What is an ESG Analyst in Asset Management?

A role as an Environment Social and Governance analyst within asset management offers an exciting opportunity in an innovative and growing sector.  Increasingly, global asset managers are of the view that sustainable investments mean sustainable returns. Simply put, profit, purpose, and economic and social value are all intrinsically linked

Asset management clients and customers expect, and sometimes demand, that the ESG component plays a pivotal role in the investment decision-making process.  ESG analysts play a critical role in the due diligence process undertaken by asset management companies necessary before the allocation of capital. This includes examining and monitoring critical environmental, social, and governance aspects of the investment opportunity to ensure that the firm meets the ESG requirements of the capital provider.

esg diagram image 1

Asset management companies typically structure their ESG teams in one of two following ways.

  1. Cross Portfolio ESG function or centralized ESG model: The analyst is part of a specialized team researching ESG risks and opportunities and then disseminates conclusions across the various investment management teams. Those teams subsequently integrate the research findings into investment analysis and sector, stock, and portfolio construction decisions.
  2. Asset-class focused or integrated ESG model: the analyst is assigned within an asset class-specific or multi-asset management team. This requires a deep understanding of a particular asset class.

Since ESG is still in its infancy, the space is considered fast-changing and highly evolving.  Consequently, an analyst needs a good grasp of the latest factors relevant to environmental, social, and governance issues impacting the companies in the fund managers’ portfolios. They need to understand the materiality of those issues and how to interpret changes in ESG trends and their impact on the sectors that the analyst follows. The analysts also need to have a good understanding of how, engagement with companies works, how engagement objectives need to be set, and how management teams and governing bodies of investee companies can be approached.

Key Learning Points

  • ESG considerations have become increasingly important in the asset management industry and constitute part of the fiduciary responsibility of an asset manager.
  • ESG analysts scrutinize the environmental, social, and governance-related aspects of potential investment opportunities.
  • Asset management companies generally structure the ESG function in one of two ways – as a centralized team or within the individual investment teams.
  • ESG analysis is continually evolving, and ESG analysts need to understand and incorporate changes.

What Does an ESG Analyst in Asset Management Do?

ESG analysts in Asset Management, regardless of the team structures they are part of, are expected to conduct a range of tasks. Firstly, they analyze and monitor global environmental, social, and governance issues and trends. They assess whether these provide opportunities and/or present risks to existing or potential portfolio companies. This is done by scrutinizing corporate strategy, news, disclosures, and sustainability reports. Furthermore, they support engagement with representatives of investee companies to better understand how those companies manage ESG risks or how they capitalize on opportunities.

ESG analysts must have strong analytical and critical thinking skills to understand the holistic and nuanced aspects of an investment. The image below shows the complexity of the underlying forces within ESG analysis.

what we think ESG is diagram

Why become an ESG Analyst?

In general, asset management firms are growing their ESG practices, so becoming an ESG analyst gives them the opportunity to be part of a growing sector. The graph below shows the extent to which ESG-mandated assets are set to grow by 2025.

esg mandated assets

The sector and role offer talented individuals the opportunity to effect real change in the world while building a solid analytical skill set. The sector also offers competitive remuneration and good career prospects.

ESG analysts typically provide a quantitative and qualitative assessment of an investment’s impact on ESG matters, according to third-party published principles and guidelines. Typical daily duties include:

  • Providing ESG management benchmarks and impact assessment reports
  • Helping the investment manager/analysts effectively discriminate the ESG quality of investments
  • Demonstrating and communicating an investment’s sustainability credentials with an absolute scale for compatibility
  • Providing coverage on any investment instrument

ESG Regulatory Bodies that ESG Analysts need to know

ESG analysts need to be prepared to delve into the details of numerous regulatory frameworks and understand what elements are relevant for the products their firm is offering in different jurisdictions or for their client’s circumstances. ESG analysts make use of tools provided by the Global Reporting Initiative (GRI), Principles for Responsible Investment (PRI), and the Sustainability Accounting Standards Board (SASB) to define relevant sustainability issues and understand their impact on a company’s financial performance.

SASB was specifically created to enable firms to relay financially significant sustainability information to investors. The SASB Materiality Map identifies and compares a complete set of ESG disclosure topics across 77 different industries and sectors.  The diagram below gives an overview of the SASB standards.

ESG Regulatory Bodies image 4

Download the accompanying files to practice mapping ESG metrics just like an ESG analyst might in a real-world scenario.

Additional Resources

Certificate in ESG

ESG in Credit Analysis

ESG Funds