As investment banks have placed their sustainability expertise at the centre of client marketing, middle management at some firms has come under pressure to fill the ranks of environmental, social and governance teams with anyone they can find.
This has led to an intense battle over highly qualified bankers who not only know how green and other labelled securities are structured, but also understand climate science and policy.
It has also led to concerns that some bankers in management positions may be hiring relatively inexpensive candidates without banking backgrounds as a kind of window dressing to appease their superiors and clients.
“I think some of our competitors may have fallen into the trap of thinking just putting a big number on it is a way to solve the debate,” a senior management figure at a global investment bank told GlobalCapital recently. “We need to avoid box ticking and people jumping on the latest fad.”
Green grunt work
The need for specialist bankers to handle sustainability topics arose from the development of labelled products such as green and social bonds in the 2010s and has grown quickly as the number and variety of those transactions has increased.
Initially, bankers that gained experience handling such transactions would become the go-to people in their firms, with titles such as green bond “captain” or “champion”. But in the past few years, centralised departments specialising in ESG research, origination and structuring have mushroomed, creating more demand for ESG expertise than the banking industry itself could supply.
“ESG touches so many parts of the firm that you can’t run a cohesive, coordinated internal policy just by having small groups of individuals doing their own thing and hoping that aligns with everything else,” said a head of DCM in London.
Within debt capital markets, the sheer quantity of work involved in advising clients on their sustainability frameworks and capital markets programmes justifies the recruitment of ESG specialists, according to bankers.
The work includes structuring a growing range of labelled bonds and advising issuers on which key performance indicators they should link their coupons to, but also tracking investors’ ESG mandates so that labelled bonds can be allocated to the most appropriate accounts. Bond issuers place a lot of emphasis on this last point, say bankers.
“All these new things keep popping up, and we need to work with them in order to keep and increase our market share, across the traditional product groups in DCM and then in other business lines as well,” said a senior DCM banker in Frankfurt. “So there is more work to be done. And those who do this better and quicker than others will win more market share going forward. Everybody is acutely aware of that, and that's why everybody is hiring.”
ESG pay gap
However, sources point out that the salaries of all the extra ESG experts are not typically covered by higher fees for doing ESG business, meaning that they become simply another running cost.
“Some of the teams are cross-subsidized from a central office, but most business line guys have been told it's a business cost,” said the recruiter. “You've got to eat the cost yourself.”
In light of this, some are concerned that bankers in management roles may simply hire the cheapest ESG specialists they can find.
The recruiter pointed out that sustainability experts brought in from outside the banking industry are typically paid much less than bankers who have transitioned into an ESG position, even if their job titles have the same rank.
“It's not necessarily the job they're going to do, it's where they're coming from,” he explained. “If they're coming from a consultancy or education or another non-banking environment, you just can't give people triple pay rises. HR just won’t sign it off.”
The Frankfurt-based banker said he sympathized with those in middle management who are under pressure from above to build an ESG business “because that’s politically what an institution wants”.
“And of course, one of the best ways to signal [that you are engaged in ESG business] is by hiring people, because it suggests that you have a plan to employ them well and to the benefit of the business,” he said. “But I think that's the wrong way around. It's up to us in the middle management sphere to decide we have a good business case around specific ESG products and services.”
