ESG Role Call
ESG has formed a major recruitment trend. And looking at the drivers behind the surge in specialised personnel provides important guidance on how PE houses can approach ESG resourcing.
At its most simplistic level, LPs are demanding more information on ESG matters, and the response has driven the creation of ESG roles. Kate Goodall of recruitment firm Stephenson James, which has recently carried out extensive research in this area says: “Our findings have shown ESG recruitment to be a very important, significant area of the market, which is continuing to develop. A key driver is LP demand. We are seeing a very similar pattern to that of the IR role ten years ago where it was predominantly an investment led role and then as firms grew their number of funds, the need for information grew and the role became more important.”
However, ESG is more than data collection and communication. It concerns the welfare of our environment and society. It escapes the confines of spreadsheets and asks instead for one’s personal values and morals to drive not just portfolio company growth, but a license to operate in the face of climate change, diminishing resources and growing inequality. It is of little surprise, then, that recruiting ESG personnel comes with almost as many facets as the role itself.
As ever, defining the ESG role is dependent on a firm’s size and strategy. Larger firms will naturally be able to allocate more resources to this. Smaller firms will likely fall into two buckets; those that have integrated ESG into their investment strategy will also more likely dedicate more resources. For those without a focus on ESG, the responsibility is often split between existing functions.
An important task for today’s ESG practitioner is responding to ever-growing ESG due diligence questionnaires sent out by LPs. Towards the end of 2015, the UN PRI published its responsible investment DDQ, which asks just 21 questions. However, thanks to diverse agendas, LPs are adding to this template or drafting their own DDQs, and the result has been far deeper probing and much lengthier questionnaires.
In order to deliver comprehensive responses - ones that will support an investor’s decision to commit to a fund - there’s no escaping the now standard requirements: an ESG policy, reporting frameworks, ESG value creation methodology, ESG risk identification, ESG organisational charts, and ESG portfolio monitoring.
Even the lightest touch approach requires a fully integrated strategy. Beyond satisfying the DDQ, ESG practices increasingly encompass fiduciary duties. “From speaking to LPs on this, there’s the obvious requirement for more information and transparency, especially on a governance and portfolio company level. But today, firms need to ensure they’re doing the right thing to protect themselves against evident risks,” says Goodall.
Add to existing
For the majority of PE houses, a dedicated ESG head is a luxury. The reality for many is that ESG matters are assumed by COOs, communications, IR or legal. Says Goodall: “We see IR, investment teams and compliance teams splitting the responsibility given the connection to portfolio companies, LPs, and risk assessments.”
On the flipside, if resources are available for a dedicated ESG practitioner, then looking at how the role has been split across a firm highlights the need for this person to straddle various functions. “From my experience, the ESG person needs to be connected with LPs, the investment team, risk and operations. They need to know what LPs want, they need access to portfolio companies and they need to know the risk strategy. They need to be part of the fabric of the firm,” says Goodall.
Penny Latorre, director at sustainability-focused consultancy Ensphere Group, works with managers at all levels of ESG resources. She sees the ESG role split in various ways: “There’s not a clear trend across the industry. Bigger groups tend to have an inhouse ESG specialist who coordinates each project. But in smaller houses and newer teams the approach is more variable.”
Given the breadth of ESG itself, those operating in this area naturally hail from diverse backgrounds. This is somewhat a double-edged sword for recruiters as it means candidates can be drawn from a multitude of pools; be it investment, legal, communications or a specialist consultant.
A softer requirement seems to be personal attitude. “As this role develops, a key aspect is personal interest. There are people coming into these roles who have been in the private space for a while and because of their values are organically moving into the field,” observes Goodall.
Even for those GPs not looking for dedicated personnel, it would seem individual values and firm culture play a big part in solving the ESG puzzle. Says Latorre: “It is easier to work with ESG aware teams. We’ve worked with firms who are not fully engaged with the agenda and that made it challenging to deliver the best outputs (although most of the time we managed to turn people around!). The ideal scenario is a team that is focused and interested in having a positive impact, then we can really do something meaningful.”
ESG asks investors, creditors, shareholders and the company itself to look at the bigger picture; ecosystems, environments, societies, resources, governments, as well as our own morals and ethics, our sense of what is right and what is just - and then place the business and it’s growth within that sprawling multitude of complexity. That simply cannot be done with one pair of eyes, nor can it be done overnight. For now, ESG practitioners must be the agents of change, who implement new tools and systems. But in time, the genuine adoption of ESG requires all actors to refocus, or rather unfocus the way in which investing and value creation are seen; we must all broaden our horizons.
James Holly, head of ESG. Joined in 2017 from KPMG where he was head of responsible investment and ESG. Previously worked at Deloitte and ERM.
Vanessa Maydon, corporate affairs director. Responsible for comms, marketing and ESG activities, was previously a director at Merlin.
Adam Black, head of ESG & Sustainability. Joined in 2016, was previously principal and head of sustainability at Doughty Hanson. Previous roles at KPMG and ERM.
Noëlla de Bermingham, CSR manager Joined in 2014, previously head of sustainable development project with the Accor Group’s sustainable development department.
Therése Lennehag, head of sustainability. Joined EQT in 2009 and promoted to current role in 2014.
Caroline Löfgren, head of responsible investment. Joined in 2017 and is part of Hg’s client services and operations
IK INVESTMENT PARTNERS
Mikaela Murekian, director communications & ESG. Joined in 2014 and was previously at Kreab Gavin Anderson.
Adinah Shackleton, head of ESG Joined in 2015 and part of the portfolio group. Previously worked at a sustainability consultant.