Major re-wiring of ESG thinking required

Tuesday 31st August 2021 Justin Cleveland

Industry Moves has written at length about the value ESG credentials bring to a business. Now, new research from the Bloomberg Women's Buy-side Network, Alpha with impact: Uncovering ESG talent, impact and journeys, shows that ESG is moving from a nice-to-have to an essential.

The report has identified three areas, Talent, Impact, and Journeys, as major considerations for asset owners and investment managers who are looking to deliver long-term positive impact while providing strong returns. And, with ESG assets on track to top $53 trillion in the next four years, it's no longer a niche area.

Build a talent pipeline.

The competition for talent is fierce; having an established network of experienced ESG professionals will give your organisation an edge. From the report:

"Many firms initially relied on ‘imported talent’ - ESG professionals who were hired from Europe or other developed economies; but the demand is changing. Companies are now looking to invest more in homegrown talent, looking within their home markets or business – driven in part by restrictions in movement and travel from the on-going pandemic."

This might require looking outside your traditional recruiting and networking circles to find talent with ESG experience who are new to investing and finance to help enhance an organisation's ESG thinking.

Think strategically

Of course, strategic thinking is an obvious skill. In ESG terms, however, it is about looking beyond organisational needs. From the report: "There now is awareness that external ecosystem collaboration is going to be critical. People who can influence and lead change across domains and disciplines to co-create solutions internally and with investee companies will be extremely valuable."

Risk management is key

To the chagrin of anyone in marketing who has ever had an epic battle with a risk department, the report finds that risk management is a key requirement for the future. "Firms have a duty to demonstrate both financial and non-financial outcomes underpinned by robust risk management practices. Failure to do this transparently and under robust governance procedures will risk the label of greenwashing."

The benefit comes from a boost to an organisation's brand value by not just claiming to be an ESG or responsible operator but being able to demonstrate it. Philippa Thompson, Head of Bloomberg’s Buy-Side Enterprise Sales, Asia Pacific said, "ESG should be about more than just meeting evolving regulatory and customer needs. BWBN’s executive members feel that sustainable investing needs to be central to how all buyside firms operate and understand their investments in the future."

Structure around disclosure

What exactly qualifies as ESG is a concept in flux, something that is abused by companies that greenwash, or take credit for responsible practices that do no demonstrable good. Experience in disclosure – and structuring an organisation to be transparent – will be valuable.

"The current lack of comparability and fragmentation in ESG rule interpretation is also creating ‘legal uncertainty’ for investment professionals. While these frameworks continue to develop, many buyside firms are already aligning their internal investment programs around core ESG investment principles, devising their own strategic parameters so they can invest transparently and with impact."

As more frameworks are established between public and private entities – including regulators – there will be more disclosure and reporting requirements. Hiring to anticipate and complete these requirements in advance will likely pay dividends.

"Even though a true sustainable mindset requires a major re-wiring of how organizations approach their investments, the transformation is ultimately a necessary and rewarding journey," said Thompson. "Combined with reliable ESG data and robust technology workflows, these strategic ‘North Stars’ identified in the report will help buy-side leaders build a successful sustainable investing operation and deliver alpha with impact."

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