Commercial Real Estate's ESG Push Has Industry Fighting Over Talent
Corporate America’s push toward ESG investment is predicated on the need to preserve precious resources and slash carbon emissions, but for commercial real estate firms seeking to expand their workforce in anticipation of more regulations and reporting requirements, one of the most precious resources might be talent with the right analytics experience and skills.
“The quest for ESG talent has never been bigger,” said Marta Schantz, Urban Land Institute co-executive director of the Randall Lewis Center for Sustainability in Real Estate. “Everyone wants to be doing more on climate, there's not enough staff to do it, and no one person can be an expert on all of the different aspects of ESG that needs to be covered.”
An increasing number of local carbon emissions reduction regulations, like New York City’s Local Law 97 and Boston’s Building Emissions Reduction and Disclosure Ordinance, have spurred the need for skilled sustainability professionals at every level.
Companies and property owners are deploying proptech to measure portfolio emissions, or seeking more bespoke answers to challenges like electrifying older buildings or meeting the Securities and Exchange Commission’s forthcoming climate risk disclosure requirements.
As these rules and regulations are enforced and become standard, and the technical expertise becomes more complicated, ESG and sustainability professionals will need to be part of transaction due diligence, forming an understanding of block-level and even building-level risks around extreme weather.
As government regulations grow more comprehensive and sophisticated, it’s also likely that companies will be expected to report their emissions and energy accounting with the same rigor as their financial reporting.
As it stands, 80% of the S&P Fortune 500 file detailed annual emissions and sustainability reports with the Carbon Disclosure Project, or CDP, an international nonprofit that monitors environmental performance and compliance.
“We're still in the infancy of good environmental data for commercial real estate; it just wasn’t a priority for the industry for quite a while,” said Green Street Senior Analyst Daniel Ismail, whose firm just formed a dedicated team for ESG analysis. “It’s now going to become a necessity.”
ESG analysts have reaped the benefits of the growth in the industry, Schantz said. Salaries are higher than they were five years ago, and demand has led to aggressive recruiting at all levels, including heads of sustainability, in-house ESG roles, property managers with ESG skills and specialized consultants.
In-house positions often get poached from consulting firms, Schantz said, and many employees are hired straight from school, as long as they have some real estate or sustainability experience. The most commonly filled roles are data analysts to meet growing reporting requirements.
Investment firms are also swiping executives from one another, as British firm ICG did in May when it hired away Elsa Palanza from Barclays to lead its ESG efforts. In 2021, KKR lured Blackstone's global head of ESG to its ranks, and Blackstone itself was busy scaling up ESG staffing.
This hiring spree stands in stark contrast to the ESG backlash being felt by firms like Blackstone, and the push by some conservative legislators against these kinds of investment approaches.
CDP Head of Corporations and Supply Chains Simon Fischweicher said it’s clear that corporations and real estate are moving ahead regardless of pushback; many are prepping for an “uphill climb” to prepare for SEC reporting requirements.
“I think it's pretty clear that the corporate sector and investors and customers are kind of plowing ahead,” he said.
“How does your asset affect climate change: that can certainly be a very political statement,” Partner Energy President Tony Liou said. “But the other statement is, how does climate change affect your assets? A lot of people can debate the former, but you really can’t debate the latter.”
In many ways, real estate has been central to the wider ESG movement, helping the industry develop more talent and experience than other sectors of the economy. For many firms, the first step of their ESG and sustainability strategy was focused on real estate. CDP’s Fischweicher said even the financial sector really started looking at emissions and sustainability through a lens of real estate and facilities management.
But that expertise has evolved. Today’s analysts may be focused on not only cutting emissions, but finding ways to achieve net-zero buildings and slash embodied carbon, including working with material suppliers, who likely have their own sustainability teams. And there will be more and more demand for this information on deals going forward, with buyers and sellers expecting an expanded scope of data collection during due diligence, Liou said.
Schantz mentioned a few firms standing out in terms of their hiring and recruitment of ESG professionals, including Lendlease Americas, which has a larger team that allows for more analysis and project management, and JBG Smith, a DC-area REIT with a relatively larger team.
Despite the growth of more in-house roles across CRE, the work of consultancies isn’t going away, according to experts. Many see roles in verifying and certifying energy audits, demand for which will spike as firms seek out third-party verification of sustainability data. And, as firms beef up their own sustainability teams, they tend to hire consultants to supplement their work or develop in-house strategies or workflow.
An increasing suite of software is emerging to measure performance and emissions, which itself requires consultants to vet technology and help with installation and operations. Enertiv Director of Marketing Comly Wilson, whose firm provides tech solutions to measure energy and emissions, said that it is going to be essential to automate the data reporting process, for the sake of time and increasing levels of accuracy.
“ESG consultants are continuously hiring,” Schantz said. “Not just because their staff are getting poached by in-house real estate firms, but because their book of work keeps growing.”
Schantz doesn’t see the shortage letting up anytime soon. When the full suite of risks is required by SEC rules changes, the vast majority of companies will find themselves unprepared and “scrambling” to find talent.
“We’re seeing this talent shortage across the board, it’s real,” Wilson said. “Whether it’s ESG consultants or building engineers, it’s a serious issue, all at a time when portfolios are being forced to do more, when they have less people to do it. It’s an issue everyone faces.”