The ongoing war for ESG talent
As anyone involved with ESG will attest, the current level of demand for ESG leadership talent is unsurpassed and unrelenting. Even firms with a long-standing track record of successfully integrating ESG principles into their organizations are finding it more difficult than ever to stay ahead of the dynamic and constantly evolving ESG landscape. Companies who have heretofore resisted establishing a formalized ESG policy and framework are finally bowing to pressure from their investors, consumers, employees, boards and regulators, and now find themselves scrambling to catch up. ESG has gone from a functional requirement to a commercial imperative – best-in-class organizations are embracing ESG in part because they firmly believe in the financial benefits of incorporating sustainability into their corporate and investment strategies
All of this has led to an avalanche of demand for ESG leadership talent, straining what was already a very thin talent pool. Next-Generation ESG leaders will look quite different from earlier archetypes, as the demands being placed on these individuals requires a far more senior and agile executive to be considered as a credible “ESG 2.0” leader.
The initial wave of ESG hiring began in earnest 3-4 years ago, when C-suite leaders began to tire of being asked questions about ESG that they couldn’t readily answer. This led many organizations to appoint an internal “Head of ESG” which was usually a repurposed individual coming out of legal, compliance, marketing or investor relations. They were generally mid-level functional executives reporting into compliance or marketing, and were tasked with creating a basic fundamental ESG framework designed to satisfy internal and external questions as they arose. This minimalist approach worked initially, but investors continued to raise the bar on the level of ESG sophistication, measurement and reporting they required, and by 2019 the “ESG 1.0” model had proven to be insufficient.
Just as ESG demands from investors, consumers and regulators began to reach a fever pitch, in 2020 the world was simultaneously hit with the global crises of Covid-19, climate change, racial and social injustice, and dysfunctional geopolitics. When it became clear that ESG policies and frameworks could provide a roadmap for organizations to emerge more effectively from these concurrent global crises, the demand for ESG leadership talent exploded.
In 2021 and beyond, a “Head of ESG” needs to deliver ESG domain expertise – the days of a repurposed functional executive being credible in these roles are over. At the same time, best-in-class ESG leaders are business people first, with hands-on industry experience that will enable them to be credible with internal line of business leaders.
Next-Gen ESG leaders are senior executives who synthesize a fluency across the suite of ESG dimensions with an industry-specific commercial acumen. These individuals must also possess the ability to successfully influence across an incredibly diverse set of stakeholders, including the C-suite and board of directors, line of business leaders, institutional investors, legal & compliance, regulators, external partners (portfolio companies, operating partners, supply chain) and internal colleagues.
ESG 1.0 was:
- Repurposed internal individual
- Functional background, no prior ESG expertise
- Mid-level, reporting into a functional head
ESG 2.0 is:
- Senior executive who combines ESG expertise with industry experience
- Business background, focused on value creation
- MD/Executive level, reporting to CEO/President/Executive Committee/Board
- Global citizen with a global perspective
- World-class influencing skills
ESG 2.0 leaders have 4 four primary responsibilities:
- Create a best-in-class enterprise-wide ESG policy and framework
- Integrate that policy across the organization, ensuring a consistency of messaging and execution throughout each individual business line/investment strategy
- Serve as the “face of the franchise” both internally and externally, articulating to investors how ESG permeates all levels of the organization and is embedded into each business line/investment strategy
- Engage with external partners (portfolio companies, operating partners, supply chain) to help them create more sustainable business strategies for their own organizations
Next Generation ESG leadership will look very different from their “ESG 1.0” predecessors. In trying to identify and recruit this talent, it is crucial that:
- ESG be perceived as a core component of the organization’s strategy
- ESG is a stated priority for the C-suite and board
- The Head of ESG reports to the top of the house
An absence of these criteria will make it difficult (if not impossible) to attract best-in-class ESG leadership. Where is your organization in its ESG journey?