy aura, it is not without warts.
The vast sums of money that big investors stand to make from products marked as sustainable has led to a new kind of culture clash, with industry insiders battling critics over the very efficacy of sustainable investing and what standards companies should be held to by lawmakers and regulators.
Experts are meanwhile eagerly watching for a decision that may spur even more money into these products in the US. The Department of Labor is expected to offer clarity early this year over a rule proposed last fall that would more easily allow ESG funds into employer-sponsored retirement plans. The Securities and Exchange Commission is also considering implementing new rules this year over the way companies make climate-related disclosures.
For insight into the realities of working in an industry that is growing quickly but still evolving, Insider spoke with five professionals working in sustainable investing and ESG broadly about their roles.
For the most part, they feel drawn to working in roles that have a do-good element to it. Their expertise is in higher demand today than it has ever been. But the reality is, they say, there are intrinsic problems about sustainability that they see day-to-day.
Greenwashing — the act of making empty claims or over-promising about the benefits and characteristics of sustainability plans or investments — is a significant problem. And the very lack of standard ESG terminology is another issue the industry is working to address. One person noted the highly competitive market for finding and keeping ESG-focused talent, and one expressed frustration with not always being taken seriously by the traditional world of finance.
Some experts, whose identities are known to Insider, requested anonymity to discuss their jobs freely. These interview excerpts have been edited and condensed for clarity.
'You have to take things with a grain of salt'
Kuni Chen, head of ESG integration at Seeds Investor, a fintech startup that provides software to financial advisors aiming to invest for clients based on their values:
"At the end of the day, companies will — whether it's financial results or ESG metrics — report the stuff that paints them in the best possible light. You have to take things with a grain of salt, and just try to build a full picture of what the company is up to."
"Particularly with the small- and mid-cap companies, there's less available data. You have to rely more on the company-reported ESG metrics. That might put you more at risk of greenwash with some of these smaller companies."
"Given my analyst background, you learn to be skeptical of everything that you see out there. Greenwashing kind of falls into that same skepticism. A company will be telling you about how great and sustainable their business is. And somewhere in the back of your head, you'll say, 'That doesn't make sense to me.'"
"Another challenge that I face every day when we're making investment decisions in real time is valuation. The market, at this point, can discern good-quality ESG companies. Those companies, particularly ones in the renewable energy sector, tend to trade at higher multiples. You may want to own them from a sustainability standpoint and from a company fundamental standpoint, but the value investor side of you is saying, 'This is too expensive.'"
'Rapid pace of change'
Jordan Locke, a sustainable finance consultant at Acre, an executive search, recruitment, and consulting firm specializing in sustainability:
"This is probably tied more closely to the challenge of this build-out of ESG and this movement of sustainable finance, but particularly in the US, this is the most competitive market for candidates I've ever encountered in my time of recruitment.
I'm often working with candidates who are interviewing with upwards of three to four other opportunities at the same time they're interviewing with mine. It's just crazy how much opportunity is out there and how small the pool is when it comes to tenured candidates in this space."
"There's this huge amount of hype and this rapid pace of change, all these institutional asset managers are kind of setting the pace when it comes to hiring of sustainable- and ESG-related talent. The big challenge right now is this sort of intrinsic risk where there's a lack of data and good taxonomy around data in this space."
Greenwashing 'is a discussion we have all the time'
Consultant for companies seeking guidance on sustainability:
"One of the common themes we see is: We're working with a supplier. He doesn't see a reason to disclose this information or put in resources or dedicate budget toward reporting this information. But now larger companies — and those are oftentimes their customers — are asking for it."
"So small suppliers supplying the larger entity — now that the larger entity is looking for that information — it becomes a bit of an incentive for those smaller organizations to do so. They want to be a preferred supplier. Or they want to be a credible supplier and increase their business with that organization."
"For those hidden companies you never hear about, the one that supplies rolls of aluminum to another bigger supplier, to Apple or something like that — you don't really hear about those guys. They don't have the PR pressure to sort of make these changes. They've gotten no regulatory pressure to make those changes, and there's no financial incentive for them to do so. So why should they do it? It comes down to the economics of it, in the end."
"[Greenwashing] is a discussion we have all the time. It's one of those things where we're with a client working on the project, coming up with some 10-year plan for the company. In the back of our minds, we're always thinking about how to make sure that this isn't just greenwashing.
So we look at the company, what they want to do, and make sure the strategy we're proposing is actually something that's something they can implement. It's a discussion we have pretty frequently, and we do see a lot of it."
'The whole point is that the alpha is there'
Yana Kakar, veteran sustainability executive and CEO of Growth for Good Acquisition Corp., a special-purpose acquisition company currently looking for an environmentally sustainable target:
"Sustainable investing is about finding the winners amongst the companies that are going to be most needed as the global economy transitions to net-zero.
And so I was drawn to it because it's a way for me personally to align that which I care most about — which is doing something to accelerate our progress on combating the climate crisis — but doing something that aligns with my skill set."
"One of the things that sustainable investing and sustainable investors have a chance to escape, for lack of a better word, is some of the concerns with ESG investing.
I'll say, it's fairly or unfairly, but ESG investors are sometimes seen as the suckers at the table. They are teased either because: a. they don't see the greenwashing, and others are saying, 'Oh, this is greenwashing, you're just being silly,' or b. not seeking alpha because they're too concerned with sticking with a 'good company'. Or dumping 'bad companies',
The whole point is that the alpha is there. You seek alpha because our global economy is shifting such that the companies that are going to have the top performance will be those in the next three, five, 10 years that are bringing the low-carbon solutions."
'They don't want to have a negative ESG story'
Strategist who works with investors seeking advice on ESG metrics, as well as companies seeking guidance on ESG disclosures and strategy:
"We do a lot of investor relations work. Our approach is really guided by investor feedback, because they are driving a lot of the demand for ESG integration in credit analysis. It's really trying to understand: What are the holes in the market, and how could fill that and really step in and help with better disclosure from issuers?"
"We really do see ourselves as a conduit for more data and better ESG data, because that is obviously a key challenge. It's something that we hear from issuers all the time. They're struggling with the incomplete data that they have, or some issuers just not disclosing. With issuers, for us, it's really walking through with them why it is so important to investors and helping them understand the importance of disclosure."
"A lot of issuers are also trying to get ahead of disclosure and really trying to figure out what metrics are the most important and really get out ahead of that. They don't want to have a negative ESG story. They're able to control more of the ESG information that is getting out to the public, and they're disclosing more proactively."