A major opportunity sits at the intersection of private equity and the ESG profession — right?
Private equity’s primary purpose is clear: to achieve alpha for super-rich individuals who can afford super-steep private equity fund minimums and for institutional investors such as pension funds, endowments and insurance companies. But this opaque asset class has recently made a significant splash in the world of ESG and thus the world of ESG talent.
A wave of high-profile ESG talent has entered the space over the past few years — think Sustainability Accounting Standards Board founder and former CEO Jean Rogers’ transition to lead ESG at Blackstone last year or Microsoft’s chief environmental officer Lucas Joppa’s move to an as-of-yet unnamed private equity firm in late July.
Since the leveraged buyout boom of the 1980s, private equity has been seen as more of a "greed is good" corner of financial services than anything like "green is good." And, with the current climate-focused epoch in investing largely characterized by a push for public market ESG disclosure, private markets have been framed as a place where dirty assets can seek shelter from scrutiny.
As BlackRock CEO Larry Fink has put it, "There’s more movement away from hydrocarbon assets into private hands than anytime, ever … That’s window dressing, that’s greenwashing."
That said, ESG roles are opening at an increasing clip at private equity firms both small and large. So what’s behind the trend, and how is private equity skilling and staffing up to meet the moment?
I recently checked in with some people who are plugged into the intersection of private markets and ESG to gauge their perspective on how this new front in the ESG talent war is shaping up.
What is an ESG education, after all?
The demand for qualified ESG talent across sectors and industries remains far and above existing supply.
As GreenBiz’s Joel Makower covered last year, the ESG talent war can be characterized as an all-hands-on-deck situation with too few skilled hands and lots of deck to manage. Weeks out from the start of Q4 2022, hands are still in short supply while more ships are setting sail — including those navigating private market waters.
As the sustainable finance analyst at GreenBiz, I get asked a different iteration of the same question almost daily — it’s one that many readers may often hear, too: "How can I get a job in ESG?"
A few quick follow-up questions reveal some consistent and understandable misunderstandings about who is "doing ESG" (which is not a standalone verb in investing) and how they got their jobs.
Dave Stangis is another prominent individual who recently transferred his skills to the private equity space, alongside Rogers and Joppa. Stangis took the job of CSO at private equity firm Apollo Global Management last year. He formerly held sustainability leadership roles at Campbell Soup Company and Intel.
"I get the question literally every day," he told me. "How can I break into ESG? I often get asked, for example, ‘What's the one course or certification I need to get to get into this space?’ — but that doesn't really exist."
Unless you’re a veteran of corporate sustainability or sustainable finance, getting into the industry requires a level of commercial awareness that comes from doing teeth-cutting in roles that are not explicitly ESG-ish.
The answer here may be a bit deflating. And if you’re someone who’s itching to jump into an ESG position, especially earlier in your career, you’re right to feel a bit underwhelmed about what roles are really out there for you.
As it regards many ESG roles in investing and finance, one reaction to Makower’s "War for ESG talent" piece struck me. The respondent wrote that, of the dozens of ESG-related openings she’d looked into, "Many require advanced degrees and professional certifications, which … are often not actually necessary for the position … Operational experience is far more valuable than an advanced degree or certification."
I’ve heard similar and consistent reactions related to many corporate sustainability roles posted by large cap, publicly traded companies over the past few years. But as one investment professional at a major American private equity firm told me:
"A ‘sustainability’ degree from a fancy school coupled with something like an ESG Certificate from the CFA Institute is shiny. Does that mean you’ve honed your knowledge on the nuances of a specific industry? Or that you know how to research markets or what type of management interventions can help businesses succeed? No. But if it’s you versus the other candidate and all else is equal, those qualifications can help demonstrate your added interest in ESG, which isn’t nothing. But it’s a single-digit percentage piece of the puzzle."
The ESG of PE
There is another common misconception of what "doing ESG" in private equity is.
Like much of the investment industry, most of the dedicated "ESG people" do not sit on investment teams. Maybe that’s because, again, there is no such thing as ESG investing and "doing ESG" is still much more a 1.0 discipline than 2.0 — as much as we like to talk about ESG 2.0.
Many of the largest private equity firms in the word — Carlyle Group, EQT and TPG among them — have become publicly traded companies themselves in just the past couple years. They’ve gone from being structured as partnerships to becoming broader companies, and gone through the experience of what it’s like to be a public company managing a reputation and a brand, not just a business.
This is where much of the ESG muscle is getting put to work in private equity at the moment. Take Blackstone, the world’s largest private equity firm, where Rogers sits in corporate affairs, a department generally responsible for communications, PR and government relations.
I don’t point this out to say that ESG data and analysis isn’t becoming meaningfully integrated into the private equity industry or the broader investment industry’s investment process. Rather, I say this to elucidate the reality that there isn’t an entry point into "doing ESG" — that is, managing assets with an ESG lens applied — without first doing, well, "normal" investing, for lack of a better term.
As someone with, for all intents and purposes, a sustainability degree from a fancy school, I can attest that it did not really prepare me for any kind of operational role, nor, to be frank, did attaining the ESG Investing certificate from the CFA Institute.
The hard truth seems to be that experience in the trenches still goes a long way. As Stangis told me, "If you haven't done this yourself, how can you demonstrate that you really know your way around? Knowledge of SASB or TCFD are not going to be the end-all be-all for candidates."
It’s a tough dichotomy. Sustainability and ESG have really become industries. As much as we parrot the trope that doing sustainability successfully means we’re all putting ourselves out of a job, the growth of jobs in the industry would say otherwise.
The toughness of the dichotomy is that unless you’re a veteran of corporate sustainability or sustainable finance, getting into the industry requires a level of commercial awareness that comes from doing teeth-cutting in roles that are not explicitly ESG-ish.
And, if you’re trying to break in at the entry level, the skills that an ESG role requires are the same as most any analyst role in finance: the ability to gather, track, make sense of and communicate the results of relevant data.
This is exemplified strongly by roles in private equity, but it’s likely the case across the board in sustainable finance and investing. Unfortunately, there is no golden ticket.