Finance careers can be lucrative and open up a wide range of professional opportunities. However, it is also important to realize that specific sectors such as investments are affected by much more than fiscal trends and longitudinal share performance alone.
The modern financial community is now placing greater emphasis on other factors in order to identify and capitalize upon opportunities. This often comes in the form of ESG investing.
Let’s take a closer look at why is ESG important, before examining the associated benefits and career options of working in ESG in finance.
What is ESG investing?
ESG is an acronym that means including environmental, social and governance factors when evaluating companies and countries on sustainability practices.
The concept of ESG takes into account a variety of non-financial factors when making an investment-based decision. In this respect, the ESG investment framework is associated with a handful of important benefits such as:
- To better appreciate the impact of companies on the environment.
- To adopt more sustainable business practices.
- To ensure a stable financial future.
- To embrace a greater sense of transparency.
ESG investing approach takes a broader range of factors into account – such as the impact on people and the planet – when making important investment decisions.
This means that in addition to short to medium-term financial performance, many other variables are involved when analyzing the operation of a company, and therefore its investment potential, from an ESG perspective.
In fact, McKinsey points out that getting a company’s ESG proposition right creates value and delivers higher financial return, a win-win scenario for everyone.
Environmental factors in ESG investing
Environmental oversight can include variables such as the carbon footprint of an organization, its past track record in conservation, how it recycles waste materials, and what types of green approaches it employs. These are important, as they can all determine how much risk the company may be exposed to (e.g. if it has incurred fines in the past).
As climate change is fast becoming one of the biggest concerns globally, an organization’s attitude towards helping to address this is an important aspect to assess how investors, customers and other stakeholders will perceive the business in the future.
Policies relating to everything from reducing air and water pollution and minimizing deforestation, to the use of renewable energy sources can affect the choice of both individuals and institutions to invest.
Social factors in ESG investing
Social variables are associated with past and present business relationships:
- Does the company partner with firms that hold its same values?
- Are a certain portion of its profits allocated towards charitable causes?
- Are employees satisfied and are their needs being cared for?
- Does the firm display a high turnover rate?
- Does the organization operate fair and legal data protection and privacy policies?
Company culture is critical when determining an investment opportunity, as it can often predict stability and therefore, the ability to enjoy predictable growth over time.
Particularly in the current climate, how an organization treats its staff can have a significant impact on its ability to attract the best talent, as well how it is perceived by the public. This includes identifying and tackling human rights issues at all stages of the supply chain, including both domestic workers as well as those who may be indirectly involved in producing a company’s products abroad.
Governance factors in ESG investing
Governance revolves around corporate transparency, comprehensive audits and similarly sound accounting principles. For example:
- Are stockholders kept “in the loop” and are they permitted to vote on important issues?
- Who makes up the board of the organization and what other interests do they have?
- Is the level of compensation for leadership attractive yet fair?
- Have fines been incurred in the past due to less-than-positive internal audits?
Answering these questions can help to ensure that no conflicts of interest arise and it will likewise ensure that no illegal practices are taking place.
Governance is particularly relevant in light of stringent GDPR regulations that are now in place throughout the European Economic Area (EEA). Lobbying and political contributions should also be considered. These can ultimately impact not only the environment in which the organisation operates, but the way in which the company is perceived due to links to governments and the positive or negative actions that they may take.
Why is ESG important in finance?
Companies and the investment community are most affected by ESG practices in finance.
Investors are increasingly factoring in ESG criteria in their investment preferences. Not only it potentially delivers higher and more stable returns, investors also appreciate the fact that transparent ESG strategies will help to mitigate many of the risks that might otherwise be present. Simply stated, this equates to an attractive investment opportunity.
Consumers are now well aware of how their choices can play a role in climate change. Therefore, they are likely to become increasingly discriminating in terms of which firms they choose to do business with.
