How Big is ESG at Your Firms?

Not gonna comment on the politics of it all, but it is becoming a big issue largely for our European clients and capital partners. I dont deal with it too much, other than what I hear on our portfolio management calls, however they have certain standards for esg they want us to meet and certain awards/certifications that we need to achieve for our properties. I wouldnt say that they are necessarily hard to achieve, mostly just throwing money at the problem, however I know a few PM analysts talk about how its becoming a larger and larger part of the client memos each quarter. 

Small firm but we've already spent 10s of 1000s of dollars on ESG consulting. We've recently attracted more institutional capital so ESG is something we've bought into as a signaling mechanism for "We're ready for the big leagues." Apparently institutional investors have ESG reporting standards (not sure of publicly mandated or what), so it's important for their partners to have infrastructure around ESG.

Speaking to European Logistics - currently at a European 3pl and we are mandated to have carbon-neutral buildings on all sites going forward, both new developments and new leases in existing buildings. Goal is to have a fully carbon neutral portfolio within 5-10 years. This is achieved through various accreditation in each country such as EPC Rating and BREEAM. Big developers all have a baseline ESG mandates they build to. Just look at new builds by Segro, Prologis, GLP, etc, all their buildings will be BREEAM Excellent. And most value-add firms will have capex dedicated to reaching BREEAM Very Good. Unfortunately I do not see a premium for ESG in the market, despite the additional cost to develop. But carbon-neutral buildings with all the accreditation are very easy to market because big firms want to buy them to show investors they follow sustainability practices. Also cannot forget that the EU has laws and regulations coming into effect where ESG is forced onto firms. Sometimes its just about staying compliant with the law. So to your point, yes ESG is a big focus at my firm because of our carbon-neutral objective.

This past summer I interned at a large institution where ESG was a always a big deal. I see how it’s important but over the 10 weeks I got super annoyed with it all. I get you need to do it, especially if you want to raise money from other large institutions, but man it’s annoying. Currently at a shop who really doesn’t care about it all and it’s so much better. A lot less BS and politics behind it all. I do think you need a little bit of it but making it the selling point of your firm is a little over the top.

It's frankly just red tape that institutional investors and public companies have to get through. I can't say I've ever spoken to a private firm that gives a shit beyond satisfying their LPs requirements and its generally viewed as a tedious box to tick off than something that's true value add.

Box checker for most but most won’t be honest with it. 

too big, unfortunately

We're an affordable housing firm, so nominally everything we do is ESG, though we wouldn't call it that.

We do play to that when we go to raise money, though.  

 I get it is important, and I totally understand when it makes economic sense. It gets frustrating when we are trying to sign a big lease or get something across the finish line and people try making some bland ESG requirements the focal point of things.

It doesn't really sound like you get why it is important.  If a deal makes sense, then the focal point is the ESG requirement because it sounds like you don't need to focus on anything else... so it makes sense that it's the "focal point of things."  Especially when it's a bland requirement which is clearly just a CYA issue.

Look, if your firm or your partners are pushing ESG requirements into deals that turn a good deal into an uneconomic one, then I can see your cause for complaint.  If your awesome deal is a little less awesome because someone wants an ESG requirement stuck in, who cares?

I work for a large developer, we're starting to see clients care about the E (more requests for LEED studies, as if LEED means anything...), we pay lip service to S but don't actually do anything meaningful on it, and no one gives a shit about G. 

You know how you have to pretend to like the NFL and beer and all the other things the Chads in the office are into so that you can be perceived as normal? ESG projections/claims are the corporate version of this.

It's a convenient and lazy excuse to kill or push through a deal. 

Southeast. We got our first ESG policy request from a national equity firm last month or so. We don't have one. 

As the token office liberal, there was a week there where the company thought about making me write one, but they then realized they wouldn't really want it to say whatever I'd write, so we dropped it entirely. 

ESG is so monkey dude

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I am at a huge Asset Manager and don’t hear that much about ESG but hear about DEI all the god damn time lol.

