The property sector is struggling to rise to the climate change challenge because of an ESG skills gap, according to sustainability consultant Philippa Gill (pictured).
Gill, an executive director at EVORA Global, an ESG advisory firm serving the real estate sector and other real assets, has warned the sustainability skills gap is a systemic problem that will require a broad-based solution.
A sector with a huge carbon footprint
First, the built environment is a huge contributor to global pollution, accounting for as much as 40% of global carbon emissions, Gill noted.
It is also a sector that is itself vulnerable to climate change, and building developers are now having to factor more extreme temperatures and weather into their building designs. Now, more than ever, the real estate world needs to focus on sustainability.
But it’s proving tough: EVORA research, which surveyed 73 institutional investors, asset managers and ESG experts from 19 countries, found just over half of investors do not have enough ESG knowledge to execute ESG objectives linked to their job role.
Meanwhile, less than half of respondents had an in-house ESG training programme for relevant staff, while 22% planned to develop one, and 24% planned to seek external help.
ESG risk is real
Solving this problem will be crucial to real estate businesses for many reasons – climate change is a financial, legal and reputational risk. Gill pointed to the difficulty companies will have in raising money, or getting real estate transactions over the line, if they aren’t paying enough attention to ESG. Anecdotally, she has heard of firms walking away from deals for this reason.
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There is also the potential for regulatory intervention and reputational damage, she warned, pointing to a recent dawn raid on Deutsche Bank and DWS by law enforcement following accusations of greenwashing.
The volume of ESG-related legislation is growing all the time, and there are not enough experienced and qualified people in the industry to tackle it with the urgency required.
“You can’t recruit people now into the investment world without taking this seriously,” she said. “There’s been a huge generational shift.”
The root of the problem
What is the root of the skills shortage problem? Regulation, disclosure and transparency are three factors which have coalesced in the race to decarbonise. Part of the problem is that “legislation has moved faster than anyone was anticipating, and it’s not enough to just say you’re a good business, now you need to back it up,” said. Gill.
For instance, companies that have set ambitious net-zero targets are going to be quizzed by pension funds on how they will achieve them, and the answers will affect where those pension funds invest.
“A lot of companies don’t have the answers, they thought they could just carry on doing business as usual. It’s no surprise that, correspondingly, you’ve seen all the big companies hire heads of ESG,” she added.
Another part of the problem is that graduates are finishing their courses without a solid grounding in ESG because sustainability is still being treated as an optional extra.
“How can you expect the next generation coming out of real estate schools to understand this if you’re still teaching it as an adjunct, and it’s voluntary? It’s 10 years behind,” said Gill.
But it’s not just real estate professionals that need a better grounding in ESG – bankers, investment managers and others across the industry should earn their “carbon salaries” as well as their pay and bonuses, she argued.
Finding the solution
Potential solutions could be getting more keen young graduates into sustainability-focused jobs and/or training up more experienced staff that a company already has.
“The solution is systemic change within each business. So, however they onboard people now, [sustainability] should no longer be a separate element,” said Gill.
Instead, ESG should be folded into every thought process and every decision companies make. This is what will drive the change needed, she added.
University and business school courses will need to put sustainability front and centre to turn out the type of passionate graduates the industry needs for newly-created ESG-focused roles. Seasoned investment professionals, too, will need to get on board and rethink their approach, which could be hard when people are set in their ways.
“We still have a cohort who have grown up in the old world and we do need to address them as well. You have to make it more relevant to them – I mean who wants to learn another language right now if they’re never going to have to speak it?” asked Gill.
Change will come from companies prioritising sustainability from top-down at board level and form the ground up, making it part of organisational culture so that staff care about it as much as management.
It will also require a lot of ambition all round. But real estate needs to do thing differently when it comes to ESG – there are valuations and reputations at stake.
