The pressure on companies to run themselves sustainably is driving a spike in demand for people with environmental, social, and governance skills and experience.
Competition for these specialists is hotting up further as asset owners and managers seek to improve their credentials as responsible investors.
ESG and responsible investing is the fastest-growing part of the market, driven by a political debate, climate change regulation, and fund members who choose to invest ethically says Christian Super chief Ross Piper.
"Members want strong returns and competitive fees. But most importantly, they want to trust the way their money is managed, whether that choice is informed by a faith world view or by concerns about the planet," he adds.
Demand for ESG-experienced staff outstrips supply, but there is an even bigger issue. Typically, people who work in sustainability come from either a hardline investment background, an NGO, or some other development background.
For example, a buy-side analyst might reach a point in their career where it makes sense to apply their trading skills to a bigger purpose for society and the planet. Yet others might like the idea that institutional capital can deliver social and environmental change. "This is a strong point of motivation and engagement for capable professionals working across these areas."
Critically, funds need to continue to build internal organisational capability. Piper explains that while there is enormous potential to direct institutional capital at scale to achieve strong financial and impact outcomes, getting portfolio construction and underlying investment choices right is essential. So too is hiring the right people.
The challenge is that impact investing requires hiring people who have the literacy and understanding of both investment and development sectors. "Investors need to bring together a need for the best in class investment expertise coupled with an understanding of the complexities of getting responsible investing, ESG or impact investing right," Piper points out.
"The solution is not to necessarily take top-grade investors and give them a course on responsible investment. Alternatively, that you need development practitioners to learn how to invest," he says. Piper describes the ideal emerging skillset as intermediary. "You need a completely different frame of reference and a blended skillset to think about some of these issues and problems."
"Importantly, professionals working in this space need to be adaptive and innovative thinkers, who can reframe a problem or an opportunity at a strategic level and develop solutions that meet market and investment requirements while also delivering strong societal or environmental impact outcomes".
As business demand and opportunities grow, the pool of candidates with capabilities in these areas is increasing Piper goes on to say. Currently, though, there are still big gaps.
"There's no single solution in terms of talent and capability growth in this area, but a range of professional development options are emerging that speak to the interplay of purpose and profit."
Nevertheless, as the ESG market matures and grows, professional standards, certifications, and qualifications will naturally emerge in response to market demand.
Ethical investing is tricky
Ethical funds like Christian Super - a faith-based asset owner with biblically-based values - have a stronger set of exclusions or have more particular biases in their portfolio than many of their counterparts.
Says Piper: "It takes real wisdom and skill to maintain the integrity of our investment approach in a performance test-driven world.
Here, he refers to the new annual performance test introduced by Canberra as part of its Your Super, Your Future policy.
The test has two components; the average investment returns for the last eight financial years versus a benchmark and the administration fees for the last financial year versus a benchmark.
The $2 billion Christian Super with just over 30,000 members, received a 'first strike' on the inaugural performance test. Historically, Christian Super's investment strategy had a "more defensive tilt" based on member cohort characteristics and observed switching behaviours during market downturns.
The overall intent of the performance test is positive, but most funds argue that some elements of its design and application are flawed. The retrospective nature of the test also creates challenges, and by applying the test using a shorter time frame Christian Super would have passed.
For a smaller fund like Christian Super, finding a merger partner would make sense but this was not Piper's only strategy to mitigate slipping under the benchmark.
"We recognise that the goals posts have shifted and we have been making significant portfolio adjustments over recent years".
Piper's investment team reworked its investment portfolio making changes to the fund's strategic asset allocation, changing some external managers, and also restructuring several impact portfolio assets.
This has resulted in a material benchmark-relative strengthening of the portfolio performance. The super fund has outperformed the YFYS benchmark over the past two years and falls within the acceptable performance range over three years.
In the year to October, Christian Super returned 19.23 percent to members, which equates to a 30 basis point outperformance of the relevant YFYS benchmark portfolio.
From where he sits, the performance test dynamics make ethical investing more complex.
The super fund chief says despite the test, it is critical to ensure investments are still deeply aligned with member values and beliefs.
"Therein lies the challenge for the investment team - to maintain the integrity of how you approach ethical and faith-aligned investing in a new YFYS environment," he says.
"It's a challenge for any investment team that has adopted a bespoke approach based on member characteristics, beliefs, and values. We don't want to walk away from our biblical investment principles.
"The performance test doesn't mean that the momentum and the focus on responsible investing will abate but you need the best and brightest people to help navigate that."
Piper is far from pessimistic. Christian Super continues to grow. Excluding mergers, the fund was one of the five fastest-growing funds in the country in recent years.
"Whether we agree or not with certain elements of the reforms, I hope that they will drive our market and industry to a greater level of consumer engagement and choice. Engagement and financial outcomes are closely related. Highly engaged people will make intrinsically make more informed choices about insurance, investment options. That has to be a good thing, I don't think anyone would question the merits of that."
"If there is a silver lining on YFYS it should be that increasingly Aussies are making active choices and engaging more with their super. Ethical and faith-aligned funds are well-placed to capitalise on that. We just have to do it in a manner that is in line with the requirements of the new YFYS world".