As the focus on ESG increases, PE firms are rethinking the way they source talent

As the private equity industry’s focus on environmental, social and governance issues continues to gather steam, and as LPs dial up the pressure on managers, the question of how firms resource ESG functions is becoming increasingly critical. Affiliate title Private Equity International asked two recruitment experts – US-base Mary Gay Townsend, managing partner at Norgay Partners, and UK-based Simon Nixon,  managing director and head of alternatives at Carpenter Farraday – to outline the hiring landscape.

What demand are you seeing for senior ESG- and responsible investment-related roles in private equity?

Mary Gay Townsend: The demand for investing using ESG guidelines has been increasing and has accelerated over the past year in the US. This includes a strong interest in investing in funds that back diverse management teams. As firms acquire more data that reflects diversity managers’ track record and ability to outperform their peers, there is an expectation that increased demand for diversity-led funds will follow. We expect more firms will get into the game because of this trend, and when they do, they are going to want the best talent to run these strategies.

There has also been increased demand for impact investing. As performance metrics and returns point to success, impact investing is increasingly viewed as not only the right thing to do from a social standpoint, but also the economically practical decision. In many cases, we have seen firms look internally for talent to run these efforts or lead ESG. They will often move a top performer out of traditional investing into a leadership role within impact investing. This is a good retention strategy that rewards strong talent with a leadership role in a growing sector.

Simon Nixon: We have seen an increase in demand, albeit at a relatively subdued rate. Many private equity firms are small organisations, so it is currently only the larger players recruiting dedicated professionals to lead ESG. In smaller funds, aspects of ESG are usually split across a range of functions. For example, leading on diversity in both the funds and portfolio companies can be taken on by an internal HR professional within the fund. It is also more common for operating partners or those involved in ‘asset management’ to spearhead ESG initiatives in portfolio companies. For embedded ESG, we also see a lot of hiring from corporate ESG departments or from specialist consultants.

For firms recruiting positions covering the full spectrum of ESG initiatives, the role can often sit in investor relations. A lot of the requirements and initiatives are driven by LPs and will continue to increase as the EU Sustainable Finance Disclosure Regulation becomes active.

What kind of skills and experience are PE firms looking for?

MGT: Regardless of strategy or industry, the strongest private equity investors are smart, deeply curious, motivated to learn and inquisitive with excellent interpersonal ability. Especially when it comes to recruiting talent for ESG roles and investment opportunities, we see firms looking beyond traditional PE backgrounds and into other areas to build candidate slates. PE is in many ways an apprenticeship model and nurturing smart and motivated professionals is one way to grow successful investors. Sources they can tap into include LPs, such as endowments and foundations, as well as companies that focus on relevant industry verticals like energy, agriculture and infrastructure

We are also seeing strong candidates coming from the public sector and central banks whose experience working with governments and municipalities is valuable to impact investing and ESG standards. Finally, given that many GPs are eager to effectively communicate to LPs the steps they are taking to incorporate ESG into their investment strategies, many firms are also looking for candidates with communications, PR or marketing backgrounds.

SN: The jobs can be very different between organisations, especially where there may be a split between those who see it as a regulatory/box-ticking exercise and those who really believe it should be part of the investment and post-acquisition process. The skills we look for are varied, including investor relations, marketing and PR, internal training on ESG, and external engagement through industry seminars and events. We also look for individuals with a track record of leading ESG implementations in portfolios. This requires the seniority and influence to be able to get leadership teams on board with why such ESG initiatives should be introduced.

How much competition is there for talent?

MGT: Because ESG and new impact investment verticals are still nascent in the US without large numbers of legacy platforms to tap when looking for talent, there is a lot of competition. Firms are having to think outside the box about where to source their talent.

Historically, PE firms tend to fish in the same pools of candidates from the same platforms with similar professional backgrounds. While this can be perceived as a ‘safe’ route to take, a lack of diversity in perspectives and backgrounds can put investment teams at a disadvantage over time. Good talent is everywhere, and candidates can gain the relevant skills and experience in many different professional environments. PE funds need to catch up in this regard, but we are seeing a growing commitment to doing that and, in many ways, it is being driven by the need to recruit with ESG in mind as they add new strategies.

SN: At present, there is not what would be classed as a competitive market for talent, as most organisations are looking for tailored or specific skills relevant to their needs rather than uniform experience, so the supply of candidates with experience is still greater than demand. For those with a track record of successfully integrating ESG across PE funds, the talent pool is significantly smaller, which can make recruitment more challenging and, in some cases, more costly.

What hiring trends are you seeing for impact funds?

MGT: Demand has increased and many firms are actively looking to establish or grow impact investing capabilities. We expect this trend to gain momentum as larger firms build out their platforms and teams. Mid-sized and smaller firms will need to keep up and spin-offs will inevitably take place. Keeping up with the competition makes for a compelling argument to build and raise funds. This will in turn lead to a greater need to build strong management teams that can both attract capital and deploy it into impact investing opportunities. Success begets success and I think we will see that drive demand for more impact and diversity funds and, as a result, more recruiting activity around it.

SN: Impact investment funds are generally smaller and can be focused on growth investing, but we are seeing an increase in first-time funds. Many of them are involved in areas such as sustainable food supply, energy storage and financial infrastructure for underserved emerging markets, but the largest focus is primarily on energy transition, renewables and other more nascent energy technologies. In certain specialist areas there are very few experienced investors, so we find that we are recruiting industry experts, which is perhaps a little more akin to venture capital recruitment rather than private equity.