Changing investor demographics plays a role, too. In the past, consumers and investors were primarily concerned with issues such as quality products and profit margins. This tendency has been changing over the past few years. For instance, did you know that 49% of all millennial millionaires will now base their investment decisions upon social factors? As millennials now represent the target audience of countless firms, it pays to remain one step ahead of the curve.
There are also legal ramifications of ESG investing. For example, with changing European regulations (e.g. the recent GDPR guidelines), companies need to be more transparent about their operations than ever before. ESG frameworks will help to support green initiatives and to meet carbon reduction goals in the near future; both very real benefits in terms of the companies themselves.
Firms in banking and finance are also responding to this investor demand and increasing regulatory pressure with ESG-focused investment products and company screening criteria. This in turn also puts companies’ ESG practices into the spotlight during analyst calls, which further incentivises companies to do better in their green initiatives.
A real world example of ESG investing
Perhaps an example may help cement the points highlighted above.
In this case, we will briefly examine the American investment firm Trillium Asset Management. This brokerage is primarily interested in organizations associated with stable long-term performance. Thus, their team of ESG analysts has developed specific criteria when examining a potential opportunity. Primary “red flags” include:
- Firms that have a poor environmental record.
- Those involved within high-risk industries such as coal, tobacco and firearms.
- Companies associated with recent controversies.
In the same respect, a handful of positive attributes may include:
- Firms which regularly publish sustainability reports.
- Companies that have adopted ethical supply chains.
- Organizations that place a strong priority upon transparency and corporate responsibility.
Not only can these metrics be used to identify a stable investment opportunity, it’s also likely that it brings better financial returns.
For example, the firm’s ESG Global Equity Fund has achieved around a 13% return over 10 years (as of 2021) – exceeding the benchmark global equity index MSCI ACWI at 11.85% return over the same period – whilst allowing investors to avoid industries like fossil fuels and focus on firms that are approved following detailed ESG analysis.
Simply stated, embracing ESG principles by obtaining a certification can result in a win-win scenario.
Now that we have taken a broad look at ESG investing, let’s dig a bit deeper into some notable industry trends, as well as considering why embracing ESG investing could very well represent the wave of the financial future.
Growth & trends in ESG investing
The financial world can be fickle and at times, the entire landscape is often forced to evolve. One excellent example of this observation can be seen in the role that big data now plays when making informed decisions.
A key role of all types of ESG investing is to develop a more “well-rounded” approach that will enable companies and stakeholders to make informed choices at the appropriate times.
To put the importance of ESG into perspective, recent studies have found that over $120 billion dollars was allocated into sustainable investments in 2021 alone. In other words, the demand for ESG investing is certainly on the rise.
Because of this, businesses are increasingly keen to leverage the talents of those who have acquired the necessary level of knowledge in ESG investing, and a good ESG analyst is able to provide a host of benefits to an individual or an organization.
As ESG investing strategies are related not just to the financial performance of a company, but to the wider world as well, it’s important for those working in this sector to be aware of trends that may influence ESG aspects of a particular investment opportunity.
An emphasis upon social risks and rewards
One undeniable trend comes in the form of how socially-based strategies will come into play when making financial decisions. Many will argue that this is primarily the result of the recent COVID pandemic and the systemic weaknesses (such as exposure to volatile markets) that were highlighted during such an unpredictable economic outlook.
What do we mean by social investing in this sense? We are mainly referring to variables such as environmental sustainability, inclusion within the workplace, providing comprehensive employee wellness plans, and placing a greater focus on health and safety.
Although these subjects might seem quite different at first glance, we need to remember that they will all impact the “bottom line” of an organization and therefore, its profit margins. Companies which invest in these concepts are more likely to enjoy long-term success.
A growing interest in the circular economy
A circular economy is based around the notion of fiscal and environmental sustainability. Some core concepts include:
How do these factors fit into an ESG philosophy? They allow companies to reduce their impacts upon the environment while saving a significant amount of money by adopting more efficient practices.
As the public (and investors) tend to look favourably upon such actions, this can represent a powerful way to attract interest in specific products and services. ESG analysts will also identify any opportunities which display such characteristics in the form of attractive investments.
