What Is ESG Analysis and How You Can Become an ESG Analyst?

ClimateAngels | Sep 13, 2023

“If you’re the one whose head is being popped by these questions 👉Is it easy to become an ESG analyst? What does it take to become an ESG analyst? How much analysis does one do per day to make an impact? What are some good books to embark on a journey to be an ESG analyst? You’re on the right path and on the right content that will help you set a course to becoming an ESG analyst. Keep on exploring this article.”

portrait-serious-business-man-with-documents-hands-how-to-become-an-ESG-analyst

Becoming an ESG analyst requires a good understanding of sustainability and ESG concepts.

This includes knowledge of the key sustainability issues, such as climate change, biodiversity loss, and social inequality.

You should also be familiar with ESG trends, research methodologies, and reporting standards. A bachelor’s degree in business, economics, or a related field is typically required for this role. Many ESG analysts also have a master’s degree in business administration (MBA) or sustainable development.

So, before we get on this voyage in full swing, let’s turn our focus into knowing ESG a bit.

What is ESG? Its History and Evolution

Environmental, Social, and Governance abbreviated as ESG or ESG investing finds its roots in socially responsible investing (SRI), which began in the 1960s.

SRI investors excluded stocks or entire industries from their portfolios based on business activities such as tobacco production or involvement in the South African apartheid regime.

Whereas the term ESG was first coined in 2005 in a landmark study entitled “Who Cares Wins.” by Ivo Knoepfel.

The study was commissioned by the United Nations and conducted by a group of financial institutions, including:

The report concluded that companies that managed ESG risks and opportunities well would be more successful in the long run.

Since then, ESG investing has grown rapidly.

In 2018, it was estimated that over $20 trillion of assets were invested using ESG criteria.

What are some examples of ESG factors?

ESG factors are a set of criteria used to evaluate a company’s performance in the areas of environmental, social, and governance.

Here are the three main examples of ESG factors:

1. Environmental: This category includes factors such as greenhouse gas (GHG) emissions, energy efficiency, waste management, and water conservation.

2. Social: This category includes factors such as labour practices, human rights, community relations, and product safety.

3. Governance: This category includes factors such as board structure, executive compensation, shareholder rights, and transparency.

ESG analysts use these factors to evaluate companies and determine their overall sustainability. By working effectively on these ESG factors, businesses can make more informed decisions that could have long-term benefits for both the planet and their shareholders.

Now, let’s move on to knowing what’s ESG analysis.

What is ESG Analysis?

ESG analysis is a process of evaluating companies based on their environmental, social, and governance practices.

An ESG analyst is responsible for performing due diligence before providing specific financial advice. They scrutinize various non-financial aspects of a particular investment opportunity in order to provide a more rounded conclusion to a stakeholder or a company.

coffee, smart phone, analysis chart, sticky notes, pen and pencil box, and a diary on a wooden table

So, since you have a clue about what ESG stands for and what it’s all about, let’s guide you on how to become an ESG analyst.

So, what’s the pathway to becoming an ESG analyst? Let’s explore in the following sections of this article.

How to become an ESG Analyst? SkillSets, Degree, & Certificate

To become an ESG research analyst, you need to have a good understanding of sustainability and ESG concepts. This includes knowledge of the key sustainability issues, such as climate change, biodiversity loss, and social inequality.

Investors worldwide are prioritizing businesses with a profit vision aligned with environmental sustainability.

a hand with orange highlighter highlighting some data on a data chart on a paper

As an ESG research analyst, you should also be familiar with ESG research methodologies, trends, and reporting standards.

A bachelor’s degree in business, economics, or a related field is typically required for this role. Many ESG analysts also have a master’s degree in business administration (MBA) or sustainable development.

Essential Skillsets for an ESG Analyst

ESG analysts mostly operate within collaborative team environments, emphasizing strong inter-team relationships. This is crucial for providing a well-rounded analysis of investments that encompasses ESG aspects, alongside traditional financial risk and opportunity assessment.

In addition to generating timely assessments for prospective investments, ESG analysts need to retrospectively evaluate prior investments through an ESG lens to ensure core fundamentals remain consistent. Likewise, they may need to reevaluate existing investments to align with evolving ESG strategies of clients.

It’s evident that multitasking is a pivotal skill for ESG analysts given the dynamic nature of their work environment. A proficient ESG analyst should be able to view investments from diverse perspectives and quickly adapt to changing market dynamics.

Additional competencies valued in ESG analysts encompass:

1. Effective collaboration within investment teams.

2. Strong communication skills.

3. Knowledge of relevant regulations like GDPR guidelines.

4. Commitment to transparent reporting of findings.

5. Proficiency in quantitative analysis.

6. A fundamental understanding of asset management and financial markets.

7. An ethical approach to decision-making.

Meaning, an ESG analyst needs to craft a comprehensive ‘financial picture,’ blending broad strokes and fine-tuned details.

Professionals in environmental, social, and governance domains must impartially evaluate investment prospects through a lens of sustainability, ethics, and transparency. This transcends conventional technical analyses and necessitates an examination of an organization’s policies and strategies, extending beyond direct financial performance, such as supply chain strategies, energy consumption, and sustainability.

ESG Qualifications or Degrees/Certifications for an ESG Research Analyst

There are several ESG qualifications available that can help you become an ESG analyst. One such certification is offered by Kaplan Schweser.

The certification course package includes online instruction from an ESG expert, a QBank with hundreds of questions, two realistic mock exams, a pass guarantee, and more.

Now that you know what it takes to be an ESG research analyst, let’s explore what would you be doing as an analyst.

What do ESG Research Analysts Exactly do?

The work of an ESG analyst often varies depending on the context of the role. However, most ESG research analysts will spend a significant amount of time examining data related to a possible financial venture.

