Is a backlash brewing against ESG?
Depending on your social media’s focus last week, you might think corporate sustainability is either more urgent than ever or a scam.
While parts of the real estate industry – including PlaceTech – spent several days in Copenhagen for the first CREtech Climate conference, more critical comments on ESG policies flooded headlines.
“Who cares if Miami is six metres underwater in 100 years? Amsterdam has been six metres underwater for ages, and it’s a really nice place. We will cope with it,” said Stuart Kirk, HSBC Asset Management’s global head of responsible investing, at a Financial Times event last week.
In comments HSBC later distanced itself from, Kirk criticised what his presentation called “unsubstantiated, shrill, partisan, self-serving, apocalyptic warnings” about climate change.
Too much time is being spent on these issues, he argued, at the expense of more immediate issues like inflation or security. After all, humans are great at adapting, the argument went.
Just a few days earlier, Tesla CEO Elon Musk called ESG a “scam” after the electric car maker lost its place in the S&P 500 ESG Index. He had previously described corporate ESG as “the devil incarnate”. (S&P’s explanation for Tesla’s removal mentioned several incidents that raised concerns about working conditions, concluding: “While Tesla may be playing its part in taking fuel-powered cars off the road, it has fallen behind its peers when examined through a wider ESG lens.”)
And just days before that, BlackRock, the world’s largest asset manager, said it would not back certain shareholder resolutions on climate change because they are “more prescriptive or constraining on companies and may not promote long-term shareholder value.”
The asset manager also argued that Russia’s invasion of Ukraine would drive a need (at least in the short- and medium-term) for companies that invest in both traditional and renewable sources of energy.
Real estate’s pro-ESG stance
Granted, you could say that none of these examples are directly from the property industry. Judging by the headlines coming out of real estate, support for action seems clearer.
The big listed developers in the UK put sustainability front and centre in their full-year results recently. “Flexible, sustainable and beautifully designed,” was the description GPE’s Toby Courtauld used to describe its developments.
When I asked Landsec about its thoughts on corporate ESG, Jennie Colville, head of ESG and sustainability, could not have been clearer: “Landsec remains firmly committed to delivering against our ESG targets and leading change across our industry”, pointing to some of the initiatives the company included in its results last week.
Meanwhile, the British Property Federation’s CEO Melanie Leech said: “We know that the built environment accounts for a significant proportion of global carbon emissions, and the property industry is, therefore, absolutely committed to decarbonisation, reducing its environmental impact and creating greener, healthier and more sustainable places.”
She highlighted that leading players in the market have set “ambitious” net zero targets well ahead of the UK’s 2050 deadline and are already delivering “significant carbon reductions”.
Have jitters crept in?
A couple of weeks ago, the ULI Europe Conference in Brussels could have been mistaken for a climate conference given the ubiquity of the subject. But concerns raised there suggested real estate faces conflicting priorities.
According to an audience survey, “incorporating ESG into the business” was the most important change to address for 37% of respondents (more than implementing tech, rethinking business models or attracting a diverse workforce).
However, high inflation and interest rates were identified as the biggest concern over the next two years and more than two-fifths believed real estate would not “meet the demands of the green transition on time”.
One speaker, Sandra Phlippen, chief economist at ABN AMRO Bank, urged the audience not to let short-term problems derail decarbonisation plans. “We need to be really shaken up,” she said, suggesting the industry is not yet taking emissions reductions seriously enough (and, as the CREtech Climate event suggested, real estate does face an uphill struggle to align with the Paris Agreement).
In that sense, immediate priorities among some in real estate reflect BlackRock or Kirk’s position. Neither “deny the science” – in fact, BlackRock emphasised its support for greater transparency while calling for more government action on Scope 3 emissions (purchased goods and services) – but they suggest other problems deserve more attention.
The mood might not be one of mutiny or even incredulity in the sector. Those rallying for sustainability are leading the way, and others are unlikely to openly fight it. But the question is whether that’s enough. In real estate, ESG doesn’t face a backlash, but a back burner.