If there’s one trend in the investment world that took everyone by storm in recent years, it’s the rush toward ESG integration. As an executive search firm, Laz Partners, specializing in placing talent with some of the world’s foremost asset managers and hedge funds, we have had our finger firmly on the pulse of these shifts. And lately, there has been a noticeable lull in ESG-focused discussions.

Let’s be clear: A year or two ago, it seemed like almost every conversation with portfolio managers (PMs) and analysts touched on ESG at some point, and ESG experience was considered a plus (or hard requirement) for many of the roles we worked on for our clients (and we even made some high-profile ESG placements at a leadership level with some of our clients in the last 12-24 months).

Fast forward to today (YTD 23) and I can count the times that ESG has been brought up by clients or candidates on one hand. This subtle shift is not just anecdotal. In a surprising move, there have been a series of departures by large, well-respected asset managers from renowned climate initiatives, such as the Net Zero Asset Managers initiative and Climate Action 100, as highlighted in a recent article from Responsible Investor.

What’s causing this drift?

Multiple top-tier PMs have expressed a growing sentiment: ESG constraints might be inadvertently restricting their ability to generate robust returns, especially in challenging markets. Many are now eyeing positions at asset managers with fewer ESG constraints, prioritizing the flexibility they believe is essential to navigate a complex market landscape.

It is not that ESG principles are not valued or respected – they come from a place of genuine concern for the planet and its inhabitants. As noted in a Forbes article, the conventional wisdom on ESG may be evolving, but the fundamental values remain.

So, is ESG enthusiasm truly on the decline?

While it might be too early to make definitive conclusions, there is certainly a shift in the air. Some asset managers feel that achieving a balance between the rigidity of ESG constraints and the agility required for maximizing returns is becoming increasingly difficult. As experts with deep connections in the industry, we anticipate this sentiment might grow, especially if markets remain volatile.

However, it is essential to approach this with a nuanced view. ESG, at its heart, remains a potent force in shaping a more sustainable and inclusive financial future. But like all trends, its application and integration into investment strategies may witness ebbs and flows.

The future may see a more balanced approach where ESG principles and investment performance are not seen as mutually exclusive but can co-exist in a harmonized strategy. It’s a dynamic space, and as always, Laz Partners remains committed to navigating these shifts and bringing the best insights to our clients and candidates.

Share your thoughts below – Is ESG on a temporary pause, or are we witnessing a broader recalibration in its role within asset management?