I work at a regional developer and I bet no one here could even tell you what 'ESG' stands for. 

I’m surprised I’m not hearing more about the regulatory side of things.

One of the biggest topics in the ESG space is climate change. Another is biodiversity/habitat protection. A lot of ESG reporting and questionnaires that real estate investors and lenders are giving to their counterparties or business partners relate to these topics.

And for good reason. There are TON of new laws about these things that affect everyone. Both US and European regulators (and some Asian regulators) have new rules in place or proposed rules that will require public companies (including REITs) and investment managers to report on their direct and indirect climate impacts and climate risk exposure (if you aren’t familiar with Scope 1, Scope 2 and Scope 3 emissions yet, you might want to do some reading on it). If you are working with an investment manager who has ESG, sustainable or impact funds that they manage, they are now going to have to start proving that those guns names mean something beyond a marketing scheme.

Then you have the direct impact on RE. There are dozens of cities, states and other jurisdictions across the US and Europe that now require owners of CRE to report carbon emissions (or carbon impact, which can include embedded emissions) and/or reduce such emissions. Failure to do so can lead to major fines that might even become liens on the property of non compliant owners.

So yes, you’re going to continue seeing a lot about ESG everywhere. It might get marketed as compliance, sustainability or something else, but those questionnaires are going to keep coming. Money partners need this information for their own internal compliance. Leases are going to need to contain language about cooperation and reporting to comply with new carbon impact laws. Loan documents will need to do the same.

Sooner or later everyone is going to have to start thinking about their exposure to either direct climate risk exposure or exposure to climate laws. If you’re dismissing it now because it’s being marketed as ESG, you’re in for a big surprise when “ESG-as-a-marketing-scheme” falls out of favor and the regulatory risks remain.

Was previously at a large institution and the main focus was on the environmental side of it (flood/earthquake risk) and less so on governance or social. Every single deal needed approval from the internal environmental team and the firm would purchase credits to carbon offset.

There are so many ethical and legal issues with ESG practice at the macro level it bewilders my consciousness that others don't see it.

Have we become such detestable characters in our own stories that we are ready to adopt any measure that claims an altruistic nature? All the while, we cut at each others throats in an attempt to better align ourselves to the proclaimed virtue from the above corporate hierarchy. The top of the hierarchy profits while the bottom is left fighting amongst itself for their badge of morality. Soon the logic becomes circular and you're left feeling like an outsider for taking notice. You rationalize your decision to stay course and you're reinforced from the group via accolades, acceptance, and status within group. The soul dims as you rationalize your inner voice away and you're left empty . . . empty and vulnerable. The group takes notice of the emptiness and uses the same thought pattern to help you ratify those feelings. They do this by adopting other corporate power structures, this time pharmaceuticals. Pills are prescribed by the doctor who's getting emotionally manipulated by the sales rep that brings them lunch every week and remembers family names as a way of develop trust for their drug. The cycle continues until we're left with nothing. Soon they will justify this as well, maybe as some part of the human journey, shifting attention away from their cronyism. The top becomes more powerful while the rest of the economic pyramid withers away in prideful arrogance. Welcome to the new religion, we do not discriminate!

Interesting to get what looks like a predominantly North American perspective, didn't realise E was pretty far down the list while S was higher. I'm in Europe, the E aspect is particularly prevalent and will continue to become more so while there is less focus on S. Some of our largest LPs are now saying they'll only reup in our funds if they'll be aligned with EU Taxonomy. This includes both our European focused funds and global funds, so it will have knock on impacts on teams who wouldn't have had to factor it in before. Includes pretty detailed ESG assessments on new acquisitions, much of it focused on likes of GHG emissions, sources of energy, energy use of buildings etc.

It's at times like this I am glad we don't fucking take equity from big institutions.  It is going to be interesting when a big fund LP gets fed up with lower returns and exploding costs due to ESG bullshit and creates an investor lawsuit.  I feel this is what will be necessary to rid the world of the scam that is ESG.