They scrutinize various non-financial aspects of a particular investment opportunity in order to provide a more rounded conclusion to a stakeholder or a company.

a man analyzing some data and information collected on a wall like in movies

According to an article by Goodman Masson, an ESG analyst may end up producing as many as 90 to 150 reports per year depending on how busy they are.

Here’s a Short Video for you to Understand What ESG Analysts do:

Source: Campus Catalogue

So, upon exploring the blog up to here, you know what ESG and ESG analysis is, what an ESG research analyst is, and what they do.

Let’s dive deeper into understanding the importance of this analysis, which is older than most of today’s business analyses – ESG analysis.

What’s the importance of ESG analysis?

ESG analysis provides a better understanding of exactly what risks and opportunities each company faces. By considering the ESG factors explained earlier in this article, businesses can make more informed decisions that could have long-term benefits for both the planet and their shareholders.

Companies that prioritize ESG practices more often can benefit in several ways.

Firstly, they can build strong relationships with their employees, customers, and suppliers.

Secondly, they can better measure their goals and progress when it comes to climate change, social improvement, and good governance.

Thirdly, they can attract investment by providing reliable ESG data to investors who are increasingly looking at ESG factors when making decisions about which stocks to buy.

Hence, ESG analysis can also help companies tap new markets and expand into existing ones. Thus, by executing ESG effectively, companies can reduce costs substantially. They can also benefit from reduced regulatory and legal risks.

That’s good news for an upcoming ESG analyst. You have got a bright future ahead.

What are some good books on ESG investing and ESG research analysis?

Here are some best books on ESG investing that you might find interesting:

ESG Investing and Analysis: A Practitioner’s Guide by Marie Lehmann, Martina Macpherson, and Daniel Ung.

This book is a practical guide that analyses the most up-to-date and common ways in which ESG considerations are being taken in the investment process. It is suitable for both practitioners and students.

An old open book, a pair of glasses, and a closed book with ocean blue cover, and a vintage watch in an opened cover lying on a wooden table

Environmental, Social, and Governance (ESG) Investing: A Balanced Approach to Investment by John Hill.

This book presents a balanced, thorough analysis of ESG factors as they are incorporated into the investment process. It is estimated that 25% of all new investments are in ESG funds, a global total of $23 trillion with the U.S. accounting for almost $9 trillion of it.

The Upcycle: Beyond Sustainability – Designing for Abundance by William McDonough and Michael Braungart.

This book is the follow-up to Cradle to Cradle. It envisions beneficial designs of products, buildings, and business practices – and shows us these ideas being put to use around the world as everyday objects like chairs, cars, and factories are being reinvented not just to sustain life on the planet but to grow it.

And the last stop is: ESG Books – You can explore this website if you’re out to power up your game in the financial markets for a sustainable future.

ESG makes no sense if you cant trus the data

Where else Can You find a good source of learning material for ESG investing?

There are several sources available to learn about ESG investing and stay updated.

Here are some of them:

1. A Beginner’s Guide to Socially Responsible Investing by Matthew Blume. This article provides an overview of socially responsible investing (SRI) and how it can be used to invest in causes you care about.

2. ESG Investing and Analysis by CFA Institute. This course provides an introduction to ESG investing and analysis, including the key concepts, trends, and reporting standards.

3. ESG for Beginners: Environmental, Social and Governance Investing by NerdWallet. This article provides a beginner’s guide to ESG investing, including how to invest in ESG funds and stocks.

4. Here’s where we are in the ESG investing hype cycle by Jon Miller. This article provides an overview of the current state of ESG investing and where it is headed in the future.

5. Environmental social and governance (ESG) investing by OECD. This article provides an overview of ESG investing, including how it is being used to promote a low-carbon transition.

6. ESG Investing: What It Is and How to Do It – Business Insider.

7. How to Invest in ESG in 2023 – Investopedia.

8. ESG investing is here to stay – The Hindu BusinessLine.

Some more stuff to learn about ESG investing

👉 ESG (Environmental, Social, & Governance) – Corporate Finance Institute.

👉 The ‘G’ In ESG – Governance ESG Factors & Examples | Ansarada.

👉 ESG for Beginners: Environmental, Social and Governance Investing.

👉 Examples of ESG Factors and Related Impacts – Dalhousie University.

👉 List of ESG Factors – Open Risk Manual.

👉 Our 10 Must-Read ESG and Sustainability Books for 2022 – 3BL Media.

👉 ESG Investing and Analysis – A Practitioner’s Guide – Risk Books.

👉 ESG Book – We power financial markets for a sustainable future.

👉 Environmental, Social, and Governance (ESG) Investing

Now that you’ve almost the full picture before you, let’s see how much companies pay to ESG analysts.

Understanding ESG Analyst Salaries

Curious about the earnings of ESG research analysts? The answer varies based on factors like location, experience, and specific role. In the UK, for instance, a London-based ESG analyst with up to 5 years of experience can expect an average base pay of approximately £53,000, which translates to roughly $71,000 (at the time these figures were compiled).

The salary range generally falls between $47,000 to $110,000. These figures might exclude additional perks like benefits and commissions. For ESG experts with 5+ years of experience, the figures climb significantly higher.

Why do companies offer such competitive rates?

McKinsey’s team sheds light on the managerial benefits of ESG analysts:

1. Facilitating top-line growth

2. Minimizing regulatory and legal challenges

3. Optimizing capital ventures for superior long-term returns

4. Positively impacting productivity and employee happiness through sustainable approaches (the social aspect of ESG governance)

5. Driving cost reductions over time

6. Companies rightly believe that offering attractive salaries is key to attracting the best talent.

Okay, that’s it. Good luck to your future endeavours! 🙂