Career Progression for ESG Roles in PE

I just received a FT offer to work as an ESG/Sustainability analyst (straight out of UG) in a MM PE/PC shop in Europe (~ 8 bn€ AUM).

I am currently doing an internship in a similar role and I find the job interesting (ESG analysis of investment opportunities /participation in ICs /direct contact with portfolio companies to improve their ESG performance...).

Comp-wise, it is 10-15% shy of what PE analysts get (base+bonus) and I also get carried interest. 

However, I have no idea of comp progression over time (as it is a relatively new function) and don't know what exit options exist down the line other than lateral to bigger funds for similar roles.

So if, by chance, anyone has some insights about comp/career progression on these kind of functions, it would be really helpful.

I would also love to get wso's general feeling/take on the future of these roles in PE.

Thank you!

Comments (4)

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  • Associate 3 in PE - LBOs
Jun 29, 2022 - 8:00pm

I work for one of the big UMMs/MFs who has one of the leading ESG / Climate / Transition funds in North America. I'm really close to that team even though I don't work in their vertical and am currently debating this myself pretty heavily as I have been getting a lot of pressure from colleagues to join that team.

The main thing you will learn about the whole space is that it is extremely new, not well defined, and nobody really knows what they are doing. A lot of funds have gone out and raised incredible amounts of money since it is the cause du jour, but I think a lot of them are struggling to find chunky opportunities that still meet the basic investment criteria that made these firms what they are. However, in Europe I think you'll find the situation is a bit different since the political climate is much more ESG focused and they are definitely ahead of the curve in terms of acceptance and frameworks when compared to North America. I would caveat this with the fact that the political climate is much more likely to push shitty investments for the sake of social benefit, which will ultimately weed out firms without a solid investment process.

Now to focus on your questions / clarify your situation:

- Is this a direct investing role or is it more of an ESG analysis role? I know at our fund we have a bit of both in the team. Some people have ESG specialist type backgrounds and are very focused on analyzing the investments purely from an ESG perspective and lack the general ex-banking / ex-PE type of skillset to carry a model (at the associate level) or directly lead an investment (VP level). From what I've seen in our team, we are lacking the banker / PE types who really carry the investments as it is a relatively new space so I think that is a great opportunity. If it is more of an ESG analysis role, I think that will turn out to be less promising as those people seem to be mostly around as gatekeepers / experts who help define whether an investment fits the fund's mandate, but will ultimately be relegated to an ops style or more back office role as support for the investment team.

- As for comp, in our fund all the different verticals are comped very similarly (other than you have to be wary of fund duration when taking carry into account). If the fund you are working at (assuming it is direct investing) is pure ESG I would imagine it trends toward normal comp over time with good results. If it is just an arm of a larger fund, every culture is different, but again if the fund is successful I would expect over time that comp would match any other vertical (obviously adjusted for the carry part I highlighted above).

- Progression is the more interesting element. I think these roles are really lacking investment talent right now and have a tendency to hire outside of the natural PE track (not saying that's all a bad thing), but I've seen a ton of consultants / corporate people getting direct investment roles because they see this as the cause du jour and are interested. The natural PE track as frequently discussed on this site is extremely risk averse and goes after prestige since it seems safer. All to say, if you're a killer investor and do care about the ESG stuff, there is a chance for an exceptional career track given the generally less experienced investment talent in the space. 

- Finally, for my take on the future of these funds. I am pretty optimistic about the idea of ESG funds, particularly focused on the "E" part of that acronym, the S and G are much more fuzzy and lack solid metrics to track as opposed to reduced emissions, and let's be honest ESG is really just the "E" and the "S" anyways (and everyone quickly forgets the "S" and "G" across all verticals if the returns are right 1). However, as with any new technology or space, there is a lot of risk and the success of the space will ultimately depend on whether some of these funds can really perform. I would say make sure this company has a rock solid investment track record and process/framework in other verticals, as I think a lot of the funds who raised money because this was the hot topic will ultimately leave too much capital in the space chasing too few opportunities which means shittier returns for everyone.

TL;DR: It is a really new and interesting space with a lot of opportunity, but given the amount of capital that has recently poured in, it will go through some turmoil to weed out those who are there to "greenwash" themselves, as opposed to those who are there to make some real money. 

1: Cough cough... Aramco...

Jul 2, 2022 - 3:46pm
Reaganomics10, what's your opinion? Comment below:

I am extremely bearish on ESG for some of the reasons touched on here. Most of the funds in the space are incompetent at evaluating the G portion, and so many of the ESG funds are specifically only investing in the least ethical companies in the world.  Unethical founders know where the dumb money is and take advantage of it. At this point, any company that looks great at the E portion or the S portion is almost invariably a borderline fraudulent self-enrichment scheme. Until funds get more serious about evaluating the G, both returns and social outcomes will be worse than investing in a normal fund.

  • NA in IB-M&A
Jun 30, 2022 - 11:46am

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