A greater focus upon carbon-neutral operations
To be clear, very few firms will actually possess the resources or the capital to suddenly become carbon-neutral entities overnight. The main point here is that stakeholders will still endeavour to lower their overall carbon footprint, and implement strategies to help them along this path.
Carbon offsetting is well on the way to becoming mainstream, helping to lower greenhouse gas emissions from a short- to medium-term point of view. Facilities management, logistics, supply chain and product development are all areas where firms can make changes to help them become carbon neutral.
An ESG analyst will therefore look into the ways this approach can be adopted without breaking the bank. These strategies can then be used to attract new investors while keeping present stakeholders within the loop.
Methods can be as simple as switching to renewable energy to power an office, as innovative as using recycled waste materials in manufacturing, or as direct as planting a tree every time an investor purchases shares in a company.
Which finance careers can benefit from ESG qualifications?
The importance of ESG, and potential for growth in this sector should now be quite apparent. So, what are some of the jobs and careers that can benefit from such an approach?
Similarly to career paths for CFA charterholders, becoming qualified in ESG investing via certification can lead to more opportunities in a number of finance careers, as well as being a key differentiator to those already working in financial roles.
The clearest beneficiaries of ESG certifications are investment practitioners and/or wealth management specialists, since they are directly involved in investment selection and financial advisory.
That said, there is actually a wide range of ESG jobs and related positions, in which finance professionals can leverage an ESG qualification to their advantage.
Here are some examples of finance careers that would benefit from an ESG qualification to complement existing knowledge bases, or provide the opportunity for a career change.
When considering what ESG analysts do, there are opportunities to either specialize in this field, or to use existing skills for roles within a wider range of financial career options.
Either way, the ability to display a valid ESG certificate can open up a world of possibilities. From research roles in top banks and investment firms, to being employed by organizations such as the United Nations and the International Monetary Fund, ESG analysts are expected to be in demand with lots of career options in the future.
Accountancy and consulting firms need to emphasize their commitment to sustainable finance guidelines and expertise. They might otherwise risk losing clients to the competition, or miss out on potentially lucrative opportunities.
A financial consultant with ESG expertise will be able to provide targeted advice whilst covering the quantitative aspects, ensuring that the firm is adopting a more sustainable strategy, setting climate targets and metrics as well as meeting regulatory disclosure requirements.
Green bond specialist
To transition towards clean energy, investment banks are helping organizations and governments globally to raise financing for projects with positive environmental impacts.
With green bond issuance growing exponentially and exceeding $500m in 2021 alone, debt capital markets investment bankers with ESG expertise are set to be in high demand.
With increasing demand for sustainable portfolios, portfolio managers with ESG investing skills can further differentiate themselves by integrating ESG factors into their investment screening criteria and look to encourage companies to utilize more socially responsible practices in their operations.
Siilar to portfolio managers, financial advisors are increasingly required to meet retail and high net worth individuals’ demand to incorporate impact investing principles in portfolio construction.
A good understanding of sustainable investing principles would help financial advisors build a stronger client relationship and meet this increasing demand for ESG portfolio construction.
With more unpredictable and severe weather events arising from climate change, insurers need updated pricing models to incorporate ESG factors in their risk transfer contracts to address the growing protection gap arising from these new events.
Pension fund trustees
Pension funds are increasingly required to report on their ESG investing approach and their exposure to risks involved with climate change. This itself encourages trustees and their investment team to scrutinize their investment choices more closely, with additional reporting and progress tracking requirements to meet sustainability targets.
Risk managers in finance companies need to update their risk management practices to incorporate risks that arise from ESG practices, e.g. climate change risks.
This broadly entails identifying what specific ESG risks they may be exposed to based on their activities, business models and strategies. Then look for ways to embed ESG into their risk frameworks, reporting, internal controls, disclosure and governance practices across the firm.
