It’s no secret young people like you are leading the charge towards a sustainable future. Protests, petitions, charity work and innovations are slowly but surely making waves through society, but it might come as a surprise that a booming new area in the financial services industry may also be a source of change for good. In recent years, the Environmental, Social and Governance (ESG) movement has taken financial markets by storm, influencing global regulations, how people decide to invest their money, and companies around the world to make sustainable changes. If you see a future in driving sustainability, then an ESG-focused career in finance may be for you.
What is ESG?
ESG investing, sometimes also referred to as Socially Responsible Investing (SRI), covers a broad range of factors contributing to whether a company can be considered sustainable:
- Environmental Factors
Businesses aimed at tackling climate change are many and varied; from Renugen, distributing clean energy sources like wind turbines and solar panels, to Better Dairy, a UK start-up that makes cow’s milk out of chemicals to limit the CO2 production from dairy farms. However, you don’t have to be focused on saving the world to be an environmentally sustainable business.
In the most common sense of the term, sustainability means making choices to limit your impact on the environment. For businesses, this has to be implemented on a huge scale to counter the environmental damage caused by industrial processes. Many companies are making changes to operations in a bid to achieve carbon-neutral production in future. To hold themselves accountable to these goals, there is a rising trend in releasing Corporate Social Responsibility (CSR) reports showing the environmental impact of business activities.
- Social Factors
What a company does for society is just as important as what it does for the environment. Within the business, this means inclusive recruitment practises that give a fair chance to underrepresented groups in their local community, and proper consideration of the rights, health, and wellbeing of employees. Impact on society outside of the business also matters – alongside local initiatives like outreach and charity, simply taking measures to protect consumers of their products or services is an only recently emerging factor of corporate social responsibility. An example of consumer protection is tobacco manufacturers putting warning labels on cigarette packets.
- Governance Factors
The least well-documented and discussed aspect of ESG, governance refers to how a company is ran. Concerns include corruption in management – are they taking too big a cut as executive pay? Are they avoiding tax? These issues can have far-reaching implications for the local economy.
How Finance uses the ESG Movement to Make a Change
Guided by society’s calls for better corporate sustainability, regulations on companies and investors to promote interest in ESG business practises are being enforced at an increasing rate. Recognising this, the financial services industry has been quick to develop products making access to information and shareholding in sustainable businesses more available. In doing so, they create the opportunity for necessary funding to grow the companies making the biggest ESG impact, and incentivise other companies lagging behind to follow suit. With corporate-driven pollution, inequality and corruption arguably bringing the biggest hindrance to a sustainable future, this may be the big push business-owners need to make socially responsible changes to their company.
There are two main financial products focused on fostering this sustainability:
- ESG funds
Fund managers in asset management firms are responsible for investing money entrusted to them by members of the public. Instead of risking all the money on a single company, fund managers create a portfolio of different companies to spread it between, called a “fund”. Often, clients have a choice of which kind of fund they want their money going in to. Increasingly, ESG funds are becoming a popular choice – meaning the money is invested in a diverse portfolio of sustainable companies. To know which companies are the most sustainable and have the highest likelihood of giving their clients high returns on their investment, fund managers will read ESG research reports.
- ESG Research
ESG research teams are popping up across the industry. Asset management firms may have their own internal ESG research department, or will buy reports from investment banks. In some investment banks, ESG research is carried out within the equity research department, specialised on analysing companies and advising investors whether they should buy or sell stocks. In others it can be part of macro research, looking at global economic trends. The analysts in these research teams will look at CSR reports, company annual reports, and global ESG indexes to guide their suggestions.
Starting a Finance Career in ESG
With so many companies in financial services introducing ESG products to meet client demand, now is the perfect time for sustainability-conscious graduates to capitalise on the trend. A common misconception is that a degree in Finance or Economics would be necessary for these roles, but this couldn’t be father from the truth – many employers are looking to STEM or Geography graduates to bring a new angle and expertise to the business. If this sounds like it could be the career for you, applying for Summer internships is a great way to get first-hand experience on the desk. Industry leaders in ESG like Morgan Stanley and BlackRock advertise specialist Sustainable Investing programmes.
For more advice on applying to careers in finance, our team at GapWhiz are here for you with regular internship postings and support throughout the application process.
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