Risk management professionals equipped with a good base of ESG knowledge are well positioned to take up this opportunity for increased responsibility.
Data science and analytics
Getting high quality, accurate data on various non-financial factors is one aspect of integrating ESG into investment analysis.
From weather experts to social scientists, ESG-conscious quants are sought to develop new models that assess profitability and risk. They also need to work with huge ESG datasets for research, analysis and reporting.
Those with a strong data science and analytics background interested in exploring a meaningful career in ESG would benefit from an ESG accreditation.
The reporting of ESG activities is a growth area for consulting and public accounting firms, given the trillions of dollars invested in funds that apply ESG standards.
Given their role in financial reporting, accountants are increasingly involved in developing those ESG standards, measuring the data and reporting it.
Hence, accountants equipped with a good base knowledge of sustainable practices would be sought after.
Standards, regulatory and compliance roles
With a new set of rules and standards to set up, regulators and environmental organizations globally need a multi-disciplinary team to help set a new ESG standards as a clear guidance for firms to comply to.
On the flip side, companies around the world need to strengthen their ESG compliance reporting and communications to investors about these metrics.
What ESG qualifications are available?
For anyone interested in upskilling and adding specific environmental, social and governance knowledge to their resume, there are now a range of professional ESG qualifications that can be obtained.
The good news is that the number of possibilities has been expanding on a regular basis, with both broad ESG qualifications available along with options designed for specific areas of ESG and relevant career paths.
Here’s a quick summary of what we’ve featured so far (and the corresponding beginner’s guide):
|ESG Certification||Exam Administrator||Comments|
|Certificate in ESG Investing||CFA Institute||No pre-requisites to sign up, global recognition with CFA Institute’s international reach. However, no certification title upon passing.|
In-person and online testing available globally.
|Certified ESG Analyst (CESGA)||EFFAS||A diploma level qualification, no pre-requisites to sign up, designed by leading European practitioners. Gets you a ‘Certified ESG Analyst’ or ‘CESGA’ title upon passing.|
In-person and online testing available globally.
|Sustainability and Climate Risk (SCR)||GARP||Targeted at risk management professionals, no pre-requisites to sign up, offered by GARP who also runs FRM exams. However, no certification title upon passing.|
In-person testing only twice a year (April and October).
|Chartered SRI Counselor (CSRIC)||College for Financial Planning||Targeted at financial advisors especially, no pre-requisites to sign up, offered by College for Financial Planning (a Kaplan company) in partnership with US-SIF. Gets you a ‘Chartered SRI Counselor’ or ‘CSRIC’ title upon passing.|
Online exam available globally.
Are ESG courses & qualifications worthwhile?
For existing professionals who are planning a finance career change, achieving an ESG qualification can be a great way to add skills relevant to a growing sector to a resume.
That said, even those professionals who already enjoy stable careers within the financial sector can take advantage of an ESG certification. Here are some of the benefits:
- Candidates with an ESG certification are in high demand.
- Relatively low cost and time to invest to open up career opportunities in a high growth sector.
- It provides greater chances for professional advancement as well as more amenable salary packages.
- Qualifications can lead to more advanced certifications in the future.
To put it simply, ESG certifications further differentiates any finance professional’s resume and increases his/her expertise in a growth sector, for a relatively low cost and effort. It stands to reason that holding a valid ESG qualification can open up a wealth of additional possibilities, as well as improving performance in an existing role.
Are you interested in broadening your career prospects with an ESG certification? What potential ESG careers are you currently interested in? Let us know in the comments below!
Meanwhile, you may find these related articles of interest:
- What Does An ESG Analyst Do & How To Become One
- 2023 Asset Management Outlook: 4 Important Trends That Affect Future Jobs
- CFA ESG Certificate: Our Easy Guide
- EFFAS’ Certified ESG Analyst (CESGA): Our Epic Guide
- GARP SCR Certificate: A Handy Beginner’s Guide
- Chartered SRI Counselor (CSRIC): Our Useful Guide